THIRD DIVISION

[G.R. No. 125027. August 12, 2002.]

ANITA MANGILA, petitioner, vs. COURT OF APPEALS and LORETA GUINA, respondents.

People's Law Office for petitioner.

R.D. Bagatsing & Associates for private respondent Guina.

SYNOPSIS

Respondent Guina filed a case for collection of sum of money against petitioner Mangila. Summons, however, was not personally served on Mangila on the allegations that she
had transferred residence and that she had already left the country. Without recourse to service by publication, Guina filed a motion for a writ of preliminary attachment and the trial court
granted the same. Here in issues are: the propriety of the implementation of the writ of attachment, and the venue of the case. AECacS

The Court ruled against the correctness of the writ's implementation on the ground that at the time, jurisdiction over Mangila had not been acquired. The summons was served later
than the implementation of the writ of attachment and the same does not confer a retroactive acquisition of jurisdiction. On the issue of venue, wherein the case was filed in a place other than
that stipulated by the parties, the Court ruled the same is proper where the agreement does not preclude other venues. However, bringing the case to the venue where the sole proprietorship
business is found, there is improper venue. Sole proprietorship business has no separate juridical personality that could file a suit in court.

SYLLABUS

1. REMEDIAL LAW; PROVISIONAL REMEDIES; WRIT OF ATTACHMENT; ISSUANCE AND IMPLEMENTATION; WHEN JURISDICTION OVER DEFENDANT
SHOULD BE ACQUIRED. — As a preliminary note, a distinction should be made between issuance and implementation of the writ of attachment. It is necessary to distinguish between the
two to determine when jurisdiction over the person of the defendant should be acquired to validly implement the writ. This distinction is crucial in resolving whether there is merit in
petitioner's argument. This Court has long settled the issue of when jurisdiction over the person of the defendant should be acquired in cases where a party resorts to provisional remedies. A
party to a suit may, at any time after filing the complaint, avail of the provisional remedies under the  Rules of Court. Specifically, Rule 57 on preliminary attachment speaks of the grant of the
remedy "at the commencement of the action or at any time thereafter." This phrase refers to the date of filing of the complaint which is the moment that marks "the commencement of the
action." The reference plainly is to a time before summons is served on the defendant, or even before summons issues. In  Davao Light & Power Co., Inc. v. Court of Appeals, this Court
clarified the actual time when jurisdiction should be had: "It goes without saying that whatever be the acts done by the Court prior to the acquisition of jurisdiction over the person of defendant
- issuance of summons, order of attachment and writ of attachment - these do not and cannot bind and affect the defendant until and unless jurisdiction over his person is eventually obtained
by the court, either by service on him of summons or other coercive process or his voluntary submission to the court's authority. Hence, when the sheriff or other proper officer
commences implementation of the writ of attachment, it is essential that he serve on the defendant not only a copy of the applicant's affidavit and attachment bond, and of the order of
attachment, as explicitly required by Section 5 of Rule 57, but also the summons addressed to said defendant as well as a copy of the complaint . . . ." (Italics supplied.) Furthermore, we have
held that the grant of the provisional remedy of attachment involves three stages: first, the court issues the order granting the application; second, the writ of attachment issues pursuant to the
order granting the writ; and third, the writ is implemented. For the initial two stages, it is not necessary that jurisdiction over the person of the defendant be first obtained. However, once the
implementation of the writ commences, the court must have acquired jurisdiction over the defendant for without such jurisdiction, the court has no power and authority to act in any manner
against the defendant. Any order issuing from the Court will not bind the defendant.

2. ID.; CIVIL PROCEDURE; SERVICE OF PLEADINGS; SERVICE BY PUBLICATION, EXPLAINED. — The rules provide for certain remedies in cases where personal
service could not be effected on a party. Section 14, Rule 14 of the Rules of Court provides that whenever the defendant's "whereabouts are unknown and cannot be ascertained by diligent
inquiry, service may, by leave of court, be effected upon him by publication in a newspaper of general circulation . . . ." Thus, if petitioner's whereabouts could not be ascertained after the
sheriff had served the summons at her given address, then respondent could have immediately asked the court for service of summons by publication on petitioner. Moreover, as private
respondent also claims that petitioner was abroad at the time of the service of summons, this made petitioner a resident who is temporarily out of the country. This is the exact situation
contemplated in Section 16, Rule 14 of the Rules of Civil Procedure, providing for service of summons by publication. CHcETA

3. ID.; PROVISIONAL REMEDIES; WRIT OF ATTACHMENT; ENFORCEMENT; SUMMONS BELATEDLY SERVED DOES NOT CONFER A RETROACTIVE
ACQUISITION OF JURISDICTION. — The alias summons belatedly served on petitioner cannot be deemed to have cured the fatal defect in the enforcement of the writ. The trial court
cannot enforce such a coercive process on petitioner without first obtaining jurisdiction over her person. The preliminary writ of attachment must be served after or simultaneous with the
service of summons on the defendant whether by personal service, substituted service or by publication as warranted by the circumstances of the case. The subsequent service of summons does
not confer a retroactive acquisition of jurisdiction over her person because the law does not allow for retroactivity of a belated service.

4. ID.; CIVIL PROCEDURE; VENUE; AGREED VENUE THAT IS NOT MADE EXCLUSIVE DOES NOT PRECLUDE OTHER VENUES. — The Rules of Court provide
that parties to an action may agree in writing on the venue on which an action should be brought. However, a mere stipulation on the venue of an action is not enough to preclude parties from
bringing a case in other venues. The parties must be able to show that such stipulation is exclusive. Thus, absent words that show the parties' intention to restrict the filing of a suit in a
particular place, courts will allow the filing of a case in any venue, as long as jurisdictional requirements are followed. Venue stipulations in a contract, while considered valid and enforceable,
do not as a rule supersede the general rule set forth in Rule 4 of the  Revised Rules of Court . In the absence of qualifying or restrictive words, they should be considered merely as an agreement
on additional forum, not as limiting venue to the specified place.

5. ID.; CIVIL PROCEDURE; MOTION TO DISMISS; GROUNDS; IMPROPER VENUE; PRESENT AS CASE WAS FILED IN THE PLACE WHERE SOLE-
PROPRIETORSHIP BUSINESS IS FOUND. — Under the 1997 Rules of Civil Procedure, the general rule is venue in personal actions is "where the defendant or any of the defendants resides
or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff." In the instant case, it was established in the lower court that petitioner resides in San
Fernando, Pampanga while private respondent resides in Parañaque City. However, this case was brought in Pasay City, where the business of private respondent is found. This would have
been permissible had private respondent's business been a corporation. However, as admitted by private respondent in her Complaint in the lower court, her business is a sole proprietorship,
and as such, does not have a separate juridical personality that could enable it to file a suit in court. In fact, there is no law authorizing sole proprietorships to file a suit in court. A sole
proprietorship does not possess a juridical personality separate and distinct from the personality of the owner of the enterprise. The law merely recognizes the existence of a sole proprietorship
as a form of business organization conducted for profit by a single individual and requires its proprietor or owner to secure licenses and permits, register its business name, and pay taxes to the
national government. The law does not vest a separate legal personality on the sole proprietorship or empower it to file or defend an action in court.

6. ID.; ID.; ID.; ID.; ID.; PROPERLY FILED IN CASE AT BAR. — Although petitioner filed an Urgent Motion to Discharge Attachment in the lower court, petitioner expressly
stated that she was filing the motion without submitting to the jurisdiction of the court. At that time, petitioner had not been served the summons and a copy of the complaint. Thereafter,
petitioner timely filed a Motion to Dismiss on the ground of improper venue. Rule 16, Section 1 of the Rules of Court provides that a motion to dismiss may be filed "[W]ithin the time for but
before Petitioner even raised the issue of improper venue in his Answer as a special and affirmative defense. Petitioner also continued to raise the issue of improper venue in her Petition for
Review before this Court. We thus hold that the dismissal of this case on the ground of improper venue is warranted. The rules on venue, like other procedural rules, are designed to insure a
just and orderly administration of justice or the impartial and evenhanded determination of every action and proceeding. Obviously, this objective will not be attained if the plaintiff is given
unrestricted freedom to choose where to file the complaint or petition. SEcTHA

DECISION

CARPIO, J p:

The Case
This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to set aside the Decision 1 of the
Court of Appeals affirming the Decision 2 of the Regional Trial Court, Branch 108, Pasay City. The trial court upheld the writ of
attachment and the declaration of default on petitioner while ordering her to pay private respondent P109,376.95 plus 18 percent
interest per annum, 25 percent attorney's fees and costs of suit.
 
The Facts
Petitioner Anita Mangila ("petitioner" for brevity) is an exporter of sea foods and doing business under the name and style of
Seafoods Products. Private respondent Loreta Guina ("private respondent" for brevity) is the President and General Manager of Air
Swift International, a single registered proprietorship engaged in the freight forwarding business.
Sometime in January 1988, petitioner contracted the freight forwarding services of private respondent for shipment of
petitioner's products, such as crabs, prawns and assorted fishes, to Guam (USA) where petitioner maintains an outlet. Petitioner agreed
to pay private respondent cash on delivery. Private respondent's invoice stipulates a charge of 18 percent interest per annum on all
overdue accounts. In case of suit, the same invoice stipulates attorney's fees equivalent to 25 percent of the amount due plus costs of
suit. 3
On the first shipment, petitioner requested for seven days within which to pay private respondent. However, for the next three
shipments, March 17, 24 and 31, 1988, petitioner failed to pay private respondent shipping charges amounting to P109,376.95. 4
Despite several demands, petitioner never paid private respondent. Thus, on June 10, 1988, private respondent filed Civil
Case No. 5875 before the Regional Trial Court of Pasay City for collection of sum of money.
On August 1, 1988, the sheriff filed his Sheriff's Return showing that summons was not served on petitioner. A woman found
at petitioner's house informed the sheriff that petitioner transferred her residence to Sto. Niño, Guagua, Pampanga. The sheriff found
out further that petitioner had left the Philippines for Guam. 5
Thus, on September 13, 1988, construing petitioner's departure from the Philippines as done with intent to defraud her
creditors, private respondent filed a Motion for Preliminary Attachment. On September 26, 1988, the trial court issued an Order of
Preliminary Attachment 6 against petitioner. The following day, the trial court issued a Writ of Preliminary Attachment.
The trial court granted the request of its sheriff for assistance from their counterparts in RTC, Pampanga. Thus, on October
28, 1988, Sheriff Alfredo San Miguel of RTC Pampanga served on petitioner's household help in San Fernando, Pampanga, the Notice
of Levy with the Order, Affidavit and Bond. 7
On November 7, 1988, petitioner filed an Urgent Motion to Discharge Attachment 8 without submitting herself to the
jurisdiction of the trial court. She pointed out that up to then, she had not been served a copy of the Complaint and the summons.
Hence, petitioner claimed the court had not acquired jurisdiction over her person. 9
In the hearing of the Urgent Motion to Discharge Attachment on November 11, 1988, private respondent sought and was
granted a re-setting to December 9, 1988. On that date, private respondent's counsel did not appear, so the Urgent Motion to Discharge
Attachment was deemed submitted for resolution. 10
The trial court granted the Motion to Discharge Attachment on January 13, 1989 upon filing of petitioner's counter-bond. The
trial court, however, did not rule on the question of jurisdiction and on the validity of the writ of preliminary attachment.
On December 26, 1988, private respondent applied for an alias summons, which the trial court issued on January 19,
1989. 11 It was only on January 26, 1989 that summons was finally served on petitioner. 12
On February 9, 1989, petitioner filed a Motion to Dismiss the Complaint on the ground of improper venue. Private
respondent's invoice for the freight forwarding service stipulates that "if court litigation becomes necessary to enforce collection . . .
the agreed venue for such action is Makati, Metro Manila." 13 Private respondent filed an Opposition asserting that although "Makati"
appears as the stipulated venue, the same was merely an inadvertence by the printing press whose general manager executed an
affidavit 14 admitting such inadvertence. Moreover, private respondent claimed that petitioner knew that private respondent was
holding office in Pasay City and not in Makati. 15 The lower court, finding credence in private respondent's assertion, denied the
Motion to Dismiss and gave petitioner five days to file her Answer. Petitioner filed a Motion for Reconsideration but this too was
denied.
Petitioner filed her Answer 16 on June 16, 1989, maintaining her contention that the venue was improperly laid.
On June 26, 1989, the trial court issued an Order setting the pre-trial for July 18, 1989 at 8:30 a.m. and requiring the parties
to submit their pre-trial briefs. Meanwhile, private respondent filed a Motion to Sell Attached Properties but the trial court denied the
motion.
On motion of petitioner, the trial court issued an Order resetting the pre-trial from July 18, 1989 to August 24, 1989 at 8:30
a.m..
On August 24, 1989, the day of the pre-trial, the trial court issued an Order 17 terminating the pre-trial and allowing the
private respondent to present evidence ex-parte on September 12, 1989 at 8:30 a.m. The Order stated that when the case was called for
pre-trial at 8:31 a.m., only the counsel for private respondent appeared. Upon the trial court's second call 20 minutes later, petitioner's
counsel was still nowhere to be found. Thus, upon motion of private respondent, the pre-trial was considered terminated.
On September 12, 1989, petitioner filed her Motion for Reconsideration of the Order terminating the pre-trial. Petitioner
explained that her counsel arrived 5 minutes after the second call, as shown by the transcript of stenographic notes, and was late
because of heavy traffic. Petitioner claims that the lower court erred in allowing private respondent to present evidence ex-parte since
there was no Order considering the petitioner as in default. Petitioner contends that the Order of August 24, 1989 did not state that
petitioner was declared as in default but still the court allowed private respondent to present evidence ex-parte. 18
On October 6, 1989, the trial court denied the Motion for Reconsideration and scheduled the presentation of private
respondent's evidence ex-parte on October 10, 1989.
On October 10, 1989, petitioner filed an Omnibus Motion stating that the presentation of evidence ex-parte should be
suspended because there was no declaration of petitioner as in default and petitioner's counsel was not absent, but merely late.
On October 18, 1989, the trial court denied the Omnibus Motion. 19
On November 20, 1989, the petitioner received a copy of the Decision of November 10, 1989, ordering petitioner to pay
respondent P109,376.95 plus 18 percent interest per annum, 25 percent attorney's fees and costs of suit. Private respondent filed a
Motion for Execution Pending Appeal but the trial court denied the same.
The Ruling of the Court of Appeals
On December 15, 1995, the Court of Appeals rendered a decision affirming the decision of the trial court. The Court of
Appeals upheld the validity of the issuance of the writ of attachment and sustained the filing of the action in the RTC of Pasay. The
Court of Appeals also affirmed the declaration of default on petitioner and concluded that the trial court did not commit any reversible
error.
Petitioner filed a Motion for Reconsideration on January 5, 1996 but the Court of Appeals denied the same in a Resolution
dated May 20, 1996.
Hence, this petition.
The Issues
The issues raised by petitioner may be re-stated as follows:
I.
WHETHER RESPONDENT COURT ERRED IN NOT HOLDING THAT THE WRIT OF ATTACHMENT
WAS IMPROPERLY-ISSUED AND SERVED;
II.
WHETHER THERE WAS A VALID DECLARATION OF DEFAULT;
III.
WHETHER THERE WAS IMPROPER VENUE.
IV.
WHETHER RESPONDENT COURT ERRED IN DECLARING THAT PETITIONER IS OBLIGED TO PAY
P109,376.95, PLUS ATTORNEY'S FEES. 20
The Ruling of the Court
 Improper Issuance and Service of Writ of Attachment
Petitioner ascribes several errors to the issuance and implementation of the writ of attachment. Among petitioner's arguments
are: first, there was no ground for the issuance of the writ since the intent to defraud her creditors had not been established; second, the
value of the properties levied exceeded the value of private respondent's claim. However, the crux of petitioner's arguments rests on
the question of the validity of the writ of attachment. Because of failure to serve summons on her before or simultaneously with the
writ's implementation, petitioner claims that the trial court had not acquired jurisdiction over her person and thus the service of the
writ is void.
As a preliminary note, a distinction should be made between issuance and implementation of the writ of attachment. It is
necessary to distinguish between the two to determine when jurisdiction over the person of the defendant should be acquired to validly
implement the writ. This distinction is crucial in resolving whether there is merit in petitioner's argument.
This Court has long settled the issue of when jurisdiction over the person of the defendant should be acquired in cases where
a party resorts to provisional remedies. A party to a suit may, at any time after filing the complaint, avail of the provisional remedies
under the Rules of Court. Specifically, Rule 57 on preliminary attachment speaks of the grant of the remedy "at the commencement of
the action or at anytime thereafter." 21 This phrase refers to the date of filing of the complaint which is the moment that marks "the
commencement of the action." The reference plainly is to a time before summons is served on the defendant, or even before summons
issues.
In Davao Light & Power Co., Inc. v. Court of Appeals, 22 this Court clarified the actual time when jurisdiction should be
had:
"It goes without saying that whatever be the acts done by the Court prior to the acquisition of jurisdiction
over the person of defendant — issuance of summons, order of attachment and writ of attachment — these do not
and cannot bind and affect the defendant until and unless jurisdiction over his person is eventually obtained by
the court, either by service on him of summons or other coercive process or his voluntary submission to the court's
authority. Hence, when the sheriff or other proper officer commences implementation of the writ of attachment, it
is essential that he serve on the defendant not only a copy of the applicant's affidavit and attachment bond, and of
the order of attachment, as explicitly required by Section 5 of Rule 57, but also the  summons addressed to said
defendant as well as a copy of the complaint . . ."(Italics supplied.)
Furthermore, we have held that the grant of the provisional remedy of attachment involves three stages: first, the court issues the
order granting the application; second, the writ of attachment issues pursuant to the order granting the writ; and third, the writ is
implemented. For the initial two stages, it is not necessary that jurisdiction over the person of the defendant be first
obtained. However, once the implementation of the writ commences, the court must have acquired jurisdiction over the defendant
for without such jurisdiction, the court has no power and authority to act in any manner against the defendant. Any order issuing
from the Court will not bind the defendant. 23
In the instant case, the Writ of Preliminary Attachment was issued on September 27, 1988 and implemented on October 28,
1988. However, the alias summons was served only on January 26, 1989 or almost three months after the implementation of the writ
of attachment.
The trial court had the authority to issue the Writ of Attachment on September 27 since a motion for its issuance can be filed
"at the commencement of the action." However, on the day the writ was implemented, the trial court should have, previously or
simultaneously with the implementation of the writ, acquired jurisdiction over the petitioner. Yet, as was shown in the records of the
case, the summons was actually served on petitioner several months after the writ had been implemented.
Private respondent, nevertheless, claims that the prior or contemporaneous service of summons contemplated in Section 5 of
Rule 57 provides for exceptions. Among such exceptions are "where the summons could not be served personally or by substituted
service despite diligent efforts or where the defendant is a resident temporarily absent therefrom . . ." Private respondent asserts that
when she commenced this action, she tried to serve summons on petitioner but the latter could not be located at her customary address
in Kamuning, Quezon City or at her new address in Guagua, Pampanga. 24 Furthermore, respondent claims that petitioner was not
even in Pampanga; rather, she was in Guam purportedly on a business trip.
Private respondent never showed that she effected substituted service on petitioner after her personal service failed. Likewise,
if it were true that private respondent could not ascertain the whereabouts of petitioner after a diligent inquiry, still she had some other
recourse under the Rules of Civil Procedure.
The rules provide for certain remedies in cases where personal service could not be effected on a party.  Section 14, Rule 14
of the Rules of Court provides that whenever the defendant's "whereabouts are unknown and cannot be ascertained by diligent inquiry,
service may, by leave of court, be effected upon him by publication in a newspaper of general circulation . . ." Thus, if petitioner's
whereabouts could not be ascertained after the sheriff had served the summons at her given address, then respondent could have
immediately asked the court for service of summons by publication on petitioner. 25
 Moreover, as private respondent also claims that petitioner was abroad at the time of the service of summons, this made
petitioner a resident who is temporarily out of the country. This is the exact situation contemplated in Section 16, 26 Rule 14 of
the Rules of Civil Procedure, providing for service of summons by publication.
In conclusion, we hold that the alias summons belatedly served on petitioner cannot be deemed to have cured the fatal defect
in the enforcement of the writ. The trial court cannot enforce such a coercive process on petitioner without first obtaining jurisdiction
over her person. The preliminary writ of attachment must be served after or simultaneous with the service of summons on the
defendant whether by personal service, substituted service or by publication as warranted by the circumstances of the case.  27 The
subsequent service of summons does not confer a retroactive acquisition of jurisdiction over her person because the law does not allow
for retroactivity of a belated service.
Improper Venue
Petitioner assails the filing of this case in the RTC of Pasay and points to a provision in private respondent's invoice which
contains the following:
"3. If court litigation becomes necessary to enforce collection, an additional equivalent (sic) to 25% of
the principal amount will be charged. The agreed venue for such action is Makati, Metro Manila, Philippines." 28
Based on this provision, petitioner contends that the action should have been instituted in the RTC of Makati and to do
otherwise would be a ground for the dismissal of the case.
We resolve to dismiss the case on the ground of improper venue but not for the reason stated by petitioner.
The Rules of Court provide that parties to an action may agree in writing on the venue on which an action should be
brought. 29 However, a mere stipulation on the venue of an action is not enough to preclude parties from bringing a case in other
venues. 30 The parties must be able to show that such stipulation is exclusive. Thus, absent words that show the parties' intention to
restrict the filing of a suit in a particular place, courts will allow the filing of a case in any venue, as long as jurisdictional requirements
are followed. Venue stipulations in a contract, while considered valid and enforceable, do not as a rule supersede the general rule set
forth in Rule 4 of the Revised Rules of Court. 31 In the absence of qualifying or restrictive words, they should be considered merely as
an agreement on additional forum, not as limiting venue to the specified place. 32
In the instant case, the stipulation does not limit the venue exclusively to Makati. There are no qualifying or restrictive words
in the invoice that would evince the intention of the parties that Makati is the "only or exclusive" venue where the action could be
instituted. We therefore agree with private respondent that Makati is not the only venue where this case could be filed.
Nevertheless, we hold that Pasay is not the proper venue for this case.
Under the 1997 Rules of Civil Procedure, the general rule is venue in personal actions is "where the defendant or any of the
defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff."  33 The
exception to this rule is when the parties agree on an exclusive venue other than the places mentioned in the rules. But, as we have
discussed, this exception is not applicable in this case. Hence, following the general rule, the instant case may be brought in the place
of residence of the plaintiff or defendant, at the election of the plaintiff (private respondent herein).
In the instant case, the residence of private respondent (plaintiff in the lower court) was not alleged in the complaint. Rather,
what was alleged was the postal address of her sole proprietorship, Air Swift International. It was only when private respondent
testified in court, after petitioner was declared in default, that she mentioned her residence to be in Better Living Subdivision,
Parañaque City.
In the earlier case of Sy v. Tyson Enterprises, Inc., 34 the reverse happened. The plaintiff in that case was Tyson Enterprises,
Inc., a corporation owned and managed by Dominador Ti. The complaint, however, did not allege the office or place of business of the
corporation, which was in Binondo, Manila. What was alleged was the residence of Dominador Ti, who lived in San Juan, Rizal. The
case was filed in the Court of First Instance of Rizal, Pasig. The Court there held that the evident purpose of alleging the address of the
corporation's president and manager was to justify the filing of the suit in Rizal, Pasig instead of in Manila. Thus, the Court ruled that
there was no question that venue was improperly laid in that case and held that the place of business of Tyson Enterprises, Inc. is
considered as its residence for purposes of venue. Furthermore, the Court held that the residence of its president is not the residence of
the corporation because a corporation has a personality separate and distinct from that of its officers and stockholders.
In the instant case, it was established in the lower court that petitioner resides in San Fernando, Pampanga  35 while private
respondent resides in Parañaque City. 36 However, this case was brought in Pasay City, where the business of private respondent is
found. This would have been permissible had private respondent's business been a corporation, just like the case in  Sy v. Tyson
Enterprises, Inc. However, as admitted by private respondent in her Complaint 37 in the lower court, her business is a sole
proprietorship, and as such, does not have a separate juridical personality that could enable it to file a suit in court.  38 In fact, there is
no law authorizing sole proprietorships to file a suit in court. 39
A sole proprietorship does not possess a juridical personality separate and distinct from the personality of the owner of the
enterprise. 40 The law merely recognizes the existence of a sole proprietorship as a form of business organization conducted for profit
by a single individual and requires its proprietor or owner to secure licenses and permits, register its business name, and pay taxes to
the national government. 41 The law does not vest a separate legal personality on the sole proprietorship or empower it to file or
defend an action in court. 42
Thus, not being vested with legal personality to file this case, the sole proprietorship is not the plaintiff in this case but rather
Loreta Guina in her personal capacity. In fact, the complaint in the lower court acknowledges in its caption that the plaintiff and
defendant are Loreta Guina and Anita Mangila, respectively. The title of the petition before us does not state, and rightly so,  Anita
Mangila v. Air Swift International, but rather Anita Mangila v. Loreta Guina. Logically then, it is the residence of private respondent
Guina, the proprietor with the juridical personality, which should be considered as one of the proper venues for this case.
 
All these considered, private respondent should have filed this case either in San Fernando, Pampanga (petitioner's residence)
or Parañaque (private respondent's residence). Since private respondent (complainant below) filed this case in Pasay, we hold that the
case should be dismissed on the ground of improper venue.
Although petitioner filed an Urgent Motion to Discharge Attachment in the lower court, petitioner expressly stated that she
was filing the motion without submitting to the jurisdiction of the court. At that time, petitioner had not been served the summons and
a copy of the complaint. 43 Thereafter, petitioner timely filed a Motion to Dismiss 44 on the ground of improper venue. Rule 16,
Section 1 of the Rules of Court provides that a motion to dismiss may be filed "[W]ithin the time for but before filing the answer to
the complaint or pleading asserting a claim." Petitioner even raised the issue of improper venue in his Answer 45 as a special and
affirmative defense. Petitioner also continued to raise the issue of improper venue in her Petition for Review 46 before this Court. We
thus hold that the dismissal of this case on the ground of improper venue is warranted.
The rules on venue, like other procedural rules, are designed to insure a just and orderly administration of justice or the
impartial and evenhanded determination of every action and proceeding. Obviously, this objective will not be attained if the plaintiff is
given unrestricted freedom to choose where to file the complaint or petition. 47
We find no reason to rule on the other issues raised by petitioner.
WHEREFORE, the petition is GRANTED on the grounds of improper venue and invalidity of the service of the writ of
attachment. The decision of the Court of Appeals and the order of respondent judge denying the motion to dismiss are REVERSED
and SET ASIDE. Civil Case No. 5875 is hereby dismissed without prejudice to refiling it in the proper venue. The attached properties
of petitioner are ordered returned to her immediately.

SECOND DIVISION

[G.R. No. 175048. February 10, 2009.]

EXCELLENT QUALITY APPAREL, INC., petitioner, vs. WIN MULTI RICH BUILDERS, INC., represented by its President, WILSON G.
CHUA, respondent.

DECISION

TINGA, J p:

Before us is a Rule 45 petition 1 seeking the reversal of the Decision 2 and Resolution 3 of the Court of Appeals in
CA-G.R. SP No. 84640. The Court of Appeals had annulled two orders 4 of the Regional Trial Court (RTC), Branch 32, of
Manila in Civil Case No. 04-108940. This case involves a claim for a sum of money which arose from a construction
dispute. CTAIHc
On 26 March 1996, petitioner Excellent Quality Apparel, Inc. (petitioner) then represented by Max L.F. Ying,
Vice-President for Productions, and Alfiero R. Orden, Treasurer, entered into a contract 5 with Multi-Rich Builders (Multi-
Rich) represented by Wilson G. Chua (Chua), its President and General Manager, for the construction of a garment factory
within the Cavite Philippine Economic Zone Authority (CPEZ). 6 The duration of the project was for a maximum period of
five (5) months or 150 consecutive calendar days. Included in the contract is an arbitration clause which is as follows:
Article XIX:
ARBITRATION CLAUSE
 Should there be any dispute, controversy or difference between the parties arising out of this
Contract that may not be resolved by them to their mutual satisfaction, the matter shall be submitted to an
Arbitration Committee of three (3) members; one (1) chosen by the OWNER; one (1) chosen by the
CONTRACTOR; and the Chairman thereof to be chosen by two (2) members. The decision of the
Arbitration Committee shall be final and binding on both the parties hereto. The Arbitration shall be
governed by the Arbitration Law (R.A. [No.] 876). The cost of arbitration shall be borned [sic] jointly by
both CONTRACTOR and OWNER on 50-50 basis. 7
The construction of the factory building was completed on 27 November 1996.
Respondent Win Multi-Rich Builders, Inc. (Win) was incorporated with the Securities and Exchange Commission
(SEC) on 20 February 1997 8 with Chua as its President and General Manager. On 26 January 2004, Win filed a complaint
for a sum of money 9 against petitioner and Mr. Ying amounting to P8,634,448.20. It also prayed for the issuance of a writ
of attachment claiming that Mr. Ying was about to abscond and that petitioner was about to close. Win obtained a surety
bond 10 issued by Visayan Surety & Insurance Corporation. On 10 February 2004, the RTC issued the Writ of
Attachment 11 against the properties of petitioner.
On 16 February 2004, Sheriff Salvador D. Dacumos of the RTC of Manila, Branch 32, went to the office of
petitioner in CPEZ to serve the Writ of Attachment, Summons 12 and the Complaint. Petitioner issued Equitable PCIBank
(PEZA Branch) Check No. 160149, dated 16 February 2004, in the amount of P8,634,448.20, to prevent the Sheriff from
taking possession of its properties. 13 The check was made payable to the Office of the Clerk of Court of the RTC of
Manila as a guarantee for whatever liability there may be against petitioner. CacEIS
Petitioner filed an Omnibus Motion 14 claiming that it was neither about to close. It also denied owing anything to
Win, as it had already paid all its obligations to it. Lastly, it questioned the jurisdiction of the trial court from taking
cognizance of the case. Petitioner pointed to the presence of the Arbitration Clause and it asserted that the case should be
referred to the Construction Industry Arbitration Commission (CIAC) pursuant to Executive Order (E.O.) No. 1008.
In the hearing held on 10 February 2004, the counsel of Win moved that its name in the case be changed from
"Win Multi-Rich Builders, Inc." to "Multi-Rich Builders, Inc." It was only then that petitioner apparently became aware of
the variance in the name of the plaintiff. In the Reply 15 filed by petitioner, it moved to dismiss the case since Win was not
the contractor and neither a party to the contract, thus it cannot institute the case. Petitioner obtained a Certificate of Non-
Registration of Corporation/Partnership 16 from the SEC which certified that the latter did not have any records of a
"Multi-Rich Builders, Inc." Moreover, Win in its Rejoinder 17 did not oppose the allegations in the Reply. Win admitted
that it was only incorporated on 20 February 1997 while the construction contract was executed on 26 March 1996.
Likewise, it admitted that at the time of execution of the contract, Multi-Rich was a registered sole proprietorship and was
issued a business permit 18 by the Office of the Mayor of Manila.
In an Order 19 dated 12 April 2004, the RTC denied the motion and stated that the issues can be answered in a full-
blown trial. Upon its denial, petitioner filed its Answer and prayed for the dismissal of the case.  20 Win filed a
Motion 21 to deposit the garnished amount to the court to protect its legal rights. In a Manifestation, 22 petitioner
vehemently opposed the deposit of the garnished amount. The RTC issued an Order 23 dated 20 April 2004, which granted
the motion to deposit the garnished amount. On the same date, Win filed a motion 24 to release the garnished amount to it.
Petitioner filed its opposition 25 to the motion claiming that the release of the money does not have legal and factual basis.
On 18 June 2004, petitioner filed a petition for review on certiorari  26 under Rule 65 before the Court of Appeals,
which questioned the jurisdiction of the RTC and challenged the orders issued by the lower court with a prayer for the
issuance of a temporary retraining order and a writ of preliminary injunction. Subsequently, petitioner filed a Supplemental
Manifestation and Motion 27 and alleged that the money deposited with the RTC was turned over to Win. Win admitted
that the garnished amount had already been released to it. On 14 March 2006, the Court of Appeals rendered its
Decision 28 annulling the 12 April and 20 April 2004 orders of the RTC. It also ruled that the RTC had jurisdiction over the
case since it is a suit for collection of sum of money. Petitioner filed a Motion for Reconsideration 29 which was
subsequently denied in a resolution. 30 ISaCTE
Hence this petition.
Petitioner raised the following issues to wit: (1) does Win have a legal personality to institute the present case; (2)
does the RTC have jurisdiction over the case notwithstanding the presence of the arbitration clause; and (3) was the
issuance of the writ of attachment and the subsequent garnishment proper.
A suit may only be instituted by the real party in interest. Section 2, Rule 3 of the Rules of Court defines "parties in
interest" in this manner:
 A real party in interest is the party who stands to be benefited or injured by the judgment in the suit,
or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action
must be prosecuted or defended in the name of the real party in interest.
Is Win a real party in interest? We answer in the negative.
Win admitted that the contract was executed between Multi-Rich and petitioner. It further admitted that Multi-Rich
was a sole proprietorship with a business permit issued by the Office of the Mayor of Manila. A sole proprietorship is the
oldest, simplest, and most prevalent form of business enterprise. 31 It is an unorganized business owned by one person. The
sole proprietor is personally liable for all the debts and obligations of the business. 32 In the case of Mangila v. Court of
Appeals, 33 we held that:
. . . In fact, there is no law authorizing sole proprietorships to file a suit in court.
A sole proprietorship does not possess a juridical personality separate and distinct from the
personality of the owner of the enterprise. The law merely recognizes the existence of a sole proprietorship
as a form of business organization conducted for profit by a single individual and requires its proprietor or
owner to secure licenses and permits, register its business name, and pay taxes to the national government.
The law does not vest a separate legal personality on the sole proprietorship or empower it to file or defend
an action in court.
The original petition was instituted by Win, which is a SEC-registered corporation. It filed a collection of sum of
money suit which involved a construction contract entered into by petitioner and Multi-Rich, a sole proprietorship. The
counsel of Win wanted to change the name of the plaintiff in the suit to Multi-Rich. The change cannot be countenanced.
The plaintiff in the collection suit is a corporation. The name cannot be changed to that of a sole proprietorship. Again, a
sole proprietorship is not vested with juridical personality to file or defend an action. 34 CEcaTH
Petitioner had continuously contested the legal personality of Win to institute the case. Win was given ample
opportunity to adduce evidence to show that it had legal personality. It failed to do so. Corpus Juris Secundum, notes:
. . . where an individual or sole trader organizes a corporation to take over his business and all his
assets, and it becomes in effect merely an alter ego of the incorporator, the corporation, either on the grounds
of implied assumption of the debts or on the grounds that the business is the same and is merely being
conducted under a new guise, is liable for the incorporator's preexisting debts and liabilities. Clearly, where
the corporation assumes or accepts the debt of its predecessor in business it is liable and if the transfer of
assets is in fraud of creditors it will be liable to the extent of the assets transferred. The corporation is not
liable on an implied assumption of debts from the receipt of assets where the incorporator retains sufficient
assets to pay the indebtedness, or where none of his assets are transferred to the corporation, or where,
although all the assets of the incorporator have been transferred, there is a change in the persons carrying on
the business and the corporation is not merely an alter ego of the person to whose business it succeeded. 35
In order for a corporation to be able to file suit and claim the receivables of its predecessor in business, in this case
a sole proprietorship, it must show proof that the corporation had acquired the assets and liabilities of the sole
proprietorship. Win could have easily presented or attached any document e.g., deed of assignment which will show
whether the assets, liabilities and receivables of Multi-Rich were acquired by Win. Having been given the opportunity to
rebut the allegations made by petitioner, Win failed to use that opportunity. Thus, we cannot presume that Multi-Rich is the
predecessor-in-business of Win and hold that the latter has standing to institute the collection suit.
Assuming arguendo that Win has legal personality, the petition will still be granted.
Section 4 of E.O. No. 1008 36 provides for the jurisdiction of the Construction Industry Arbitration Commission,
to wit:
Section 4.Jurisdiction. — The CIAC shall have original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered into by parties involved in construction in the Philippines,
whether the disputes arises before or after the completion of the contract, or after the abandonment or breach
thereof. These disputes may involve government or private contracts. For the Board to acquire jurisdiction,
the parties to a dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for
materials and workmanship; violation of the terms of agreement; interpretation and/or application of
contractual time and delays; amount of damages and penalties; commencement time and delays;
maintenance and defects; payment, default of employer or contractor and changes in contract cost. TcHCDI
 Excluded from the coverage of this law are disputes from employer-employee relationships which
shall continue to be covered by the Labor Code of the Philippines.
There is nothing in the law which limits the exercise of jurisdiction to complex or difficult cases. E.O. No.
1008 does not distinguish between claims involving payment of money or not. 37 The CIAC acquires jurisdiction over a
construction contract by the mere fact that the parties agreed to submit to voluntary arbitration. 38 The law does not
preclude parties from stipulating a preferred forum or arbitral body but they may not divest the CIAC of jurisdiction as
provided by law. 39 Arbitration is an alternative method of dispute resolution which is highly encouraged. 40 The
arbitration clause is a commitment on the part of the parties to submit to arbitration the disputes covered since that clause is
binding, and they are expected to abide by it in good faith. 41 Clearly, the RTC should not have taken cognizance of the
collection suit. The presence of the arbitration clause vested jurisdiction to the CIAC over all construction disputes between
Petitioner and Multi-Rich. The RTC does not have jurisdiction. 42
Based on the foregoing, there is no need to discuss the propriety of the issuance of the writ of attachment.
However, we cannot allow Win to retain the garnished amount which was turned over by the RTC. The RTC did not have
jurisdiction to issue the questioned writ of attachment and to order the release of the garnished funds.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals is hereby MODIFIED. Civil
Case No. 04-108940 is DISMISSED. Win Multi-Rich Builders, Inc. is ORDERED to return the garnished amount of
EIGHT MILLION SIX HUNDRED THIRTY-FOUR THOUSAND FOUR HUNDRED FORTY-EIGHT PESOS AND
FORTY CENTAVOS (P8,634,448.40), which was turned over by the Regional Trial Court, to petitioner with legal interest
of 12 percent (12%) per annum upon finality of this Decision until payment.
SO ORDERED.
|||  (Excellent Quality Apparel, Inc. v. Win Multi Rich Builders, Inc., G.R. No. 175048, [February 10, 2009], 598 PHIL 94-105)
 EN BANC

[G.R. No. L-32409. February 27, 1971.]

BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, petitioners, vs. HON. JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his
capacity as Commissioner of Internal Revenue, ARTURO LOGRONIO, RODOLFO DE LEON, GAVINO VELASQUEZ, MIMIR DELLOSA,
NICANOR ALCORDO, JOHN DOE, JOHN DOE, JOHN DOE, and JOHN DOE, respondents.

San Juan, Africa, Gonzales & San Agustin for petitioners.

Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V . Bautista, Solicitor Pedro A. Ramirez and Special Attorney Jaime M. Maza for respondents.

DECISION

VILLAMOR, J p:

This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of preliminary mandatory and
prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a corporation duly organized and existing under the laws of the
Philippines, and its President, Frederick E. Seggerman, pray this Court to declare null and void Search Warrant No. 2-M-70
issued by respondent Judge on February 25, 1970; to order respondents to desist from enforcing the same and/or keeping the
documents, papers and effects seized by virtue thereof, as well as from enforcing the tax assessments on petitioner corporation
alleged by petitioners to have been made on the basis of the said documents, papers and effects, and to order the return of the
latter to petitioners. We gave due course to the petition but did not issue the writ of preliminary injunction prayed for therein.
The pertinent facts of this case, as gathered from record, are as follows:
On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed to
respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against petitioners for violation of Section 46(a)
of the National Internal Revenue Code, in relation to all other pertinent provisions thereof, particularly Sections 53, 72, 73, 208
and 209, and authorizing Revenue Examiner Rodolfo de Leon, one of herein respondents, to make and file the application for
search warrant which was attached to the letter.
In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness, respondent Arturo
Logronio, went to the Court of First Instance of Rizal. They brought with them the following papers: respondent Vera's aforesaid
letter-request; an application for search warrant already filled up but still unsigned by respondent De Leon; an affidavit of
respondent Logronio subscribed before respondent De Leon; a deposition in printed form of respondent Logronio already
accomplished and signed by him but not yet subscribed; and a search warrant already accomplished but still unsigned by
respondent Judge.
At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed his Deputy Clerk of Court
to take the depositions of respondents De Leon and Logronio. After the session had adjourned, respondent Judge was informed
that the depositions had already been taken. The stenographer, upon request of respondent Judge, read to him her stenographic
notes; and thereafter, respondent Judge asked respondent Logronio to take the oath and warned him that if his deposition was
found to be false and without legal basis, he could be charged for perjury. Respondent Judge signed respondent de Leon's
application for search warrant and respondent Logronio's deposition, Search Warrant No. 2-M-70 was then sign by respondent
Judge and accordingly issued.
Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the search warrant petitioners at
the offices of petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners' lawyers protested the search on the ground that
no formal complaint or transcript of testimony was attached to the warrant. The agents nevertheless proceeded with their search
which yielded six boxes of documents.
On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying that the search warrant be
quashed, dissolved or recalled, that preliminary prohibitory and mandatory writs of injunction be issued, that the search warrant
be declared null and void, and that the respondents be ordered to pay petitioners, jointly and severally, damages and attorney's
fees. On March 18, 1970, the respondents, thru the Solicitor General, filed an answer to the petition. After hearing, the court,
presided over by respondent Judge, issued on July 29, 1970, an order dismissing the petition for dissolution of the search warrant.
In the meantime, or on April 16, 1970, the Bureau of Internal Revenue made tax assessments on petitioner corporation in the total
sum of P2,594,729.97, partly, if not entirely, based on the documents thus seized. Petitioners came to this Court.
The petition should be granted for the following reasons:
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 frusten los fines de la justicia
mediante el registro inmediato y la incautacion del cuerpo del delito, no cree Su Señoria que causaria cierta
demora el procedimiento apuntado en su enmienda en tal forma que podria frustrar los fines de la justicia o si Su
Señoria encuentra un remedio para esto 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 hipottico que Su Señoria pregunta por la
siguiente razon: el que solicita un mandamiento de registro tiene que hacerlo por escrito y ese escrito no aparecer
en la Mesa del Juez sin que alguien vaya el juez a presentar ese escrito o peticion de sucuestro. Esa persona que
presenta el registro 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 peticion de registro y el juez no se atendra solamente a
sea peticion sino que el juez examiner a ese denunciante y si tiene testigos tambin examiner a los testigos.
"SR. ORENSE. No cree Su Señoria que el tomar le declaracion de ese denunciante por escrito siempre
requeriria algun tiempo?.
 "SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en todo lo posible
las vejaciones injustas con la expedicion arbitraria de los mandamientos de registro. Creo que entre dos males
debemos escoger. el menor.
xxx xxx xxx
"MR. LAUREL. . . . The reason why we are in favor of this amendment is because we are incorporating
in our constitution something of a fundamental character. Now, before a judge could issue a search warrant, he
must be under the obligation to examine personally under oath the complainant and if he has any witness, the
witnesses that he may produce . . ."
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 . . ."
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 readings of her notes, to a few words of warning against the commission of perjury,
and to administering the oath to the complainant and his witness. This cannot be consider a personal examination. If there was an
examination at all of the complainant and his witness, it was the one conducted by the Deputy Clerk of Court. But, as stated, the
Constitution and the rules require a personal examination by the judge. It was precisely on account of the intention of the
delegates to the Constitutional Convention to make it a duty of the issuing judge to personally examine the complainant and his
witnesses that the question of how much time would be consumed by the judge in examining them came up before the
Convention, as can be seen from the record of the proceedings quoted above. The reading of the stenographic notes to respondent
Judge did not constitute sufficient compliance with the constitutional mandate and the rule; for by that manner respondent Judge
did not have the opportunity to observe the demeanor of the complainant and his witness, and to propound initial and follow-up
questions which the judicial mind, on account of its training, was in the best position to conceive. These were important in
arriving at a sound inference on the all-important question of whether or not there was probable cause.
2. The search warrant was issued for more than one specific offense.
Search Warrant No. 2-M-70 was issued for "[v]iolation of Sec. 46(a) of the National Internal Revenue Code in relation to
all other pertinent provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The question is: Was the said search warrant
issued "in connection with one specific offense," as required by Sec. 3, Rule 126?
To arrive at the correct answer it is essential to examine closely the provisions of the Tax Code referred to above. Thus
we find the following:
Sec. 46(a) requires the filing of income tax returns by corporations.
Sec. 53 requires the withholding of income taxes at source.
Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false and fraudulent
returns.
Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply the
information required under the Tax Code.
Sec. 208 penalizes "[a]ny person who distills, rectifies, repacks, compounds, or manufactures any article
subject to a specific tax, without having paid the privilege tax therefore, or who aids or abets in the conduct of
illicit distilling, rectifying, compounding, or illicit manufacture of any article subject to specific tax . . .," and
provides that in the case of a corporation, partnership, or association, the official and/or employee who caused the
violation shall be responsible.
Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of output
removed, or to pay the tax due thereon.
The search warrant in question was issued for at least four distinct offenses under the Tax Code. The first is the violation
of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax returns), which are interrelated. The second is the violation of Sec. 53
(withholding of income taxes at source). The third is the violation of Sec. 208 (unlawful pursuit of business or occupation); and
the fourth is the violation of Sec. 209 (failure to make a return of receipts, sales, business or gross value of output actually
removed or to pay the tax due thereon). Even in their classification the six above-mentioned provisions are embraced in two
different titles: Secs. 46(a), 53, 72 and 73 are under Title II (Income Tax); while Secs. 208 and 209 are under Title V (Privilege
Tax on Business and Occupation).
Respondents argue that Stonehill, et al. 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 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 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 paper showing all business transactions
including disbursement receipts, balance sheets and related profit and loss statements.'
"Thus, the warrants authorized the search for and seizure of records pertaining to all business
transactions of petitioners herein, regardless of whether the transactions were legal or illegal. The warrants
sanctioned the seizure of all records of the petitioners and the aforementioned corporations, whatever their nature,
thus openly contravening the explicit command of our Bill of Rights — that the things to be seized
be particularly described — as well as tending to defeat its major objective: the elimination of general warrants."
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:
". . . 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 described are limited to those which bear direct relation to the offense for which the warrant is being issued (Sec.
2, Rule 126, Revised Rules of Court). The herein search warrant does not conform to any of the foregoing tests. If the articles
desired to be seized have any direct relation to an offense committed, the applicant must necessarily have some evidence, other
than those articles, to prove the said offense; and the articles subject of search and seizure should come in handy merely to
strengthen such evidence. In this event, the description contained in the herein disputed warrant should have mentioned, at least,
the dates, amounts, persons, and other pertinent data regarding the receipts of payments, certificates of stocks and securities,
contracts, promissory notes, deeds of sale, messages and communications, checks, bank deposits and withdrawals, records of
foreign remittances, among others, enumerated in the warrant.
 
Respondents contend that certiorari does not lie because petitioners failed to file a motion for reconsideration of
respondent Judge's order of July 29, 1970. The contention is without merit. In the first place, when the questions raised before this
Court are the same as those which were squarely raised in and passed upon by the court below, the filing of a motion for
reconsideration in said court before certiorari can be instituted in this Court is no longer a prerequisite. (Pajo, etc., et al. 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 search and
seizures. Again, we find no merit in the contention.
"Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is
charged with a violation of a statute of the state of its creation, or of an act of Congress passed in the exercise of
its constitutional powers, cannot refuse to produce the books and papers of such corporation, we do not wish to be
understood as holding that a corporation is not entitled to immunity, under the 4th Amendment,
against unreasonable searches and seizures. A corporation is, after all, but an association of individuals under an
assumed name and with a distinct legal entity. In organizing itself as a collective body it waives no constitutional
immunities appropriate to such body. Its property cannot be taken without compensation. It can only be proceeded
 against by due process of law, and is protected, under the 14th Amendment, against unlawful discrimination . . ."
(Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied
to a corporation, the ground that it was not privileged from producing its books and papers. But the rights of a
corporation against unlawful search and seizure are to be protected even if the same result might have been
achieved in a lawful way." (Silverthorne Lumber Company, et al. v. United States of America, 251 U.S. 385, 64
L. ed. 319.)
In Stonehill, et al. 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 the interest of each of them in said corporations, whatever, the offices they hold
therein may be. Indeed, it is well settled that the legality of a seizure can be contested only by the party whose
rights have been impaired thereby, and that the objection to an unlawful search and seizure is purely personal
and cannot be availed of by third parties. Consequently, petitioners herein may not validly object to the use in
evidence against them of the documents, papers and things seized from the offices and premises of the
corporations adverted to above, since the right to object to the admission of said papers in evidence belongs
exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the corporate
officers in proceedings against them in their individual capacity . . ."
In the Stonehill case only the officers of the various corporations in whose offices documents, papers and effects were searched
and seized were the petitioners. In the case at bar, the corporation to whom the seized documents belong, and whose rights have
thereby been impaired, is itself a petitioner. On that score, petitioner corporation here stands on a different footing from the
corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not entirely — as claimed by petitioners — at least partly
— as in effect admitted by respondents — based on the documents seized by virtue of Search Warrant No. 2-M-70. Furthermore,
the fact that the assessments were made some one and one-half months after the search and seizure on February 25, 1970, is a
strong indication that the documents thus seized served as basis for the assessments. Those assessments should therefore not be
enforced.
PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by respondent
Judge is declared null and void; respondents are permanently enjoined from enforcing the said search warrant; the documents,
papers and effects seized thereunder are ordered to be returned to petitioners; and respondent officials the Bureau of Internal
Revenue and their representatives are permanently enjoined from enforcing the assessments mentioned in Annex "G" of the
present petition, as well as other assessments based on the documents, papers and effects seized under the search warrant herein
nullified, and from using the same against petitioners in any criminal or other proceeding. No pronouncement as to costs.
||| (Bache & Co. (Phil.), Inc. v. Ruiz, G.R. No. L-32409, [February 27, 1971], 147 PHIL 794-816)

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.

DECISION

NARVASA, J p:

Challenged in this special civil action of certiorari and Exhibition 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 updated 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. cdphil
(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 1
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. IV, 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 by 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. LLpr
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 "(u)ntil 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 ill-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, dummies, 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 "(c)ivil 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 "(i)ll-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 amassed demonstrable by competent evidence, the recovery from
Marcos, his family and his minions of the assets and properties involved, is not only a right but a duty on the part of
Government. llcd
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. prLL
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 "ill-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 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 takeover 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. LexLib
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 shall 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. LLjur
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." 62 Executive 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 . . . (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." 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
"the 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 evidence establishing
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 ship repair 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. 74 The 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 Cruz 1,248 shares
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 Management, Inc. 65,882 shares

11. Trident Management 7,412 shares

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. LLpr
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,"  79 which, 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 in blank," 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 P18.285M 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. LibLex
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 Malacañang
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 Malacañang (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 or December 5, 1986, 107 BASECO'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. LexLib
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 light 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 "(r)equire 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 of such privileges . . ." 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 an 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. LLpr
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 well 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. LexLib
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 all 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. prcd
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.
 EN BANC

[A.M. No. 09-6-9-SC. August 19, 2009.]

RE: QUERY OF MR. ROGER C. PRIORESCHI RE EXEMPTION FROM LEGAL AND FILING FEES OF THE GOOD SHEPHERD
FOUNDATION, INC.

RESOLUTION

BERSAMIN, J p:

In his letter dated May 22, 2009 addressed to the Chief Justice, Mr. Roger C. Prioreschi, administrator of the Good
Shepherd Foundation, Inc., wrote:
The Good Shepherd Foundation, Inc. is very grateful for your 1rst. n Indorsement to pay a nominal fee of
Php5,000.00 and the balance upon the collection action of 10 million pesos, thus giving us access to the Justice
System previously denied by an up-front excessive court fee.
The Hon. Court Administrator Jose Perez pointed out to the need of complying with OCA Circular No.
42-2005 and Rule 141 that reserves this "privilege" to indigent persons. While judges are appointed to interpret
the law, this type of law seems to be extremely detailed with requirements that do not leave much room for
interpretations.
In addition, this law deals mainly with "individual indigent" and it does not include Foundations or
Associations that work with and for the most Indigent persons. As seen in our Article of Incorporation, since 1985
the Good Shepherd Foundation, Inc. reached-out to the poorest among the poor, to the newly born and abandoned
babies, to children who never saw the smile of their mother, to old people who cannot afford a few pesos to pay
for "common prescriptions", to broken families who returned to a normal life. In other words, we have been
working hard for the very Filipino people, that the Government and the society cannot reach to, or have rejected
or abandoned them.
Can the Courts grant to our Foundation who works for indigent and underprivileged people, the same
option granted to indigent people?
The two Executive Judges, that we have approached, fear accusations of favoritism or other kind of
attack if they approve something which is not clearly and specifically stated in the law or approved by your
HONOR. cDTaSH
Can your Honor help us once more?
Grateful for your understanding, God bless you and your undertakings.
We shall be privileged if you find time to visit our orphanage — the Home of Love — and the Spiritual
Retreat Center in Antipolo City.
 To answer the query of Mr. Prioreschi, the Courts cannot grant to foundations like the Good Shepherd Foundation, Inc.
the same exemption from payment of legal fees granted to indigent litigants even if the foundations are working for indigent and
underprivileged people.
The basis for the exemption from legal and filing fees is the free access clause, embodied in Sec. 11, Art. III of the 1987
Constitution, thus:
Sec. 11. Free access to the courts and quasi judicial bodies and adequate legal assistance shall not be
denied to any person by reason of poverty.
The importance of the right to free access to the courts and quasi judicial bodies and to adequate legal assistance cannot
be denied. A move to remove the provision on free access from the Constitution on the ground that it was already covered by the
equal protection clause was defeated by the desire to give constitutional stature to such specific protection of the poor. 1
In implementation of the right of free access under the Constitution, the Supreme Court promulgated rules, specifically,
Sec. 21, Rule 3, Rules of Court, 2 and Sec. 19, Rule 141, Rules of Court, 3 which respectively state thus:
Sec. 21. Indigent party. — A party may be authorized to litigate his action, claim or defense as an
indigent if the court, upon an ex parte application and hearing, is satisfied that the party is one who has no money
or property sufficient and available for food, shelter and basic necessities for himself and his family.
Such authority shall include an exemption from payment of docket and other lawful fees, and of
transcripts of stenographic notes which the court may order to be furnished him. The amount of the docket and
other lawful fees which the indigent was exempted from paying shall be a lien on any judgment rendered in the
case favorable to the indigent, unless the court otherwise provides.
Any adverse party may contest the grant of such authority at any time before judgment is rendered by the
trial court. If the court should determine after hearing that the party declared as an indigent is in fact a person with
sufficient income or property, the proper docket and other lawful fees shall be assessed and collected by the clerk
of court. If payment is not made within the time fixed by the court, execution shall issue for the payment thereof,
without prejudice to such other sanctions as the court may impose. (22a) ASTcEa
Sec. 19. Indigent litigants exempt from payment of legal fees. — Indigent litigants (a) whose gross
income and that of their immediate family do not exceed an amount double the monthly minimum wage of an
employee and (b) who do not own real property with a fair market value as stated in the current tax declaration of
more than three hundred thousand (P300,000.00) pesos shall be exempt from payment of legal fees.
The legal fees shall be a lien on any judgment rendered in the case favorable to the indigent litigant
unless the court otherwise provides.
To be entitled to the exemption herein provided, the litigant shall execute an affidavit that he and his
immediate family do not earn a gross income abovementioned, and they do not own any real property with the fair
value aforementioned, supported by an affidavit of a disinterested person attesting to the truth of the litigant's
affidavit. The current tax declaration, if any, shall be attached to the litigant's affidavit.
Any falsity in the affidavit of litigant or disinterested person shall be sufficient cause to dismiss the
complaint or action or to strike out the pleading of that party, without prejudice to whatever criminal liability may
have been incurred.
The clear intent and precise language of the aforequoted provisions of the Rules of Court indicate that only a natural
party litigant may be regarded as an indigent litigant. The Good Shepherd Foundation, Inc., being a corporation invested by the
State with a juridical personality separate and distinct from that of its members, 4 is a juridical person. Among others, it has the
power to acquire and possess property of all kinds as well as incur obligations and bring civil or criminal actions, in conformity
with the laws and regulations of their organization. 5 As a juridical person, therefore, it cannot be accorded the exemption from
legal and filing fees granted to indigent litigants.
That the Good Shepherd Foundation, Inc. is working for indigent and underprivileged people is of no moment. Clearly,
the Constitution has explicitly premised the free access clause on a person's poverty, a condition that only a natural person can
suffer.
There are other reasons that warrant the rejection of the request for exemption in favor of a juridical person. For one,
extending the exemption to a juridical person on the ground that it works for indigent and underprivileged people may be prone to
abuse (even with the imposition of rigid documentation requirements), particularly by corporations and entities bent on
circumventing the rule on payment of the fees. Also, the scrutiny of compliance with the documentation requirements may prove
too time-consuming and wasteful for the courts. DEacIT
IN VIEW OF THE FOREGOING, the Good Shepherd Foundation, Inc. cannot be extended the exemption from legal
and filing fees despite its working for indigent and underprivileged people.
 SO ORDERED.
||| (Re: Prioreschi , A.M. No. 09-6-9-SC (Resolution), [August 19, 2009], 613 PHIL 26-31)

FIRST DIVISION

[G.R. No. 164317. February 6, 2006.]

ALFREDO CHING, petitioner, vs. THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR CECILYN BURGOS-VILLAVERT, JUDGE EDGARDO
SUDIAM of the Regional Trial Court, Manila, Branch 52; RIZAL COMMERCIAL BANKING CORP. and THE PEOPLE OF THE PHILIPPINES,  respondents.

Balgos & Perez for petitioner.

The Solicitor General  for public respondents.

Ponce Enrile Reyes & Manalastas for RCBC.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; FORUM SHOPPING; PETITIONER'S CERTIFICATION IS INCOMPLETE AND UNINTELLIGIBLE AS IT FAILED TO CERTIFY
THAT HE "HAD NOT COMMENCED ANY OTHER ACTION INVOLVING THE SAME ISSUES BEFORE THE COURTS, ANY OTHER TRIBUNAL OR AGENCY." — 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. 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. 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. 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. 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.

2. ID.; SPECIAL CIVIL ACTIONS; CERTIORARI; MAY NULLIFY ACTS OF THE SECRETARY OF JUSTICE THAT IS CONTRARY TO LAW, WITHOUT AUTHORITY
AND/OR IN EXCESS OF AUTHORITY. — In Mendoza-Arce v. Office of the Ombudsman (Visayas), 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. 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. Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure, 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 therefore. 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.

3. ID.; ID.; ID.; THE SECRETARY OF JUSTICE ACTED IN ACCORD WITH LAW AND EVIDENCE IN HIS RESOLUTIONS UPHOLDING THE FINDING OF PROBABLE
CAUSE; CASE AT BAR. — 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. 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 play 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. 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.

4. MERCANTILE LAW; TRUST RECEIPTS LAW (P.D. NO. 115); 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 PETITIONER'S COMPANY UNDER THE
TRUST RECEIPTS SIGNED BY PETITIONER, AS ENTRUSTEE, WITH THE BANK AS ENTRUSTER. — 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. 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. 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. 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.

5. ID.; ID.; THE TRUST RECEIPTS LAW APPLIES TO GOODS USED BY THE ENTRUSTEE IN THE OPERATION OF ITS MACHINERIES AND EQUIPMENT. — 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. 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. 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.
 6. ID.; ID.; PENALTY CLAUSE OF P.D. NO. 115; ALTHOUGH PETITIONER SIGNED THE TRUST RECEIPTS MERELY AS SENIOR VICE-PRESIDENT OF THE COMPANY
AND HAS NO PHYSICAL POSSESSION OF THE GOODS, HE CANNOT AVOID PROSECUTION FOR VIOLATION OF THE LAW. — In Colinares v. Court of Appeals, 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. 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. 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.

7. ID.; ID.; PERSONS HELD RESPONSIBLE FOR VIOLATION OF THE TRUST RECEIPTS LAW WHEN ENTRUSTEE IS A CORPORATION; RATIONALE. — 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. 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. 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. 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. 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.

8. ID.; ID.; WHETHER THE OFFICERS AND EMPLOYEES ARE BENEFITED BY THEIR DELICTUAL ACTS IS NOT A TOUCHSTONE OF THEIR CRIMINAL LIABILITY;
BENEFIT IS NOT AN OPERATIVE FACT OF THE OFFENSE. — 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. Corporate
officers or employees, through whose act, default or omission the corporation commits a crime, are themselves individually guilty of the crime. 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. Moreover, all parties active in promoting a
crime, whether agents or not, are principals. 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.

DECISION

CALLEJO, SR., J  p:

Before the Court is a petition for review on certiorari of the Decision 1 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
Resolution 2 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 receipts 4 as surety, acknowledging delivery of the
following goods:
T/R Date Maturity Principal Description of
Nos. Granted Date   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
        Equipment 5
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 P6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for estafa 6 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. ACIDSc
Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The appeal was dismissed in a
Resolution 7 dated March 17, 1987, and petitioner moved for its reconsideration. On December 23, 1987, the Minister of Justice
granted the motion, thus reversing the previous resolution finding probable cause against petitioner. 8 The City Prosecutor was
ordered to move for the withdrawal of the Informations.
This time, respondent bank filed a motion for reconsideration, which, however, was denied on February 24, 1988. 9 The
RTC, for its part, granted the Motion to Quash the Informations filed by petitioner on the ground that the material allegations
therein did not amount to estafa. 10
In the meantime, the Court rendered judgment in Allied Banking Corporation v. 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. 250 15 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, 16 where the Court ruled that P.D. No. 115 is "not limited to transactions in goods which are to be sold
(retailed), reshipped, stored or processed as a component of a product ultimately sold but covers failure to turn over the proceeds
of the sale of entrusted goods, or to return said goods if unsold or not otherwise disposed of in accordance with the terms of the
trust receipts."
The Justice Secretary further stated that the respondent bound himself under the terms of the trust receipts not only as a
corporate official of PBMI but also as its surety; hence, he could be proceeded against in two (2) ways: first, as surety as
determined by the Supreme Court in its decision in Rizal Commercial Banking Corporation v. Court of Appeals; 17 and second,
as the corporate official responsible for the offense under P.D. No. 115, via criminal prosecution. Moreover, P.D. No.
115 explicitly allows the prosecution of corporate officers "without prejudice to the civil liabilities arising from the criminal
offense." Thus, according to the Justice Secretary, following Rizal Commercial Banking Corporation, the civil liability imposed is
clearly separate and distinct from the criminal liability of the accused under P.D. No. 115.
Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13 Informations against petitioner
for violation of P.D. No. 115 before the RTC of Manila. The cases were docketed as Criminal Cases No. 99-178596 to 99-178608
and consolidated for trial before Branch 52 of said court. Petitioner filed a motion for reconsideration, which the Secretary of
Justice denied in a Resolution 18 dated January 17, 2000.
Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing the resolutions of the
Secretary of Justice on the following grounds:
1.THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE ACTING
OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS PROSECUTION DESPITE
THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED TO PROVE HIS PARTICIPATION IN THE
ALLEGED TRANSACTIONS.
2.THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE ABUSE OF
DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY CONTINUED PROSECUTION OF
THE PETITIONER DESPITE THE LENGTH OF TIME INCURRED IN THE TERMINATION OF THE
PRELIMINARY INVESTIGATION THAT SHOULD JUSTIFY THE DISMISSAL OF THE INSTANT CASE.
3.THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY PROSECUTOR ACTED IN
GRAVE ABUSE OF DISCRETION AMOUNTING TO AN EXCESS OF JURISDICTION WHEN THEY
CONTINUED THE PROSECUTION OF THE PETITIONER DESPITE LACK OF SUFFICIENT BASIS. 19
In his petition, petitioner incorporated a certification stating that "as far as this Petition is concerned, no action or
proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency. It is finally
certified that if the affiant should learn that a similar action or proceeding has been filed or is pending before the Supreme Court,
the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it hereby undertakes to notify this Honorable
Court within five (5) days from such notice." 20
In its Comment on the petition, the Office of the Solicitor General alleged that —
A.
THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER ALFREDO
CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED AND THAT THE ACTS OF
PETITIONER FALL WITHIN THE AMBIT OF VIOLATION OF P.D. [No.] 115 IN RELATION TO ARTICLE
315, PAR. 1(B) OF THE REVISED PENAL CODE.
 
B.
THERE IS NO MERIT IN PETITIONER'S CONTENTION THAT EXCESSIVE DELAY HAS MARRED THE
CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE CASE, JUSTIFYING ITS
DISMISSAL. TcHCDI
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:
I
THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE GROUND THAT THE
CERTIFICATION OF NON-FORUM SHOPPING INCORPORATED THEREIN WAS DEFECTIVE.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS COMMITTED BY THE SECRETARY OF
JUSTICE IN COMING OUT WITH THE ASSAILED RESOLUTIONS. 23
The Court will delve into and resolve the issues seriatim.
The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He claims that the rules of
procedure should be used to promote, not frustrate, substantial justice. He insists that the  Rules of Court should be construed
liberally especially when, as in this case, his substantial rights are adversely affected; hence, the deficiency in his certification of
non-forum shopping should not result in the dismissal of his petition.
The Office of the Solicitor General (OSG) takes the opposite view, and asserts that indubitably, the certificate of 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 xxx 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. . . .
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. DcCIAa
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 . . .
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:
". . . it is apropos to quote section 13 of PD 115 which states in part, viz:
'. . . 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. SDaHEc
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
play 37 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. EcDSHT
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. 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; . . .
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. aHcDEC
 
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.

FIRST DIVISION

[G.R. No. 145578. November 18, 2005.]

JOSE C. TUPAZ IV and PETRONILA C. TUPAZ, petitioners, vs. THE COURT OF APPEALS and BANK OF THE PHILIPPINE
ISLANDS, respondents.

George L. Howard for petitioners.

Benedicto Versoza Gealogo & Burkley for private respondent.

SYLLABUS

 
1. MERCANTILE LAW; PRIVATE CORPORATIONS; INDIVIDUALS ACTING AS CORPORATE AGENTS ARE NOT PERSONALLY LIABLE FOR ANY DEBTS THEY
INCURRED ACTING IN SUCH CAPACITY; EXCEPTION. — A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts incurred by these
individuals, acting as such corporate agents, are not theirs but the direct liability of the corporation they represent. As an exception, directors or officers are personally liable for the
corporation's debts only if they so contractually agree or stipulate.

2. ID.; ID.; CORPORATE OFFICERS SIGNING JOINTLY AND SEVERALLY WITH THE CORPORATION IN A TRUST RECEIPT CONTRACT IS LIABLE ONLY AS
GUARANTOR; RATIONALE. — In Prudential Bank v. Intermediate Appellate Court, the Court interpreted a substantially identical clause in a trust receipt signed by a corporate officer who
bound himself personally liable for the corporation's obligation. The petitioner in that case contended that the stipulation "we jointly and severally agree and undertake" rendered the corporate
officer solidarily liable with the corporation. We dismissed this claim and held the corporate officer liable as guarantor only. The Court further ruled that had there been more than one
signatories to the trust receipt, the solidary liability would exist between the guarantors. We held: Petitioner [Prudential Bank] insists that by virtue of the clear wording of the . . . clause ". . .
we jointly and severally agree and undertake . . .," and the concluding sentence on exhaustion, [respondent] Chi's liability therein is solidary. . . . Our . . . reading of the questioned solidary
guaranty clause yields no other conclusion than that the obligation of Chi is only that of a guarantor. This is further bolstered by the last sentence which speaks of waiver of exhaustion, which,
nevertheless, is ineffective in this case because the space therein for the party whose property may not be exhausted was not filled up. Under Article 2058 of the  Civil Code, the defense of
exhaustion (excussion) may be raised by a guarantor before he may be held liable for the obligation. Petitioner likewise admits that the questioned provision is a solidary guaranty clause,
thereby clearly distinguishing it from a contract of surety. It, however, described the guaranty as solidary between the guarantors; this would have been correct if two (2) guarantors had signed
it. The clause "we jointly and severally agree and undertake" refers to the undertaking of the two (2) parties who are to sign it or to the liability existing between themselves. It does not refer to
the undertaking between either one or both of them on the one hand and the petitioner on the other with respect to the liability described under the trust receipt. . . . Furthermore, any doubt as to
the import or true intent of the solidary guaranty clause should be resolved against the petitioner. The trust receipt, together with the questioned solidary guaranty clause, is on a form drafted
and prepared solely by the petitioner; Chi's participation therein is limited to the affixing of his signature thereon. It is, therefore, a contract of adhesion; as such, it must be strictly construed
against the party responsible for its preparation.

3. CIVIL LAW; CONTRACTS; TRUST RECEIPT; GUARANTOR IS LIABLE FOR THE CORPORATION'S PRINCIPAL DEBT AND OTHER ACCESSORY LIABILITIES;
RATIONALE. — However, respondent bank's suit against petitioner Jose Tupaz stands despite the Court's finding that he is liable as guarantor only. First, excussion is not a pre-requisite to
secure judgment against a guarantor. The guarantor can still demand deferment of the execution of the judgment against him until after the assets of the principal debtor shall have been
exhausted. Second, the benefit of excussion may be waived. Under the trust receipt dated 30 September 1981, petitioner Jose Tupaz waived excursion when he agreed that his "liability in [the]
guaranty shall be DIRECT AND IMMEDIATE, without any need whatsoever on . . . [the] part [of respondent bank] to take any steps or exhaust any legal remedies. . . . ." The clear import of
this stipulation is that petitioner Jose Tupaz waived the benefit of excussion under his guarantee. As guarantor, petitioner Jose Tupaz is liable for El Oro Corporation's principal debt and other
accessory liabilities (as stipulated in the trust receipt and as provided by law) under the trust receipt dated 30 September 1981. That trust receipt (and the trust receipt dated 9 October 1981)
provided for payment of attorney's fees equivalent to 10% of the total amount due and an "interest at the rate of 7% per annum, or at such other rate as the bank may fix, from the date due until
paid. . . ." In the applications for the letters of credit, the parties stipulated that drafts drawn under the letters of credit are subject to interest at the rate of 18% per annum.
 4. ID.; ID.; ID.; INTEREST; PROPER COMPUTATION. — The lower courts correctly applied the 18% interest rate per annum considering that the face value of each of the trust
receipts is based on the drafts drawn under the letters of credit. Based on the guidelines laid down in  Eastern Shipping Lines, Inc. v. Court of Appeals, the accrued stipulated interest earns 12%
interest per annum from the time of the filing of the Informations in the Makati Regional Trial Court on 17 January 1984. Further, the total amount due as of the date of the finality of this
Decision will earn interest at 18% per annum until fully paid since this was the stipulated rate in the applications for the letters of credit. The accounting of El Oro Corporation's debts as of 23
January 1992, which the trial court used, is no longer useful as it does not specify the amounts owing under each of the trust receipts. Hence, in the execution of this Decision, the trial court
shall compute El Oro Corporation's total liability under each of the trust receipts dated 30 September 1981 and 9 October 1981 based on the following formula: TOTAL AMOUNT DUE =
[principal + interest + interest on interest] - partial payments made Interest = principal x 18% per annum x no. of years from due date until finality of judgment Interest on interest = interest
computed as of the filing of the complaint (17 January 1984) x 12% x no. of years until finality of judgment Attorney's fees is 10% of the total amount computed as of finality of judgment
Total amount due as of the date of finality of judgment will earn an interest of 18% per annum until fully paid. In so delegating this task, we reiterate what we said in  Rizal Commercial
Banking Corporation v. Alfa RTW Manufacturing Corporation where we also ordered the trial court to compute the amount of obligation due based on a formula substantially similar to that
indicated above: The total amount due . . . [under] the . . . contract[] . . . may be easily determined by the trial court through a simple mathematical computation based on the formula specified
above. Mathematics is an exact science, the application of which needs no further proof from the parties.

5. ID.; CIVIL LIABILITY; NOT EXTINGUISHED BY THE ACQUITTAL IN CRIMINAL ACTION. — The rule is that where the civil action is impliedly instituted with the
criminal action, the civil liability is not extinguished by acquittal — [w]here the acquittal is based on reasonable doubt . . . as only preponderance of evidence is required in civil cases; where
the court expressly declares that the liability of the accused is not criminal but only civil in nature . . . as, for instance, in the felonies of estafa, theft, and malicious mischief committed by
certain relatives who thereby incur only civil liability (See Art. 332, Revised Penal Code); and, where the civil liability does not arise from or is not based upon the criminal act of which the
accused was acquitted . . . .

DECISION

CARPIO, J p:

The Case
This is a petition for review 1 of the Decision 2 of the Court of Appeals dated 7 September 2000 and its Resolution dated 18
October 2000. The 7 September 2000 Decision affirmed the ruling of the Regional Trial Court, Makati, Branch 144 in a case for estafa under
Section 13, Presidential Decree No. 115. The Court of Appeals' Resolution of 18 October 2000 denied petitioners' motion for reconsideration.
The Facts
Petitioners Jose C. Tupaz IV and Petronila C. Tupaz ("petitioners") were Vice-President for Operations and Vice-
President/Treasurer, respectively, of El Oro Engraver Corporation ("El Oro Corporation"). El Oro Corporation had a contract with the
Philippine Army to supply the latter with "survival bolos."
To finance the purchase of the raw materials for the survival bolos, petitioners, on behalf of El Oro Corporation, applied with
respondent Bank of the Philippine Islands ("respondent bank") for two commercial letters of credit. The letters of credit were in favor of El
Oro Corporation's suppliers, Tanchaoco Manufacturing Incorporated 3 ("Tanchaoco Incorporated") and Maresco Rubber and Retreading
Corporation 4 ("Maresco Corporation"). Respondent bank granted petitioners' application and issued Letter of Credit No. 2-00896-3 for
P564,871.05 to Tanchaoco Incorporated and Letter of Credit No. 2-00914-5 for P294,000 to Maresco Corporation.
Simultaneous with the issuance of the letters of credit, petitioners signed trust receipts in favor of respondent bank. On 30
September 1981, petitioner Jose C. Tupaz IV ("petitioner Jose Tupaz") signed, in his personal capacity, a trust receipt corresponding to Letter
of Credit No. 2-00896-3 (for P564,871.05). Petitioner Jose Tupaz bound himself to sell the goods covered by the letter of credit and to remit
the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before 29 December 1981.
On 9 October 1981, petitioners signed, in their capacities as officers of El Oro Corporation, a trust receipt corresponding to Letter of
Credit No. 2-00914-5 (for P294,000). Petitioners bound themselves to sell the goods covered by that letter of credit and to remit the proceeds
to respondent bank, if sold, or to return the goods, if not sold, on or before 8 December 1981.
After Tanchaoco Incorporated and Maresco Corporation delivered the raw materials to El Oro Corporation, respondent bank paid
the former P564,871.05 and P294,000, respectively. DIAcTE
Petitioners did not comply with their undertaking under the trust receipts. Respondent bank made several demands for payments but
El Oro Corporation made partial payments only. On 27 June 1983 and 28 June 1983, respondent bank's counsel 5 and its
representative 6 respectively sent final demand letters to El Oro Corporation. El Oro Corporation replied that it could not fully pay its debt
because the Armed Forces of the Philippines had delayed paying for the survival bolos.
Respondent bank charged petitioners with estafa under Section 13, Presidential Decree No. 115 ("Section 13") 7 or Trust Receipts
Law ("PD 115"). After preliminary investigation, the then Makati Fiscal's Office found probable cause to indict petitioners. The Makati
Fiscal's Office filed the corresponding Informations (docketed as Criminal Case Nos. 8848 and 8849) with the Regional Trial Court, Makati,
on 17 January 1984 and the cases were raffled to Branch 144 ("trial court") on 20 January 1984. Petitioners pleaded not guilty to the charges
and trial ensued. During the trial, respondent bank presented evidence on the civil aspect of the cases.
The Ruling of the Trial Court
On 16 July 1992, the trial court rendered judgment acquitting petitioners of estafa on reasonable doubt. However, the trial court
found petitioners solidarily liable with El Oro Corporation for the balance of El Oro Corporation's principal debt under the trust receipts. The
dispositive portion of the trial court's Decision provides:
 WHEREFORE, judgment is hereby rendered ACQUITTING both accused Jose C. Tupaz, IV and Petronila
Tupaz based upon reasonable doubt.
However, El Oro Engraver Corporation, Jose C. Tupaz, IV and Petronila Tupaz, are hereby ordered, jointly
and solidarily, to pay the Bank of the Philippine Islands the outstanding principal obligation of P624,129.19 (as of
January 23, 1992) with the stipulated interest at the rate of 18% per annum; plus 10% of the total amount due as
attorney's fees; P5,000.00 as expenses of litigation; and costs of the suit. 8
In holding petitioners civilly liable with El Oro Corporation, the trial court held:
[S]ince the civil action for the recovery of the civil liability is deemed impliedly instituted with the criminal
action, as in fact the prosecution thereof was actively handled by the private prosecutor, the Court believes that the El
Oro Engraver Corporation and both accused Jose C. Tupaz and Petronila Tupaz, jointly and solidarily should be held
civilly liable to the Bank of the Philippine Islands. The mere fact that they were unable to collect in full from the AFP
and/or the Department of National Defense the proceeds of the sale of the delivered survival bolos manufactured from
the raw materials covered by the trust receipt agreements is no valid defense to the civil claim of the said complainant
and surely could not wipe out their civil obligation. After all, they are free to institute an action to collect the same. 9
Petitioners appealed to the Court of Appeals. Petitioners contended that: (1) their acquittal "operates to extinguish [their] civil
liability" and (2) at any rate, they are not personally liable for El Oro Corporation's debts.
The Ruling of the Court of Appeals
In its Decision of 7 September 2000, the Court of Appeals affirmed the trial court's ruling. The appellate court held:
It is clear from [Section 13, PD 115] that civil liability arising from the violation of the trust receipt agreement
is distinct from the criminal liability imposed therein. In the case of Vintola vs. Insular Bank of Asia and America, our
Supreme Court held that acquittal in the estafa case (P.D. 115) is no bar to the institution of a civil action for collection.
This is because in such cases, the civil liability of the accused does not arise ex delicto but rather based ex contractu and
as such is distinct and independent from any criminal proceedings and may proceed regardless of the result of the latter.
Thus, an independent civil action to enforce the civil liability may be filed against the corporation aside from the
criminal action against the responsible officers or employees.
xxx xxx xxx
[W]e hereby hold that the acquittal of the accused-appellants from the criminal charge of estafa did not operate
to extinguish their civil liability under the letter of credit-trust receipt arrangement with plaintiff-appellee, with which
they dealt both in their personal capacity and as officers of El Oro Engraver Corporation, the letter of credit applicant
and principal debtor.
Appellants argued that they cannot be held solidarily liable with their corporation, El Oro Engraver
Corporation, alleging that they executed the subject documents including the trust receipt agreements only in their
capacity as such corporate officers. They said that these instruments are mere pro-forma and that they executed these
instruments on the strength of a board resolution of said corporation authorizing them to apply for the opening of a letter
of credit in favor of their suppliers as well as to execute the other documents necessary to accomplish the same.
Such contention, however, is contradicted by the evidence on record. The trust receipt agreement indicated in
clear and unmistakable terms that the accused signed the same as surety for the corporation and that they bound
themselves directly and immediately liable in the event of default with respect to the obligation under the letters of
credit which were made part of the said agreement, without need of demand. Even in the application for the letter of
credit, it is likewise clear that the undertaking of the accused is that of a surety as indicated [in] the following words: "In
consideration of your establishing the commercial letter of credit herein applied for substantially in accordance with the
foregoing, the undersigned Applicant and Surety hereby agree, jointly and severally, to each and all stipulations,
provisions and conditions on the reverse side hereof." caAICE
xxx xxx xxx
Having contractually agreed to hold themselves solidarily liable with El Oro Engraver Corporation under the
subject trust receipt agreements with appellee Bank of the Philippine Islands, herein accused-appellants may not,
therefore, invoke the separate legal personality of the said corporation to evade their civil liability under the letter of
credit-trust receipt arrangement with said appellee, notwithstanding their acquittal in the criminal cases filed against
them. The trial court thus did not err in holding the appellants solidarily liable with El Oro Engraver Corporation for the
outstanding principal obligation of P624,129.19 (as of January 23, 1992) with the stipulated interest at the rate of 18%
per annum, plus 10% of the total amount due as attorney's fees, P5,000.00 as expenses of litigation and costs of suit. 10
Hence, this petition. Petitioners contend that:
1. A JUDGMENT OF ACQUITTAL OPERATE[S] TO EXTINGUISH THE CIVIL LIABILITY OF PETITIONERS[;]
2. GRANTING WITHOUT ADMITTING THAT THE QUESTIONED OBLIGATION WAS INCURRED BY THE
CORPORATION, THE SAME IS NOT YET DUE AND PAYABLE;
 3. GRANTING THAT THE QUESTIONED OBLIGATION WAS ALREADY DUE AND PAYABLE, . . .
PETITIONERS ARE NOT PERSONALLY LIABLE TO . . . RESPONDENT BANK, SINCE THEY
SIGNED THE LETTER[S] OF CREDIT AS 'SURETY' AS OFFICERS OF EL ORO, AND THEREFORE,
AN EXCLUSIVE LIABILITY OF EL ORO; [AND]
 
4. IN THE ALTERNATIVE, THE QUESTIONED TRANSACTIONS ARE SIMULATED AND VOID. 11
The Issues
The petition raises these issues:
(1) Whether petitioners bound themselves personally liable for El Oro Corporation's debts under the trust receipts;
(2) If so —
(a) whether petitioners' liability is solidary with El Oro Corporation; and
(b) whether petitioners' acquittal of estafa under Section 13, PD 115 extinguished their civil liability.
The Ruling of the Court
The petition is partly meritorious. We affirm the Court of Appeals' ruling with the modification that petitioner Jose Tupaz is liable
as guarantor of El Oro Corporation's debt under the trust receipt dated 30 September 1981.
On Petitioners' Undertaking Under
the Trust Receipts
A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts incurred by these
individuals, acting as such corporate agents, are not theirs but the direct liability of the corporation they represent.  12 As an exception,
directors or officers are personally liable for the corporation's debts only if they so contractually agree or stipulate. 13
Here, the dorsal side of the trust receipts contains the following stipulation:
To the Bank of the Philippine Islands
In consideration of your releasing to _____________ under the terms of this Trust Receipt the goods described
herein, I/We, jointly and severally, agree and promise to pay to you, on demand, whatever sum or sums of money which
you may call upon me/us to pay to you, arising out of, pertaining to, and/or in any way connected with, this Trust
Receipt, in the event of default and/or non-fulfillment in any respect of this undertaking on the part of the said
__________________ I/we further agree that my/our liability in this guarantee shall be DIRECT AND IMMEDIATE,
without any need whatsoever on your part to take any steps or exhaust any legal remedies that you may have against the
said __________________ before making demand upon me/us. 14 (Capitalization in the original) SAHITC
In the trust receipt dated 9 October 1981, petitioners signed below this clause as officers of El Oro Corporation. Thus, under
petitioner Petronila Tupaz's signature are the words "Vice-Pres–Treasurer" and under petitioner Jose Tupaz's signature are the words "Vice-
Pres–Operations." By so signing that trust receipt, petitioners did not bind themselves personally liable for El Oro Corporation's obligation.
In Ong v. Court of Appeals, 15 a corporate representative signed a solidary guarantee clause in two trust receipts in his capacity as corporate
representative. There, the Court held that the corporate representative did not undertake to guarantee personally the payment of the
corporation's debts, thus:
[P]etitioner did not sign in his personal capacity the solidary guarantee clause found on the dorsal portion of
the trust receipts. Petitioner placed his signature after the typewritten words "ARMCO INDUSTRIAL
CORPORATION" found at the end of the solidary guarantee clause. Evidently, petitioner did not undertake to guaranty
personally the payment of the principal and interest of ARMAGRI's debt under the two trust receipts.
Hence, for the trust receipt dated 9 October 1981, we sustain petitioners' claim that they are not personally liable for El Oro
Corporation's obligation.
For the trust receipt dated 30 September 1981, the dorsal portion of which petitioner Jose Tupaz signed alone, we find that he did so
in his personal capacity. Petitioner Jose Tupaz did not indicate that he was signing as El Oro Corporation's Vice-President for Operations.
Hence, petitioner Jose Tupaz bound himself personally liable for El Oro Corporation's debts. Not being a party to the trust receipt dated 30
September 1981, petitioner Petronila Tupaz is not liable under such trust receipt.
The Nature of Petitioner Jose Tupaz's Liability
Under the Trust Receipt Dated 30 September 1981
As stated, the dorsal side of the trust receipt dated 30 September 1981 provides:
To the Bank of the Philippine Islands
In consideration of your releasing to ____________________ under the terms of this Trust Receipt the goods
described herein, I/We, jointly and severally, agree and promise to pay to you, on demand, whatever sum or sums of
 money which you may call upon me/us to pay to you, arising out of, pertaining to, and/or in any way connected with,
this Trust Receipt, in the event of default and/or non-fulfillment in any respect of this undertaking on the part of the said
____________________ I/we further agree that my/our liability in this guarantee shall be DIRECT AND
IMMEDIATE, without any need whatsoever on your part to take any steps or exhaust any legal remedies that you may
have against the said ___________________ Before making demand upon me/us. (Underlining supplied; capitalization
in the original)
The lower courts interpreted this to mean that petitioner Jose Tupaz bound himself solidarily liable with El Oro Corporation for the
latter's debt under that trust receipt.
This is error.
In Prudential Bank v. Intermediate Appellate Court, 16 the Court interpreted a substantially identical clause 17 in a trust receipt
signed by a corporate officer who bound himself personally liable for the corporation's obligation. The petitioner in that case contended that
the stipulation "we jointly and severally agree and undertake" rendered the corporate officer solidarily liable with the corporation. We
dismissed this claim and held the corporate officer liable as guarantor only. The Court further ruled that had there been more than one
signatories to the trust receipt, the solidary liability would exist between the guarantors. We held:
Petitioner [Prudential Bank] insists that by virtue of the clear wording of the . . . clause ". . . we jointly and
severally agree and undertake . . . ," and the concluding sentence on exhaustion, [respondent] Chi's liability therein is
solidary.
xxx xxx xxx
Our . . . reading of the questioned solidary guaranty clause yields no other conclusion than that the obligation
of Chi is only that of a guarantor. This is further bolstered by the last sentence which speaks of waiver of exhaustion,
which, nevertheless, is ineffective in this case because the space therein for the party whose property may not be
exhausted was not filled up. Under Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised
by a guarantor before he may be held liable for the obligation. Petitioner likewise admits that the questioned provision is
a solidary guaranty clause, thereby clearly distinguishing it from a contract of surety. It, however, described the
guaranty as solidary between the guarantors; this would have been correct if two (2) guarantors had signed it. The clause
"we jointly and severally agree and undertake" refers to the undertaking of the two (2) parties who are to sign it or to the
liability existing between themselves. It does not refer to the undertaking between either one or both of them on the one
hand and the petitioner on the other with respect to the liability described under the trust receipt. . . .
Furthermore, any doubt as to the import or true intent of the solidary guaranty clause should be resolved
against the petitioner. The trust receipt, together with the questioned solidary guaranty clause, is on a form drafted and
prepared solely by the petitioner; Chi's participation therein is limited to the affixing of his signature thereon. It is,
therefore, a contract of adhesion; as such, it must be strictly construed against the party responsible for its
preparation. 18 (Underlining supplied; italicization in the original) cTADCH
However, respondent bank's suit against petitioner Jose Tupaz stands despite the Court's finding that he is liable as guarantor only.
First, excussion is not a pre-requisite to secure judgment against a guarantor. The guarantor can still demand deferment of the execution of
the judgment against him until after the assets of the principal debtor shall have been exhausted.  19 Second, the benefit of excussion may be
waived. 20 Under the trust receipt dated 30 September 1981, petitioner Jose Tupaz waived excussion when he agreed that his "liability in
[the] guaranty shall be DIRECT AND IMMEDIATE, without any need whatsoever on . . . [the] part [of respondent bank] to take any steps or
exhaust any legal remedies . . . ." The clear import of this stipulation is that petitioner Jose Tupaz waived the benefit of excussion under his
guarantee.
As guarantor, petitioner Jose Tupaz is liable for El Oro Corporation's principal debt and other accessory liabilities (as stipulated in
the trust receipt and as provided by law) under the trust receipt dated 30 September 1981. That trust receipt (and the trust receipt dated 9
October 1981) provided for payment of attorney's fees equivalent to 10% of the total amount due and an "interest at the rate of 7% per
annum, or at such other rate as the bank may fix, from the date due until paid . . . ."  21 In the applications for the letters of credit, the parties
stipulated that drafts drawn under the letters of credit are subject to interest at the rate of 18% per annum. 22
The lower courts correctly applied the 18% interest rate per annum considering that the face value of each of the trust receipts is
based on the drafts drawn under the letters of credit. Based on the guidelines laid down in  Eastern Shipping Lines, Inc. v. Court of
Appeals, 23 the accrued stipulated interest earns 12% interest per annum from the time of the filing of the Informations in the Makati
Regional Trial Court on 17 January 1984. Further, the total amount due as of the date of the finality of this Decision will earn interest at
18% per annum until fully paid since this was the stipulated rate in the applications for the letters of credit. 24
 
The accounting of El Oro Corporation's debts as of 23 January 1992, which the trial court used, is no longer useful as it does not
specify the amounts owing under each of the trust receipts. Hence, in the execution of this Decision, the trial court shall compute El Oro
Corporation's total liability under each of the trust receipts dated 30 September 1981 and 9 October 1981 based on the following formula: 25
TOTAL AMOUNT DUE = [principal + interest + interest on interest] — partial payments made 26
Interest = principal x 18 % per annum x no. of years from due date 27 until finality of judgment
 Interest on interest = interest computed as of the filing of the complaint (17 January 1984) x 12% x no. of
years until finality of judgment
Attorney's fees is 10% of the total amount computed as of finality of judgment
Total amount due as of the date of finality of judgment will earn an interest of 18% per annum until fully paid.
In so delegating this task, we reiterate what we said in Rizal Commercial Banking Corporation v. Alfa RTW Manufacturing
Corporation 28 where we also ordered the trial court to compute the amount of obligation due based on a formula substantially similar
to that indicated above:
The total amount due . . . [under] the . . . contract[] . . . may be easily determined by the trial court through a
simple mathematical computation based on the formula specified above. Mathematics is an exact science, the
application of which needs no further proof from the parties.
Petitioner Jose Tupaz's Acquittal did not
Extinguish his Civil Liability
The rule is that where the civil action is impliedly instituted with the criminal action, the civil liability is not extinguished by
acquittal —
[w]here the acquittal is based on reasonable doubt . . . as only preponderance of evidence is required in civil
cases; where the court expressly declares that the liability of the accused is not criminal but only civil in nature . . . as,
for instance, in the felonies of estafa, theft, and malicious mischief committed by certain relatives who thereby incur
only civil liability (See Art. 332, Revised Penal Code); and, where the civil liability does not arise from or is not based
upon the criminal act of which the accused was acquitted . . . . 29 (Emphasis supplied) cCSDTI
Here, respondent bank chose not to file a separate civil action 30 to recover payment under the trust receipts. Instead, respondent
bank sought to recover payment in Criminal Case Nos. 8848 and 8849. Although the trial court acquitted petitioner Jose Tupaz, his acquittal
did not extinguish his civil liability. As the Court of Appeals correctly held, his liability arose not from the criminal act of which he was
acquitted (ex delito) but from the trust receipt contract (ex contractu) of 30 September 1981. Petitioner Jose Tupaz signed the trust receipt of
30 September 1981 in his personal capacity.
On the other Matters Petitioners Raise
Petitioners raise for the first time in this appeal the contention that El Oro Corporation's debts under the trust receipts are not yet due
and demandable. Alternatively, petitioners assail the trust receipts as simulated. These assertions have no merit. Under the terms of the trust
receipts dated 30 September 1981 and 9 October 1981, El Oro Corporation's debts fell due on 29 December 1981 and 8 December 1981,
respectively.
Neither is there merit to petitioners' claim that the trust receipts were simulated. During the trial, petitioners did not deny applying
for the letters of credit and subsequently executing the trust receipts to secure payment of the drafts drawn under the letters of credit.
WHEREFORE, we GRANT the petition in part. We AFFIRM the Decision of the Court of Appeals dated 7 September 2000 and its
Resolution dated 18 October 2000 with the following MODIFICATIONS:
1) El Oro Engraver Corporation is principally liable for the total amount due under the trust receipts dated 30 September
1981 and 9 October 1981, as computed by the Regional Trial Court, Makati, Branch 144, upon finality of this
Decision, based on the formula provided above;
2) Petitioner Jose C. Tupaz IV is liable for El Oro Engraver Corporation's total debt under the trust receipt dated 30
September 1981 as thus computed by the Regional Trial Court, Makati, Branch 144; and
3) Petitioners Jose C. Tupaz IV and Petronila C. Tupaz are not liable under the trust receipt dated 9 October 1981.
SO ORDERED.
||| (Tupaz IV v. Court of Appeals, G.R. No. 145578, [November 18, 2005], 512 PHIL 47-65)

SECOND DIVISION

[G.R. No. L-27155. May 18, 1978.]

PHILIPPINE NATIONAL BANK, petitioner, vs. THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE
AMERICAN GENERAL INSURANCE COMPANY, INC., respondents.
 Medina, Locsin, Coruña & Sumbillo for petitioner.

Manuel Lim & Associates for private respondents.

SYNOPSIS

Upon failure of Rita Tapnio to pay her account with the Philippine National Bank which was secured by a bond of the Philippine American General Insurance Company,
Inc. (PHILAMGEN),the latter paid the same and then sued Rita Tapnio on their indemnity agreement. Rita Tapnio filed a third party complaint against petitioner Bank because, earlier,
the bank, as mortgagee of her sugar quota allocation for the year 1956-1957 at a reasonable lease price and demanded parties to the lease contract to further raise their consideration, the
difference between the lease price offered and that demanded by the Bank being a measly total of P200.00. As a result thereof, Rita Tapnio failed to utilize her sugar quota for that
particular crop year and to realize an amount which was more than enough to pay the balance of her indebtedness to the bank which was secured and subsequently paid by the bonding
company. The trial court ordered the Philippine National Bank to pay Rita Tapnio the same amounts she was ordered to pay to the PHILAMGEN. This decision was affirmed by the
Court of Appeals.
The Supreme Court found no reasonable basis for the Board of Directors of petitioner Bank to disapprove the lease contract because of the measly sum of P200.00 and ruled
that although the Bank had the ultimate authority of approving or disapproving the proposed lease, since the sugar quota was mortgaged to it, it still had the responsibility of observing,
for the protection and interest of the mortgagor, that degree of care, precaution and vigilance which the circumstances justly demand in approving or disapproving the lease of said sugar
quota.

SYLLABUS

1. MORTGAGES; RIGHT AND CORRESPONDING OBLIGATION OF MORTGAGE. — While a mortgagee bank has the authority of approving or disapproving a
proposed lease of sugar quota which are mortgaged to it, it certainly cannot escape its responsibility of observing, for the protection and interest of the mortgagor, that degree of care,
precaution and vigilance which the circumstances justly demand in approving or disapproving the lease of said sugar quota.

2. ID.; ID.; DAMAGES; LIABILITY UNDER ARTICLE 21 OF THE NEW CIVIL CODE FOR FAILURE TO OBSERVE CARE AND VIGILANCE UNDER ARTICLE
19 OF THE NEW CIVIL CODE. — The Philippine National Bank, as mortgagee of sugar quota allegations, is liable for damages under Article 21 of the  New Civil Code for its failure
to observe reasonable care and vigilance as required under Article 19 of the New Civil Code, by refusing to approve the lease of the mortgaged sugar quota for a measly P200 difference
in the lease price offered and the price demanded by the Bank, and despite the fact that all the mortgagor's accounts with the Bank were secured and that she had apparently the means to
pay her obligation to the Bank.

3. CORPORATION LAW; LIABILITY FOR TORTS. — The Philippine National Bank, as a corporation, is civilly liable in the same manner as natural persons for torts,
because "generally speaking, the rules governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or master be a natural
person or a corporation, and whether the servant or agent be a natural or artificial person. All the authorities agree that a principal or master is liable for every tort which he expressly
directs or authorizes, and this is just as true of a corporation as of a natural person. A corporation is liable, therefor, whenever a tortious act is committed by an officer or agent under
express direction or authority from the stockholders or members acting as a body, or, generally, from the directors as the governing body."

4. APPEALS; JURISDICTION OF THE SUPREME COURT. — The jurisdiction of the Supreme Court in a petition for review is limited to reviewing only errors of law,
accepting as conclusive the factual findings of the Court of Appeals upon its own assessment of the evidence.

DECISION

ANTONIO,J p:

Certiorari to review the decision of the Court of Appeals which affirmed the judgment of the Court of First Instance of
Manila in Civil Case No. 34185, ordering petitioner, as third-party defendant, to pay respondent Rita Gueco Tapnio, as third-party
plaintiff, the sum of P2,379.71, plus 12% interest per annum from September 19, 1957 until the same is fully paid, P200.00
attorney's fees and costs, the same amounts which Rita Gueco Tapnio was ordered to pay the Philippine American General
Insurance Co.,Inc.,to be paid directly to the Philippine American General Insurance Co.,Inc. in full satisfaction of the judgment
rendered against Rita Gueco Tapnio in favor of the former; plus P500.00 attorney's fees for Rita Gueco Tapnio and costs. The
basic action is the complaint filed by Philamgen (Philippine American General Insurance Co.,Inc.) as surety against Rita Gueco
Tapnio and Cecilio Gueco, for the recovery of the sum of P2,379.71 paid by Philamgen to the Philippine National Bank on behalf
of respondents Tapnio and Gueco, pursuant to an indemnity agreement. Petitioner Bank was made third-party defendant by
Tapnio and Gueco on the theory that their failure to pay the debt was due to the fault or negligence of petitioner. LibLex
The facts as found by the respondent Court of Appeals, in affirming the decision of the Court of First Instance of Manila,
are quoted hereunder:
"Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio as principal, in favor of the
Philippine National Bank Branch at San Fernando, Pampanga, to guarantee the payment of defendant Rita Gueco
Tapnio's account with said Bank. In turn, to guarantee the payment of whatever amount the bonding company
would pay to the Philippine National Bank, both defendants executed the indemnity agreement, Exh. B. Under the
terms and conditions of this indemnity agreement, whatever amount the plaintiff would pay would earn interest at
the rate of 12% per annum, plus attorney's fees in the amount of 15% of the whole amount due in case of court
litigation.
"The original amount of the bond was for P4,000.00; but the amount was later reduced to P2.000.00.
 "It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the sum of P2,000.00,
plus accumulated interests unpaid, which she failed to pay despite demands. The Bank wrote a letter of demand to
plaintiff, as per Exh. C; whereupon, plaintiff paid the bank on September 18, 1957, the full amount due and owing
in the sum of P2,379.91, for and on account of defendant Rita Gueco's obligation (Exhs. D and D-1).
"Plaintiff, in turn, made several demands, both verbal and written, upon defendants (Exhs. E and F),but
to no avail.
"Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however, when demand was
made upon her by plaintiff for her to pay her debt to the Bank, that she told the plaintiff that she did not consider
herself to be indebted to the Bank at all because she had an agreement with one Jacobo Tuazon whereby she had
leased to the latter her unused export sugar quota for the 1956-1957 agricultural year, consisting of 1,000 piculs at
the rate of P2.80 per picul, or for a total of P2,800.00, which was already in excess of her obligation guaranteed by
plaintiff's bond, Exh. A. This lease agreement, according to her, was with the knowledge of the bank. But the
Bank has placed obstacles to the consummation of the lease, and the delay caused by said obstacles forced Tuazon
to rescind the lease contract. Thus, Rita Gueco Tapnio filed her third-party complaint against the Bank to recover
from the latter any and all sums of money which may be adjudged against her and in favor of the plaintiff, plus
moral damages, attorney's fees and costs.
"Insofar as the contentions of the parties herein are concerned, we quote with approval the following
findings of the lower court based on the evidence presented at the trial of the case:
'It has been established during the trial that Mrs. Tapnio had an export sugar quota of 1,000
piculs for the agricultural year 1956-1957 which she did not need. She agreed to allow Mr. Jacobo C.
Tuazon to use said quota for the consideration of P2,500.00 (Exh. "4"-Gueco).This agreement was called
a contract of lease of sugar allotment.
'At the time of the agreement, Mrs. Tapnio was indebted to the Philippine National Bank at San
Fernando, Pampanga. Her indebtedness was known as a crop loan and was secured by a mortgage on her
standing crop including her sugar quota allocation for the agricultural year corresponding to said standing
crop. This arrangement was necessary in order that when Mrs. Tapnio harvests, the P.N.B.,having a lien
on the crop, may effectively enforce collection against her. Her sugar cannot be exported without sugar
quota allotment. Sometimes, however, a planter harvest less sugar than her quota, so her excess quota is
utilized by another who pays her for its use. This is the arrangement entered into between Mrs. Tapnio
and Mr. Tuazon regarding the former's excess quota for 1956-1957 (Exh. "4"-Gueco).
'Since the quota was mortgaged to the P.N.B.,the contract of lease had to be approved by said
Bank. The same was submitted to the branch manager at San Fernando, Pampanga. The latter required
the parties to raise the consideration of P2.80 per picul or a total of P2,800.00 (Exh "2-Gueco")
informing them that "the minimum lease rental acceptable to the Bank, is P2.80 per picul." In a letter
addressed to the branch manager on August 10, 1956, Mr. Tuazon informed the manager that he was
agreeable to raising the consideration to P2.80 per picul. He further informed the manager that he was
ready to pay said amount as the funds were in his folder which was kept in the bank.
'Explaining the meaning of Tuazon's statement as to the funds, it was stated by him that he had
an approved loan from the bank but he had not yet utilized it as he was intending to use it to pay for the
quota. Hence, when he said the amount needed to pay Mrs. Tapnio was in his folder which was in the
bank, he meant and the manager understood and knew he had an approved loan available to be used in
payment of the quota. In said Exh. "6-Gueco",Tuazon also informed the manager that he would want for
a notice from the manager as to the time when the bank needed the money so that Tuazon could sign the
corresponding promissory note.'
"Further consideration of the evidence discloses that when the branch manager of the Philippine National
Bank at San Fernando recommended the approval of the contract of lease at the price of P2.80 per picul (Exh. 11-
Bank),whose recommendation was concurred in by the Vice president of said Bank, J. V. Buenaventura, the board
of directors required that the amount be raised to P3.00 per picul. This act of the board of directors was
communicated to Tuazon, who in turn asked for a reconsideration thereof. On November 19, 1956, the branch
manager submitted Tuazon's request for reconsideration to the board of directors with another recommendation
for the approval of the lease at P2.80 per picul, but the board returned the recommendation unacted upon,
considering that the current price prevailing at the time was P3.00 per picul (Exh. 9-Bank).
"The parties were notified of the refusal on the part of the board of directors of the Bank to grant the
motion for reconsideration. The matter stood as it was until February 22, 1957, when Tuazon wrote a letter (Exh.
10-Bank) informing the Bank that he was no longer interested to continue the deal referring to the lease of sugar
quota allotment in favor of defendant Rita Gueco Tapnio. The result is that the latter lost the sum of P2,800.00
 which she should have received from Tuazon and which she could have paid the Bank to cancel off her
indebtedness.
"The court below held, and in this holding we concur, that failure of the negotiation for the lease of the
sugar quota allocation of Rita Gueco Tapnio to Tuazon was due to the fault of the directors of the Philippine
National Bank. The refusal on the part of the bank to approve the lease at the rate of P2.80 per picul which, as
stated above, would have enabled Rita Gueco Tapnio to realize the amount of P2,800.00 which was more than
sufficient to pay off her indebtedness to the Bank, and its insistence on the rental price of P3.00 per picul thus
unnecessarily increasing the value by only a difference of P200.00, inevitably brought about the rescission of the
lease contract to the damage and prejudice of Rita Gueco Tapnio in the aforesaid sum of P2,800.00. The
unreasonableness of the position adopted by the board of directors of the Philippine National Bank in refusing to
approve the lease at the rate of P2.80 per picul and insisting on the rate of P3.00 per picul, if only to increase the
retail value by only P200.00 is shown by the fact that all the accounts of Rita Gueco Tapnio with the Bank were
secured by chattel mortgage on standing crops, assignment of leasehold rights and interests on her properties, and
surety bonds, aside from the fact that from Exh. 8-Bank, it appears that she was offering to execute a real estate
mortgage in favor of the Bank to replace the surety bond. This statement is further bolstered by the fact that Rita
Gueco Tapnio apparently had the means to pay her obligation to the Bank, as shown by the fact that she has been
granted several sugar crop loans of the total value of almost P80,000.00 for the agricultural years from 1952 to
1956." 1
Its motion for the reconsideration of the decision of the Court of Appeals having been denied, petitioner filed the present
petition. LLphil
The petitioner contends that the Court of Appeals erred:
(1) In finding that the rescission of the lease contract of the 1,000 piculs of sugar quota allocation of respondent Rita
Gueco Tapnio by Jacobo C. Tuazon was due to the unjustified refusal of petitioner to approve said lease contract, and its
unreasonable insistence on the rental price of P3.00 instead of P2.80 per picul; and
(2) In not holding that based on the statistics of sugar price and prices of sugar quota in the possession of the petitioner,
the latter's Board of Directors correctly fixed the rental of price per picul of 1,000 piculs of sugar quota leased by respondent Rita
Gueco Tapnio to Jacobo C. Tuazon at P3.00 per picul.
Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right, both under its own Charter and under
the Corporation Law, to safeguard and protect its rights and interests under the deed of assignment, which include the right to
approve or disapprove the said lease of sugar quota and in the exercise of that authority, its Board of Directors necessarily had
authority to determine and fix the rental price per picul of the sugar quota subject of the lease between private respondents and
Jacobo C. Tuazon, It argued further that both under its Charter and the Corporation Law, petitioner, acting thru its Board of
Directors, has the perfect right to adopt a policy with respect to fixing of rental prices of export sugar quota allocations, and in
fixing the rentals at P3.00 per picul, it did not act arbitrarily since the said Board was guided by statistics of sugar price and prices
of sugar quotas prevailing at the time. Since the fixing of the rental of the sugar quota is a function lodged with petitioner's Board
of Directors and is a matter of policy, the respondent Court of Appeals could not substitute its own judgment for that of said
Board of Directors, which acted in good faith, making as its basis therefore the prevailing market price as shown by statistics
which were then in their possession.
Finally, petitioner emphasized that under the appealed judgment, it shall suffer a great injustice because as a creditor, it
shall be deprived of a just claim against its debtor (respondent Rita Gueco Tapnio) as it would be required to return to respondent
Philamgen the sum of P2,379.71, plus interest, which amount had been previously paid to petitioner by said insurance company in
behalf of the principal debtor, herein respondent Rita Gueco Tapnio, and without recourse against respondent Rita Gueco Tapnio.
We must advert to the rule that this Court's appellate jurisdiction in proceedings of this nature is limited to reviewing
only errors of law, accepting as conclusive the factual findings of the Court of Appeals upon its own assessment of the
evidence. 2
The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco Tapnio and Jacobo C. Tuazon was
executed on April 17, 1956. This contract was submitted to the Branch Manager of the Philippine National Bank at San Fernando,
Pampanga. This arrangement was necessary because Tapnio's indebtedness to petitioner was secured by a mortgage on her
standing crop including her sugar quota allocation for the agricultural year corresponding to said standing crop. The latter
required the parties to raise the consideration to P2.80 per picul, the minimum lease rental acceptable to the Bank, or a total of
P2,800.00. Tuazon informed the Branch Manager, thru a letter dated August 10, 1956, that he was agreeable to raising the
consideration to P2.80 per picul. He further informed the manager that he was ready to pay the said sum of P2,800.00 as the funds
were in his folder which was kept in the said Bank. This referred to the approved loan of Tuazon from the Bank which he
intended to use in paying for the use of the sugar quota. The Branch Manager submitted the contract of lease of sugar quota
allocation to the Head Office on September 7, 1956, with a recommendation for approval, which recommendation was concurred
in by the Vice-President of the Bank, Mr. J. V. Buenaventura. This notwithstanding, the Board of Directors of petitioner required
that the consideration be raised to P3.00 per picul.
 Tuazon, after being informed of the action of the Board of Directors, asked for a reconsideration thereof. On November
19, 1956, the Branch Manager submitted the request for reconsideration and again recommended the approval of the lease at
P2.80 per picul, but the Board returned the recommendation unacted, stating that the current price prevailing at that time was
P3.00 per picul. cdrep
On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer interested in continuing the lease
of sugar quota allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota, resulting in her loss in
the sum of P2,800.00 which she should have received had the lease in favor of Tuazon been implemented.
It has been clearly shown that when the Branch Manager of petitioner required the parties to raise the consideration of
the lease from P2.50 to P2.80 per picul, or a total of P2,800.00, they readily agreed. Hence, in his letter to the Branch Manager of
the Bank on August 10, 1956, Tuazon informed him that the minimum lease rental of P2.80 per picul was acceptable to him and
that he even offered to use the loan secured by him from petitioner to pay in full the sum of P2,800.00 which was the total
consideration of the lease. This arrangement was not only satisfactory to the Branch Manager but it was also approved by Vice-
President J. V. Buenaventura of the PNB. Under that arrangement, Rita Gueco Tapnio could have realized the amount of
P2,800.00, which was more than enough to pay the balance of her indebtedness to the Bank which was secured by the bond of
Philamgen.
There is no question that Tapnio's failure to utilize her sugar quota for the crop year 1956-1957 was due to the
disapproval of the lease by the Board of Directors of petitioner. The issue, therefore, is whether or not petitioner is liable for the
damage caused. 
As observed by the trial court, time is of the essence in the approval of the lease of sugar quota allotments, since the
same must be utilized during the milling season, because any allotment which is not filled during such milling season may be
reallocated by the Sugar Quota Administration to other holders of allotments. 3 There was no proof that there was any other
person at that time willing to lease the sugar quota allotment of private respondents for a price higher than P2.80 per picul. "The
fact that there were isolated transactions wherein the consideration for the lease was P3.00 a picul", according to the trial court,
"does not necessarily mean that there are always ready takers of said price." The unreasonableness of the position adopted by the
petitioner's Board of Directors is shown by the fact that the difference between the amount of P2.80 per picul offered by Tuazon
and the P3.00 per picul demanded by the Board amounted only to a total sum of P200.00. Considering that all the accounts of Rita
Gueco Tapnio with the Bank were secured by chattel mortgage on standing crops, assignment of leasehold rights and interests on
her properties, and surety bonds and that she had apparently "the means to pay her obligation to the Bank, as shown by the fact
that she has been granted several sugar crop loans of the total value of almost P80,000.00 for the agricultural years from 1952 to
1956", there was no reasonable basis for the Board of Directors of petitioner to have rejected the lease agreement because of a
measly sum of P200.00.
While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota was
mortgaged to the Bank, the latter certainly cannot escape its responsibility of observing, for the protection of the interest of
private respondents, that degree of care, precaution and vigilance which the circumstances justly demand in approving or
disapproving the lease of said sugar quota. The law makes it imperative that every person "must in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." 4 This petitioner
failed to do. Certainly, it knew that the agricultural year was about to expire, that by its disapproval of the lease private
respondents would be unable to utilize the sugar quota in question. In failing to observe the reasonable degree of care and
vigilance which the surrounding circumstances reasonably impose, petitioner is consequently liable for the damages caused on
private respondents. Under Article 21 of the New Civil Code, "any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage." The afore-cited
provisions on human relations were intended to expand the concept of torts in this jurisdiction by granting adequate legal remedy
for the untold number of moral wrongs which is impossible for human foresight to specifically provide in the statutes. 5
A corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the rules
governing the liability of a principal or master for a tort committed by an agent or servant are the same whether the principal or
master be a natural person or a corporation, and whether the servant or agent be a natural or artificial person. All of the authorities
agree that a principal or master is liable for every tort which he expressly directs or authorizes, and this is just as true of a
corporation as of a natural person. A corporation is liable, therefore, whenever a tortious act is committed by an officer or agent
under express direction or authority from the stockholders or members acting as a body, or, generally, from the directors as the
governing body." 6
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED. LibLex
||| (Philippine National Bank v. Court of Appeals, G.R. No. L-27155, [May 18, 1978], 172 PHIL 592-602)
 FIRST DIVISION

[G.R. No. 160039. June 29, 2004.]

RAYMUNDO ODANI SECOSA, EL BUENASENSO SY and DASSAD WAREHOUSING and PORT SERVICES, INCORPORATED, petitioners, vs.
HEIRS OF ERWIN SUAREZ FRANCISCO, respondents.

DECISION

YNARES-SANTIAGO, J p:

This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the decision 1 of the Court of Appeals dated
February 27, 2003 in CA-G.R. CV No. 61868, which affirmed in toto the June 19, 1998 decision 2 of Branch 20 of the Regional Trial Court
of Manila in Civil Case No. 96-79554.
The facts are as follows:
On June 27, 1996, at around 4:00 p.m., Erwin Suarez Francisco, an eighteen year old third year physical therapy student of the
Manila Central University, was riding a motorcycle along Radial 10 Avenue, near the Veteran Shipyard Gate in the City of Manila. At the
same time, petitioner, Raymundo Odani Secosa, was driving an Isuzu cargo truck with plate number PCU-253 on the same road. The truck
was owned by petitioner, Dassad Warehousing and Port Services, Inc.
Traveling behind the motorcycle driven by Francisco was a sand and gravel truck, which in turn was being tailed by the Isuzu truck
driven by Secosa. The three vehicles were traversing the southbound lane at a fairly high speed. When Secosa overtook the sand and gravel
truck, he bumped the motorcycle causing Francisco to fall. The rear wheels of the Isuzu truck then ran over Francisco, which resulted in his
instantaneous death. Fearing for his life, petitioner Secosa left his truck and fled the scene of the collision. 3
 Respondents, the parents of Erwin Francisco, thus filed an action for damages against Raymond Odani Secosa, Dassad
Warehousing and Port Services, Inc. and Dassad’s president, El Buenasucenso Sy. The complaint was docketed as Civil Case No. 96-79554
of the RTC of Manila, Branch 20.
On June 19, 1998, after a full-blown trial, the court a quo rendered a decision in favor of herein respondents, the dispositive portion
of which states:
WHEREFORE, premised on the foregoing, judgment is hereby rendered in favor of the plaintiffs ordering the
defendants to pay plaintiffs jointly and severally:
1. The sum of P55,000.00 as actual and compensatory damages;
2. The sum of P20,000.00 for the repair of the motorcycle;
3. The sum of P100,000.00 for the loss of earning capacity;
4. The sum of P500,000.00 as moral damages;
5. The sum of P50,000.00 as exemplary damages;
6. The sum of P50,000.00 as attorney’s fees plus cost of suit.
SO ORDERED.
Petitioners appealed the decision to the Court of Appeals, which affirmed the appealed decision in toto. 4
Hence the present petition, based on the following arguments:
I.
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE DECISION OF THE TRIAL
COURT THAT PETITIONER DASSAD DID NOT EXERCISE THE DILIGENCE OF A GOOD FATHER OF A
FAMILY IN THE SELECTION AND SUPERVISION OF ITS EMPLOYEES WHICH IS NOT IN ACCORDANCE
WITH ARTICLE 2180 OF THE NEW CIVIL CODE AND RELATED JURISPRUDENCE ON THE MATTER.
II.
THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE DECISION OF THE TRIAL
COURT IN HOLDING PETITIONER EL BUENASENSO SY SOLIDARILY LIABLE WITH PETITIONERS
DASSAD AND SECOSA IN VIOLATION OF THE CORPORATION LAW AND RELATED JURISPRUDENCE ON
THE MATTER.
III.
THE JUDGMENT OF THE TRIAL COURT AS AFFIRMED BY THE COURT OF APPEALS AWARDING
P500,000.00 AS MORAL DAMAGES IS MANIFESTLY ABSURD, MISTAKEN AND UNJUST. 5
The petition is partly impressed with merit.
On the issue of whether petitioner Dassad Warehousing and Port Services, Inc. exercised the diligence of a good father of a family
in the selection and supervision of its employees, we find the assailed decision to be in full accord with pertinent provisions of law and
established jurisprudence.
Article 2176 of the Civil Code provides:
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.
On the other hand, Article 2180, in pertinent part, states:
The obligation imposed by article 2176 is demandable not only for one’s own acts or omissions, but also for
those of persons for whom one is responsible . . .
Employers shall be liable for the damages caused by their employees and household helpers acting within the
scope of their assigned tasks, even though the former are not engaged in any business or industry . . .
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they
observed all the diligence of a good father of a family to prevent damage.
Based on the foregoing provisions, when an injury is caused by the negligence of an employee, there instantly arises a presumption
that there was negligence on the part of the employer either in the selection of his employee or in the supervision over him after such
selection. The presumption, however, may be rebutted by a clear showing on the part of the employer that it exercised the care and diligence
of a good father of a family in the selection and supervision of his employee. Hence, to evade solidary liability for quasi-delict committed by
an employee, the employer must adduce sufficient proof that it exercised such degree of care. 6
How does an employer prove that he indeed exercised the diligence of a good father of a family in the selection and supervision of
his employee? The case of Metro Manila Transit Corporation v. Court of Appeals 7 is instructive:
In fine, the party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of
presenting at the trial such amount of evidence required by law to obtain a favorable judgment  8 . . . In making proof in
its or his case, it is paramount that the best and most complete evidence is formally entered. 9
Coming now to the case at bar, while there is no rule which requires that testimonial evidence, to hold sway,
must be corroborated by documentary evidence, inasmuch as the witnesses’ testimonies dwelt on mere generalities, we
cannot consider the same as sufficiently persuasive proof that there was observance of due diligence in the selection and
supervision of employees. Petitioner’s attempt to prove its “deligentissimi patris familias” in the selection and
supervision of employees through oral evidence must fail as it was unable to buttress the same with any other evidence,
object or documentary, which might obviate the apparent biased nature of the testimony. 10
Our view that the evidence for petitioner MMTC falls short of the required evidentiary quantum as would
convincingly and undoubtedly prove its observance of the diligence of a good father of a family has its precursor in the
underlying rationale pronounced in the earlier case of Central Taxicab Corp. vs. Ex-Meralco Employees Transportation
Co., et al., 11 set amidst an almost identical factual setting, where we held that:
“The failure of the defendant company to produce in court any ‘record’ or other documentary proof
tending to establish that it had exercised all the diligence of a good father of a family in the selection and
supervision of its drivers and buses, notwithstanding the calls therefor by both the trial court and the opposing
counsel, argues strongly against its pretensions.
We are fully aware that there is no hard-and-fast rule on the quantum of evidence needed to prove
due observance of all the diligence of a good father of a family as would constitute a valid defense to the legal
presumption of negligence on the part of an employer or master whose employee has by his negligence, caused
damage to another. . . . (R)educing the testimony of Albert to its proper proportion, we do not have enough
trustworthy evidence left to go by. We are of the considered opinion, therefore, that the believable evidence on
the degree of care and diligence that has been exercised in the selection and supervision of Roberto Leon y
Salazar, is not legally sufficient to overcome the presumption of negligence against the defendant company.
The above-quoted ruling was reiterated in a recent case again involving the Metro Manila Transit Corporation, 12 thus:
In the selection of prospective employees, employers are required to examine them as to their qualifications,
experience, and service records. 13 On the other hand, with respect to the supervision of employees, employers should
formulate standard operating procedures, monitor their implementation, and impose disciplinary measures for breaches
thereof. To establish these factors in a trial involving the issue of vicarious liability, employers must submit concrete
proof, including documentary evidence.
In this case, MMTC sought to prove that it exercised the diligence of a good father of a family with respect to
the selection of employees by presenting mainly testimonial evidence on its hiring procedure. According to MMTC,
applicants are required to submit professional driving licenses, certifications of work experience, and clearances from
the National Bureau of Investigation; to undergo tests of their driving skills, concentration, reflexes, and vision; and, to
complete training programs on traffic rules, vehicle maintenance, and standard operating procedures during emergency
cases.
xxx xxx xxx
Although testimonies were offered that in the case of Pedro Musa all these precautions were followed, the
records of his interview, of the results of his examinations, and of his service were not presented. . . [T]here is no record
that Musa attended such training programs and passed the said examinations before he was employed. No proof was
presented that Musa did not have any record of traffic violations. Nor were records of daily inspections, allegedly
conducted by supervisors, ever presented. . . The failure of MMTC to present such documentary proof puts in doubt the
credibility of its witnesses. AHTICD
 
Jurisprudentially, therefore, the employer must not merely present testimonial evidence to prove that he observed the diligence of a
good father of a family in the selection and supervision of his employee, but he must also support such testimonial evidence with concrete or
documentary evidence. The reason for this is to obviate the biased nature of the employer’s testimony or that of his witnesses. 14
Applying the foregoing doctrines to the present case, we hold that petitioner Dassad Warehousing and Port Services, Inc. failed to
conclusively prove that it had exercised the requisite diligence of a good father of a family in the selection and supervision of its employees.
Edilberto Duerme, the lone witness presented by Dassad Warehousing and Port Services, Inc. to support its position that it had
exercised the diligence of a good father of a family in the selection and supervision of its employees, testified that he was the one who
recommended petitioner Raymundo Secosa as a driver to Dassad Warehousing and Port Services, Inc.; that it was his duty to scrutinize the
capabilities of drivers; and that he believed petitioner to be physically and mentally fit for he had undergone rigid training and attended the
PPA safety seminar. 15
Petitioner Dassad Warehousing and Port Services, Inc. failed to support the testimony of its lone witness with documentary
evidence which would have strengthened its claim of due diligence in the selection and supervision of its employees. Such an omission is
fatal to its position, on account of which, Dassad can be rightfully held solidarily liable with its co-petitioner Raymundo Secosa for the
damages suffered by the heirs of Erwin Francisco.
However, we find that petitioner El Buenasenso Sy cannot be held solidarily liable with his co-petitioners. While it may be true that
Sy is the president of petitioner Dassad Warehousing and Port Services, Inc., such fact is not by itself sufficient to hold him solidarily liable
for the liabilities adjudged against his co-petitioners.
It is a settled precept in this jurisdiction that a corporation is invested by law with a personality separate from that of its stockholders
or members. 16 It has a personality separate and distinct from those of the persons composing it as well as from that of any other entity to
which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a
corporation is not in itself sufficient ground for disregarding the separate corporate personality. 17 A corporation’s authority to act and its
liability for its actions are separate and apart from the individuals who own it. 18
The so-called veil of corporation fiction treats as separate and distinct the affairs of a corporation and its officers and stockholders.
As a general rule, a corporation will be looked upon as a legal entity, unless and until sufficient reason to the contrary appears. 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. 19 Also, the corporate entity may be disregarded in the interest of justice in such cases as fraud that may work
inequities among members of the corporation internally, involving no rights of the public or third persons. In both instances, there must have
been fraud and proof of it. For the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and
convincingly established. 20 It cannot be presumed. 21
The records of this case are bereft of any evidence tending to show the presence of any grounds enumerated above that will justify
the piercing of the veil of corporate fiction such as to hold the president of Dassad Warehousing and Port Services, Inc. solidarily liable with
it.
The Isuzu cargo truck which ran over Erwin Francisco was registered in the name of Dassad Warehousing and Port Services, Inc.,
and not in the name of El Buenasenso Sy. Raymundo Secosa is an employee of Dassad Warehousing and Port Services, Inc. and not of El
Buenasenso Sy. All these things, when taken collectively, point toward El Buenasenso Sy’s exclusion from liability for damages arising from
the death of Erwin Francisco.
Having both found Raymundo Secosa and Dassad Warehousing and Port Services, Inc. liable for negligence for the death of Erwin
Francisco on June 27, 1996, we now consider the question of moral damages which his parents, herein respondents, are entitled to recover.
Petitioners assail the award of moral damages of P500,000.00 for being manifestly absurd, mistaken and unjust. We are not persuaded.
Under Article 2206, the “spouse, legitimate and illegitimate descendants and ascendants of the deceased may demand moral
damages for mental anguish for the death of the deceased.” The reason for the grant of moral damages has been explained in this wise:
. . . the award of moral damages is aimed at a restoration, within the limits possible, of the spiritual status quo
ante; and therefore, it must be proportionate to the suffering inflicted. The intensity of the pain experienced by the
relatives of the victim is proportionate to the intensity of affection for him and bears no relation whatsoever with the
wealth or means of the offender.” 22
In the instant case, the spouses Francisco presented evidence of the searing pain that they felt when the premature loss of their son
was relayed to them. That pain was highly evident in the testimony of the father who was forever deprived of a son, a son whose untimely
death came at that point when the latter was nearing the culmination of every parent’s wish to educate their children. The death of Francis has
indeed left a void in the lives of the respondents. Antonio Francisco testified on the effect of the death of his son, Francis, in this manner:
Q: (Atty. Balanag): What did you do when you learned that your son was killed on June 27, 1996?
A: (ANTONIO FRANCISCO): I boxed the door and pushed the image of St. Niño telling why this happened to us.
Q: Mr. Witness, how did you feel when you learned of the untimely death of your son, Erwin Suares (sic)?
A: Masakit po ang mawalan ng anak. It’s really hard for me, the thought that my son is dead.
xxx xxx xxx
Q: How did your family react to the death of Erwin Suarez Francisco?
A: All of my family and relatives were felt (sic) sorrow because they knew that my son is (sic) good.
Q: We know that it is impossible to put money terms(s) [on] the life of [a] human, but since you are now in court and if
you were to ask this court how much would you and your family compensate? (sic)
A: Even if they pay me millions, they cannot remove the anguish of my son (sic). 23
 Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant. They are awarded to allow the
former to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone due to the defendant’s
culpable action and must, perforce, be proportional to the suffering inflicted. 24 We have previously held as proper an award of P500,000.00
as moral damages to the heirs of a deceased family member who died in a vehicular accident. In our 2002 decision in  Metro Manila Transit
Corporation v. Court of Appeals, et al., 25 we affirmed the award of moral damages of P500,000.00 to the heirs of the victim, a mother, who
died from injuries she sustained when a bus driven by an employee of the petitioner hit her. In the case at bar, we likewise affirm the portion
of the assailed decision awarding the moral damages.
Since the petitioners did not question the other damages adjudged against them by the court a quo, we affirm the award of these
damages to the respondents.
WHEREFORE, the petition is DENIED. The assailed decision is AFFIRMED with the MODIFICATION that petitioner El
Buenasenso Sy is ABSOLVED from any liability adjudged against his co-petitioners in this case.
Costs against petitioners.

EN BANC

[G.R. No. 126297. February 2, 2010.]

PROFESSIONAL SERVICES, INC., petitioner, vs. THE COURT OF APPEALS and NATIVIDAD and ENRIQUE AGANA, respondents.

[G.R. No. 126467. February 2, 2010.]

NATIVIDAD [substituted by her children Marcelino Agana III, Enrique Agana, Jr., Emma Agana-Andaya, Jesus Agana and Raymund Agana] and
ENRIQUE AGANA, petitioners, vs. THE COURT OF APPEALS and JUAN FUENTES, respondents.

[G.R. No. 127590. February 2, 2010.]

MIGUEL AMPIL, petitioner, vs. NATIVIDAD and ENRIQUE AGANA, respondents.

RESOLUTION

CORONA, J p:

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 cases invoking 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. DETACa
 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: DHIaTS
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. SHTcDE
 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.
xxx xxx xxx
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. STADIH
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 that the 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 patient's 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 cCaATD
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 known hospital. 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 City General 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 . . . .
(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 General Hospital, 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, Enrique decided 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. DEICHc
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. SDHacT
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 Natividad's 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. HDIATS
As it happened, PSI took no heed of the record of operation and consequently did not initiate a review of what transpired
during Natividad's 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 PSI's 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. HTaSEA
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.
||| (Professional Services, Inc. v. Court of Appeals, G.R. Nos. 126297, 126467 & 127590 (Resolution), [February 2, 2010], 625 PHIL
122-142)

SECOND DIVISION

[G.R. No. 165443. April 16, 2009.]

CALATAGAN GOLF CLUB, INC., petitioner, vs. SIXTO CLEMENTE, JR., respondent.

DECISION

TINGA, J p:

Seeking the reversal of the Decision 1 dated 1 June 2004 of the Court of Appeals in CA-G.R. SP No. 62331 and
the reinstatement of the Decision dated 15 November 2000 of the Securities and Exchange Commission (SEC) in SEC Case
No. 04-98-5954, petitioner Calatagan Golf Club, Inc. (Calatagan) filed this Rule 45 petition against respondent
Sixto Clemente, Jr. (Clemente).
The key facts are undisputed.
Clemente applied to purchase one share of stock of Calatagan, indicating in his application for membership his
mailing address at "Phimco Industries, Inc. — P.O. Box 240, MCC", complete residential address, office and residence
telephone numbers, as well as the company (Phimco) with which he was connected, Calatagan issued to him Certificate of
Stock No. A-01295 on 2 May 1990 after paying P120,000.00 for the share. 2
Calatagan charges monthly dues on its members to meet expenses for general operations, as well as costs for
upkeep and improvement of the grounds and facilities. The provision on monthly dues is incorporated in Calatagan's
Articles of Incorporation and By-Laws. It is also reproduced at the back of each certificate of stock. 3 As reproduced in the
dorsal side of Certificate of Stock No. A-01295, the provision reads: IaHAcT
5. The owners of shares of stock shall be subject to the payment of monthly dues in an amount as
may be prescribed in the by-laws or by the Board of Directors which shall in no case be less
that [sic] P50.00 to meet the expenses for the general operations of the club, and the maintenance and
improvement of its premises and facilities, in addition to such fees as may be charged for the actual use of
the facilities . . .
When Clemente became a member the monthly charge stood at P400.00. He paid P3,000.00 for his monthly dues
on 21 March 1991 and another P5,400.00 on 9 December 1991. Then he ceased paying the dues. At that point, his balance
amounted to P400.00. 4
Ten (10) months later, Calatagan made the initial step to collect Clemente's back accounts by sending a demand
letter dated 21 September 1992. It was followed by a second letter dated 22 October 1992. Both letters were sent
to Clemente's mailing address as indicated in his membership application but were sent back to sender with the postal note
that the address had been closed. 5 IDSaAH
Calatagan declared Clemente delinquent for having failed to pay his monthly dues for more than sixty (60) days,
specifically P5,600.00 as of 31 October 1992. Calatagan also included Clemente's name in the list of delinquent members
posted on the club's bulletin board. On 1 December 1992, Calatagan's board of directors adopted a resolution authorizing
the foreclosure of shares of delinquent members, including Clemente's; and the public auction of these shares.
On 7 December 1992, Calatagan sent a third and final letter to Clemente, this time signed by its Corporate
Secretary, Atty. Benjamin Tanedo, Jr. The letter contains a warning that unless Clemente settles his outstanding dues, his
share would be included among the delinquent shares to be sold at public auction on 15 January 1993. Again, this letter was
sent to Clemente's mailing address that had already been closed. 6 TEcADS
On 5 January 1993, a notice of auction sale was posted on the Club's bulletin board, as well as on the club's
premises. The auction sale took place as scheduled on 15 January 1993, and  Clemente's share sold for
P64,000. 7 According to the Certificate of Sale issued by Calatagan after the sale, Clemente's share was purchased by a
Nestor A. Virata. 8 At the time of the sale, Clemente's accrued monthly dues amounted to P5,200.00. 9 A notice of
foreclosure of Clemente's share was published in the 26 May 1993 issue of the Business World. 10
Clemente learned of the sale of his share only in November of 1997. 11 He filed a claim with the Securities and
Exchange Commission (SEC) seeking the restoration of his shareholding in Calatagan with damages.
On 15 November 2000, the SEC rendered a decision dismissing Clemente's complaint. Citing Section 69 of
the Corporation Code which provides that the sale of shares at an auction sale can only be questioned within six (6) months
from the date of sale, the SEC concluded that Clemente's claim, filed four (4) years after the sale, had already prescribed.
The SEC further held that Calatagan had complied with all the requirements for a valid sale of the subject
share, Clemente having failed to inform Calatagan that the address he had earlier supplied was no longer his
address. Clemente, the SEC ruled, had acted in bad faith in assuming as he claimed that his non-payment of monthly dues
would merely render his share "inactive". CIAHDT
Clemente filed a petition for review with the Court of Appeals. On 1 June 2004, the Court of Appeals promulgated
a decision reversing the SEC. The appellate court restored Clemente's one share with a directive to Calatagan to issue in his
a new share, * and awarded to Clemente a total of P400,000.00 in damages, less the unpaid monthly dues of P5,200.00.
In rejecting the SEC's finding that the action had prescribed, the Court of Appeals cited the SEC's own ruling
in SEC Case No. 4160, Caram  v. Valley  Golf  Country  Club, Inc., that Section 69 of the Corporation Code specifically
refers to unpaid subscriptions to capital stock, and not to any other debt of stockholders. With the insinuation that Section
69 does not apply to unpaid membership dues in non-stock corporations, the appellate court employed Article 1140 of
the Civil Code as the proper rule of prescription. The provision sets the prescription period of actions to recover movables
at eight (8) years.
The Court of Appeals also pointed out that since that Calatagan's first two demand letters had been returned to it as
sender with the notation about the closure of the mailing address, it very well knew that its third and final demand letter
also sent to the same mailing address would not be received by Clemente. It noted the by-law requirement that within ten
(10) days after the Board has ordered the sale at auction of a member's share of stock for indebtedness, the Corporate
Secretary shall notify the owner thereof and advise the Membership Committee of such fact. Finally, the Court of Appeals
ratiocinated that "a person who is in danger of the imminent loss of his property has the right to be notified and be given the
chance to prevent the loss". 12
Hence, the present appeal.
Calatagan maintains that the action of Clemente had prescribed pursuant to Section 69 of the Corporation Code,
and that the requisite notices under both the law and the by-laws had been rendered to Clemente. EHcaAI
Section 69 of the Code provides that an action to recover delinquent stock sold must be commenced by the filing of
a complaint within six (6) months from the date of sale. As correctly pointed out by the Court of Appeals, Section 69 is part
of Title VIII of the Code entitled "Stocks and Stockholders" and refers specifically to unpaid subscriptions to capital stock,
the sale of which is governed by the immediately preceding Section 68.
The Court of Appeals debunked both Calatagan's and the SEC's reliance on Section 69 by citing another SEC
ruling in the case of Caram  v. Valley  Golf. In connection with Section 69, Calatagan raises a peripheral point made in the
SEC's Caram ruling. In Caram, the SEC, using as take-off Section 6 of the Corporation Code which refers to "such rights,
privileges or restrictions as may be stated in the articles of incorporation", pointed out that the Articles of Incorporation of
Valley Golf does not "impose any lien, liability or restriction on the Golf Share [of Caram]", but only its (Valley Golf's)
By-Laws does. Here, Calatagan stresses that its own Articles of Incorporation does provide that the monthly dues assessed
on owners of shares of the corporation, along with all other obligations of the shareholders to the club, "shall constitute a
first lien on the shares . . . and in the event of delinquency such shares may be ordered sold by the Board of Directors in the
manner provided in the By-Laws to satisfy said dues or other obligations of the shareholders".  13 With its illative but
incomprehensible logic, Calatagan concludes that the prescriptive period under Section 69 should also apply to the sale
of Clemente's share as the lien that Calatagan perceives to be a restriction is stated in the articles of incorporation and not
only in the by-laws.
We remain unconvinced.
There are fundamental differences that defy equivalence or even analogy between the sale of delinquent stock
under Section 68 and the sale that occurred in this case. At the root of the sale of delinquent stock is the non-payment of the
subscription price for the share of stock itself. The stockholder or subscriber has yet to fully pay for the value of the share or
shares subscribed. In this case, Clemente had already fully paid for the share in Calatagan and no longer had any
outstanding obligation to deprive him of full title to his share. Perhaps the analogy could have been made if Clemente had
not yet fully paid for his share and the non-stock corporation, pursuant to an article or by-law provision designed to address
that situation, decided to sell such share as a consequence. But that is not the case here, and there is no purpose for us to
apply Section 69 to the case at bar. CaAIES
Calatagan argues in the alternative that Clemente's suit is barred by Article 1146 of the Civil Code which
establishes four (4) years as the prescriptive period for actions based upon injury to the rights of the plaintiff on the
hypothesis that the suit is purely for damages. As a second alternative still, Calatagan posits that Clemente's action is
governed by Article 1149 of the Civil Code which sets five (5) years as the period of prescription for all other actions
whose prescriptive periods are not fixed in the Civil Code or in any other law. Neither article is applicable but Article 1140
of the Civil Code which provides that an action to recover movables shall prescribe in eight (8) years. Calatagan's action is
for the recovery of a share of stock, plus damages.
Calatagan's advertence to the fact that the constitution of a lien on the member's share by virtue of the explicit
provisions in its Articles of Incorporation and By-Laws is relevant but ultimately of no help to its cause. Calatagan's
Articles of Incorporation states that the "dues, together with all other obligations of members to the  club, shall constitute a
first lien on the shares, second only to any lien in favor of the national or local government, and in the event of delinquency
such shares may be ordered sold by the Board of Directors in the manner provided in the By-Laws to satisfy said dues or
other obligations of the stockholders". 14 In turn, there are several provisions in the By-laws that govern the payment of
dues, the lapse into delinquency of the member, and the constitution and execution on the lien. We quote these provisions:
ARTICLE XII — MEMBER'S ACCOUNT
 SEC. 31. (a)  Billing Members, Posting of Delinquent Members. — The Treasurer shall bill all
members monthly. As soon as possible after the end of every month, a statement showing the account of bill
of a member for said month will be prepared and sent to him. If the bill of any member remains unpaid by
the 20th of the month following that in which the bill was incurred, the Treasurer shall notify him that if his
bill is not paid in full by the end of the succeeding month his name will be posted as delinquent the
following day at the Clubhouse bulletin board. While posted, a member, the immediate members of his
family, and his guests, may not avail of the facilities of the Club.
(b) Members on the delinquent list for more than 60 days shall be reported to the Board and their
shares or the shares of the juridical entities they represent shall thereafter be ordered sold by the Board at
auction to satisfy the claims of the Club as provided for in Section 32 hereon. A member may pay his
overdue account at any time before the auction sale. DTAHSI
Sec. 32. Lien on Shares; Sale of Share at Auction. — The club shall have a first lien on every share
of stock to secure debts of the members to the Club. This lien shall be annotated on the certificates of stock
and may be enforced by the Club in the following manner:
(a) Within ten (10) days after the Board has ordered the sale at auction of a member's share of stock
for indebtedness under Section 31(b) hereof, the Secretary shall notify the owner thereof, and shall advise
the Membership Committee of such fact.
(b) The Membership Committee shall then notify all applicants on the Waiting List and all
registered stockholders of the availability of a share of stock for sale at auction at a specified date, time and
place, and shall post a notice to that effect in the Club bulletin board for at least ten (10) days prior to the
auction sale. EAIcCS
(c) On the date and hour fixed, the Membership Committee shall proceed with the auction by viva
voce bidding and award the sale of the share of stock to the highest bidder.
(d) The purchase price shall be paid by the winning bidder to the Club within twenty-four (24) hours
after the bidding. The winning bidder or the representative in the case of a juridical entity shall become a
Regular Member upon payment of the purchase price and issuance of a new stock certificate in his name or
in the name of the juridical entity he represents. The proceeds of the sale shall be paid by the  Club to the
selling stockholder after deducting his obligations to the Club.
(e) If no bids be received or if the winning bidder fails to pay the amount of this bid within twenty-
four (24) hours after the bidding, the auction procedures may be repeated from time to time at the discretion
of the Membership Committee until the share of stock be sold. TCacIE
(f) If the proceeds from the sale of the share of stock are not sufficient to pay in full the
indebtedness of the member, the member shall continue to be obligated to the Club for the unpaid balance. If
the member whose share of stock is sold fails or refuse to surrender the stock certificate for cancellation,
cancellation shall be effected in the books of the Club based on a record of the proceedings. Such
cancellation shall render the unsurrendered stock certificate null and void and notice to this effect shall be
duly published.
It is plain that Calatagan had endeavored to install a clear and comprehensive procedure to govern the payment of
monthly dues, the declaration of a member as delinquent, and the constitution of a lien on the shares and its eventual public
sale to answer for the member's debts. Under Section 91 of the Corporation Code, membership in a non-stock corporation
"shall be terminated in the manner and for the causes provided in the articles of incorporation or the by-laws". The By-law
provisions are elaborate in explaining the manner and the causes for the termination of membership in Calatagan, through
the execution on the lien of the share. The Court is satisfied that the By-Laws, as written, affords due protection to the
member by assuring that the member should be notified by the Secretary of the looming execution sale that would terminate
membership in the club. In addition, the By-Laws guarantees that after the execution sale, the proceeds of the sale would be
returned to the former member after deducting the outstanding obligations. If followed to the letter, the termination of
membership under this procedure outlined in the By-Laws would accord with substantial justice. ICDSca
Yet, did Calatagan actually comply with the by-law provisions when it sold Clemente's share? The appellate court's
finding on this point warrants our approving citation, thus:
In accordance with this provision, Calatagan sent the third and final demand letter to Clemente on
December 7, 1992. The letter states that if the amount of delinquency is not paid, the share will be included
among the delinquent shares to be sold at public auction. This letter was signed by Atty. Benjamin Tanedo,
 Jr., Calatagan Golf's Corporate Secretary. It was again sent to Clemente's mailing address — Phimco
Industries Inc., P.O. Box 240, MCC Makati. As expected, it was returned because the post office box had
been closed.
Under the By-Laws, the Corporate Secretary is tasked to "give or cause to be given, all notices
required by law or by these By-Laws. . . . and . . . keep a record of the addresses of all stockholders. As
quoted above, Sec. 32 (a) of the By-Laws further provides that "within ten (10) days after the Board has
ordered the sale at auction of a member's share of stock for indebtedness under Section 31 (b) hereof, the
Secretary shall notify the owner thereof and shall advise the Membership Committee of such fact". The
records do not disclose what report the Corporate Secretary transmitted to the Membership Committee to
comply with Section 32(a). Obviously, the reason for this mandatory requirement is to give the Membership
Committee the opportunity to find out, before the share is sold, if proper notice has been made to the
shareholder member.
We presume that the Corporate Secretary, as a lawyer is knowledgeable on the law and on the
standards of good faith and fairness that the law requires. As custodian of corporate records, he should also
have known that the first two letters sent to Clemente were returned because the P.O. Box had been closed.
Thus, we are surprised — given his knowledge of the law and of corporate records — that he would send the
third and final letter — Clemente's last chance before his share is sold and his membership lost — to the
same P.O. Box that had been closed.
Calatagan argues that it "exercised due diligence before the foreclosure sale" and "sent several
notices to Clemente's specified mailing address". We do not agree; we cannot label as due
diligence Calatagan's act of sending the December 7, 1992 letter to Clemente's mailing address knowing
fully well that the P.O. Box had been closed. Due diligence or good faith imposes upon the Corporate
Secretary — the chief repository of all corporate records — the obligation to check Clemente's other address
which, under the By-Laws, have to be kept on file and are in fact on file. One obvious purpose of giving the
Corporate Secretary the duty to keep the addresses of members on file is specifically for matters of this kind,
when the member cannot be reached through his or her mailing address. Significantly, the Corporate
Secretary does not have to do the actual verification of other addressees on record; a mere clerk can do the
very simple task of checking the files as in fact clerks actually undertake these tasks. In fact, one telephone
call to Clemente's phone numbers on file would have alerted him of his impending loss.
Ultimately, the petition must fail because Calatagan had failed to duly observe both the spirit and letter of its own
by-laws. The by-law provisions was clearly conceived to afford due notice to the delinquent member of the impending sale,
and not just to provide an intricate facade that would facilitate Calatagan's sale of the share. But then, the bad faith
on Calatagan's part is palpable. As found by the Court of Appeals, Calatagan very well knew that Clemente's postal box to
which it sent its previous letters had already been closed, yet it persisted in sending that final letter to the same postal box.
What for? Just for the exercise, it appears, as it had known very well that the letter would never actually reach Clemente.
It is noteworthy that Clemente in his membership application had provided his residential address along with his
residence and office telephone numbers. Nothing in Section 32 of Calatagan's By-Laws requires that the final notice prior to
the sale be made solely through the member's mailing address. Clemente cites our aphorism-like pronouncement inRizal
Commercial Banking Corporation  v. Court of Appeals 15 that "[a] simple telephone call and an ounce of good faith . . .
could have prevented this present controversy". That memorable observation is quite apt in this case.
Calatagan's bad faith and failure to observe its own By-Laws had resulted not merely in the loss of  Clemente's
privilege to play golf at its golf course and avail of its amenities, but also in significant pecuniary damage to him. For that
loss, the only blame that could be thrown Clemente's way was his failure to notify Calatagan of the closure of the P.O. Box.
That lapse, if we uphold Calatagan would cost Clemente a lot. But, in the first place, does he deserve answerability for
failing to notify the club of the closure of the postal box? Indeed, knowing as he did that Calatagan was in possession of his
home address as well as residence and office telephone numbers, he had every reason to assume that the  club would not be
at a loss should it need to contact him. In addition, according to Clemente, he was not even aware of the closure of the
postal box, the maintenance of which was not his responsibility but his employer Phimco's.
The utter bad faith exhibited by Calatagan brings into operation Articles 19, 20 and 21 of the Civil Code, 16 under
the Chapter on Human Relations. These provisions, which the Court of Appeals did apply, enunciate a general obligation
under law for every person to act fairly and in good faith towards one another. A non-stock corporation like Calatagan is
not exempt from that obligation in its treatment of its members. The obligation of a corporation to treat every person
honestly and in good faith extends even to its shareholders or members, even if the latter find themselves contractually
bound to perform certain obligations to the corporation. A certificate of stock cannot be a charter of dehumanization.
 We turn to the matter of damages. The award of actual damages is of course warranted since Clemente has
sustained pecuniary injury by reason of Calatagan's wrongful violation of its own By-Laws. It would not be feasible to
deliver Clemente's original Certificate of Stock because it had already been cancelled and a new one issued in its place in
the name of the purchases at the auction who was not impleaded in this case. However, the Court of Appeals instead
directed that Calatagan to issue to Clemente * a new certificate of stock. That sufficiently redresses the actual damages
sustained by Clemente. After all, the certificate of stock is simply the evidence of the share.
The Court of Appeals also awarded Clemente P200,000.00 as moral damages, P100,000.00 as exemplary damages,
and P100,000.00 as attorney's fees. We agree that the award of such damages is warranted.
The Court of Appeals cited Calatagan for violation of Article 32 of the Civil Code, which allows recovery of
damages from any private individual "who directly or indirectly obstructs, defeats, violates or in any manner impedes or
impairs" the right "against deprivation of property without due process of law". The plain letter of the provision squarely
entitles Clemente to damages from Calatagan. Even without Article 32 itself, Calatagan will still be bound to pay moral and
exemplary damages to Clemente. The latter was able to duly prove that he had sustained mental anguish, serious anxiety
and wounded feelings by reason of Calatagan's acts, thereby entitling him to moral damages under Article 2217 of the Civil
Code.Moreover, it is evident that Calatagan's bad faith as exhibited in the course of its corporate actions warrants correction
for the public good, thereby justifying exemplary damages under Article 2229 of the Civil Code. SIcCEA
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals is AFFIRMED. Costs against
petitioner.
SO ORDERED.
|||  (Calatagan Golf Club, Inc. v. Clemente, Jr., G.R. No. 165443, [April 16, 2009], 603 PHIL 295-309)
 FIRST DIVISION

[G.R. No. 128690. January 21, 1999.]

ABS-CBN BROADCASTING CORPORATION, petitioner, vs. HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP., VIVA
PRODUCTIONS, INC., and VICENTE DEL ROSARIO, respondents.

Gancayco Law Offices for petitioner.

Penaflor & Perez Law Offices for Republic Broadcasting System, Inc.

Bengzon Narciso Cudala Jimenez Gonzales & Liwanag for VIVA Productions and V. del Rosario.

Belo Gozon Elma Parel Asuncion & Lucila for Republic Broadcasting System, Inc.

SYNOPSIS

In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement whereby the latter gave the former an exclusive right to exhibit 24 VIVA Films for TV telecast. Later,
VIVA, through respondent Vincent del Rosario, offered ABS-CBN a list of 3 film packages (36 titles) from which the latter may exercise its right of first refusal under their agreement. ABS-
CBN ticked off 10 titles therefrom. Thereafter, in February 1992, Del Rosario offered ABS-CBN airing rights over a package of 104 movies for P60 million. In April, 1992, Del Rosario, and
Eugenio Lopez of ABS-CBN, met at a restaurant to discuss the package proposal. According to Lopez, however, what they agreed upon was ABS-CBN's exclusive film rights to 14 films for
P36 million. Del Rosario denied the same. He insisted that the discussion was on VIVA's offer of 104 films for P60 million, to which ABS-CBN later made a counter proposal but rejected by
VIVA's Board of Directors. Hence, VIVA later granted RBS the exclusive right to air the 104 VIVA films, including the 14 films supposedly granted to ABS-CBN. ABS-CBN then filed a
complaint for specific performance with prayer for injunction. The RTC granted the prayer and required ABS-CBN post a P35 million bond, But while ABS-CBN was moving for reduction of
the bond, RBS offered to put up a counterbond and was allowed to post P30 million. Later, the RTC rendered a decision in favor of RBS and VIVA, ordering ABS-CBN to pay RBS the
amount it paid for the print advertisement and premium on the counterbond, moral damages, exemplary damages and attorney's fee. ABS-CBN appealed to the Court of Appeals. Viva and Del
Rosario also appealed seeking moral and exemplary damages and additional attorney's fees. The Court of Appeals affirmed the RTC decision and sustained the monetary awards, VIVA's and
Del Rosario's appeals were denied.

The key issues are: 1. Whether there was a perfected contract between VIVA and ABS-CBN; and 2. Whether RBS is entitled to damages and attorney's fees.

The first issue is resolved against ABS-CBN, in the absence of the requisites to make a valid contract. The alleged agreement on the 14 films, if there is one, is not binding to
VIVA as it is not manifested that Del Rosario has an authority to bind VIVA. Thus, when ABS-CBN made a counter-proposal to VIVA, the same was submitted to its Board of Directors, who
rejected the same. Further, the Court agreed that the alleged agreement is not a continuation of the 1990 Contract as the right of first refusal under the said contract had already been exercised
by ABS-CBN. However, on the issue of damages, the Court found ABS-CBN. RBS is not entitled to actual damages as the claim thereof did not arise from that which allows the same to be
recovered. Neither is RBS entitled to attorney's fees as there is no showing of bad faith in the other party's persistence in his case. Also, being a corporation, RBS is not entitled to moral
damages as the same is awarded to compensate actual injuries suffered. Lastly, exemplary damages cannot be awarded in the absence of proof that ABS-CBN was inspired by malice or bad
faith.

SYLLABUS

1. CIVIL LAW; CONTRACT; ELUCIDATED. — A contract is a meeting of minds between two persons whereby one binds himself to give something or to render some service
to another for a consideration. There is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of the contract; and (3)
cause of the obligation, which is established. A contract undergoes three stages: (a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the
moment of agreement of the parties; (b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and (c) consummation or death,
which is the fulfillment or performance of the terms agreed upon in the contract. Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is
concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of payment, a contract is produced. The offer must be certain. To convert the offer into a
contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A
qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly what
is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls the offer.

2. CORPORATION LAW; BOARD OF DIRECTORS; POWER TO ENTER INTO CONTRACTS; DELEGATION; VALIDITY THEREOF. — Under the  Corporation Code,
unless otherwise provided by said Code, corporate powers, such as the power to enter into contracts, are exercised by the Board of Directors. However, the Board may delegate such powers to
either an executive committee or officials or contracted managers. The delegation, except for the executive committee, must be for specific purposes. Delegation to officers makes the latter
agents of the corporation; accordingly, the general rules of agency as to the binding effects of their acts would apply. For such officers to be deemed fully clothed by the corporation to exercise
a power of the Board, the latter must specially authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN's counter-offer was best evidenced by his submission of
the draft contract to VIVA'S Board of Directors for the latter's approval. In any event, there was between Del Rosario and Lopez III no meeting of minds.

3. CIVIL LAW; OBLIGATIONS AND CONTRACTS; DAMAGES; ACTUAL DAMAGES; ELABORATED. — Chapter 2, Title XVIII, Book IV of the Civil Code is the
specific law on actual or compensatory damages. Except as provided by law or by stipulation, one is entitled to compensation for actual damages only for such pecuniary loss suffered by him
as he has duly proved. The indemnification shall comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed to obtain. In contracts and quasi-contracts
the damages which may be awarded are dependent on whether the obligor acted with good faith or otherwise. In case of good faith, the damages recoverable are those which are the natural and
probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time of the constitution of the obligation. If the obligor acted
with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. In crimes and quasi-
delicts, the defendant shall be liable for all damages which are the natural and probable consequences of the act or omission complained of, whether or not such damages have been foreseen or
could have reasonably been foreseen by the defendant. Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal
injury, or for injury to the plaintiff's business standing or commercial credit. DIETcC

4. ID.; ID.; ID.; ID.; CASE AT BAR. — The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the fact of filing of
the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Needless to state, the award of actual damages cannot be comprehended under the law on actual damages. RBS
could only probably take refuge under Articles 19, 20, and 21 of the Civil Code. It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the
defendant may suffer by reason of the writ are recoverable from the injunctive bond. In this case, ABS-CBN had not yet filed the required bond; as a matter of fact, it asked for reduction of the
bond and even went to the Court of Appeals to challenge the order on the matter. Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible
for the premium RBS paid for the counterbond. Neither could ABS-CBN be liable for the print advertisements for " Maging Sino Ka Man" for lack of sufficient legal basis. The RTC issued a
temporary restraining order and later, a writ of preliminary injunction on the basis of its determination that there existed sufficient grounds for the issuance thereof. Notably, the RTC did not
dissolve the injunction on the ground of lack of legal and factual basis, but because of the plea of RBS that it be allowed to put up a counterbond.

5. ID.; ID.; ID.; ID.; ATTORNEY'S FEES; ELABORATED. — As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as
actual or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. The general rule is that attorney's fees cannot be recovered as part of damages
because of the policy that no premium should be placed on the right of litigate. They are not to be awarded every time a party wins a suit. The power of the court to award attorney's fees under
Article 2208 demands factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees
may not be awarded where no sufficient showing of bad faith could be reflected in a party's persistence in a case other than an erroneous conviction of the righteousness of his cause.

6. ID.; ID.; ID.; MORAL DAMAGES; ELABORATED. — As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof
defines what are included in moral damages, while Article 2219 enumerates the cases where they may be recovered. Article 2220 provides that moral damages may be recovered in breaches of
contract where the defendant acted fraudulently or in bad faith. Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose
a penalty on the wrongdoer. The award is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements that
will serve to obviate the moral suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual  status quo ante, and should be proportionate to the
suffering inflicted. Trial courts must then guard against the award of exorbitant damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it was due to
passion, prejudice, or corruption on the part of the trial court.

7. ID.; ID.; ID.; ID.; CASE AT BAR. — RBS's claim for moral damages could possibly fall only under item (10) of Article 2219, thereof which reads: (10) Acts and actions
referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. However, the award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having
existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish, which can be experienced only by one
having a nervous system. The statement in People v. Manero and Mambulao Lumber Co. v. PNB that a corporation may recover moral damages if it "has a good reputation that is debased,
resulting in social humiliation" is an obiter dictum. On this score alone the award for damages must be set aside, since RBS is a corporation.

8. ID.; ID.; ID.; EXEMPLARY DAMAGES; ELUCIDATED. — The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are
imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. They are recoverable in criminal cases as part of the civil
liability when the crime was committed with one or more aggravating circumstances; in  quasi-delicts, if the defendant acted with gross negligence; and in contracts and quasi-contracts, if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

9. ID.; ID.; ID.; ID.; CASE AT BAR. — The claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi-delict. Hence, the claims for moral and
exemplary damages can only be based on Articles 19, 20, and 21 of the Civil Code. The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty,
(2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for all other provisions of law which do not especially
provide for their own sanction; while Article 21 deals with acts contra bonus mores, and has the following elements: (1) there is an act which is legal, (2) but which is contrary to morals, good
custom, public order, or public policy, and (3) and it is done with intent to injure. Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a
conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. Such must be substantiated by evidence. There is no adequate proof that ABS-CBN was
inspired by malice or bad faith. It was honestly convinced of the merits of its cause after it had undergone serious negotiations culminating in its formal submission of a draft contract. Settled is
the rule that the adverse result of an action does not per se make the action wrongful and subject the actor to damages, for the law could not have meant to impose a penalty on the right to
litigate. If damages result from a person's exercise of a right, it is damnum absque injuria. TIADCc

DECISION

DAVIDE, JR., C.J p:

In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) seeks to reverse
and set aside the decision 1 of 31 October 1996 and the resolution 2 of 10 March 1997 of the Court of Appeals in CA-G.R. CV
No. 44125. The former affirmed with modification the decision 3 of 28 April 1993 of the Regional Trial Court (RTC) of Quezon
City, Branch 80, in Civil Case No. Q-92-12309. The latter denied the motion to reconsider the decision of 31 October 1996. llcd
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:
In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A") whereby Viva gave
ABS-CBN an exclusive right to exhibit some Viva films. Sometime in December 1991, in accordance with
paragraph 2.4 [sic] of said agreement stating that —
 1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV
telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such right
shall be exercised by ABS-CBN from the actual offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-
Concio, a list of three (3) film packages (36 title) from which ABS-CBN may exercise its right of first refusal
under the afore-said agreement (Exhs. "1" par. 2, "2," "2-A" and "2-B" - Viva). ABS-CBN, however through Mrs.
Concio, "can tick off only ten (10) titles" (from the list) "we can purchase" (Exh. "3" - Viva) and therefore did not
accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case
at bar except the film "Maging Sino Ka Man."
For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" - Viva) is hereby quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to express my
difficulty in recommending the purchase of the three film packages you are offering ABS-CBN.
From among the three packages I can only tick off 10 titles we can purchase. Please see
attached. I hope you will understand my position. Most of the action pictures in the list do not have big
action stars in the cast. They are not for primetime. In line with this I wish to mention that I have not
scheduled for telecast several action pictures in our very first contract because of the cheap production
value of these movies as well as the lack of big action stars. As a film producer, I am sure you understand
what I am trying to say as Viva produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only schedule
them in our non-primetime slots. We have to cover the amount that was paid for these movies because as
you very well know that non-primetime advertising rates are very low. These are the unaired titles in the
first contract.
1. Kontra Persa [sic]
2. Raider Platoon
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. Lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been rejected because of the
ruling of MTRCB to have them aired at 9:00 p.m. due to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the
other Viva movies produced last year. I have quite an attractive offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio, with a list consisting
of 52 original movie titles (i.e. not yet aired on television) including the 14 titles subject of the present case, as
well as 104 re-runs (previously aired on television) from which ABS-CBN may choose another 52 titles, as a total
of 156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 re-runs for
P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots (Exh. "4"
to "4-C" - Viva; "9" - Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBN's general manager, Eugenio Lopez III, met at
the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of Viva. What transpired in that
 lunch meeting is the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly
agreed that ABS-CBN was granted exclusive film rights to fourteen (14) films for a total consideration of P36
million; that he allegedly put this agreement as to the price and number of films in a "napkin" and signed it and
gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand, Del Rosario denied
having made any agreement with Lopez regarding the 14 Viva films; denied the existence of a napkin in which
Lopez wrote something; and insisted that what he and Lopez discussed at the lunch meeting was Viva's film
package offer of 104 films (52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic]
to make a counter proposal which came in the form of a proposal contract Annex "C" of the complaint (Exh. "1" -
Viva; Exh. "C" - ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance
discussed the terms and conditions of Viva's offer to sell the 104 films, after the rejection of the same package by
ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note from Ms.
Concio, (Exh. "5" - Viva), which reads: "Here's the draft of the contract. I hope you find everything in order," to
which was attached a draft exhibition agreement (Exh. "C" - ABS-CBN; Exh. "9" - Viva, p. 3) a counter-proposal
covering 53 films, 52 of which came from the list sent by defendant Del Rosario and one film was added by Ms.
Concio, for a consideration of P35 million. Exhibit "C" provides that ABS-CBN is granted film rights to 53 films
and contains a right of first refusal to "1992 Viva Films." The said counter proposal was however rejected by
Viva's Board of Directors [in the] evening of the same day, April 7, 1992, as Viva would not sell anything less
than the package of 104 films for P60 million pesos (Exh. "9" - Viva), and such rejection was relayed to Ms.
Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings
defendant Del Rosario and Viva's President Teresita Cruz, in consideration of P60 million, signed a letter of
agreement dated April 24, 1992, granting RBS the exclusive right to air 104 Viva-produced and/or acquired films
(Exh. "7-A" - RBS; Exh. "4" - RBS) including the fourteen (14) films subject of the present case. 4
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of
preliminary injunction and/or temporary restraining order against private respondents Republic Broadcasting
Corporation 5 (hereafter RBS), Viva Productions (hereafter VIVA), and Vicente del Rosario. The complaint was docketed as
Civil Case No. Q-92-12309.
On 28 May 1992, the RTC issued a temporary restraining order 6 enjoining private respondents from proceeding with
the airing, broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the film Maging Sino
Ka Man, which was scheduled to be shown on private respondent RBS' channel 7 at seven o'clock in the evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an order 7 directing the issuance of a writ of preliminary
injunction upon ABS-CBN's posting of a P35 million bond. ABS-CBN moved for the reduction of the bond, 8 while private
respondents moved for reconsideration of the order and offered to put up a counterbond. 9
In the meantime, private respondents filed separate answers with counterclaim. 10 RBS also set up a cross-claim against
VIVA.
On 3 August 1992, the RTC issued an order 11 dissolving the writ of preliminary injunction upon the posting by RBS of
a P30 million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However, it
reduced petitioner's injunction bond to P15 million as a condition precedent for the reinstatement of the writ of preliminary
injunction should private respondents be unable to post a counterbond.
At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the court, agreed to explore the possibility of an
amicable settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30 million
counterbond in the event that no settlement would be reached.
As the parties failed to enter into an amicable settlement, RBS posted on 1 October 1992 a counterbond, which the RTC
approved in its Order of 15 October 1992. 13
On 19 October 1992, ABS-CBN filed a motion for reconsideration 14 of the 3 August and 15 October 1992 Orders,
which RBS opposed. 15
On 29 October 1992, the RTC conducted a pre-trial. 16
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition 17 challenging
the RTC's Orders of 3 August and 15 October 1992 and praying for the issuance of a writ of preliminary injunction to enjoin the
RTC from enforcing said orders. The case was docketed as CA-G.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining order 18 to enjoin the airing, broadcasting,
and televising of any or all of the films involved in the controversy.
 On 18 December 1992, the Court of Appeals promulgated a decision 19 dismissing the petition in CA-G.R. SP No.
29300 for being premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January 1993,
which was docketed as G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-92-12309. Thereafter, on 28 April
1993, it rendered a decision 20 in favor of RBS and VIVA and against ABS-CBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is rendered in favor
of defendants and against the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00, the amount of premium paid by RBS to the surety which issued defendant RBS's bond to
lift the injunction;
b) P191,843.00 for the amount of print advertisement for "Maging Sino Ka Man" in various newspapers;
c) Attorney's fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable attorney's fees.
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement
between Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was
disapproved during the meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-CBN's demand that VIVA
signed the 1992 Film Exhibition Agreement. Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had
previously been exercised per Ms. Concio's letter to Del Rosario ticking off ten titles acceptable to them, which would have made
the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied 21 ABS-CBN's petition for review in G.R. No. 108363, as no reversible error was
committed by the Court of Appeals in its challenged decision and the case had "become moot and academic in view of the
dismissal of the main action by the court a quo in its decision" of 28 April 1993.
Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected
contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private respondents
VIVA and Del Rosario also appealed seeking moral and exemplary damages and additional attorney's fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABS-CBN and
VIVA had not been perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, it's agent, might
have agreed with Lopez III. The appellate court did not even believe ABS-CBN's evidence that Lopez III actually wrote down
such an agreement on a "napkin," as the same was never produced in court. It likewise rejected ABS-CBN's insistence on its right
of first refusal and ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was
entered into between Appellant ABS-CBN and appellant VIVA under Exhibit "A" in 1990, and that parag. 1.4
thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for
TV telecast under such terms as may be agreed upon by the parties hereto, provided, however, that such
right shall be exercised by ABS-CBN within a period of fifteen (15) days from the actual offer in writing
(Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subject to
such terms as may be agreed upon by the parties thereto, and that the said right shall be exercised by ABS-CBN
within fifteen (15) days from the actual offer in writing. cdll
Said parag. 1.4 of the agreement Exhibit "A" on the right of first refusal did not fix the price of the film
right to the twenty-four (24) films, nor did it specify the terms thereof. The same are still left to be agreed upon by
the parties.
 In the instant case, ABS-CBN's letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick
off ten (10) films, and the draft contract Exhibit "C" accepted only fourteen (14) films, while parag. 1.4 of Exhibit
"A" speaks of the next twenty-four (24) films.
The offer of VIVA was sometime in December 1991 (Exhibits 2, 2-A, 2-B; Records, pp. 86-88;
Decision, p. 11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN.
The Vice President of ABS-CBN, Mrs. Charo Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3,
Records, p. 89) where ABS-CBN exercised its right of refusal by rejecting the offer of VIVA. As aptly observed
by the trial court, with the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first
refusal. And even if We reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when
another list was sent to ABS-CBN after the letter of Mrs. Concio, still the fifteen (15) day period within which
ABS-CBN shall exercise its right of first refusal has already expired. 22
Accordingly, respondent court sustained the award of actual damages consisting in the cost of print advertisements and
the premium payments for the counterbond, there being adequate proof of the pecuniary loss which RBS had suffered as a result
of the filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found reasonable basis
therefor, holding that RBS's reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-
showing of the film "Maging Sino Ka Man." Respondent court also held that exemplary damages were correctly imposed by way
of example or correction for the public good in view of the filing of the complaint despite petitioner's knowledge that the contract
with VIVA had not been perfected. It also upheld the award of attorney's fees, reasoning that with ABS-CBN's act of instituting
Civil Case No. Q-92-12309, RBS was "unnecessarily forced to litigate." The appellate court, however, reduced the awards of
moral damages to P2 million, exemplary damages to P2 million, and attorney's fees to P500,000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was "RBS and not
VIVA which was actually prejudiced when the complaint was filed by ABS-CBN."
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the Court of
Appeals gravely erred in
I
. . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE
RESPONDENT VIVA NOTWITHSTANDING PREPONDERANCE OF EVIDENCE ADDUCED BY
PETITIONER TO THE CONTRARY.
II
. . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE
RESPONDENT RBS.
III
. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT
RBS.
IV
. . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film
Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopez's testimony that
he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the 1992 Film
Exhibition Agreement) and upon agreement thereon, wrote the same on a paper napkin. It also asserts that the contract has already
been effective, as the elements thereof, namely, consent, object, and consideration were established. It then concludes that the
Court of Appeals' pronouncements were not supported by law and jurisprudence, as per our decision of 1 December 1995
in Limketkai Sons Milling, Inc. v. Court of Appeals, 23 which cited Toyota Shaw, Inc. v. Court of Appeals, 24 Ang Yu Asuncion
v. Court of Appeals; 25 and Villonco Realty Company v. Bormaheco, Inc. 26
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium on the
counterbond of its own volition in order to negate the injunction issued by the trial court after the parties had ventilated their
respective positions during the hearings for the purpose. The filing of the counterbond was an option available to RBS, but it can
hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS had another available option, i.e., move for
the dissolution of the injunction; or if it was determined to put up a counterbond, it could have presented a cash
bond. Furthermore under Article 2203 of the Civil Code, the party suffering loss or injury is also required to exercise the diligence
of a good father of a family to minimize the damages resulting from the act or omission. As regards the cost of print
advertisements, RBS had not convincingly established that this was a loss attributable to the non-showing of "Maging Sino Ka
Man"; on the contrary, it was brought out during trial that with or without the case or the injunction, RBS would have spent such
an amount to generate interest in the film.
 ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages. The
controversy involving ABS-CBN and RBS did not in any way originate from business transaction between them. The claims for
such damages did not arise from any contractual dealings or from specific acts committed by ABS-CBN against RBS that may be
characterized as wanton, fraudulent, or reckless; they arose by virtue only of the filing of the complaint. An award of moral and
exemplary damages is not warranted where the record is bereft of any proof that a party acted maliciously or in bad faith in filing
an action. 27 In any case, free resort to courts for redress of wrongs is a matter of public policy. The law recognizes the right of
every one to sue for that which he honestly believes to be his right without fear of standing trial for damages where by lack of
sufficient evidence, legal technicalities, or a different interpretation of the laws on the matter, the case would lose ground. 28 One
who makes use of his own legal right does no injury. 29 If damage results from the filing of the complaint, it is damnum absque
injuria. 30 Besides, moral damages are generally not awarded in favor of a juridical person, unless it enjoys a good reputation
that was debased by the offending party resulting in social humiliation. 31
As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual, legal, or equitable
justification. In sustaining the trial court's award, the Court of Appeals acted in clear disregard of the doctrine laid down in Buan
v. Camaganacan 32 that the text of the decision should state the reason why attorney's fees are being awarded; otherwise, the
award should be disallowed. Besides, no bad faith has been imputed on, much less proved as having been committed by, ABS-
CBN. It has been held that "where no sufficient showing of bad faith would be reflected in a party's persistence in a case other
than an erroneous conviction of the righteousness of his cause, attorney's fees shall not be recovered as cost." 33
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent any meeting
of minds between them regarding the object and consideration of the alleged contract. It affirms that ABS-CBN's claim of a right
of first refusal was correctly rejected by the trial court. RBS insists the premium it had paid for the counterbond constituted a
pecuniary loss upon which it may recover. It was obliged to put up the counterbond due to the injunction procured by ABS-CBN.
Since the trial court found that ABS-CBN had no cause of action or valid claim against RBS and, therefore not entitled to the writ
of injunction, RBS could recover from ABS-CBN the premium paid on the counterbond. Contrary to the claim of ABS-CBN, the
cash bond would prove to be more expensive, as the loss would be equivalent to the cost of money RBS would forego in case the
P30 million came from its funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film "Maging
Sino Ka Man" because the print advertisements were put out to announce the showing on a particular day and hour on Channel
7, i.e., in its entirety at one time, not as series to be shown on a periodic basis. Hence, the print advertisements were good and
relevant for the particular date of showing, and since the film could not be shown on that particular date and hour because of the
injunction, the expenses for the advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions purely for
the purpose of harassing and prejudicing RBS. Pursuant then to Articles 19 and 21 of the Civil Code, ABS-CBN must be held
liable for such damages. Citing Tolentino, 34 damages may be awarded in cases of abuse of rights even if the act done is not
illicit, and there is abuse of rights where a plaintiff institutes an action purely for the purpose of harassing or prejudicing the
defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages, private respondent RBS
cited People v. Manero, 35 where it was stated that such entity may recover moral and exemplary damages if it has a good
reputation that is debased resulting in social humiliation. It then ratiocinates; thus:
There can be no doubt that RBS' reputation has been debased by ABS-CBN's acts in this case. When
RBS was not able to fulfill its commitment to the viewing public to show the film "Maging Sino Ka Man" on the
scheduled dates and times (and on two occasions that RBS advertised), it suffered serious embarrassment and
social humiliation. When the showing was canceled, irate viewers called up RBS' offices and subjected RBS to
verbal abuse ("Announce kayo ng announce, hindi ninyo naman ilalabas", "nanloloko yata kayo") (Exh. 3-RBS,
par. 3). This alone was not something RBS brought upon itself. It was exactly what ABS-CBN had planned to
happen.
The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the
amount of the award.
The first is that the humiliation suffered by RBS is national in extent. RBS' operations as a broadcasting
company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watch television.
It is not an exaggeration to state, and it is a matter of judicial notice that almost every other person in the country
watches television. The humiliation suffered by RBS is multiplied by the number of televiewers who had
anticipated the showing of the film "Maging Sino Ka Man" on May 28 and November 3, 1992 but did not see it
owing to the cancellation. Added to this are the advertisers who had placed commercial spots for the telecast and
to whom RBS had a commitment in consideration of the placement to show the film in the dates and times
specified.
 The second is that it is a competitor that caused RBS to suffer the humiliation. The humiliation and injury
are far greater in degree when caused by an entity whose ultimate business objective is to lure customers (viewers
in this case) away from the competition. 36
For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of Appeals
do not support ABS-CBN's claim that there was a perfected contract. Such factual findings can no longer be disturbed in this
petition for review under Rule 45, as only questions of law can be raised, not questions of fact. On the issue of damages and
attorneys fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN, and
(2) whether RBS is entitled to damages and attorney's fees. It may be noted that the award of attorney's fees of P212,000 in favor
of VIVA is not assigned as another error.
I
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons whereby
one binds himself to give something or to render some service to another 37 for a consideration. There is no contract unless the
following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of the contract; and (3)
cause of the obligation, which is established. 38 A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the
moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the
contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. 39
Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is concurrence
between the offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is produced. The
offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the
offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or
one that involves a new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when
something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent
because any modification or variation from the terms of the offer annuls the offer. 40
When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the
package of films, said package of 104 VIVA films was VIVA's offer to ABS-CBN to enter into a new Film Exhibition
Agreement. But ABS-CBN, sent, through Ms. Concio, a counter-proposal in the form of a draft contract proposing exhibition of
53 films for a consideration of P35 million. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez
during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA's offer, for it was
met by a counter-offer which substantially varied the terms of the offer.
ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of Appeals 41 and Villonco Realty Company
v. Bormaheco, Inc., 42 is misplaced. In these cases, it was held that an acceptance may contain a request for certain changes in the
terms of the offer and yet be a binding acceptance as long as "it is clear that the meaning of the acceptance is positively and
unequivocally to accept the offer, whether such request is granted or not." This ruling was, however, reversed in the resolution of
29 March 1996, 43 which ruled that the acceptance of an offer must be unqualified and absolute, i.e., it "must be identical in all
respects with that of the offer so as to produce consent or meeting of the minds."
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material but
merely clarificatory of what had previously been agreed upon. It cited the statement in Stuart v. Franklin Life Insurance
Co. 44 that "a vendor's change in a phrase of the offer to purchase, which change does not essentially change the terms of the
offer, does not amount to a rejection of the offer and the tender of a counter-offer." 45 However, when any of the elements of the
contract is modified upon acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer. Hence, they underwent a period of
bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract. VIVA through its Board of
Directors, rejected such counter-offer. Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the
acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific authority to do so.
Under the Corporation Code, 46 unless otherwise provided by said Code, corporate powers, such as the power to enter
into contracts, are exercised by the Board of Directors. However, the Board may delegate such powers to either an executive
committee or officials or contracted managers. The delegation, except for the executive committee, must be for specific
purposes. 47 Delegation to officers makes the latter agents of the corporation; accordingly, the general rules of agency as to the
binding effects of their acts would apply. 48 For such officers to be deemed fully clothed by the corporation to exercise a power
of the Board, the latter must specially authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN's
counter-offer was best evidenced by his submission of the draft contract to VIVA's Board of Directors for the latter's approval. In
any event, there was between Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are
instructive:
A number of considerations militate against ABS-CBN's claim that a contract was perfected at that lunch
meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the
number of films, which he wrote on a napkin. However, Exhibit "C" contains numerous provisions which were
not discussed at the Tamarind Grill, if Lopez testimony was to be believed nor could they have been physically
written on a napkin. There was even doubt as to whether it was a paper napkin or a cloth napkin. In short what
were written in Exhibit "C" were not discussed, and therefore could not have been agreed upon, by the parties.
How then could this court compel the parties to sign Exhibit "C" when the provisions thereof were not previously
agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14
films. The complaint in fact prays for delivery of 14 films. But Exhibit "C" mentions 53 films as its subject matter.
Which is which? If Exhibit "C" reflected the true intent of the parties, then ABS-CBN's claim for 14 films in its
complaint is false or if what it alleged in the complaint is true, then Exhibit "C" did not reflect what was agreed
upon by the parties. This underscores the fact that there was no meeting of the minds as to the subject matter of
the contract, so as to preclude perfection thereof. For settled is the rule that there can be no contract where there is
no object certain which is its subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. "D") states:
"We were able to reach an agreement. VIVA gave us the exclusive license to show these
fourteen (14) films, and we agreed to pay Viva the amount of P16,050,000.00 as well as grant Viva
commercial slots worth P19,950,000.00. We had already earmarked this P16,050,000.00."
which gives a total consideration of P36 million (P19,950,000.00 plus P16,050,000.00 equals
P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q What was written in this napkin?
A The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7 Viva movies
because the price was broken down accordingly. The none [sic] Viva and the seven other Viva movies
and the sharing between the cash portion and the concerned spot portion in the total amount of P35
million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit "C" to Mr. Del
Rosario with a handwritten note, describing said Exhibit "C" as a "draft." (Exh. "5" - Viva; tsn pp. 23-24, June 08,
1992). The said draft has a well defined meaning.
xxx xxx xxx
Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing prepared for
discussion, the terms and conditions thereof could not have been previously agreed upon by ABS-CBN and Viva.
Exhibit "C" could not therefore legally bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the
terms and conditions embodied in Exhibit "C" were prepared by ABS-CBN's lawyers and there was no discussion
on said terms and conditions . . .
As the parties had not yet discussed the proposed terms and conditions in Exhibit "C," and there was no
evidence whatsoever that Viva agreed to the terms and conditions thereof, said document cannot be a binding
contract. The fact that Viva refused to sign Exhibit "C" reveals only two [sic] well that it did not agree on its terms
and conditions, and this court has no authority to compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill
was only provisional, in the sense that it was subject to approval by the Board of Directors of Viva. He
testified: LLpr
Q Now, Mr. Witness, and after that Tamarind meeting . . . the second meeting wherein you claimed that you have
the meeting of the minds between you and Mr. Vic del Rosario, what happened?
A Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the Board of
Directors.
 Q And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?
A Yes, sir.
Q So, he was going to forward that to the board of Directors for approval?
A Yes, sir. (Tsn, pp. 42-43, June 8, 1992)
xxx xxx xxx
Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority
to bind Viva to a contract with ABS-CBN until and unless its Board of Directors approved it. The complaint, in
fact, alleges that Mr. Del Rosario "is the Executive Producer of defendant Viva" which "is a corporation." (par. 2,
complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what he did is ratified by its Board
of Directors. (Vicente vs. Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere
agent, recognized as such by plaintiff, Del Rosario could not be held liable jointly and severally with Viva and his
inclusion as party defendant has no legal basis. (Salonga vs. Warner Barner [sic], COLTA, 88 Phil. 125; Salmon
vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was
supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding
agreement. It is as it should be because corporate power to enter into a contract is lodged in the Board of
Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board, whatever agreement
Lopez and Del Rosario arrived at could not ripen into a valid contract binding upon Viva (Yao Ka Sin Trading vs.
Court of Appeals, 209 SCRA 763). The evidence adduced shows that the Board of Directors of Viva rejected
Exhibit "C" and insisted that the film package for 104 films be maintained (Exh. "7-1" - Viva). 49
The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990
Film Exhibition Agreement and that the meeting between Lopez and Del Rosario was a continuation of said previous contract is
untenable. As observed by the trial court, ABS-CBN's right of first refusal had already been exercised when Ms. Concio wrote to
VIVA ticking off ten films. Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an
entirely different package. Ms. Concio herself admitted on cross-examination to having used or exercised the right
of first refusal. She stated that the list was not acceptable and was indeed not accepted by ABS-CBN (TSN, June
8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of first refusal may have been already
exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and understand
[sic] that ABS-CBN has lost its right of first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp.
10-11). 50
II
However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII,
Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by stipulation,
one is entitled to compensation for actual damages only for such pecuniary loss suffered by him as he has duly proved. 51 The
indemnification shall comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed to
obtain. 52 In contracts and quasi-contracts the damages which may be awarded are dependent on whether the obligor acted with
good faith or otherwise. In case of good faith, the damages recoverable are those which are the natural and probable consequences
of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time of the
constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation. 53 In crimes and quasi-delicts, the
defendant shall be liable for all damages which are the natural and probable consequences of the act or omission complained of,
whether or not such damages have been foreseen or could have reasonably been foreseen by the defendant. 54
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or
permanent personal injury, or for injury to the plaintiff's business standing or commercial credit. 55
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the
fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Thus paragraph 12 of RBS's
Answer with Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action against RBS. As a result
thereof, RBS suffered actual damages in the amount of P6,621,195.32. 56
Needless to state the award of actual damages cannot be comprehended under the above law on actual damages. RBS could only
probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows.
 ART. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.
ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall
indemnify the latter for the same.
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.
It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the
defendant may suffer by reason of the writ are recoverable from the injunctive bond. 57 In this case, ABS-CBN had not yet filed
the required bond; as a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge the
order on the matter. Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held
responsible for the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of sufficient legal
basis. The RTC issued a temporary restraining order and later, a writ of preliminary injunction on the basis of its determination
that there existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve the injunction on the ground of
lack of legal and factual basis, but because of the plea of RBS that it be allowed to put up a counterbond.
As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as actual or
compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. 58
The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium
should be placed on the right to litigate. 59 They are not to be awarded every time a party wins a suit. The power of the court to
award attorney's fees under Article 2208 demands factual, legal, and equitable justification. 60 Even when a claimant is
compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where no
sufficient showing of bad faith could be reflected in a party's persistence in a case other than an erroneous conviction of the
righteousness of his cause. 61
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof
defines what are included in moral damages, while Article 2219 enumerates the cases where they may be recovered. Article 2220
provides that moral damages may be recovered in breaches of contract where the defendant acted fraudulently or in bad
faith. RBS's claim for moral damages could possibly fall only under item (10) of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.
Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and not to
impose a penalty on the wrongdoer. 62 The award is not meant to enrich the complainant at the expense of the defendant, but to
enable the injured party to obtain means, diversion, or amusements that will serve to obviate the moral suffering he has
undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be
proportionate to the suffering inflicted. 63 Trial courts must then guard against the award of exorbitant damages; they should
exercise balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the
part of the trial court. 64
The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having
existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical
suffering and mental anguish which can be experienced only by one having a nervous system. 65 The statement in People
v. Manero 66 and Mambulao Lumber Co. v. PNB 67 that a corporation may recover moral damages if it "has a good reputation
that is debased, resulting in social humiliation" is an obiter dictum. On this score alone the award for damages must be set aside,
since RBS is a corporation.
The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed
by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory
damages. 68 They are recoverable in criminal cases as part of the civil liability when the crime was committed with one or more
aggravating circumstances; 69 in quasi-delicts, if the defendant acted with gross negligence; 70 and in contracts and quasi-
contracts, if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. 71
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi-
delict. Hence, the claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which is
exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for
all other provisions of law which do not especially provide for their own sanction; while Article 21 deals with acts contra bonus
mores, and has the following elements: (1) there is an act which is legal, (2) but which is contrary to morals, good custom, public
order, or public policy, and (3) and it is done with intent to injure. 72
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral obliquity. 73 Such must be substantiated by evidence. 74
 There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the merits
of its cause after it had undergone serious negotiations culminating in its formal submission of a draft contract. Settled is the rule
that the adverse result of an action does not per se make the action wrongful and subject the actor to damages, for the law could
not have meant to impose a penalty on the right to litigate. If damages result from a person's exercise of a right, it is damnum
absque injuria. 75
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No.
44125 is hereby REVERSED except as to unappealed award of attorney's fees in favor of VIVA Productions, Inc.
No pronouncement as to costs. prLL
SO ORDERED.
||| (ABS-CBN Broadcasting Corp. v. Court of Appeals, G.R. No. 128690, [January 21, 1999], 361 PHIL 499-532)

SECOND DIVISION

[G.R. No. 128066. June 19, 2000.]

JARDINE DAVIES INC., petitioner, vs. COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

[G.R. No. 128069. June 19, 2000.]

PUREFOODS CORPORATION, petitioner, vs. COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

Abello Concepcion Regala & Cruz for Jardine Davies, Inc.

Hilario Go & Sasing for Pure Foods Corp.

Farcon Gabriel Farcon & Associates for FEMSCO.

SYNOPSIS

In November 1992, a bidding for the supply and installation of generators at Purefoods Corporation was held. In a letter dated December 12, 1992, Purefoods confirmed the award
of the contract to Far East Mills Supply Corporation (FEMSCO). Immediately, FEMSCO submitted the required performance bond and contractor's all-risk insurance policy. Later, however, in
a letter dated December 22, 1992, Purefoods unilaterally canceled the award and subsequently entered into a contract with Jardine Nell. FEMSCO sued both Purefoods and Jardine: Purefoods
for reneging on its contract, and Jardine, for its unwarranted interference and inducement. The trial court rendered judgment against Purefoods and dismissed the complaint against Jardine. On
appeal, the judgment against Purefoods was affirmed and the dismissal of the complaint against Jardine, reversed. The motions for reconsideration having been denied, Purefoods and Jardine
resorted to this action.

Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. The bid proposals or quotations submitted by FEMSCO are the
offers. The December 12, 1992 letter of Purefoods to FEMSCO constituted acceptance of respondent FEMSCO's offer as contemplated by law. The tenor of the letter, i.e., "This will confirm
that Pure Foods has awarded to your firm (FEMSCO) the project," could not be more categorical.

While it may seem that Purefoods and Jardine connived to deceive Femsco, there was no specific evidence on record to support such perception. Likewise, there was no showing
whatsoever that JARDINE induced PUREFOODS.

SYLLABUS

1. CIVIL LAW; CONTRACTS; PERFECTED BY ACCEPTANCE OF OFFER; CASE AT BAR. — The 12 December 1992 letter of petitioner PUREFOODS to FEMSCO
constituted acceptance of respondent FEMSCO's offer as contemplated by law. The tenor of the letter,  i.e., "This will confirm that Pure Foods has awarded to your firm (FEMSCO) the project,
could not be more categorical. While the same letter enumerated certain "basic terms and conditions," these conditions were imposed on the performance of the obligation rather than on the
perfection of the contract.

2. ID.; ID.; ID.; ACCEPTANCE, EXPRESS OR IMPLIED, MAY BE INFERRED FROM CONTEMPORANEOUS AND SUBSEQUENT ACTS OF CONTRACTING
PARTIES. — But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a "conditional counter-offer," respondent FEMCO's submission of the
performance bond and contractor's all-risk insurance was an implied acceptance, if not a clear indication of its acquiescence to, the "conditional counter-offer," which expressly stated that the
performance bond and the contractor's all-risk insurance should be given upon the commencement of the contract. Corollarily, the acknowledgment thereof by petitioner PUREFOODS, not to
mention its return of FEMSCO's bidder's bond, was a concrete manifestation of its knowledge that respondent FEMSCO indeed consented to the "conditional counter-offer." After all, an
acceptance may either be express or implied, and this can be inferred from the contemporaneous and subsequent acts of the contracting parties.
 3. ID.; DAMAGES; MORAL DAMAGES; TARNISHED REPUTATION REQUIRED FOR GRANT THEREOF TO CORPORATION. — This Court has awarded in the past
moral damages to a corporation whose reputation has been besmirched. In the instant case, respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately
ordered equipment from its suppliers on account of the urgency of the project, only to be canceled later. We thus sustain respondent appellate court's award of moral damages. We however
reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are never intended to enrich the recipient.

4. ID.; ID.; ID.; GRANT MUST BE SUPPORTED BY EVIDENCE. — Petitioner JARDINE maintains that respondent appellate court erred in ordering it to pay moral damages to
respondent FEMSCO as it supposedly induced PUREFOODS to violate the contract with FEMSCO. We agree. While it may seem that petitioners PUREFOODS and JARDINE connived to
deceive respondent FEMSCO, we find no specific evidence on record to support such perception. Likewise, there is no showing whatsoever that petitioner JARDINE induced petitioner
PUREFOODS. The similarity in the design submitted to petitioner PUREFOODS by both petitioner JARDINE and respondent FEMSCO, and the tender of lower quotation by petitioner
JARDINE are insufficient to show that petitioner JARDINE indeed induced petitioner PUREFOODS to violate its contract with respondent FEMSCO. EDCIcH

DECISION

BELLOSILLO, J p:

This is rather a simple case for specific performance with damages which could have been resolved through mediation and
conciliation during its infancy stage had the parties been earnest in expediting the disposal of this case. They opted however to resort
to full court proceedings and denied themselves the benefits of alternative dispute resolution, thus making the process more arduous
and long-drawn.
The controversy started in 1992 at the height of the power crisis which the country was then experiencing. To remedy and
curtail further losses due to the series of power failures, petitioner PURE FOODS CORPORATION (hereafter PUREFOODS) decided
to install two (2) 1500 KW generators in its food processing plant in San Roque, Marikina City.
Sometime in November 1992 a bidding for the supply and installation of the generators was held. Several suppliers and
dealers were invited to attend a pre-bidding conference to discuss the conditions, propose scheme and specifications that would best
suit the needs of PUREFOODS. Out of the eight (8) prospective bidders who attended the pre-bidding conference, only three (3)
bidders, namely, respondent FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO), MONARK and ADVANCE
POWER submitted bid proposals and gave bid bonds equivalent to 5% of their respective bids, as required.
Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS confirmed the
award of the contract to FEMSCO —
Gentlemen:
This will confirm that Pure Foods Corporation has awarded to your firm the project: Supply and
Installation of two (2) units of 1500 KW/unit Generator Sets at the Processed Meats Plant, Bo. San Roque,
Marikina, based on your proposal number PC 28-92 dated November 20, 1992, subject to the following basic
terms and conditions:
1. Lump sum contract of P6,137, 293.00 (VAT included), for the supply of materials and labor for the
local portion and the labor for the imported materials, payable by progress billing twice a month, with ten percent
(10%) retention. The retained amount shall be released thirty (30) days after acceptance of the completed project
and upon posting of Guarantee Bond in an amount equivalent to twenty percent (20%) of the contract price. The
Guarantee Bond shall be valid for one (1) year from completion and acceptance of project. The contract price
includes future increase/s in costs of materials and labor;
2. The project shall be undertaken pursuant to the attached specifications. It is understood that any item
required to complete the project, and those not included in the list of items shall be defined included and covered
and shall be performed;
3. All materials shall be brand new;
4. The project shall commence immediately and must be completed within twenty (20) working days
after the delivery of Generator Set to Marikina Plant, penalty equivalent to 1/10 of 1% of the purchase price for
every day of delay;
5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the contract price, and
shall procure All Risk Insurance equivalent to the contract price upon commencement of the project. The All Risk
Insurance Policy shall be endorsed in favor of and shall be delivered to Pure Foods Corporation;
6. Warranty of one (1) year against detective material and/or workmanship.
Once finalized, we shall ask you to sign the formal contract embodying the foregoing terms and
conditions.
 Immediately, FEMSCO submitted the required performance bond in the amount of P1,841,187.90 and contractor's all-risk
insurance policy in the amount of P6,137,293.00 which PUREFOODS through its Vice President Benedicto G. Tope acknowledged in
a letter dated 18 December 1992. FEMSCO also made arrangements with its principal and started the PUREFOODS project by
purchasing the necessary materials. PUREFOODS on the other hand returned FEMSCO's Bidder's Bond in the amount of
P1,000,000.00, as requested.
Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President Teodoro L. Dimayuga
unilaterally cancelled the award as "significant factors were uncovered and brought to (their) attention which dictate (the) cancellation
and warrant a total review and re-bid of (the) project." Consequently, FEMSCO protested the cancellation of the award and sought a
meeting with PUREFOODS. However, on 26 March 1993, before the matter could be resolved, PUREFOODS already awarded the
project and entered into a contract with JARDINE NELL, a division of Jardine Davies, Inc. (hereafter JARDINE), which incidentally
was not one of the bidders.
FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and desist from
delivering and installing the two (2) generators at PUREFOODS. Its demand letters unheeded, FEMSCO sued both PUREFOODS and
JARDINE: PUREFOODS for reneging on its contract, and JARDINE for its unwarranted interference and inducement. Trial ensued.
After FEMSCO presented its evidence, JARDINE filed a Demurrer to Evidence.
On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, 1 granted JARDINE's Demurrer to Evidence. The trial court
concluded that "[w]hile it may seem to the plaintiff that by the actions of the two defendants there is something underhanded going on,
this is all a matter of perception, and unsupported by hard evidence, mere suspicions and suppositions would not stand up very well in
a court of law." 2 Meanwhile, trial proceeded as regards the case against PUREFOODS.
On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the sum of
P2,300,000.00 representing the value of engineering services it rendered; (b) to pay FEMSCO the sum of US$14,000.00 or its peso
equivalent, and P900,000.00 representing contractor's mark-up on installation work, considering that it would be impossible to compel
PUREFOODS to honor, perform and fulfill its contractual obligations in view of PUREFOOD's contract with JARDINE and noting
that construction had already started thereon; (c) to pay attorney's fees in an amount equivalent to 20% of the total amount due; and,
(d) to pay the costs. The trial court dismissed the counterclaim filed by PUREFOODS for lack of factual and legal basis.
Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994 Resolution of the
trial court which granted the Demurrer to Evidence filed by JARDINE resulting in the dismissal of the complaint against it, while
PUREFOODS appealed the 28 July 1994 Decision of the same court which ordered it to pay FEMSCO.
On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial court. 3 It also reversed the
27 June 1994 Resolution of the lower court and ordered JARDINE to pay FEMSCO damages for inducing PUREFOODS to violate
the latter's contract with FEMSCO. As such, JARDINE was ordered to pay FEMSCO P2,000,000.00 for moral damages. In addition,
PUREFOODS was also directed to pay FEMSCO P2,000,000.00 as moral damages and P1,000,000.00 as exemplary damages as well
as 20% of the total amount due as attorney's fees.
On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for reconsideration filed by
PUREFOODS and JARDINE. Hence, these two (2) petitions for review filed by PUREFOODS and JARDINE which were
subsequently consolidated.
PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised on a
misapprehension of facts. It argues that its 12 December 1992 letter to FEMSCO was not an acceptance of the latter's bid proposal and
award of the project but more of a qualified acceptance constituting a counter-offer which required FEMSCO's
express conforme. Since PUREFOODS never received FEMSCO's conforme, PUREFOODS was very well within reason to revoke its
qualified acceptance or counter-offer. Hence, no contract was perfected between PUREFOODS and FEMSCO. PUREFOODS also
contends that it was never in bad faith when it dealt with FEMSCO. Hence moral and exemplary damages should not have been
awarded.
Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the supposed contract
between PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the latter's alleged contract with FEMSCO.
Moreover, JARDINE reasons that FEMSCO, an artificial person, is not entitled to moral. But granting arguendo that the award of
moral damages is proper, P2,000,000.00 is extremely excessive.
In the main, these consolidated cases present two (2) issues: first, whether there existed a perfected contract between
PUREFOODS and FEMSCO; and second, granting there existed a perfected contract, whether there is any showing that JARDINE
induced or connived with PUREFOODS to violate the latter's contract with FEMSCO.
A contract is defined as "a juridical convention manifested in legal form, by virtue of which one or more persons bind
themselves in favor of another for others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do."  4 There can be
no contract unless the following requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject matter
of the contract; and, (c) cause of the obligation which is established. 5 A contract binds both contracting parties and has the force of
law between them.
 Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From that
moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law. 6 To produce a contract, the acceptance must not qualify
the terms of the offer. However, the acceptance may be express or implied. 7 For a contract to arise, the acceptance must be made
known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror.
In the instant case, there is no issue as regards the subject matter of the contract and the cause of the obligation. The
controversy lies in the consent — whether there was an acceptance of the offer, and if so, if it was communicated, thereby perfecting
the contract.
To resolve the dispute, there is a need to determine what constituted the offer and the acceptance. Since petitioner
PUREFOODS started the process of entering into the contract by conducting a bidding, Art. 1326 of the Civil Code, which provides
that ''[a]advertisements for bidders are simply invitations to make proposals," applies. Accordingly, the Terms and Conditions of the
Bidding disseminated by petitioner PUREFOODS constitutes the "advertisement" to bid on the project. The bid proposals or
quotations submitted by the prospective suppliers including respondent FEMSCO, are the offers. And, the reply of petitioner
PUREFOODS, the acceptance or rejection of the respective offers.
Quite obviously, the 12 December 1992 letter of petitioner PUREFOODS to FEMSCO constituted acceptance of respondent
FEMSCO's offer as contemplated by law. The tenor of the letter, i.e., "This will confirm that Pure Foods has awarded to your firm
(FEMSCO) the project," could not be more categorical. While the same letter enumerated certain "basic terms and conditions," these
conditions were imposed on the performance of the obligation rather than on the perfection of the contract. Thus, the first "condition"
was merely a reiteration of the contract price and billing scheme based on the Terms and Conditions of Bidding and the bid or
previous offer of respondent FEMSCO. The second and third "conditions" were nothing more than general statements that all items
and materials including those excluded in the list but necessary to complete the project shall be deemed included and should be brand
new. The fourth "condition" concerned the completion of the work to be done, i.e., within twenty (20) days from the delivery of the
generator set, the purchase of which was part of the contract. The fifth "condition" had to do with the putting up of a performance
bond and an all-risk insurance, both of which should be given upon commencement of the project. The sixth "condition" related to the
standard warranty of one (1) year. In fine, the enumerated "basic terms and conditions" were prescriptions on how the obligation was
to be performed and implemented. They were far from being conditions imposed on the perfection of the contract.
In Babasa v. Court of Appeals 8 we distinguished between a condition imposed on the perfection of a contract and a
condition imposed merely on the performance of an obligation. While failure to comply with the first condition results in the failure of
a contract, failure to comply with the second merely gives the other party options and/or remedies to protect his interests.
We thus agree with the conclusion of respondent appellate court which affirmed the trial court —
As can be inferred from the actual phrase used in the first portion of the letter, the decision to award the
contract has already been made. The letter only serves as a confirmation of such decision. Hence, to the Court's
mind, there is already an acceptance made of the offer received by Purefoods; Notwithstanding the terms and
conditions enumerated therein, the offer has been accepted and/or amplified the details of the terms and conditions
contained in the Terms and Conditions of Bidding given out by Purefoods to prospective bidders. 9
But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a "conditional counter-
offer," respondent FEMCO's submission of the performance bond and contractor's all-risk insurance was an implied acceptance, if not
a clear indication of its acquiescence to, the "conditional counter-offer," which expressly stated that the performance bond and the
contractor's all-risk insurance should be given upon the commencement of the contract. Corollarily, the acknowledgment thereof by
petitioner PUREFOODS, not to mention its return of FEMSCO's bidder's bond, was a concrete manifestation of its knowledge that
respondent FEMSCO indeed consented to the "conditional counter-offer." After all, as earlier adverted to, an acceptance may either be
express or implied, 10 and this can be inferred from the contemporaneous and subsequent acts of the contracting parties.
Accordingly, for all intents and purposes, the contract at that point has been perfected, and respondent
FEMSCO's conforme would only be a mere surplusage. The discussion of the price of the project two (2) months after the 12
December 1992 letter can be deemed as nothing more than a pressure being exerted by petitioner PUREFOODS on respondent
FEMSCO to lower the price even after the contract had been perfected. Indeed from the facts, it can easily be surmised that petitioner
PUREFOODS was haggling for a lower price even after agreeing to the earlier quotation, and was threatening to unilaterally cancel
the contract, which it eventually did. Petitioner PUREFOODS also makes an issue out of the absence of a purchase order (PO). Suffice
it to say that purchase orders or POs do not make or break a contract. Thus, even the tenor of the subsequent letter of petitioner
PUREFOODS, i.e., "Pure Foods Corporation is hereby canceling the award to your company of the project," presupposes that the
contract has been perfected. For, there can be no cancellation if the contract was not perfected in the first place.
Petitioner PUREFOODS also argues that it was never in bad faith. On the contrary, it believed in good faith that no such
contract was perfected. We are not convinced. We subscribe to the factual findings and conclusions of the trial court which were
affirmed by the appellate court —
 Hence, by the unilateral cancellation of the contract, the defendant (petitioner PURE FOODS) has acted
with bad faith and this was further aggravated by the subsequent inking of a contract between defendant
Purefoods and erstwhile co-defendant Jardine. It is very evident that Purefoods thought that by the expedient
means of merely writing a letter would automatically cancel or nullify the existing contract entered into by both
parties after a process of bidding. This, to the Court's mind, is a flagrant violation of the express provisions of the
law and is contrary to fair and just dealings to which every man is due. 11
This Court has awarded in the past moral damages to a corporation whose reputation has been besmirched. 12 In the instant
case, respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered equipment from its
suppliers on account of the urgency of the project, only to be canceled later. We thus sustain respondent appellate court's award of
moral damages. We however reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are never intended to enrich
the recipient. Likewise, the award of exemplary damages by way of example for the public good is excessive and should be reduced to
P100,000.00.
Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it to pay moral damages to
respondent FEMSCO as it supposedly induced PUREFOODS to violate the contract with FEMSCO. We agree. While it may seem
that petitioners PUREFOODS and JARDINE connived to deceive respondent FEMSCO, we find no specific evidence on record to
support such perception. Likewise, there is no showing whatsoever that petitioner JARDINE induced petitioner PUREFOODS. The
similarity in the design submitted to petitioner PUREFOODS by both petitioner JARDINE and respondent FEMSCO, and the tender
of a lower quotation by petitioner JARDINE are insufficient to show that petitioner JARDINE indeed induced petitioner
PUREFOODS to violate its contract with respondent FEMSCO.
WHEREFORE, judgment is hereby rendered as follows:
(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of Appeals reversing the 27 June 1994
resolution of the trial court and ordering petitioner JARDINE DAVIES, INC., to pay private respondent FAR EAST MILLS SUPPLY
CORPORATION P2,000,000.00 as moral damages is REVERSED and SET ASIDE for insufficiency of evidence; and
(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of Appeals ordering petitioner PURE
FOODS CORPORATION to pay private respondent FAR EAST MILLS SUPPLY CORPORATION the sum of P2,300,000.00
representing the value of engineering services it rendered, US$14,000.00 or its peso equivalent, and P900,000.00 representing the
contractor's mark-up on installation work, as well as attorney's fees equivalent to twenty percent (20%) of the total amount due, is
AFFIRMED. In addition, petitioner PURE FOODS CORPORATION is ordered to pay private respondent FAR EAST MILLS
SUPPLY CORPORATION moral damages in the amount of P1,000,000.00 and exemplary damages in the amount of P1,000,000.00.
Costs against petitioner.
SO ORDERED.
||| (Jardine Davies Inc. v. Court of Appeals, G.R. Nos. 128066 & 128069, [June 19, 2000], 389 PHIL 204-216)
SECOND DIVISION
 [G.R. No. 172428. November 28, 2008.]

HERMAN C. CRYSTAL, LAMBERTO C. CRYSTAL, ANN GEORGIA C. SOLANTE, and DORIS C. MAGLASANG, as Heirs of Deceased SPOUSES
RAYMUNDO I. CRYSTAL and DESAMPARADOS C. CRYSTAL, petitioners, vs. BANK OF THE PHILIPPINE ISLANDS, respondent.

DECISION

TINGA, J p:

Before us is a Petition for Review 1 of the Decision 2 and Resolution 3 of the Court of Appeals dated 24 October
2005 and 31 March 2006, respectively, in CA G.R. CV No. 72886, which affirmed the 8 June 2001 decision of the
Regional Trial Court, Branch 5, of Cebu City. 4 CHEDAc
The facts, as culled from the records, follow.
On 28 March 1978, spouses Raymundo and Desamparados Crystal obtained a P300,000.00 loan in behalf of the
Cebu Contractors Consortium Co. (CCCC) from the Bank of the Philippine Islands-Butuan branch (BPI-Butuan). The loan
was secured by a chattel mortgage on heavy equipment and machinery of CCCC. On the same date, the spouses executed in
favor of BPI-Butuan a Continuing Suretyship 5 where they bound themselves as surety of CCCC in the aggregate principal
sum of not exceeding P300,000.00. Thereafter, or on 29 March 1979, Raymundo Crystal executed a promissory note  6 for
the amount of P300,000.00, also in favor of BPI-Butuan.
Sometime in August 1979, CCCC renewed a previous loan, this time from BPI, Cebu City branch (BPI-Cebu
City). The renewal was evidenced by a promissory note 7 dated 13 August 1979, signed by the spouses in their personal
capacities and as managing partners of CCCC. The promissory note states that the spouses are jointly and severally liable
with CCCC. It appears that before the original loan could be granted, BPI-Cebu City required CCCC to put up a security.
However, CCCC had no real property to offer as security for the loan; hence, the spouses executed a real estate
mortgage 8 over their own real property on 22 September 1977. 9 On 3 October 1977, they executed another real estate
mortgage over the same lot in favor of BPI-Cebu City, to secure an additional loan of P20,000.00 of CCCC. 10
CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when they became due. CCCC, as well as the
spouses, failed to pay their obligations despite demands. Thus, BPI resorted to the foreclosure of the chattel mortgage and
the real estate mortgage. The foreclosure sale on the chattel mortgage was initially stalled with the issuance of a restraining
order against BPI. 11 However, following BPI's compliance with the necessary requisites of extrajudicial foreclosure, the
foreclosure sale on the chattel mortgage was consummated on 28 February 1988, with the proceeds amounting to
P240,000.00 applied to the loan from BPI-Butuan which had then reached P707,393.90. 12 Meanwhile, on 7 July 1981,
Insular Bank of Asia and America (IBAA), through its Vice-President for Legal and Corporate Affairs, offered to buy the
lot subject of the two (2) real estate mortgages and to pay directly the spouses' indebtedness in exchange for the release of
the mortgages. BPI rejected IBAA's offer to pay. 13
BPI filed a complaint for sum of money against CCCC and the spouses before the Regional Trial Court of Butuan
City (RTC Butuan), seeking to recover the deficiency of the loan of CCCC and the spouses with BPI-Butuan. The trial
court ruled in favor of BPI. Pursuant to the decision, BPI instituted extrajudicial foreclosure of the spouses' mortgaged
property. 14 THEDcS
On 10 April 1985, the spouses filed an action for  Injunction With Damages, With A Prayer For A Restraining
Order and/or Writ of Preliminary Injunction. 15 The spouses claimed that the foreclosure of the real estate mortgages is
illegal because BPI should have exhausted CCCC's properties first, stressing that they are mere guarantors of the renewed
loans. They also prayed that they be awarded moral and exemplary damages, attorney's fees, litigation expenses and cost of
suit. Subsequently, the spouses filed an amended complaint, 16 additionally alleging that CCCC had opened and maintained
a foreign currency savings account (FCSA-197) with BPI, Makati branch (BPI-Makati), and that said FCSA was used as
security for a P450,000.00 loan also extended by BPI-Makati. The P450,000.00 loan was allegedly paid, and thereafter the
spouses demanded the return of the FCSA passbook. BPI rejected the demand; thus, the spouses were unable to withdraw
from the said account to pay for their other obligations to BPI.
The trial court dismissed the spouses' complaint and ordered them to pay moral and exemplary damages and
attorney's fees to BPI. 17 It ruled that since the spouses agreed to bind themselves jointly and severally, they are solidarily
liable for the loans; hence, BPI can validly foreclose the two real estate mortgages. Moreover, being guarantors-mortgagors,
the spouses are not entitled to the benefit of exhaustion. Anent the FCSA, the trial court found that CCCC originally had
FCDU SA No. 197 with BPI, Dewey Boulevard branch, which was transferred to BPI-Makati as FCDU SA 76/0035, at the
request of Desamparados Crystal. FCDU SA 76/0035 was thus closed, but Desamparados Crystal failed to surrender the
passbook because it was lost. The transferred FCSA in BPI-Makati was the one used as security for CCCC's P450,000.00
loan from BPI-Makati. CCCC was no longer allowed to withdraw from FCDU SA No. 197 because it was already closed.
The spouses appealed the decision of the trial court to the Court of Appeals, but their appeal was dismissed.  18 The
spouses moved for the reconsideration of the decision, but the Court of Appeals also denied their motion for
reconsideration. 19 Hence, the present petition.
Before the Court, petitioners who are the heirs of the spouses argue that the failure of the spouses to pay the BPI-
Cebu City loan of P120,000.00 was due to BPI's illegal refusal to accept payment for the loan unless the P300,000.00 loan
from BPI-Butuan would also be paid. Consequently, in view of BPI's unjust refusal to accept payment of the BPI-Cebu City
loan, the loan obligation of the spouses was extinguished, petitioners contend.
The contention has no merit. Petitioners rely on IBAA's offer to purchase the mortgaged lot from them and to
directly pay BPI out of the proceeds thereof to settle the loan. 20 BPI's refusal to agree to such payment scheme cannot
extinguish the spouses' loan obligation. In the first place, IBAA is not privy to the loan agreement or the promissory note
between the spouses and BPI. Contracts, after all, take effect only between the parties, their successors in interest, heirs and
assigns. 21 Besides, under Art. 1236 of the Civil Code, the creditor is not bound to accept payment or performance by a
third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. We see no
stipulation in the promissory note which states that a third person may fulfill the spouses' obligation. Thus, it is clear that
the spouses alone bear responsibility for the same. aTEScI
In any event, the promissory note is the controlling repository of the obligation of the spouses. Under the
promissory note, the spouses defined the parameters of their obligation as follows:
On or before June 29, 1980 on demand, for value received, I/we promise to pay, jointly and
severally, to the BANK OF THE PHILIPPINE ISLANDS, at its office in the city of Cebu Philippines, the
sum of ONE HUNDRED TWENTY THOUSAND PESOS (P120,000.00), Philippine Currency, subject to
periodic installments on the principal as follows: P30,000.00 quarterly amortization starting September 28,
1979. . . . 22
A solidary obligation is one in which each of the debtors is liable for the entire obligation, and each of the creditors
is entitled to demand the satisfaction of the whole obligation from any or all of the debtors. 23 A liability is solidary "only
when the obligation expressly so states, when the law so provides or when the nature of the obligation so
requires." 24 Thus, when the obligor undertakes to be "jointly and severally" liable, it means that the obligation is
solidary, 25 such as in this case. By stating "I/we promise to pay, jointly and severally, to the BANK OF THE PHILIPPINE
ISLANDS," the spouses agreed to be sought out and be demanded payment from, by BPI. BPI did demand payment from
them, but they failed to comply with their obligation, prompting BPI's valid resort to the foreclosure of the chattel mortgage
and the real estate mortgages.
More importantly, the promissory note, wherein the spouses undertook to be solidarily liable for the principal loan,
partakes the nature of a suretyship and therefore is an additional security for the loan. Thus we held in one case that if
solidary liability was instituted to "guarantee" a principal obligation, the law deems the contract to be one of
suretyship. 26 And while a contract of a surety is in essence secondary only to a valid principal obligation, the surety's
liability to the creditor or promisee of the principal is said to be direct, primary, and absolute; in other words, the surety is
directly and equally bound with the principal. The surety therefore becomes liable for the debt or duty of another even if he
possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom. 27
Petitioners contend that the Court of Appeals erred in not granting their counterclaims, considering that they
suffered moral damages in view of the unjust refusal of BPI to accept the payment scheme proposed by IBAA and the
allegedly unjust and illegal foreclosure of the real estate mortgages on their property. 28 Conversely, they argue that the
Court of Appeals erred in awarding moral damages to BPI, which is a corporation, as well as exemplary damages,
attorney's fees and expenses of litigation. 29 EDSAac
We do not agree. Moral damages are meant to compensate the claimant for any physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injuries
unjustly caused. 30 Such damages, to be recoverable, must be the proximate result of a wrongful act or omission the factual
basis for which is satisfactorily established by the aggrieved party. 31 There being no wrongful or unjust act on the part of
BPI in demanding payment from them and in seeking the foreclosure of the chattel and real estate mortgages, there is no
lawful basis for award of damages in favor of the spouses.
Neither is BPI entitled to moral damages. A juridical person is generally not entitled to moral damages because,
unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety,
mental anguish or moral shock. 32 The Court of Appeals found BPI as "being famous and having gained its familiarity and
respect not only in the Philippines but also in the whole world because of its good will and good reputation must protect and
 defend the same against any unwarranted suit such as the case at bench." 33 In holding that BPI is entitled to moral
damages, the Court of Appeals relied on the case of People v. Manero, 34 wherein the Court ruled that "[i]t is only when a
juridical person has a good reputation that is debased, resulting in social humiliation, that moral damages may be
awarded." 35
We do not agree with the Court of Appeals. A statement similar to that made by the Court in  Manero can be found
in the case of Mambulao Lumber Co. v. PNB, et al., 36 thus:
. . . 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. A corporation may have good reputation which, if besmirched may
also be a ground for the award of moral damages. . . . (Emphasis supplied)
Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of Appeals, et al., 37 and Filipinas
Broadcasting Network, Inc. v. Ago Medical and Educational Center-Bicol Christian College of Medicine  (AMEC-
BCCM), 38 the Court held that the statements in  Manero  and  Mambulao were mere  obiter dicta, implying that the award
of moral damages to corporations is not a hard and fast rule. Indeed, while the Court may allow the grant of moral damages
to corporations, it is not automatically granted; there must still be proof of the existence of the factual basis of the damage
and its causal relation to the defendant's acts. This is so because moral damages, though incapable of pecuniary estimation,
are in the category of an award designed to compensate the claimant for actual injury  suffered and not to impose a penalty
on the wrongdoer. 39 CcADHI
The spouses' complaint against BPI proved to be unfounded, but it does not automatically entitle BPI to moral
damages. Although the institution of a clearly unfounded civil suit can at times be a legal justification for an award of
attorney's fees, such filing, however, has almost invariably been held not to be a ground for an award of moral damages.
The rationale for the rule is that the law could not have meant to impose a penalty on the right to litigate. Otherwise, moral
damages must every time be awarded in favor of the prevailing defendant against an unsuccessful plaintiff.  40 BPI may
have been inconvenienced by the suit, but we do not see how it could have possibly suffered besmirched reputation on
account of the single suit alone. Hence, the award of moral damages should be deleted.
The awards of exemplary damages and attorney's fees, however, are proper. Exemplary damages, on the other
hand, are imposed by way of example or correction for the public good, when the party to a contract acts in a wanton,
fraudulent, oppressive or malevolent manner, while attorney's fees are allowed when exemplary damages are awarded and
when the party to a suit is compelled to incur expenses to protect his interest. 41 The spouses instituted their complaint
against BPI notwithstanding the fact that they were the ones who failed to pay their obligations. Consequently, BPI was
forced to litigate and defend its interest. For these reasons, BPI is entitled to the awards of exemplary damages and
attorney's fees.
WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals dated 24 October
2005 and 31 March 2006, respectively, are hereby AFFIRMED, with the MODIFICATION that the award of moral
damages to Bank of the Philippine Islands is DELETED.
Costs against the petitioners.
SO ORDERED.
|||  (Crystal v. Bank of the Philippine Islands, G.R. No. 172428, [November 28, 2008], 593 PHIL 344-356)
 FIRST DIVISION

[G.R. No. 141994. January 17, 2005.]

FILIPINAS BROADCASTING NETWORK, INC., petitioner,vs.AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE
OF MEDICINE, (AMEC-BCCM) and ANGELITA F. AGO, respondents.

DECISION

CARPIO, J p:

The Case
This petition for review 1 assails the 4 January 1999 Decision 2 and 26 January 2000 Resolution of the Court of Appeals in
CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 1992 Decision  3 of the Regional Trial
Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held Filipinas Broadcasting Network, Inc. and its
broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical and Educational
Center-Bicol Christian College of Medicine moral damages, attorney's fees and costs of suit.
The Antecedents
"Exposé" is a radio documentary 4 program hosted by Carmelo 'Mel' Rima ("Rima") and Hermogenes ‘Jun' Alegre
("Alegre"). 5 Exposé is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. ("FBNI").
"Exposé" is heard over Legazpi City, the Albay municipalities and other Bicol areas. 6
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers
and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine ("AMEC") and its administrators.
Claiming that the broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as Dean of AMEC's College of Medicine, filed a
complaint for damages 7 against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the allegedly libelous
broadcasts: ETHCDS
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM,
advise them to pass all subjects because if they fail in any subject they will repeat their year level, taking up all
subjects including those they have passed already.Several students had approached me stating that they had
consulted with the DECS which told them that there is no such regulation. If [there] is no such regulation why is
AMEC doing the same?
xxx xxx xxx
Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized
by DECS. ...
Third: Students are required to take and pay for the subject even if the subject does not have an
instructor — such greed for money on the part of AMEC's administration.Take the subject Anatomy: students
would pay for the subject upon enrolment because it is offered by the school. However there would be no
instructor for such subject. Students would be informed that course would be moved to a later date because the
school is still searching for the appropriate instructor.
xxx xxx xxx
It is a public knowledge that the Ago Medical and Educational Center has survived and has been
surviving for the past few years since its inception because of funds support from foreign foundations. If you will
take a look at the AMEC premises you'll find out that the names of the buildings there are foreign soundings.
There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable
evidence that the support of foreign foundations for AMEC is substantial, isn't it? With the report which is the
basis of the expose in DZRC today, it would be very easy for detractors and enemies of the Ago family to stop the
flow of support of foreign foundations who assist the medical school on the basis of the latter's purpose. But if the
purpose of the institution (AMEC) is to deceive students at cross purpose with its reason for being it is possible
for these foreign foundations to lift or suspend their donations temporarily. 8
xxx xxx xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-
Institute of Mass Communication in their effort to minimize expenses in terms of salary are absorbing or
continues to accept "rejects".For example how many teachers in AMEC are former teachers of Aquinas
University but were removed because of immorality? Does it mean that the present administration of AMEC have
the total definite moral foundation from catholic administrator of Aquinas University. I will prove to you my
friends, that AMEC is a dumping ground, garbage, not merely of moral and physical misfits.Probably they only
qualify in terms of intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family name implies.
She is too old to work, being an old woman. Is the AMEC administration exploiting the very [e]nterprising or
compromising and undemanding Lola? Could it be that AMEC is just patiently making use of Dean Justita Lola
were if she is very old. As in atmospheric situation — zero visibility — the plane cannot land, meaning she is very
old, low pay follows. By the way, Dean Justita Lola is also the chairman of the committee on scholarship in
AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made use of her. TcDAHS
xxx xxx xxx
MEL RIMA:
...My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people.
What does this mean? Immoral and physically misfits as teachers.
 May I say I'm sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit
to teach. You are too old. As an aviation, your case is zero visibility. Don't insist.
...Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that.
The reason is practical cost saving in salaries, because an old person is not fastidious, so long as she has money to
buy the ingredient of beetle juice. The elderly can get by — that's why she (Lola) was taken in as Dean.
xxx xxx xxx
...On our end our task is to attend to the interests of students. It is likely that the students would be
influenced by evil. When they become members of society outside of campus will be liabilities rather than
assets.What do you expect from a doctor who while studying at AMEC is so much burdened with unreasonable
imposition? What do you expect from a student who aside from peculiar problems — because not all students are
rich — in their struggle to improve their social status are even more burdened with false
regulations. ... 9 (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposés, FBNI, Rima and
Alegre "transmitted malicious imputations, and as such, destroyed plaintiffs' (AMEC and Ago) reputation." AMEC and Ago included
FBNI as defendant for allegedly failing to exercise due diligence in the selection and supervision of its employees, particularly Rima
and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer 10 alleging that the broadcasts
against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public duty to report
the "goings-on in AMEC, [which is] an institution imbued with public interest." prcd
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, collaborating counsel
of Atty. Lozares, filed a Motion to Dismiss 11 on FBNI's behalf. The trial court denied the motion to dismiss. Consequently, FBNI
filed a separate Answer claiming that it exercised due diligence in the selection and supervision of Rima and Alegre. FBNI claimed
that before hiring a broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an apprenticeship
and training program after passing the interview. FBNI likewise claimed that it always reminds its broadcasters to "observe truth,
fairness and objectivity in their broadcasts and to refrain from using libelous and indecent language." Moreover, FBNI requires all
broadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas ("KBP") accreditation test and to secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision 12 finding FBNI and Alegre liable for libel except Rima. The trial
court held that the broadcasts are libelous per se.The trial court rejected the broadcasters' claim that their utterances were the result of
straight reporting because it had no factual basis. The broadcasters did not even verify their reports before airing them to show good
faith. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the selection and supervision of its
employees.
In absolving Rima from the charge, the trial court ruled that Rima's only participation was when he agreed with Alegre's
exposé. The trial court found Rima's statement within the "bounds of freedom of speech, expression, and of the press." The dispositive
portion of the decision reads:
WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of
damages caused by the controversial utterances, which are not found by this court to be really very serious and
damaging, and there being no showing that indeed the enrollment of plaintiff school dropped,defendants
Hermogenes "Jun" Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio station DZRC),are hereby
jointly and severally ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian College of
Medicine (AMEC-BCCM) the amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of
attorney's fees, and to pay the costs of suit. DETcAH
SO ORDERED. 13 (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision to the
Court of Appeals. The Court of Appeals affirmed the trial court's judgment with modification. The appellate court made Rima
solidarily liable with FBNI and Alegre. The appellate court denied Ago's claim for damages and attorney's fees because the broadcasts
were directed against AMEC, and not against her. The dispositive portion of the Court of Appeals' decision reads:
 
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that
broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED. 14
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000
Resolution.
 Hence, FBNI filed this petition. 15
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial court's ruling that the questioned broadcasts are libelous  per se and that FBNI, Rima
and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found Rima and Alegre's claim that they were
actuated by their moral and social duty to inform the public of the students' gripes as insufficient to justify the utterance of the
defamatory remarks.
Finding no factual basis for the imputations against AMEC's administrators, the Court of Appeals ruled that the broadcasts
were made "with reckless disregard as to whether they were true or false." The appellate court pointed out that FBNI, Rima and
Alegre failed to present in court any of the students who allegedly complained against AMEC. Rima and Alegre merely gave a single
name when asked to identify the students. According to the Court of Appeals, these circumstances cast doubt on the veracity of the
broadcasters' claim that they were "impelled by their moral and social duty to inform the public about the students' gripes."
The Court of Appeals found Rima also liable for libel since he remarked that "(1) AMEC-BCCM is a dumping ground for
morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize expenses on its employees'
salaries; and (3) AMEC burdened the students with unreasonable imposition and false regulations." 16
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its employees for
allowing Rima and Alegre to make the radio broadcasts without the proper KBP accreditation. The Court of Appeals denied Ago's
claim for damages and attorney's fees because the libelous remarks were directed against AMEC, and not against her. The Court of
Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages, attorney's fees and costs of suit. CIAacS
Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEY'S FEES IS PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL
DAMAGES, ATTORNEY'S FEES AND COSTS OF SUIT.
The Court's Ruling
We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against
AMEC. 17 While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint reveals that AMEC's
cause of action is based on Articles 30 and 33 of the Civil Code.Article 30 18 authorizes a separate civil action to recover civil liability
arising from a criminal offense. On the other hand, Article 33 19 particularly provides that the injured party may bring a separate civil
action for damages in cases of defamation, fraud, and physical injuries. AMEC also invokes Article 19 20 of the Civil Code to justify
its claim for damages. AMEC cites Articles 2176 21 and 2180 22 of the Civil Code to hold FBNI solidarily liable with Rima and
Alegre.
I.
Whether the broadcasts are libelous
A libel 23 is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission,
condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical person, or to blacken
the memory of one who is dead. 24
There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to cause it
dishonor, discredit and contempt. Rima and Alegre's remarks such as "greed for money on the part of AMEC's
administrators";"AMEC is a dumping ground, garbage of ...moral and physical misfits";and AMEC students who graduate "will be
liabilities rather than assets" of the society are libelous per se.Taken as a whole, the broadcasts suggest that AMEC is a money-
making institution where physically and morally unfit teachers abound. HDCAaS
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly impelled by
their civic duty to air the students' gripes. FBNI alleges that there is no evidence that ill will or spite motivated Rima and Alegre in
making the broadcasts. FBNI further points out that Rima and Alegre exerted efforts to obtain AMEC's side and gave Ago the
opportunity to defend AMEC and its administrators. FBNI concludes that since there is no malice, there is no libel.
FBNI's contentions are untenable.
 Every defamatory imputation is presumed malicious. 25 Rima and Alegre failed to show adequately their good intention and
justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public affairs program, Rima and Alegre
should have presented the public issues "free from inaccurate and misleading information." 26 Hearing the students' alleged
complaints a month before the exposé, 27 they had sufficient time to verify their sources and information. However, Rima and Alegre
hardly made a thorough investigation of the students' alleged gripes. Neither did they inquire about nor confirm the purported
irregularities in AMEC from the Department of Education, Culture and Sports. Alegre testified that he merely went to AMEC to verify
his report from an alleged AMEC official who refused to disclose any information. Alegre simply relied on the words of the students
"because they were many and not because there is proof that what they are saying is true."  28 This plainly shows Rima and Alegre's
reckless disregard of whether their report was true or not.
Contrary to FBNI's claim, the broadcasts were not "the result of straight reporting." Significantly, some courts in the United
States apply the privilege of "neutral reportage" in libel cases involving matters of public interest or public figures. Under this
privilege, a republisher who accurately and disinterestedly reports certain defamatory statements made against public figures is
shielded from liability, regardless of the republisher's subjective awareness of the truth or falsity of the accusation.  29 Rima and
Alegre cannot invoke the privilege of neutral reportage because unfounded comments abound in the broadcasts. Moreover, there is no
existing controversy involving AMEC when the broadcasts were made. The privilege of neutral reportage applies where the defamed
person is a public figure who is involved in an existing controversy, and a party to that controversy makes the defamatory
statement. 30
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of Appeals, 31 FBNI
contends that the broadcasts "fall within the coverage of qualifiedly privileged communications" for being commentaries on matters of
public interest. Such being the case, AMEC should prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual
malice, there is no libel. AISHcD
FBNI's reliance on Borjal is misplaced. In Borjal,the Court elucidated on the "doctrine of fair comment," thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an
action for libel or slander. The doctrine of fair comment means that while in general every discreditable
imputation publicly made is deemed false, because every man is presumed innocent until his guilt is judicially
proved, and every false imputation is deemed malicious, nevertheless, when the discreditable imputation is
directed against a public person in his public capacity, it is not necessarily actionable. In order that such
discreditable imputation to a public official may be actionable, it must either be a false allegation of fact or a
comment based on a false supposition. If the comment is an expression of opinion, based on established facts,then
it is immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from the
facts. 32 (Emphasis supplied)
True, AMEC is a private learning institution whose business of educating students is "genuinely imbued with public interest."
The welfare of the youth in general and AMEC's students in particular is a matter which the public has the right to know. Thus, similar
to the newspaper articles in Borjal,the subject broadcasts dealt with matters of public interest. However, unlike in Borjal,the
questioned broadcasts are not based on established facts.The record supports the following findings of the trial court:
...Although defendants claim that they were motivated by consistent reports of students and parents
against plaintiff, yet, defendants have not presented in court, nor even gave name of a single student who made the
complaint to them, much less present written complaint or petition to that effect. To accept this defense of
defendants is too dangerous because it could easily give license to the media to malign people and establishments
based on flimsy excuses that there were reports to them although they could not satisfactorily establish it. Such
laxity would encourage careless and irresponsible broadcasting which is inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their
duties, did not verify and analyze the truth of the reports before they aired it, in order to prove that they are in
good faith.
Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy
courses. Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years
before the controversial broadcast, accreditation to offer Physical Therapy course had already been given the
plaintiff, which certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes R.
Quisumbing (Exh. C-rebuttal).Defendants could have easily known this were they careful enough to verify. And
yet, defendants were very categorical and sounded too positive when they made the erroneous report that plaintiff
had no permit to offer Physical Therapy courses which they were offering. ScaHDT
 
The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald
Foundation prove not to be true also. The truth is there is no Mcdonald Foundation existing. Although a big
building of plaintiff school was given the name Mcdonald building, that was only in order to honor the first
 missionary in Bicol of plaintiffs' religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants over
the air, not a single centavo appears to be received by plaintiff school from the aforementioned McDonald
Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical
students fail in one subject, they are made to repeat all the other subject[s],even those they have already passed,
nor their claim that the school charges laboratory fees even if there are no laboratories in the school. No evidence
was presented to prove the bases for these claims, at least in order to give semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s]
singled out Dean Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court last
Jan. 21, 1991, and was found to be 75 years old. ...Even older people prove to be effective teachers like Supreme
Court Justices who are still very much in demand as law professors in their late years. Counsel for defendants is
past 75 but is found by this court to be still very sharp and effective. So is plaintiffs' counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still
alert and docile.
The contention that plaintiffs' graduates become liabilities rather than assets of our society is a mere
conclusion. Being from the place himself, this court is aware that majority of the medical graduates of plaintiffs
pass the board examination easily and become prosperous and responsible professionals. 33
Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion happens to be
mistaken, as long as it might reasonably be inferred from the facts. 34 However, the comments of Rima and Alegre were not
backed up by facts. Therefore, the broadcasts are not privileged and remain libelous per se.
The broadcasts also violate the Radio Code 35 of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink.("Radio Code").Item
I(B) of the Radio Code provides: DEcTCa
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. ...
4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate
and misleading information....Furthermore, the station shall strive to present balanced
discussion of issues. ....
xxx xxx xxx
7. The station shall be responsible at all times in the supervision of public affairs, public issues and
commentary programs so that they conform to the provisions and standards of this code.
8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public
interest, general welfare and good order in the presentation of public affairs and public
issues. 36 (Emphasis supplied)
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct
governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct imposed by the radio broadcast
industry on its own members. The Radio Code is a public warranty by the radio broadcast industry that radio broadcast practitioners
are subject to a code by which their conduct are measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their
profession, just like other professionals. A professional code of conduct provides the standards for determining whether a person has
acted justly, honestly and with good faith in the exercise of his rights and performance of his duties as required by Article 19 37 of
the Civil Code.A professional code of conduct also provides the standards for determining whether a person who willfully causes loss
or injury to another has acted in a manner contrary to morals or good customs under Article 21 38 of the Civil Code. TESDcA
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a corporation. 39
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical
suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. 40 The Court of Appeals
cites Mambulao Lumber Co. v. PNB, et al. 41 to justify the award of moral damages. However, the Court's statement
in Mambulao that "a corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral
damages" is an obiter dictum. 42
 Nevertheless, AMEC's claim for moral damages falls under item 7 of Article 2219 43 of the Civil Code.This provision
expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does
not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly
complain for libel or any other form of defamation and claim for moral damages. 44
Moreover, where the broadcast is libelous per se, the law implies damages. 45 In such a case, evidence of an honest mistake
or the want of character or reputation of the party libeled goes only in mitigation of damages. 46 Neither in such a case is the plaintiff
required to introduce evidence of actual damages as a condition precedent to the recovery of some damages. 47 In this case, the
broadcasts are libelous per se.Thus, AMEC is entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the broadcasts
were libelous per se,AMEC has not suffered any substantial or material damage to its reputation. Therefore, we reduce the award of
moral damages from P300,000 to P150,000.
III.
Whether the award of attorney's fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorney's fees. FBNI
adds that the instant case does not fall under the enumeration in Article 2208 48 of the Civil Code.
The award of attorney's fees is not proper because AMEC failed to justify satisfactorily its claim for attorney's fees. AMEC
did not adduce evidence to warrant the award of attorney's fees. Moreover, both the trial and appellate courts failed to explicitly state
in their respective decisions the rationale for the award of attorney's fees. 49 In Inter-Asia Investment Industries, Inc. v. Court of
Appeals, 50 we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the
rule, and counsel's fees are not to be awarded every time a party wins a suit. The power of the court to award
attorney's fees under Article 2208 of the  Civil Code demands factual, legal and equitable justification, without
which the award is a conclusion without a premise, its basis being improperly left to speculation and
conjecture.In all events, the court must explicitly state in the text of the decision, and not only in the decretal
portion thereof, the legal reason for the award of attorney's fees. 51 (Emphasis supplied) ASHEca
While it mentioned about the award of attorney's fees by stating that it "lies within the discretion of the court and depends
upon the circumstances of each case," the Court of Appeals failed to point out any circumstance to justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorney's fees and costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorney's fees because it
exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI maintains that its
broadcasters, including Rima and Alegre, undergo a "very regimented process" before they are allowed to go on air. "Those who apply
for broadcaster are subjected to interviews, examinations and an apprenticeship program."
FBNI further argues that Alegre's age and lack of training are irrelevant to his competence as a broadcaster. FBNI points out
that the "minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove that FBNI did not exercise the
diligence of a good father of a family in selecting and supervising them." Rima's accreditation lapsed due to his non-payment of the
KBP annual fees while Alegre's accreditation card was delayed allegedly for reasons attributable to the KBP Manila Office. FBNI
claims that membership in the KBP is merely voluntary and not required by any law or government regulation.
FBNI's arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they
commit. 52 Joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid
or abet the commission of a tort, or who approve of it after it is done, if done for their benefit. 53 Thus, AMEC correctly anchored its
cause of action against FBNI on Articles 2176 and 2180 of the Civil Code. HaAIES
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from the
libelous broadcasts. As stated by the Court of Appeals, "recovery for defamatory statements published by radio or television may be
had from the owner of the station,a licensee, the operator of the station, or a person who procures, or participates in, the making of the
defamatory statements." 54 An employer and employee are solidarily liable for a defamatory statement by the employee within the
course and scope of his or her employment, at least when the employer authorizes or ratifies the defamation.  55 In this case, Rima and
Alegre were clearly performing their official duties as hosts of FBNI's radio program Exposé when they aired the broadcasts. FBNI
neither alleged nor proved that Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing that
FBNI did not authorize and ratify the defamatory broadcasts.
 
 Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection and supervision of its
employees, particularly Rima and Alegre. FBNI merely showed that it exercised diligence in the  selection of its broadcasters without
introducing any evidence to prove that it observed the same diligence in the supervision of Rima and Alegre. FBNI did not show how
it exercised diligence in supervising its broadcasters. FBNI's alleged constant reminder to its broadcasters to "observe truth, fairness
and objectivity and to refrain from using libelous and indecent language" is not enough to prove due diligence in the supervision of its
broadcasters. Adequate training of the broadcasters on the industry's code of conduct, sufficient information on libel laws, and
continuous evaluation of the broadcasters' performance are but a few of the many ways of showing diligence in the supervision of
broadcasters.
FBNI claims that it "has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in mind their
qualifications." However, no clear and convincing evidence shows that Rima and Alegre underwent FBNI's "regimented process" of
application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP accreditation, 56 which is one of FBNI's
requirements before it hires a broadcaster. Significantly, membership in the KBP, while voluntary, indicates the broadcaster's strong
commitment to observe the broadcast industry's rules and regulations. Clearly, these circumstances show FBNI's lack of diligence in
selecting and supervising Rima and Alegre. Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26 January
2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral damages is reduced from
P300,000 to P150,000 and the award of attorney's fees is deleted. Costs against petitioner. HDITCS
SO ORDERED.
||| (Filipinas Broadcasting Network, Inc. v. Ago Medical & Educational Center-Bicol Christian College of Medicine, G.R. No.
141994, [January 17, 2005], 489 PHIL 380-405)
 EN BANC

[G.R. No. L-22973. January 30, 1968.]

MAMBULAO LUMBER COMPANY, plaintiff-appellant, vs. PHILIPPINE NATIONAL BANK and ANACLETO HERADO, ETC., defendants-appellees.

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

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

SYLLABUS

1. CONTRACTS; LOAN; INTEREST; COMPOUNDED; WHEN SHALL IT BE RECKONED. — 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. Interest due shall earn legal interest
only from the time it is judicially demanded. Interest due and unpaid shall not earn interest. 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 terms of the promissory note 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.

2. ID.; MORTGAGE; EXTRA-JUDICIAL FORECLOSURE SALE; EXPENSES. — 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 foreclosure sale. The PNB failed to prove that it actually spent any amount in connection with the said
foreclosure sale. 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. Obviously, therefore, the award of amount of P298.54 as expenses of the
sale should be set aside.

3. ID.; ID.; ID.; ATTORNEY'S FEES. — Where the contract of mortgage clearly stipulates that the mortgagor agrees that in all cases (extra- judicial or judicial foreclosure),
attorney's fees is fixed at ten percent (10%) of the total indebtedness then unpaid, which in no case shall be less than P100 exclusive of all fees allowed by law, and the expenses of
collections shall be the obligation of the mortgagor and shall with priority, be paid to the mortgagee out of any sums realized from the proceeds of the sale of said property — the said
stipulation to pay attorney's fees is clear enough to cover both cases of foreclosure sale, i.e., judicially or extrajudicially. 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. The ambiguity by reason of faulty sentence construction should not be made to defeat the otherwise clear intention of the parties in the agreement.

4. ID.; ID.; EXTENT OF AUTHORITY OF MORTGAGEE TO SELL PROPERTY MORTGAGED. — 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, 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. But when the parties
agreed to have the property mortgaged sold at the residence of the mortgagor, the mortgagee can not retain that power and authority to select from among the places provided for in the
law and place designated in their agreement, over the objection of the mortgagor.

5. ID.; ID.; CHATTEL MORTGAGE; SALE OF PROPERTY; DUTY OF SHERIFFS. — 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. 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.

6. ID.; ID.; CHATTEL MORTGAGE; SALE OF PROPERTY NOT IN ACCORDANCE WITH TERMS OF CONTRACT; LIABILITY OF MORTGAGEE. — The
mortgagee is guilty of conversion when he sells under the mortgage but not in accordance with its terms, or where the proceedings as to the sale or foreclosure do not comply with the
statute. 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 proceeds with the
sale of the mortgaged chattels at Jose Panganiban, Camarines Norte, in utter disregard of the valid objection of the mortgagor thereto for the reason that it is not the place of sale agreed
upon in the mortgage contract; and the said deputy sheriff sold all the chattels (among which were a skagit with caterpillar engine, three GMC 6x6 trucks, a Herring Hall Safe, and
Sawmill equipment consisting of a 150 HP Murply Engine, plainer, large circular saws, etc.) as a single lot in violation of the requirement of the law to sell the same article by article.
The PNB has resold the chattels to another buyer with whom it appears to have actively cooperated in subsequently taking possession of and removing the chattels from appellant's
compound by force, as shown by the circumstance that they had to take along PC soldiers and municipal policemen of Jose Panganiban who placed the chief security officer of the
premises in jail to deprive herein appellant of its possession thereof. To exonerate itself of any liability for the breach of peace thus committed, the PNB would want us to believe that it
was the subsequent buyer alone, who is not a party to this case, that was responsible for the forcible taking of the property; but assuming this to be so, still 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. 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.

7. ID.; ID.; CHATTEL MORTGAGE; SALE OF PROPERTY NOT IN ACCORDANCE WITH CONTRACT; EXEMPLARY DAMAGES AND ATTORNEY'S FEES. —
But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale in utter disregard of the agreement to have the chattels sold in
Manila as provided for in mortgage contract, to which their attentions were timely called by herein appellant and in disposing of the chattels in gross for the miserable amount of
P4,201.00, herein appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances of the case also warrant the award of P3,000.00 as attorney's fees for
herein appellant.

8. ATTORNEY'S FEES; RULE OF QUANTUM MERUIT. — This Court has invariably fixed counsel fees on a quantum meruit basis whenever the fees stipulated appear
excessive, unconscionable, or unreasonable, because a lawyer is primarily a court officer charged with the duty of assisting the court in administering impartial justice between the
parties. The fees should be subject to judicial control. Sound public policy demands that courts disregard stipulations for counsel fees, whenever they appear to be a source of speculative
profit at the expense of the debtor or mortgagor.

9. ID.; CIRCUMSTANCES TO CONSIDER. — In determining the compensation of an attorney, the following circumstances should be considered: the amount and
character of the services rendered; the responsibility imposed; the amount of money or the value of the property affected by the controversy or involved in the employment; the skill and
 experience called for in the performance of the service; the professional standing of the attorney; the results secured; and whether or not the fee is contingent or absolute, it being a
recognized rule that an attorney may properly charge a much larger fee when it is to be contingent than when it is not.

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

DECISION

ANGELES, J p:

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, vs. 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 amortizations on the amounts released to and received by it. Repeated
demands were made upon the plaintiff to pay its obligation but it failed or otherwise refused to do so. Upon
inspection and verification made by employees of the PNB, it was found that the plaintiff had already stopped
operation about the end of 1957 or early part of 1958.
 "On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting
him to take possession of the parcel of land, together with the improvements existing thereon, covered by Transfer
Certificate of Title No. 381 of the land records of Camarines Norte, and to sell it at public auction in accordance
with the provisions of Act No. 3135, as amended, for the satisfaction of the unpaid obligation of the plaintiff,
which as of September 22, 1961, amounted to P57,646.59, excluding attorney's fees. In compliance with the
request, on October 16, 1961, the Provincial Sheriff of Camarines Norte issued the corresponding notice of extra-
judicial foreclosure sale and sent a copy thereof to the plaintiff. According to the notice, the mortgaged property
would be sold at public auction at 10:00 a.m. on November 21, 1961, at the ground floor of the Court House in
Daet, Camarines Norte.
"On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting
him to take possession of the chattels mortgaged to it by the plaintiff and sell them at public auction also on
November 21, 1961, for the satisfaction of the sum of P57,646.59, plus 6% annual interest thereon from
September 23, 1961, attorney's fees equivalent to 10% of the amount due and the costs and expenses of the sale.
On the same day, the PNB sent notice to the plaintiff that the former was foreclosing extrajudicially the chattels
mortgaged by the latter and that the auction sale thereof would be held on November 21, 1961, between 9:00 and
12:00 a.m., in Mambulao, Camarines Norte, where the mortgaged chattels were situated.
"On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of the chattels
mortgaged by the plaintiff and made an inventory thereof in the presence of a PC Sergeant and a policeman of the
municipality of Jose Panganiban. On November 9, 1961, the said Deputy Sheriff issued the corresponding notice
of public auction sale of the mortgaged chattels to be held on November 21, 1961, at 10:00 a.m., at the plaintiffs
compound situated in the municipality of Jose Panganiban, Province of Camarines Norte.
"On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail matter, one to the
Naga Branch of the PNB and another to the Provincial Sheriff of Camarines Norte, protesting against the
foreclosure of the real estate and chattel mortgages on the grounds that they could not be effected unless a Court's
order was issued against it (plaintiff) for said purpose and that the foreclosure proceedings, according to the terms
of the mortgage contracts, should be made in Manila. In said letter to the Naga Branch of the PNB, it was
intimated that if the public auction sale would be suspended and the plaintiff would be given an extension of
ninety (90) days, its obligation would be settled satisfactorily because an important negotiation was then going on
for the sale of its "whole interest" for an amount more than sufficient to liquidate said obligation.
"The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a request for
extension of the foreclosure sale of the mortgaged chattels and so it advised the Sheriff of Camarines Norte to
defer it to December 21, 1961, at the same time and place. A copy of said advice was sent to the plaintiff for its
information and guidance.
"The foreclosure sale of the parcel of land, together with the buildings and improvements thereon,
covered by Transfer Certificate of Title No. 381, was, however, held on November 21, 1961, and the said property
was sold to the PNB for the sum of P56,908.00, subject to the right of the plaintiff to redeem the same within a
period of one year. On the same date, Deputy Provincial Sheriff Heraldo executed a certificate of sale in favor of
the PNB and a copy thereof was sent to the plaintiff.
"In a letter dated December 14, 1961 (but apparently posted several days later), the plaintiff sent a bank
draft for P738.59 to the Naga Branch of the PNB, allegedly in full settlement of the balance of the obligation of
the plaintiff after the application thereto of the sum of P56,908.00 representing the proceeds of the foreclosure
sale of parcel of land described in Transfer Certificate of Title No. 881. In the said letter, the plaintiff reiterated its
request that the foreclosure sale of the mortgaged chattels be discontinued on the grounds that the mortgaged
indebtedness had been fully paid and that it could not be legally effected at a place other than the City of Manila.
"In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of Camarines Norte that
it had fully paid its obligation to the PNB, and enclosed therewith a copy of its letter to the latter dated December
14, 1961.
"On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the plaintiff
acknowledging the remittance of P738.59 with the advice, however, that as of that date the balance of the account
of the plaintiff was P9,161.76, to which should be added the expenses of guarding the mortgaged chattels at the
rate of P4.00 a day beginning December 19, 1961. It was further explained in said letter that the sum of
P57,646.59, which was stated in the request for the foreclosure of the real estate mortgage, did not include the
10% attorney's fees and expenses of the sale. Accordingly, the plaintiff was advised that the foreclosure sale
scheduled on the 21st of said month would be stopped if a remittance of P9,161.76, plus interest thereon and
guarding fees, would be made.
 "On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at 10:00 a.m. and they
were awarded to the PNB for the sum of P4,200 and the corresponding bill of sale was issued in its favor by
Deputy Provincial Sheriff Heraldo.
"In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB advised the plaintiff
giving it priority to repurchase the chattels acquired by the former at public auction. This offer was reiterated in a
letter dated January 3, 1962, of the Attorney of the Naga Branch of the PNB to the plaintiff, with the suggestion
that it exercise its right of redemption and that it apply for the condonation of the attorney's fees. The plaintiff did
not follow the advice but on the contrary it made known of its intention to file appropriate action or actions for the
protection of its interests.
"On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff in Jose
Panganiban, Camarines Norte, and they informed Luis Salgado, Chief Security Guard of the premises, that the
properties therein had been auctioned and bought by the PNB, which in turn sold them to Mariano Bundok. Upon
being advised that the purchaser would take delivery of the things he bought, Salgado was at first reluctant to
allow any piece of property to be taken out of the compound of the plaintiff. The employees of the PNB explained
that should Salgado refuse, he would be exposing himself to a litigation wherein he could be held liable to pay big
sum of money by way of damages. Apprehensive of the risk that he would take, Salgado immediately sent a wire
to the President of the plaintiff in Manila, asking advice as to what he should do. In the meantime, Mariano
Bundok was able to take out from the plaintiffs compound two truck loads of equipment.
"In the afternoon of the same day, Salgado received a telegram from plaintiffs President directing him
not to deliver the 'chattels' without court order, with the information that the company was then filing an action for
damages against the PNB. On the following day, May 25, 1962, two trucks and men of Mariano Bundok arrived
but Salgado did not permit them to take out any equipment from inside the compound of the plaintiff. Thru the
intervention, however, of the local police and PC soldiers, the trucks of Mariano Bundok were able finally to haul
the properties originally mortgaged by the plaintiff to the PNB, which were bought by it at the foreclosure sale
and subsequently sold to Mariano Bundok."
Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated in the first paragraph of
this opinion, sentenced the Mambulao Lumber Company to pay to the defendant PNB the sum of P3,582.52 with interest thereon
at the rate of 6% per annum from December 22, 1961 (day following the date of the questioned foreclosure of plaintiff's chattels)
until fully paid, and the costs. Mambulao Lumber Company interposed the instant appeal.
We shall discuss the various points raised in appellant's brief in seriatim.
The first question Mambulao Lumber Company poses is that which relates to the amount of its indebtedness to the PNB
arising out of the principal loans and the accrued interest thereon. It is contended that its obligation under the terms of the two
promissory notes it had executed in favor of the PNB amounts only to P56,485.87 as of November 21, 1961, when the sale of real
property was effected, and not P58,213.51 as found by the trial court.
There is merit to this claim. Examining the terms of the promissory note executed by the appellant in favor of the PNB,
we find that the agreed interest on the loan of P43,000.00 — P27,500.00 released on August 2, 1956, as per promissory note of
even date (Exhibit C-3), and P15,500.00 released on October 19, 1956, as per promissory note of the same date (Exhibit C-4) —
was six per cent (6%) per annum from the respective date of said notes "until paid." In the statement of account of the appellant as
of September 22, 1961, submitted by the PNB, it appears that in arriving at the total indebtedness of P57,646.59 as of that date,
the PNB had compounded the principal of the loan and the accrued 6% interest thereon each time the yearly amortizations
became due, and on the basis of these compounded amounts charged additional delinquency interest on them up to September 22,
1961; and to this erroneously computed total of P57,646.59, the trial court added 6% interest per annum from September 23, 1961
to November 21 of the same year. In effect, the PNB has claimed, and the trial court has adjudicated to it,  interest on accrued
interests from the time the various amortizations of the loan became due until the real estate mortgage executed to secure the loan
was extrajudicially foreclosed on November 21, 1961. This is an error. Section 5 of Act No. 2655 expressly provides that in
computing the interest on any obligation, promissory note or other instrument or contract, compound interest shall not be
reckoned, except by agreement, or in default thereof, whenever the debt is judicially claimed. This is also the clear mandate of
Article 2212 of the new Civil Code which provides that interest due shall earn legal interest only from the time it is judicially
demanded, and of Article 1959 of the same code which ordains that interest due and unpaid shall not earn interest. Of course, the
parties may, by stipulation, capitalize the interest due and unpaid, which as added principal shall earn new interest; but such
stipulation is nowhere to be found in the terms of the promissory notes involved in this case. Clearly therefore, the trial court fell
into error when it awarded interest on accrued interests, without any agreement to that effect and before they had been judicially
demanded.
Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale in favor of the PNB. With
respect to the amount of P298.54 allowed as expenses of the extra-judicial sale of the real property, appellant maintains that the
same has no basis, factual or legal, and should not have been awarded. It likewise decries the award of attorney's fees which,
according to the appellant, should not be deducted from the proceeds of the sale of the real property, not only because there is no
express agreement in the real estate mortgage contract to pay attorney's fees in case the same is extra-judicially foreclosed, but
also for the reason that the PNB neither spent nor incurred any obligation to pay attorney's fees in connection with the said extra-
judicial foreclosure under consideration.
There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In this respect, the trial court
said:
"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. 1 It is true, as pointed
out by the appellee bank, that courts should take judicial notice of the fees provided for by law which need not be proved; but in
the absence of evidence to show at least the number of working days the sheriff concerned actually spent in connection with the
extra-judicial foreclosure sale, the most that he may be entitled to, would be the amount of P10.00 as a reasonable allowance for
two day's work — one for the preparation of the necessary notices of sale, and the other for conducting the auction sale and
issuance of the corresponding certificate of sale in favor of the buyer. Obviously, therefore, the award of P298.54 as expenses of
the sale should be set aside.
But the claim of the appellant that the real estate mortgage does not provide for attorney's fees in case the same is extra-
judicially foreclosed, cannot be favorably considered, as would readily be revealed by an examination of the pertinent provision
of the mortgage contract. The parties to the mortgage appear to have stipulated under paragraph (c) thereof, inter alia:
". . . 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 proceedings were handled by an attorney of the
legal staff of the PNB, we are reluctant to exonerate herein appellant from the payment of the stipulated attorney's fees on this
ground alone, considering the express agreement between the parties in the mortgage contract under which appellant became
liable to pay the same. At any rate, we find merit in the contention of the appellant that the award of P5,821.35 in favor of the
PNB as attorney's fees is unconscionable and unreasonable, considering that all that the branch attorney of the said bank did in
connection with the foreclosure sale of the real property was to file a petition with the provincial sheriff of Camarines Norte
requesting the latter to sell the same in accordance with the provisions of Act 3135.
The principle that courts should reduce stipulated attorney's fees whenever it is found under the circumstances of the
case that the same is unreasonable, is now deeply rooted in this jurisdiction to entertain any serious objection to it. Thus, this
Court has explained:
"But the principle that it may be lawfully stipulated that the legal expenses involved in the collection of a
debt shall be defrayed by the debtor does not imply that such stipulations must be enforced in accordance with the
terms, no matter how injurious or oppressive they may be. The lawful purpose to be accomplished by such a
stipulation is to permit the creditor to receive the amount due him under his contract without a deduction of the
expenses caused by the delinquency of the debtor. It should not be permitted for him to convert such a stipulation
into a source of speculative profit at the expense of the debtor.
"Contracts for attorney's services in this jurisdiction stands upon an entirely different footing from
contracts for the payment of compensation for any other services. By express provision of section 29 of the Code
of Civil Procedure, an attorney is not entitled in the absence of express contract to recover more than a reasonable
compensation for his services; and even when an express contract is made the court can ignore it and limit the
recovery to reasonable compensation of the amount of the stipulated fee is found by the court to be unreasonable.
This is a very different rule from that announced in section 1091 of the Civil Code with reference to the obligation
of contracts in general, where it is said that such obligation has the force of law between the contracting parties.
Had the plaintiff herein made an express contract to pay his attorney an uncontingent fee of P2,115.25 for the
services to be rendered in reducing the note here in suit to judgment, it would not have been enforced against him
had he seen fit to oppose it, as such a fee is obviously far greater than is necessary to remunerate the attorney for
the work involved and is therefore unreasonable. In order to enable the court to ignore an express contract for an
attorney's fees, it is not necessary to show, as in other contracts, that it is contrary to morality or public policy
(Art. 1255, Civil Code). It is enough that it is unreasonable or unconscionable." 4
Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever the fees stipulated appear excessive,
unconscionable, or unreasonable, because a lawyer is primarily a court officer charged with the duty of assisting the court in
administering impartial justice between the parties, and hence, the fees should be subject to judicial control. Nor should it be
ignored that sound public policy demands that courts disregard stipulations for counsel fees, whenever they appear to be a source
of speculative profit at the expense of the debtor or mortgagor. 5 And it is not material that the present action is between the
debtor and the creditor, and not between attorney and client. As courts have power to fix the fee as between attorney and client, it
must necessarily have the right to say whether a stipulation like this, inserted in a mortgage contract, is valid. 6
In determining the compensation of an attorney, the following circumstances should be considered: the amount and
character of the services rendered, the responsibility imposed: the amount of money or the value of the property affected by the
controversy, or involved in the employment: the skill and experience called for in the performance of the service, the professional
standing of the attorney; the results secured; and whether or not the fee is contingent or absolute, it being a recognized rule that an
attorney may properly charge a much larger fee when it is to be contingent than when it is not.  7 From the stipulation in the
mortgage contract earlier quoted, it appears that the agreed fee is 10% of the total indebtedness, irrespective of the manner the
foreclosure of the mortgage is to be effected. The agreement is perhaps fair enough in case the foreclosure proceedings is
prosecuted judicially but, surely, it is unreasonable when, as in this case, the mortgage was foreclosed extrajudicially, and all that
the attorney did was to file a petition for foreclosure with the sheriff concerned. It is to be assumed though, that the said branch
attorney of the PNB made a study of the case before deciding to file the petition for foreclosure: but even with this in mind, we
believe the amount of P5,821.35 is far too excessive a fee for such services. Considering the above circumstances mentioned, it is
our considered opinion that the amount of P1,000.00 would be more than sufficient to compensate the work aforementioned.
The next issue raised deals with the claim that the proceeds of the sale of the real properties alone together with the
amount it remitted to the PNB later was more than sufficient to liquidate its total obligation to herein appellee bank. Again, we
find merit in this claim. From the foregoing discussion of the first two errors assigned, and for purposes of determining the total
obligation of herein appellant to the PNB as of November 21, 1961 when the real estate mortgage was foreclosed, we have the
following illustration in support of this conclusion:
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

III. Attorney's fees 1,000.00

      ————
  Total obligation as of Nov. 21, 1961 P57,495.86
B. —

I. Proceeds of the foreclosure sale of   

  the real estate mortgage on Nov. 21, 1961 56,908.00.

II. Additional amount remitted to the   

  PNB on Dec. 18, 1961 738.59

      ————
  Total amount of Payment made to  

  PNB as of Dec. 18, 1961 P57,646.59

      ————
  Deduct: Total obligation to the PNB P57,495.86

      ————

  Excess Payment to the PNB P150.73

      =======

From the foregoing illustration or computation, it is clear that there was no further necessity to foreclose the mortgage of
herein appellant's chattels on December 21, 1961; and on this ground alone, we may declare the sale of appellant's chattels on the
said date, illegal and void. But we take into consideration the fact that the PNB must have been led to believe that the stipulated
10% of the unpaid loan for attorney's fees in the real estate mortgage was legally maintainable, and in accordance with such
belief, herein appellee bank insisted that the proceeds of the sale of appellant's real property was deficient to liquidate the latter's
total indebtedness. Be that as it may, however, we still find the subsequent sale of herein appellant's chattels illegal and
objectionable on other grounds.
That appellant vigorously objected to the foreclosure of its chattel mortgage after the foreclosure of its real estate
mortgage on November 21, 1961, cannot be doubted, as shown not only by its letter to the PNB on November 19, 1961, but also
in its letter to the provincial sheriff of Camarines Norte on the same date. These letters were followed by another letter to the
appellee bank on December 14, 1961, wherein herein appellant, in no uncertain terms, reiterated its objection to the scheduled
sale of its chattels on December 21, 1961 at Jose Panganiban, Camarines Norte for the reasons therein stated that: (1) it had
settled in full its total obligation to the PNB by the sale of the real estate and its subsequent remittance of the amount of P738.59;
and (2) that the contemplated sale at Jose Panganiban would violate their agreement embodied under paragraph (i) in the Chattel
Mortgage which provides as follows:
"(i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended, the parties hereto
agree that the corresponding complaint for foreclosure or the petition for sale should be filed with the courts or
the sheriff of the City of Manila, as the case may be; and that the Mortgagor shall pay attorney's fees hereby fixed
at ten per cent (10%) of the total indebtedness then unpaid but in no case shall it be less than P100.00, exclusive of
all costs and fees allowed by law and of other expenses incurred in connection with the said foreclosure."
[Emphasis supplied]
Notwithstanding the above-quoted agreement in the chattel mortgage contract, and in utter disregard of the objection of
herein appellant to the sale of its chattels at Jose Panganiban, Camarines Norte and not in the City of Manila as agreed upon, the
PNB proceeded with the foreclosure sale of said chattels. The trial court, however justified said action of the PNB in the decision
appealed from in the following rationale:
"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 has three places from
which to select, namely: (1) the place of residence of the mortgagor; (2) the place of the mortgaged chattels were
situated; and (3) the place stipulated in the contract. The PNB selected the second and, accordingly, the
foreclosure sale held in Jose Panganiban, Camarines Norte, was legal and valid."
To the foregoing conclusion, We disagree. While the law grants power and authority to the mortgagee to sell the
mortgaged property at a public place in the municipality where the mortgagor resides, or where the property is situated, 8 this
Court has said that the sale of a mortgaged chattel may be made in a place other than that where it is found, provided that the
owner thereof consents thereto; or that there is an agreement to this effect between the mortgagor and the mortgagee. 9 But when,
as in this case, the parties agreed to have the sale of the mortgaged chattels in the City of Manila, which, any way, is the residence
of the mortgagor, it cannot be rightly said that the mortgagee still retained the power and authority to select from among the
places provided for in the law and the place designated in their agreement, over the objection of the mortgagor. In providing that
the mortgaged chattel may be sold at the place of residence of the mortgagor or the place where it is situated, at the option of the
mortgagee, the law clearly contemplated benefits not only to the mortgagor but to the mortgagee as well. Their rights arising
thereunder, however, are personal to them; they do not affect either public policy or the rights of third persons. They may validly
be waived. So, when herein mortgagor and mortgagee agreed in the mortgage contract that in cases of both judicial and extra-
judicial foreclosure under Act 1508, as amended, the corresponding complaint for foreclosure or the petition for sale should be
filed with the courts or the Sheriff of Manila, as the case may be, they waived their corresponding rights under the law. The
correlative obligation arising from that agreement have the force of law between them and should be complied with in good
faith. 10
"By said agreement the parties waived the legal venue, and such waiver is valid and legally effective,
because it was merely a personal privilege they waived, which is not contrary to public policy or to the prejudice
of third persons. It is a general principle that a person may renounce any right which the law gives unless such
renunciation is expressly prohibited or the right conferred is of such nature that its renunciation would be against
public policy." 11
"On the other hand, if a place of sale is specified in the mortgage and statutory requirements in regard
thereto are complied with, a sale is properly conducted in that place. Indeed, in the absence of a statute to the
contrary, a sale conducted at a place other than that stipulated for in the mortgage is invalid, unless the mortgagor
consents to such sale." 12
Moreover, Section 14 of Act 1508, as amended, provides that the officer making the sale should make a return of his
doings which shall particularly describe the articles sold and the amount received from each article. From this, it is clear that the
law requires that sale be made article by article, otherwise, it would be impossible for him to state the amount received for each
item. This requirement was totally disregarded by the Deputy Sheriff of Camarines Norte which he sold the chattels in question in
bulk, notwithstanding the fact that the said chattels consisted of no less than twenty different items as shown in the bill of
sale. 13 This makes the sale of the chattels manifestly objectionable. And in the absence of any evidence to show that the
mortgagor had agreed or consented to such sale in gross, the same should be set aside.
It is said that the mortgagee is guilty of conversion when he sells under the mortgage but not in accordance with its
terms, or where the proceedings as to the sale or foreclosure do not comply with the statute.  14 This rule applies squarely to the
facts of this case where, as earlier shown, herein appellee bank insisted, and the appellee deputy sheriff of Camarines Norte
proceeded with the sale of the mortgaged chattels at Jose Panganiban, Camarines Norte, in utter disregard of the valid objection of
the mortgagor thereto for the reason that it is not the place of sale agreed upon in the mortgage contract; and the said deputy
sheriff sold all the chattels (among which were a skagit with caterpillar engine, three GMC 6x6 trucks, a Herring Hall Safe, and
Sawmill equipment consisting of a 150 HP Murphy Engine, plainer, large circular saws, etc.) as a single lot in violation of the
requirement of the law to sell the same article by article. The PNB has resold the chattels to another buyer with whom it appears
to have actively cooperated in subsequently taking possession of and removing the chattels from appellant's compound by force,
as shown by the circumstance that they had to take along PC soldiers and municipal policemen of Jose Panganiban who placed
the chief security officer of the premises in jail to deprive herein appellant of its possession thereof. To exonerate itself of any
liability for the breach of peace thus committed, the PNB would want us to believe that it was the subsequent buyer alone, who is
not a party to this case, that was responsible for the forcible taking of the property; but assuming this to be so, still the PNB
cannot escape liability for the conversion of the mortgaged chattels by parting with its interest in the property. Neither would its
claim that it afterwards gave a chance to herein appellant to repurchase or redeem the chattels, improve its position, for the
mortgagor is not under obligation to take affirmative steps to repossess the chattels that were converted by the mortgagee.  15 As a
consequence of the said wrongful acts of the PNB and the Deputy Sheriff of Camarines Norte, therefore, We have to declare that
herein appellant is entitled to collect from them, jointly and severally, the full value of the chattels in question at the time they
were illegally sold by them. To this effect was the holding of this Court in a similar situation. 16
"The effect of this irregularity was in our opinion to make the plaintiff liable to the defendant for the full
value of the truck at the time the plaintiff thus carried it off to be sold; and of course, the burden is on the
defendant to prove the damage to which he was thus subjected. . . ."
This brings us to the problem of determining the value of the mortgaged chattels at the time of their sale in 1961. The
that court did not make any finding on the value of the chattels in the decision appealed from and denied altogether the right of
the appellant to recover the same. We find enough evidence of record, however, which may be used as a guide to ascertain their
value. The record shows that at the time herein appellant applied for its loan with the PNB in 1956, for which the chattels in
question were mortgaged as part of the security therefor, herein appellant submitted a list of the chattels together with its
application for the loan with a stated value of P107,115.85. An official of the PNB made an inspection of the chattels in the same
year giving it an appraised value of P42,850.00 and a market value of P85,700.00. 17 The same chattels with some additional
equipment acquired by herein appellant with part of the proceeds of the loan were reappraised in a reinspection conducted by the
same official in 1958, in the report of which he gave all the chattels an appraised value of P26,850.00 and a market value of
P48,200.00. 18 Another reinspection report in 1959 gave the appraised value as P19,400.00 and the market value of
P25,600.00. 19 The said official of the PNB who made the foregoing reports of inspection and reinspections testified in court that
in giving the values appearing in the reports, he used a conservative method of appraisal which, of course, is to be expected of an
official of the appellee bank. And it appears that the values were considerably reduced in all the reinspection reports for the
reason that when he went to herein appellant's premises at the time, he found the chattels no longer in use with some of the
heavier equipment dismantled with parts thereof kept in the bodega; and finding it difficult to ascertain the value of the
dismantled chattels in such condition, he did not give them anymore any value in his reports. Noteworthy is the fact, however,
that in the last reinspection report he made of the chattels in 1961, just a few months before the foreclosure sale, the same
inspector of the PNB reported that the heavy equipments of herein appellant were "lying idle and rusty," but were "with a shed,
free from rains," 20 showing that although they were no longer in use at the time, they were kept in a proper place and not
exposed to the elements. The President of the appellant company, on the other hand, testified that its caterpillar (tractor) alone is
worth P35,000.00 in the market, and that the value of its two trucks acquired by it with part of the proceeds of the loan and
included as additional items in the mortgaged chattels were worth no less than P14,000.00. He likewise appraised the worth of its
Murphy engine at P16,000.00 which, according to him, when taken together with the heavy equipment he mentioned, the sawmill
itself and all other equipment forming part of the chattels under consideration, and bearing in mind the current cost of equipment
these days which he alleged to have increased by about five (5) times, could safely be estimated at P120,000.00. This testimony,
except for the appraised and market values appearing in the inspection and reinspection reports of the PNB official earlier
mentioned, stand uncontroverted in the record; but We are not inclined to accept such testimony at its par value, knowing that the
equipment of herein appellant had been idle and unused since it stopped operating its sawmill in 1958 up to the time of the sale of
the chattels in 1961. We have no doubt that the value of the chattels was depreciated after all those years of inoperation, although
from the evidence aforementioned, We may also safely conclude that the amount of P4,200.00 for which the chattels were sold in
the foreclosure sale in question was grossly unfair to the mortgagor. Considering, however, the facts that the appraised value of
P42,850.00 and the market value of P85,700.00 originally given by the PNB official were admittedly conservative; that two 6x6
trucks subsequently bought by the appellant company had thereafter been added to the chattels; and that the real value thereof,
although depreciated after several years of inoperation, was in a way maintained because the depreciation is off-set by the marked
increase in the cost of heavy equipment in the market, it is our opinion that the market value of the chattels at the time of the sale
should be fixed at the original appraised value of P42,850.00.
Herein appellant's claim for moral damages, however, seems to have no legal or factual basis. Obviously, an artificial
person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded
feelings, moral shock or social humiliation which are the basis of moral damages. 21 A corporation may have a good reputation
which, if besmirched, may also be a ground for the award of moral damages. The same cannot be considered under the facts of
this case, however, not only because it is admitted that herein appellant had already ceased in its business operation at the time of
the foreclosure sale of the chattels, but also for the reason that whatever adverse effect the foreclosure sale of the chattels could
have upon its reputation or business standing would undoubtedly be the same whether the sale was conducted at Jose Panganiban.
Camarines Norte, or in Manila which is the place agreed upon by the parties in the mortgage contract.
But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale
in utter disregard of the agreement to have the chattels sold in Manila as provided for in the mortgage contract, to which their
attentions were timely called by herein appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00,
herein appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances of the case also warrant the
award of P3,000.00 as attorney's fees for herein appellant.
Wherefore and considering all the foregoing, the decision appealed from should be, as hereby, it is set aside. The
Philippine National Bank and the Deputy Sheriff of the province of Camarines Norte are ordered to pay, jointly and severally, to
Mambulao Lumber Company the total amount of P56,000.73, broken as follows: P150.73 overpaid by the latter to the PNB,
 P42,850.00 the value of the chattels at the time of the sale with interest at the rate of 6% per annum from December 21, 1961,
until fully paid, P10,000.00 in exemplary damages, and P3,000.00 as attorney's fees. Costs against both appellees.
||| (Mambulao Lumber Co. v. Philippine National Bank, G.R. No. L-22973, [January 30, 1968], 130 PHIL 366-392)

FIRST DIVISION

[G.R. Nos. 86883-85. January 29, 1993.]

PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. NORBERTO MANERO, JR., EDILBERTO MANERO, ELPIDIO MANERO, SEVERINO
LINES, RUDY LINES, EFREN PLEÑAGO, ROGER BEDAÑO, RODRIGO ESPIA, ARSENIO VILLAMOR, JR., JOHN DOE and PETER
DOE, accused. SEVERINO LINES, RUDY LINES, EFREN PLEÑAGO and ROGER BENDAÑO, accused-appellants.

The Solicitor General for plaintiff-appellee.

Romeo P. Jorge for accused-appellants.

SYLLABUS

1. REMEDIAL LAW; EVIDENCE; ALIBI; PHYSICAL IMPOSSIBILITY TO BE AT THE CRIME SCENE AND TIME OF COMMISSION MUST BE SHOWN. — It is axiomatic that the
accused interposing the defense of alibi must not only be at some other place but that it must also be physically impossible for him to be at the scene of the crime at the time of its commission.
It has been the consistent ruling of this Court that no physical impossibility exists in instances where it would take the accused only fifteen to twenty minutes by jeep or tricycle, or some one-
and-a half hours by foot, to traverse the distance between the place where he allegedly was at the time of commission of the offense and the scene of the crime. Recently, We ruled that there
can be no physical impossibility even if the distance between two places is merely two (2) hours by bus. More important, it is well-settled that the defense of alibi cannot prevail over the
positive identification of the authors of the crime by the prosecution witnesses.

2. ID.; CONSPIRACY; DIRECT PROOF TO LINK ACCUSED THERETO SHOWN IN CASE AT BAR. — In the face of such positive declarations that appellants were at the locus
criminis from 10:00 o'clock in the morning up to about 5:00 o'clock in the afternoon, the alibi of appellants that they were somewhere else, which is negative in nature, cannot prevail. The
presence of appellants in the eatery at Km. 125 having been positively established, all doubts that they were not privy to the plot to liquidate alleged communist sympathizers are therefore
removed. There was direct proof to link them to the conspiracy.

3. ID.; ID.; SHOWN BY SINGULARITY OF PURPOSE AND UNITY IN EXECUTION OF CRIME. — There is conspiracy when two or more persons come to an agreement to commit a
crime and decide to commit it. It is not essential that all the accused commit together each and every act constitutive of the offense. It is enough that an accused participates in an act or deed
where there is singularity of purpose, and unity in its execution is present.

4. ID.; ID.; ID.; CASE AT BAR. — Appellants all assumed a fighting stance to discourage if not prevent any attempt to provide assistance to the fallen priest. They surrounded the house of
Domingo Gomez to stop Robles and the other occupants from leaving so that the wounded Robles may die of hemorrhage. Undoubtedly, these were overt acts to ensure success of the
commission of the crimes and in furtherance of the aims of the conspiracy. The appellants acted in concert in the murder of Fr. Favali and in the attempted murder of Rufino Robles. While
accused-appellants may not have delivered the fatal shots themselves, their collective action showed a common intent to commit the criminal acts.

5. ID.; ID.; ID.; ACT OF ONE IS THE ACT OF ALL. — Conspiracy or action in concert to achieve a criminal design being sufficiently shown, the act of one is the act of all the other
conspirators, and the precise extent or modality of participation of each of them becomes secondary.

6. CIVIL LAW; DAMAGES; MORAL; JURIDICAL PERSON ENTITLED THERETO IF IT HAS A GOOD REPUTATION THAT IS DEBASED. — The award of moral damages in the
amount of P100,000.00 to the congregation, the Pontifical Institute of Foreign Mission (PIME) Brothers, is not proper. There is nothing on record which indicates that the deceased effectively
severed his civil relations with his family, or that he disinherited any member thereof, when he joined his religious congregation. As a matter of fact, Fr. Peter Geremias of the same
congregation, who was then a parish priest of Kidapawan, testified that "the religious family belongs to the natural family of origin." Besides, as We already held, a juridical person is not
entitled to moral damages because, not being a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.
It is only when a juridical person has a good reputation that is debased, resulting in social humiliation, that moral damages may be awarded.

7. ID.; ID.; ID.; PROOF OF MORAL SUFFERING MUST BE SHOWN. — Neither can We award moral damages to the heirs of the deceased who may otherwise be lawfully entitled thereto
pursuant to par. (3), Art. 2206, of the Civil Code, for the reason that the heirs never presented any evidence showing that they suffered mental anguish; much less did they take the witness
stand. It has been held that moral damages and their causal relation to the defendant's acts should be satisfactorily proved by the claimant. It is elementary that in order that moral damages may
be awarded there must be proof of moral suffering.
8. ID.; ID.; EXEMPLARY; AWARDED TO LAWFUL HEIRS IN CASE AT BAR EVEN IF IT IS NOT PROVED OR EXPRESSLY PLEADED. — However, considering that the brutal
slaying of Fr. Tulio Favali was attended with abuse of superior strength, cruelty and ignominy by deliberately and inhumanly augmenting the pain and anguish of the victim, outraging or
scoffing at his person or corpse, exemplary damages may be awarded to the lawful heirs, even though not proved nor expressly pleaded in the complaint, and the amount of P100,000.00 is
considered reasonable.

DECISION

BELLOSILLO, J p:

This was gruesome murder in a main thoroughfare an hour before sundown. A hapless foreign religious minister was riddled
with bullets, his head shattered into bits and pieces amidst the revelling of his executioners as they danced and laughed around
their quarry, chanting the tune "Mutya Ka Baleleng", a popular regional folk song, kicking and scoffing at his prostrate,
miserable, spiritless figure that was gasping its last. Seemingly unsatiated with the ignominy of their manslaughter, their leader
picked up pieces of the splattered brain and mockingly displayed them before horrified spectators. Some accounts swear that
acts of cannibalism ensued, although they were not sufficiently demonstrated. However, for their outrageous feat, the
gangleader already earned the monicker "cannibal priest-killer". But what is indubitable is that Fr. Tulio Favali 1 was
senselessly killed for no apparent reason than that he was one of the Italian Catholic missionaries laboring in their vineyard in
the hinterlands of Mindanao. 2
In the aftermath of the murder, police authorities launched a massive manhunt which resulted in the capture of the perpetrators
except Arsenio Villamor, Jr., and two unidentified persona who eluded arrest and still remain at large.
Informations for Murder, 3 Attempted Murder 4 and Arson 5 were accordingly filed against those responsible for the frenzied
orgy of violence that fateful day of 11 April 1985. As these cases arose from the same occasion, they were all consolidated in
Branch 17 of the Regional Trial Court of Kidapawan, Cotabato. 6
After trial, the court a quo held —
"WHEREFORE . . . the Court finds the accused Norberto Manero, Jr. alias Commander Bucay, Edilberto
Manero alias Edil, Elpidio Manero, Severino Lines, Rudy Lines, Rodrigo Espia alias Rudy, Efren Pleñago
and Roger Bedaño GUILTY beyond reasonable doubt of the offense of Murder, and with the aggravating
circumstances of superior strength and treachery, hereby sentences each of them to a penalty of
imprisonment of reclusion perpetua; to pay the Pontifical Institute of Foreign Mission (PIME) Brothers, the
congregation to which Father Tulio Favali belonged, a civil indemnity of P12,000.00; attorney's fees in the
sum of P50,000.00 for each of the eight (8) accused or a total sum of P400,000.00; court appearance fee of
P10,000.00 for every day the case was set for trial; moral damages in the sum of P100,000.00; and to pay
proportionately the costs.
"Further, the Court finds the accused Norberto Manero, Jr. alias Commander Bucay GUILTY beyond
reasonable doubt of the offense of Arson and with the application of the Indeterminate Sentence Law, hereby
sentences him to an indeterminate penalty of imprisonment of not less than four (4) years, nine (9) months,
one (1) day of prision correccional, as minimum, to six (6) years of prision correccional, as maximum, and
to indemnify the Pontifical Institute of Foreign Mission (PIME) Brothers, the congregation to which Father
Tulio Favali belonged, the sum of P19,000.00 representing the value of the motorcycle and to pay the costs.
Finally, the Court finds the accused Norberto Manero, Jr. alias Commander Bucay, Edilberto Manero alias
Edil, Elpidio Manero, Severino Lines, Rudy Lines, Rodrigo Espia alias Rudy, Efren Pleñago and Roger
Bedaño GUILTY beyond reasonable doubt of the offense of Attempted Murder and with the application of
the Indeterminate Sentence Law, hereby sentences each of them to an indeterminate penalty of imprisonment
of not less than two (2) years, four (4) months and one (1) day of prision correccional, and minimum, to
eight (8) years and twenty (20) days of prision mayor, as maximum, and to pay the complainant Rufino
Robles the sum of P20,000.00 as attorney's fees and P2,000.00 as court appearance fee for every day of trial
and to pay proportionately the costs.
"The foregoing penalties shall be served by the said accused successively in the order of their respective
severity in accordance with the provisions of Article 70 of the Revised Penal Code, as amended." 7
From this judgment of conviction only accused Severino Lines, Rudy Lines, Efren Pleñago and Roger Bedaño appealed with
respect to the cases for Murder and Attempted Murder. The Manero brothers as well as Rodrigo Espia did not appeal; neither
did Norberto Manero, Jr., in the Arson case. Consequently, the decision as against them already became final.
 
Culled from the records, the facts are: On 11 April 1985, around 10:00 o'clock in the morning, the Manero brothers Norberto,
Jr., Edilberto and Elpidio, along with Rodrigo Espia, Severino Lines, Rudy Lines, Efren Pleñago and Roger Bedaño, were
inside the eatery of one Reynaldo Deocades at Km. 125, La Esperanza, Tulunan, Cotabato. They were conferring with Arsenio
Villamor, Jr., private secretary to the Municipal Mayor of Tulunan, Cotabato, and his two (2) unidentified bodyguards. Plans to
liquidate a number of suspected communist sympathizers were discussed. Arsenio Villamor, Jr. scribbled on a cigarette wrapper
the following: "NPA v. NPA, starring Fr. Peter, Domingo Gomez, Bantil, Fred Gapate, Rene alias Tabagac and Villaning." "Fr.
Peter" is Fr. Peter Geremias, an Italian priest suspected of having links with the communist movement; "Bantil" is Rufino
Robles, a Catholic lay leader who is the complaining witness in the Attempted Murder; Domingo Gomez is another lay leader,
while the others are simply "messengers". On the same occasion, the conspirators agreed to Edilberto Manero's proposal that
should they fail to kill Fr. Peter Geremias, another Italian priest would be killed in his stead. 8
At about 1:00 o'clock that afternoon, Elpidio Manero with two (2) unidentified companions nailed a placard on a streetpost
beside the eatery of Deocades. The placard bore the same inscriptions as those found on the cigarette wrapper except for the
additional phrase "versus Bucay, Edil and Palo." Some two (2) hours later, Elpidio also posted a wooden placard bearing the
same message on a street cross-sign close to the eatery. 9
Later, at 4:00 o'clock, the Manero brothers, together with Espia and the four (4) appellants, all with assorted firearms, proceeded
to the house of "Bantil", their first intended victim, which was also in the vicinity of Deocades' carinderia. They were met by
"Bantil" who confronted them why his name was included in the placards. Edilberto brushed aside the query; instead, he asked
"Bantil" if he had any qualms about it, and without any provocation, Edilberto drew his revolver and fired at the forehead of
"Bantil." "Bantil" was able to parry the gun, albeit his right ring finger and the lower portion of his right ear were hit. Then they
grappled for its possession until "Bantil" was extricated by his wife from the fray. But, as he was running away, he was again
fired upon by Edilberto. Only his trousers were hit. "Bantil" however managed to seek refuge in the house of a certain Domingo
Gomez. 10 Norberto, Jr., ordered his men to surround the house and not to allow any one to get out so that "Bantil" would die of
hemorrhage. Then Edilberto went back to the restaurant of Deocades and pistol-whipped him on the face and accused him of
being a communist coddler, while appellants and their cohorts relished the unfolding drama. 11
Moments later, while Deocades was feeding his swine, Edilberto strewed him with a burst of gunfire from his M-14 Armalite.
Deocades cowered in fear as he knelt with both hands clenched at the back of his head. This again drew boisterous laughter and
ridicule from the dreaded desperados.
At 5:00 o'clock, Fr. Tulio Favali arrived at Km. 125 on board his motorcycle. He entered the house of Gomez. While inside,
Norberto, Jr., and his co-accused Pleñago towed the motorcycle outside to the center of the highway. Norberto, Jr., opened the
gasoline tank, spilled some fuel, lit a fire and burned the motorcycle. As the vehicle was ablaze, the felons raved and
rejoiced. 12
Upon seeing his motorcycle on fire, Fr. Favali accosted Norberto, Jr. But the latter simply stepped backwards and executed a
thumbs-down signal. At this point, Edilberto asked the priest: "Ano ang gusto mo, padre (what is it you want, Father)? Gusto
mo, Father, bukon ko ang ulo mo (Do you want me, Father, to break your head)? Thereafter, in a flash, Edilberto fired at the
head of the priest. As Fr. Favali dropped to the ground, his hands clasped against his chest, Norberto, Jr., taunted Edilberto if
that was the only way he knew to kill a priest. Slighted over the remark, Edilberto jumped over the prostrate body three (3)
times, kicked it twice, and fired anew. The burst of gunfire virtually shattered the head of Fr. Favali, causing his brain to scatter
on the road. As Norberto, Jr., flaunted the brain to the terrified onlookers, his brothers danced and sang "Mutya Ka Baleleng" to
the delight of their comrades-in-arms who now took guarded positions to isolate the victim from possible assistance. 13
In seeking exculpation from criminal liability, appellants Severino Lines, Rudy Lines, Efren Pleñago and Roger Bendaño
contend that the trial court erred in disregarding their respective defenses of alibi which, if properly appreciated, would tend to
establish that there was no prior agreement to kill; that the intended victim was Fr. Peter Geremias, not Fr. Tulio Favali; that
there was only one (1) gunman, Edilberto; and, that there was absolutely no showing that appellants cooperated in the shooting
of the victim despite their proximity at the time to Edilberto.
But the evidence on record does not agree with the arguments of accused-appellants.
On their defense of alibi, accused brothers Severino and Rudy Lines claim that they were harvesting palay the whole day of 11
April 1985 some one kilometer away from the crime scene. Accused Roger Bedaño alleges that he was on an errand for the
church to buy lumber and nipa in M'lang, Cotabato, that morning of 11 April 1985, taking along his wife and sick child for
medical treatment and arrived in La Esperanza, Tulunan, past noontime.
Interestingly, all appellants similarly contend that it was only after they heard gunshots that they rushed to the house of
Norberto Manero, Sr., Barangay Captain of La Esperanza, where they were joined by their fellow CHDF members and co-
accused, and that it was only then that they proceeded together to where the crime took place at Km. 125.
It is axiomatic that the accused interposing the defense of alibi must not only be at some other place but that it must also be
physically impossible for him to be at the scene of the crime at the time of its commission. 14
Considering the failure of appellants to prove the required physical impossibility of being present at the crime scene, as can be
readily deduced from the proximity between the places where accused-appellants were allegedly situated at the time of the
commission of the offenses and the locus criminis, 15 the defense of alibi is definitely feeble. 16 After all, it has been the
consistent ruling of this Court that no physical impossibility exists in instances where it would take the accused only fifteen to
twenty minutes by jeep or tricycle, or some one-and-a half hours by foot, to traverse the distance between the place where he
allegedly was at the time of commission of the offense and the scene of the crime. 17 Recently, We ruled that there can be no
physical impossibility even if the distance between two places is merely two (2) hours by bus. 18 More important, it is well-
settled that the defense of alibi cannot prevail over the positive identification of the authors of the crime by the prosecution
witnesses. 19
In the case before Us, two (2) eyewitnesses, Reynaldo Deocades and Manuel Bantolo, testified that they were both inside the
eatery at about 10:00 o'clock in the morning of 11 April 1985 when the Manero brothers, together with appellants, first
discussed their plan to kill some communist sympathizers. The witnesses also testified that they still saw the appellants in the
company of the Manero brothers at 4:00 o'clock in the afternoon when Rufino Robles was shot. Further, at 5:00 o'clock that
same afternoon, appellants were very much at the scene of the crime, along with the Manero brothers, when Fr. Favali was
brutally murdered. 20 Indeed, in the face of such positive declarations that appellants were at the locus criminis from 10:00
o'clock in the morning up to about 5:00 o'clock in the afternoon, the alibi of appellants that they were somewhere else, which is
negative in nature, cannot prevail. 21 The presence of appellants in the eatery at Km. 125 having been positively established, all
doubts that they were not privy to the plot to liquidate alleged communist sympathizers are therefore removed. There was direct
proof to link them to the conspiracy.
There is conspiracy when two or more persons come to an agreement to commit a crime and decide to commit it. 22 It is not
essential that all the accused commit together each and every act constitutive of the offense. 23 It is enough that an accused
participates in an act or deed where there is singularity of purpose, and unity in its execution is present. 2 4 The findings of the
court a quo unmistakably show that there was indeed a community of design as evidenced by the concerted acts of all the
accused. Thus —
"The other six accused, 25 all armed with high powered firearms, were positively identified with Norberto
Manero, Jr. and Edilberto Manero in the carinderia of Reynaldo Deocades in La Esperanza, Tulunan,
Cotabato at 10:00 o'clock in the mowing of 11 April 1985 . . . they were outside of the carinderia by the
window near the table where Edilberto Manero, Norberto Manero, Jr., Jun Villamor, Elpidio Manero and
unidentified members of the airborne from Cotabato were grouped together. Later that morning, they all
went to the cockhouse nearby to finish their plan and drink tuba. They were seen again with Edilberto
Manero and Norberto Manero, Jr., at 4:00 o'clock in the afternoon of that day near the house of Rufino
Robles (Bantil) when Edilberto Manero shot Robles. They surrounded the house of Domingo Gomez where
Robles fled and hid, but later left when Edilberto Manero told them to leave as Robles would die of
hemorrhage. They followed Fr. Favali to Domingo Gomez house, witnessed and enjoyed the burning of the
motorcycle of Fr. Favali and later they stood guard with their firearms ready on the road when Edilberto
Manero shot to death Fr. Favali. Finally, they joined Norberto Manero, Jr. and Edilberto Manero in their
enjoyment and merriment on the death of the priest." 26
 
From the foregoing narration of the trial court, it is clear that appellants were not merely innocent bystanders but were in fact
vital cogs in perpetrating the savage murder of Fr. Favali and the attempted murder of Rufino Robles by the Manero brothers
and their militiamen. For sure, appellants all assumed a fighting stance to discourage if not prevent any attempt to provide
assistance to the fallen priest. They surrounded the house of Domingo Gomez to stop Robles and the other occupants from
leaving so that the wounded Robles may die of hemorrhage. 27 Undoubtedly, these were overt acts to ensure success of the
commission of the crimes and in furtherance of the aims of the conspiracy. The appellants acted in concert in the murder of Fr.
Favali and in the attempted murder of Rufino Robles. While accused-appellants may not have delivered the fatal shots
themselves, their collective action showed a common intent to commit the criminal acts.
While it may be true that Fr. Favali was not originally the intended victim, as it was Fr. Peter Geremias whom the group
targetted for the kill, nevertheless, Fr. Favali was deemed a good substitute in the murder as he was an Italian priest. On this, the
conspirators expressly agreed. As witness Manuel Bantolo explained 28 —
"Q Aside from those persons listed in that paper to be killed, were there other persons who were to be
liquidated?
 "A There were some others.
"Q Who were they?
"A They said that if they could not kill those persons listed in that paper then they will (sic) kill anyone so
long as he is (sic) an Italian and if they could not kill the persons they like to kill they will (sic)
make Reynaldo Deocades as their sample."
That appellants and their co-accused reached a common understanding to kill another Italian priest in the event that Fr. Peter
Geremias could not be spotted was elucidated by Bantolo thus 29 —
"Q Who suggested that Fr. Peter be the first to be killed?
"A All of them in the group.
"Q What was the reaction of Norberto Manero with respect to the plan to kill Fr. Peter?
"A He laughed and even said, 'amo ina' meaning 'yes, we will kill him ahead.'
xxx xxx xxx
"Q What about Severino Lines? What was his reaction?
"A He also laughed and so conformed and agreed to it.
"Q Rudy Lines?
"A He also said 'yes'.
"Q What do you mean 'yes'?
"A He also agreed and he was happy and said 'yes' we will kill him.
xxx xxx xxx
"Q What about Efren Pleñago?
"A He also agreed and even commented laughing 'go ahead'.
"Q Roger Bedaño, what was his reaction to that suggestion that should they fail to kill Fr. Peter, they will
(sic) kill anybody provided he is an Italian and if not, they will (sic) make Reynaldo Deocades an
example?
"A He also agreed laughing."
Conspiracy or action in concert to achieve a criminal design being sufficiently shown, the act of one is the act of all the other
conspirators, and the precise extent or modality of participation of each of them becomes secondary. 30
The award of moral damages in the amount of P100,000.00 to the congregation, the Pontifical Institute of Foreign Mission
(PIME) Brothers, is not proper. There is nothing on record which indicates that the deceased effectively severed his civil
relations with his family, or that he disinherited any member thereof, when he joined his religious congregation. As a matter of
fact, Fr. Peter Geremias of the same congregation, who was then a parish priest of Kidapawan, testified that "the religious
family belongs to the natural family of origin." 31 Besides, as We already held, 32 a juridical person is not entitled to moral
damages because, not being a natural person, it cannot experience physical suffering or such sentiments as wounded feelings,
serious anxiety, mental anguish or moral shock. It is only when a juridical person has a good reputation that is debased,
resulting in social humiliation, that moral damages may be awarded.
Neither can We award moral damages to the heirs of the deceased who may otherwise be lawfully entitled thereto pursuant to
par. (3), Art. 2206, of the Civil Code, 33 for the reason that the heirs never presented any evidence showing that they suffered
mental anguish; much less did they take the witness stand. It has been held 34 that moral damages and their causal relation to
the defendant's acts should be satisfactorily proved by the claimant. It is elementary that in order that moral damages may be
awarded there must be proof of moral suffering. 35 However, considering that the brutal slaying of Fr. Tulio Favali was
attended with abuse of superior strength, cruelty and ignominy by deliberately and inhumanly augmenting the pain and anguish
of the victim, outraging or scoffing at this person or corpse, exemplary damages may be awarded to the lawful heirs, 36 even
though not proved nor expressly pleaded in the complaint, 37 and the amount of P100,000.00 is considered reasonable.
With respect to the civil indemnity of P12,000.00 for the death of Fr. Tulio Favali, the amount is increased to P50,000.00 in
accordance with existing jurisprudence, which should be paid to the lawful heirs, not the PIME as the trial court ruled.
WHEREFORE, the judgment appealed from being in accord with law and the evidence is AFFIRMED with the modification
that the civil indemnity which is increased from P12,000.00 to P50,000.00 is awarded to the lawful heirs of the deceased plus
exemplary damages of P100,000.00; however, the award of moral damages is deleted.
Costs against accused-appellants.
SO ORDERED.
|||  (People v. Manero, Jr.,, G.R. Nos. 86883-85, [January 29, 1993])

EN BANC

[G.R. No. 155650. July 20, 2006.]

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF
PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY TREASURER OF
PARAÑAQUE, respondents.
 DECISION

CARPIO, J p:

The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex
in Parañaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila International Airport
Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos.
Subsequently, Executive Order Nos. 909 1 and 298 2 amended the MIAA Charter.
As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA
Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land, 3 including the runways and buildings
("Airport Lands and Buildings") then under the Bureau of Air Transportation. 4 The MIAA Charter further provides that no portion of
the land transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved by the President of the
Philippines. 5
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC opined
that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21 of
the MIAA Charter. Thus, MIAA negotiated with respondent City of Parañaque to pay the real estate tax imposed by the City. MIAA
then paid some of the real estate tax already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the taxable
years 1992 to 2001. MIAA's real estate tax delinquency is broken down as follows:
TAX DECLARATION TAXABLE YEAR TAX DUE PENALTY TOTAL

         

E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20

E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49

E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00

E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00

E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24

E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99

E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00

E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00

*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50

*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00

*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00

GRAND TOTAL   P392,435,861.95 P232,070,863.47 P624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R. #9476102 for P4,207,028.75  

    #9476101 for P28,676,480.00  

    #9476103 for P49,115.00 6   

On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport
Lands and Buildings. The Mayor of the City of Parañaque threatened to sell at public auction the Airport Lands and Buildings should
MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that
Section 206 of the Local Government Code requires persons exempt from real estate tax to show proof of exemption. The OGCC
opined that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax.
 On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for
preliminary injunction or temporary restraining order. The petition sought to restrain the City of Parañaque from imposing real estate
tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. The petition was docketed as CA-G.R. SP No.
66878.
On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary
period. The Court of Appeals also denied on 27 September 2002 MIAA's motion for reconsideration and supplemental motion for
reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for review. 7
Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the Barangay Halls of Barangays
Vitalez, Sto. Niño, and Tambo, Parañaque City; in the public market of Barangay La Huerta; and in the main lobby of the Parañaque
City Hall. The City of Parañaque published the notices in the 3 and 10 January 2003 issues of the Philippine Daily Inquirer, a
newspaper of general circulation in the Philippines. The notices announced the public auction sale of the Airport Lands and Buildings
to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of Parañaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent  Ex-Parte and
Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain respondents — the City of
Parañaque, City Mayor of Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of Parañaque, and the City Assessor of
Parañaque ("respondents") — from auctioning the Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court ordered
respondents to cease and desist from selling at public auction the Airport Lands and Buildings. Respondents received the TRO on the
same day that the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three hours after the conclusion of the
public auction. DTSaIc
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the hearing,
MIAA, respondent City of Parañaque, and the Solicitor General subsequently submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. However,
MIAA points out that it cannot claim ownership over these properties since the real owner of the Airport Lands and Buildings is the
Republic of the Philippines. The MIAA Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of the
general public. Since the Airport Lands and Buildings are devoted to public use and public service, the ownership of these properties
remains with the State. The Airport Lands and Buildings are thus inalienable and are not subject to real estate tax by local
governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax.
MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government Code because the Airport Lands
and Buildings are owned by the Republic. To justify the exemption, MIAA invokes the principle that the government cannot tax itself.
MIAA points out that the reason for tax exemption of public property is that its taxation would not inure to any public advantage,
since in such a case the tax debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption privileges of
"government-owned and-controlled corporations" upon the effectivity of the Local Government Code. Respondents also argue that
a basic rule of statutory construction is that the express mention of one person, thing, or act excludes all others. An international
airport is not among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA
cannot claim that the Airport Lands and Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos 8 where we held that the Local
Government Code has withdrawn the exemption from real estate tax granted to international airports. Respondents further argue that
since MIAA has already paid some of the real estate tax assessments, it is now estopped from claiming that the Airport Lands and
Buildings are exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real estate tax
under existing laws. If so exempt, then the real estate tax assessments issued by the City of Parañaque, and all proceedings taken
pursuant to such assessments, are void. In such event, the other issues raised in this petition become moot.
The Court's Ruling
We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments.
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and
thus exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines and thus exempt
from real estate tax.
 1. MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate tax.
Respondents claim that the deletion of the phrase "any government-owned or controlled so exempt by its charter" in Section 234(e) of
the Local Government Code withdrew the real estate tax exemption of government-owned or controlled corporations. The deleted
phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA
is not a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of
1987 defines a government-owned or controlled corporation as follows:
 
SEC. 2. General Terms Defined. — . . .
(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-
stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature,
and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in
the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital stock: . . . . (Emphasis
supplied)
A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not
organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has  no capital stock divided into shares.
MIAA has no stockholders or voting shares. Section 10 of the MIAA Charter 9 provides:
SECTION 10. Capital. — The capital of the Authority to be contributed by the National Government
shall be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00)
Pesos to consist of:
(a) The value of fixed assets including airport facilities, runways and equipment and such other
properties, movable and immovable[,] which may be contributed by the National Government or transferred by it
from any of its agencies, the valuation of which shall be determined jointly with the Department of Budget and
Management and the Commission on Audit on the date of such contribution or transfer after making due
allowances for depreciation and other deductions taking into account the loans and other liabilities of the
Authority at the time of the takeover of the assets and other properties;
(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum
(70%) of the unremitted share of the National Government from 1983 to 1986 to be remitted to the National
Treasury as provided for in Section 11 of E.O. No. 903 as amended, shall be converted into the equity of the
National Government in the Authority. Thereafter, the Government contribution to the capital of the Authority
shall be provided in the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code 10 defines a stock corporation as one whose "capital stock is divided into shares and . . .
authorized to distribute to the holders of such shares dividends . . . ." MIAA has capital but it is not divided into shares of stock.
MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the  Corporation Code defines a non-
stock corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." A non-stock
corporation must have members. Even if we assume that the Government is considered as the sole member of MIAA, this will not
make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their members. Section 11
of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National Treasury.  11 This prevents
MIAA from qualifying as a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational,
professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry,
agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate an
international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled
corporation. What then is the legal status of MIAA within the National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions.
MIAA is like any other government instrumentality, the only difference is that MIAA is vested with corporate powers. Section 2(10)
of the Introductory Provisions of the Administrative Code defines a government "instrumentality" as follows:
SEC. 2. General Terms Defined. –– . . .
 (10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. .
. . (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation.
Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality
exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental powers of eminent
domain, 12 police authority 13 and the levying of fees and charges. 14 At the same time, MIAA exercises "all the powers of a
corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive Order." 15
Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part of
the National Government machinery although not integrated with the department framework. The MIAA Charter expressly states that
transforming MIAA into a "separate and autonomous body" 16 will make its operation more "financially viable." 17
Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock
corporations, which is a necessary condition before an agency or instrumentality is deemed a government-owned or controlled
corporation. Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines
and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not organized as stock
or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate entities. However, they are not government-owned or controlled
corporations in the strict sense as understood under the Administrative Code, which is the governing law defining the legal
relationship and status of government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. — Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following:
xxx xxx xxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities and local government units. (Emphasis and underscoring supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which historically
merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation as one of the powers
of local governments, local governments may only exercise such power "subject to such guidelines and limitations as the
Congress may provide." 18
When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly
against local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the tax. Any
doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when
Congress grants an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in
favor of the national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:
The reason for the rule does not apply in the case of exemptions running to the benefit of the government
itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money
that has to be handled by government in the course of its operations. For these reasons, provisions granting
exemptions to government agencies may be construed liberally, in favor of non tax-liability of such agencies. 19
There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy requires
such transfer of public funds from one government pocket to another.
There is also no reason for local governments to tax national government instrumentalities for rendering essential public
services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax government
instrumentalities for the delivery of essential public services for sound and compelling policy considerations . There must be
express language in the law empowering local governments to tax national government instrumentalities. Any doubt whether such
power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local governments
cannot tax national government instrumentalities. As this Court held in Basco v. Philippine Amusements and Gaming Corporation:
 The states have no power by taxation or otherwise, to retard, impede, burden or in any manner
control the operation of constitutional laws enacted by Congress to carry into execution the powers
vested in the federal government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
 
This doctrine emanates from the "supremacy" of the National Government over local governments.
"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power
on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate
a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or
even to seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional Law, Vol.
2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation"
(U.S. v. Sanchez, 340 US 42). TAScID
The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the
inherent power to wield it. 20
2. Airport Lands and Buildings of MIAA are Owned by the Republic
a. Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the
Republic of the Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private ownership.
ARTICLE 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed
by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public
service or for the development of the national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character stated in the preceding
article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for public use or for public
service, shall form part of the patrimonial property of the State.
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals,
rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports" includes seaports and
airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code,
the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the
Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the public for international and
domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public does not
remove the character of the Airport Lands and Buildings as properties for public use. The operation by the government of a tollway
does not change the character of the road as one for public use. Someone must pay for the maintenance of the road, either the public
indirectly through the taxes they pay the government, or only those among the public who actually use the road through the toll fees
they pay upon using the road. The tollway system is even a more efficient and equitable manner of taxing the public for the
maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it is of public dominion or not.
Article 420 of the Civil Code defines property of public dominion as one "intended for public use." Even if the government collects
toll fees, the road is still "intended for public use" if anyone can use the road under the same terms and conditions as the rest of the
public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for
the use of the road do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of
the income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport
for public use. Such fees are often termed user's tax. This means taxing those among the public who actually use a public facility
instead of taxing all the public including those who never use the particular public facility. A user's tax is more equitable — a principle
of taxation mandated in the 1987 Constitution. 21
The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both
international and domestic air traffic," 22 are properties of public dominion because they are intended for public use. As properties of
public dominion, they indisputably belong to the State or the Republic of the Philippines.
b. Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion.  As
properties of public dominion, the Airport Lands and Buildings are outside the commerce of man. The Court has ruled
repeatedly that properties of public dominion are outside the commerce of man. As early as 1915, this Court already ruled
in Municipality of Cavite v. Rojas that properties devoted to public use are outside the commerce of man, thus:
According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises
the provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public works
of general service supported by said towns or provinces."
The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in
1907 withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the
defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use the
plaintiff municipality exceeded its authority in the exercise of its powers by executing a contract over a thing of
which it could not dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may
be the object of a contract, and plazas and streets are outside of this commerce, as was decided by the supreme
court of Spain in its decision of February 12, 1895, which says: "Communal things that cannot be sold because
they are by their very nature outside of commerce are those for public use, such as the plazas, streets,
common lands, rivers, fountains, etc." (Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the commerce of
man:
. . . Town plazas are properties of public dominion, to be devoted to public use and to be made
available to the public in general. They are outside the commerce of man and cannot be disposed of or even
leased by the municipality to private parties. While in case of war or during an emergency, town plazas may be
occupied temporarily by private individuals, as was done and as was tolerated by the Municipality of Pozorrubio,
when the emergency has ceased, said temporary occupation or use must also cease, and the town officials should
see to it that the town plazas should ever be kept open to the public and free from encumbrances or illegal private
constructions. 24 (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of an
auction sale. 25
Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or
private sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to
public policy. Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and
auction sale. This will happen if the City of Parañaque can foreclose and compel the auction sale of the 600-hectare runway of the
MIAA for non-payment of real estate tax.
Before MIAA can encumber 26 the Airport Lands and Buildings, the President must first withdraw from public use the
Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141, which "remains to this day
the existing general law governing the classification and disposition of lands of the public domain other than timber and mineral
lands," 27 provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the
President may designate by proclamation any tract or tracts of land of the public domain as reservations for the
use of the Republic of the Philippines or of any of its branches, or of the inhabitants thereof, in accordance with
regulations prescribed for this purposes, or for quasi-public uses or purposes when the public interest requires it,
including reservations for highways, rights of way for railroads, hydraulic power sites, irrigation systems,
communal pastures or lequas communales, public parks, public quarries, public fishponds, working men's village
and other improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall
be non-alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until again
declared alienable under the provisions of this Act or by proclamation of the President. (Emphasis and
underscoring supplied)
 Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these
properties remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings are inalienable in their
present status as properties of public dominion, they are not subject to levy on execution or foreclosure sale. As long as the Airport
Lands and Buildings are reserved for public use, their ownership remains with the State or the Republic of the Philippines.
 
The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is
reiterated in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. — (1) The
President shall have the power to reserve for settlement or public use, and for specific public purposes, any
of the lands of the public domain, the use of which is not otherwise directed by law. The reserved land shall
thereafter remain subject to the specific public purpose indicated until otherwise provided by law or
proclamation;
xxx xxx xxx. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential proclamation
from public use, they are properties of public dominion, owned by the Republic and outside the commerce of man. DSAICa
c. MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I
of the Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property. — Whenever real property of the Government is
authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the
following:
(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President,
unless the authority therefor is expressly vested by law in another officer.
(2) For property belonging to the Republic of the Philippines but titled in the name of any political
subdivision or of any corporate agency or instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)
In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head
cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of
conveyance. 28
d. Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau of Air
Transportation of the Department of Transportation and Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport Authority. — . . .
The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to the ownership and
administration of the Authority, subject to existing rights, if any. The Bureau of Lands and other appropriate
government agencies shall undertake an actual survey of the area transferred within one year from the
promulgation of this Executive Order and the corresponding title to be issued in the name of the Authority. Any
portion thereof shall not be disposed through sale or through any other mode unless specifically approved
by the President of the Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets. — All existing public airport
facilities, runways, lands, buildings and other property, movable or immovable, belonging to the Airport, and
all assets, powers, rights, interests and privileges belonging to the Bureau of Air Transportation relating to
airport works or air operations, including all equipment which are necessary for the operation of crash fire and
rescue facilities, are hereby transferred to the Authority. (Emphasis supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air
Transportation and Transitory Provisions. — The Manila International Airport including the Manila Domestic
Airport as a division under the Bureau of Air Transportation is hereby abolished.
xxx xxx xxx.
 The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash, promissory notes
or even stock since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to MIAA,
thus:
WHEREAS, the Manila International Airport as the principal airport of the Philippines for both
international and domestic air traffic, is required to provide standards of airport accommodation and service
comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to
meet the current and future air traffic and other demands of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated that the objectives of providing high
standards of accommodation and service within the context of a financially viable operation, will best be
achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the
President of the Philippines is given continuing authority to reorganize the National Government, which
authority includes the creation of new entities, agencies and instrumentalities of the Government[.]
(Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer
beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a division in the Bureau of
Air Transportation into a separate and autonomous body. The Republic remains the beneficial owner of the Airport Lands and
Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAA's assets adverse to the
Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale or through
any other mode unless specifically approved by the President of the Philippines." This only means that the Republic retained the
beneficial ownership of the Airport Lands and Buildings because under Article 428 of the Civil Code, only the "owner has the right
to . . . dispose of a thing." Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not own the Airport Lands and
Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the Republic
paying MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one who can authorize the sale or
disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands and Buildings belong to the Republic.
e. Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic of the
Philippines." Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment of the
real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;
xxx xxx xxx. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments from
imposing "[t]axes, fees or charges of any kind on the National Government, its agencies and instrumentalities . . . ." The real
properties owned by the Republic are titled either in the name of the Republic itself or in the name of agencies or instrumentalities of
the National Government. The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or
instrumentalities of the national government. Such real properties remain owned by the Republic and continue to be exempt from real
estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government.
This happens when title of the real property is transferred to an agency or instrumentality even as the Republic remains the owner of
the real property. Such arrangement does not result in the loss of the tax exemption. Section 234(a) of the  Local Government
Code states that real property owned by the Republic loses its tax exemption only if the "beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person." MIAA, as a government instrumentality, is not a taxable person under Section
133(o) of the Local Government Code. Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the
Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate
tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a
case, MIAA has granted the beneficial use of such land area for a consideration to a  taxable person and therefore such land area is
subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:
Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the
hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land
occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are
exempt from real property taxes. 29
3. Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local Government Code of
1991 withdrew the tax exemption of "all persons, whether natural or juridical" upon the effectivity of the Code. Section 193
provides:
 
SEC. 193. Withdrawal of Tax Exemption Privileges — Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions are hereby
withdrawn upon effectivity of this Code. (Emphasis supplied) ESacHC
The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local Government
Code withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real estate tax. Thus, the minority declares:
It is evident from the quoted provisions of the Local Government Code that the withdrawn
exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay down the
explicit proposition that the withdrawal of realty tax exemption applies to all persons. The reference to or the
inclusion of GOCCs is only clarificatory or illustrative of the explicit provision.
The term "All persons" encompasses the two classes of persons recognized under our laws, natural
and juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative test is not just
whether MIAA is a GOCC, but whether MIAA is a juridical person at all. (Emphasis and underscoring in the
original)
The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status — whether
MIAA is a juridical person or not. The minority also insists that "Sections 193 and 234 may be examined in isolation from
Section 133(o) to ascertain MIAA's claim of exemption."
The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the tax
exemption of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local Government
Code expressly provides otherwise, specifically prohibiting local governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. — Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
xxx xxx xxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies
and instrumentalities, and local government units. (Emphasis and underscoring supplied)
By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national
government instrumentalities like the MIAA. Local governments are devoid of power to tax the national government, its agencies
and instrumentalities. The taxing powers of local governments do not extend to the national government, its agencies and
instrumentalities, "[u]nless otherwise provided in this Code" as stated in the saving clause of Section 133. The saving clause refers to
Section 234(a) on the exception to the exemption from real estate tax of real property owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to tax by local
governments. The minority insists that the juridical persons exempt from local taxation are limited to the three classes of
entities specifically enumerated as exempt in Section 193. Thus, the minority states:
. . . Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly
registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational
institutions. It would be belaboring the obvious why the MIAA does not fall within any of the exempt entities
under Section 193. (Emphasis supplied)
 The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code. This theory
will result in gross absurdities. It will make the national government, which itself is a juridical person, subject to tax by local
governments since the national government is not included in the enumeration of exempt entities in Section 193. Under this theory,
local governments can impose any kind of local tax, and not only real estate tax, on the national government.
Under the minority's theory, many national government instrumentalities with juridical personalities will also be subject
to any kind of local tax, and not only real estate tax. Some of the national government instrumentalities vested by law with
juridical personalities are: Bangko Sentral ng Pilipinas, 30 Philippine Rice Research Institute, 31 Laguna Lake Development
Authority, 32 Fisheries Development Authority, 33 Bases Conversion Development Authority, 34 Philippine Ports
Authority, 35 Cagayan de Oro Port Authority, 36 San Fernando Port Authority, 37 Cebu Port Authority, 38 and Philippine National
Railways. 39
The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local governments
from imposing any kind of tax on national government instrumentalities. Section 133(o) does not distinguish between national
government instrumentalities with or without juridical personalities. Where the law does not distinguish, courts should not
distinguish. Thus, Section 133(o) applies to all national government instrumentalities, with or without juridical personalities.
The determinative test whether MIAA is exempt from local taxation is not whether MIAA is a juridical person, but whether it is a
national government instrumentality under Section 133(o) of the Local Government Code. Section 133(o) is the specific provision
of law prohibiting local governments from imposing any kind of tax on the national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this Code." This
means that unless the Local Government Code grants an express authorization, local governments have no power to tax the national
government, its agencies and instrumentalities. Clearly, the rule is local governments have no power to tax the national government,
its agencies and instrumentalities. As an exception to this rule, local governments may tax the national government, its agencies and
instrumentalities only if the Local Government Code expressly so provides.
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which makes the
national government subject to real estate tax when it gives the beneficial use of its real properties to a taxable entity . Section
234(a) of the Local Government Code provides:
SEC. 234. Exemptions from Real Property Tax — The following are exempted from payment of the
real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.
xxx xxx xxx. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this exemption is
when the government gives the beneficial use of the real property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the national government, its agencies and
instrumentalities are subject to any kind of tax by local governments. The exception to the exemption applies only to real estate
tax and not to any other tax. The justification for the exception to the exemption is that the real property, although owned by the
Republic, is not devoted to public use or public service but devoted to the private gain of a taxable person.
The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the later
provisions prevail over Section 133. Thus, the minority asserts:
. . . Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of
construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical
person, is subject to real property taxes, the general exemptions attaching to instrumentalities under Section
133(o) of the Local Government Code being qualified by Sections 193 and 234 of the same law. (Emphasis
supplied)
The minority assumesthat there is an irreconcilable conflict between Section 133 on one hand, and Sections 193 and 234 on
the other. No one has urged that there is such a conflict, much less has any one presented a persuasive argument that there is such a
conflict. The minority's assumption of an irreconcilable conflict in the statutory provisions is an egregious error for two reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its
subordination to other provisions of the Code when Section 193 states "[u]nless otherwise provided in this Code." By its own
words, Section 193 admits the superiority of other provisions of the Local Government Code that limit the exercise of the taxing
power in Section 193. When a provision of law grants a power but withholds such power on certain matters, there is no conflict
between the grant of power and the withholding of power. The grantee of the power simply cannot exercise the power on matters
withheld from its power.
 Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units." Section 133
limits the grant to local governments of the power to tax, and not merely the exercise of a delegated power to tax. Section 133 states
that the taxing powers of local governments "shall not extend to the levy" of any kind of tax on the national government, its agencies
and instrumentalities. There is no clearer limitation on the taxing power than this.
 
Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133 logically
prevails over Section 193 which grants local governments such taxing powers. By their very meaning and purpose, the "common
limitations" on the taxing power prevail over the grant or exercise of the taxing power. If the taxing power of local governments
in Section 193 prevails over the limitations on such taxing power in Section 133, then local governments can impose any kind of tax
on the national government, its agencies and instrumentalities — a gross absurdity.
Local governments have no power to tax the national government, its agencies and instrumentalities, except as otherwise
provided in the Local Government Code pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided in
this Code." This exception — which is an exception to the exemption of the Republic from real estate tax imposed by local
governments — refers to Section 234(a) of the Code. The exception to the exemption in Section 234(a) subjects real property owned
by the Republic, whether titled in the name of the national government, its agencies or instrumentalities, to real estate tax if the
beneficial use of such property is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase "government-owned or controlled
corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions of the  Administrative
Code admits that its definitions are not controlling when it provides:
SEC. 2. General Terms Defined. — Unless the specific words of the text, or the context as a whole, or a
particular statute, shall require a different meaning:
xxx xxx xxx
The minority then concludes that reliance on the Administrative Code definition is "flawed."
The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may require a
different meaning than that defined in the Administrative Code. However, this does not automatically mean that the definition in
the Administrative Code does not apply to the Local Government Code. Section 2 of the Administrative Code clearly states that
"unless the specific words . . . of a particular statute shall require a different meaning," the definition in Section 2 of
the Administrative Code shall apply. Thus, unless there is specific language in the Local Government Code defining the phrase
"government-owned or controlled corporation" differently from the definition in the Administrative Code, the definition in
the Administrative Code prevails. EcSCHD
The minority does not point to any provision in the Local Government Code defining the phrase "government-owned or
controlled corporation" differently from the definition in the Administrative Code. Indeed, there is none. The Local Government
Code is silent on the definition of the phrase "government-owned or controlled corporation." The Administrative Code,
however, expressly defines the phrase "government-owned or controlled corporation." The inescapable conclusion is that
the Administrative Code definition of the phrase "government-owned or controlled corporation" applies to the Local Government
Code.
The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the major
structural, functional and procedural principles and rules of governance." Thus, the Administrative Code is the governing
law defining the status and relationship of government departments, bureaus, offices, agencies and instrumentalities. Unless a statute
expressly provides for a different status and relationship for a specific government unit or entity, the provisions of the  Administrative
Code prevail.
The minority also contends that the phrase "government-owned or controlled corporation" should apply only to corporations
organized under the Corporation Code, the general incorporation law, and not to corporations created by special charters. The minority
sees no reason why government corporations with special charters should have a capital stock. Thus, the minority declares:
I submit that the definition of "government-owned or controlled corporations" under the Administrative
Code refer to those corporations owned by the government or its instrumentalities which are created not by
legislative enactment, but formed and organized under the Corporation Code through registration with the
Securities and Exchange Commission. In short, these are GOCCs without original charters.
xxx xxx xxx
It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs
whose full ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to declare
dividends or alienate their capital shares.
 The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It will also
result in gross absurdities.
First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not distinguish
between one incorporated under the Corporation Code or under a special charter. Where the law does not distinguish, courts should
not distinguish.
Second, Congress has created through special charters several government-owned corporations organized as stock
corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of the Philippines. The special
charter 40 of the Land Bank of the Philippines provides:
SECTION 81. Capital. — The authorized capital stock of the Bank shall be nine billion pesos,
divided into seven hundred and eighty million common shares with a par value of ten pesos each, which
shall be fully subscribed by the Government, and one hundred and twenty million preferred shares with a par
value of ten pesos each, which shall be issued in accordance with the provisions of Sections seventy-seven and
eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter 41 of the Development Bank of the Philippines provides:
SECTION 7. Authorized Capital Stock — Par value. — The capital stock of the Bank shall be Five
Billion Pesos to be divided into Fifty Million common shares with par value of P100 per share. These shares
are available for subscription by the National Government. Upon the effectivity of this Charter, the National
Government shall subscribe to Twenty-Five Million common shares of stock worth Two Billion Five Hundred
Million which shall be deemed paid for by the Government with the net asset values of the Bank remaining after
the transfer of assets and liabilities as provided in Section 30 hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their special charters are the Philippine Crop
Insurance Corporation, 42 Philippine International Trading Corporation, 43 and the Philippine National Bank 44 before it was
reorganized as a stock corporation under the Corporation Code. All these government-owned corporations organized under special
charters as stock corporations are subject to real estate tax on real properties owned by them. To rule that they are not government-
owned or controlled corporations because they are not registered with the Securities and Exchange Commission would remove them
from the reach of Section 234 of the Local Government Code, thus exempting them from real estate tax.
Third, the government-owned or controlled corporations created through special charters are those that meet the two
conditions prescribed in Section 16, Article XII of the Constitution. The first condition is that the government-owned or controlled
corporation must be established for the common good. The second condition is that the government-owned or controlled
corporation must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of economic
viability. (Emphasis and underscoring supplied)
The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through
special charters only if these entities are required to meet the twin conditions of common good and economic viability. In other
words, Congress has no power to create government-owned or controlled corporations with special charters unless they are
made to comply with the two conditions of common good and economic viability. The test of economic viability applies only to
government-owned or controlled corporations that perform economic or commercial activities and need to compete in the market
place. Being essentially economic vehicles of the State for the common good — meaning for economic development purposes —
these government-owned or controlled corporations with special charters are usually organized as stock corporations just like ordinary
private corporations.
In contrast, government instrumentalities vested with corporate powers and performing governmental or public functions
need not meet the test of economic viability. These instrumentalities perform essential public services for the common good, services
that every modern State must provide its citizens. These instrumentalities need not be economically viable since the government may
even subsidize their entire operations. These instrumentalities are not the "government-owned or controlled corporations" referred to
in Section 16, Article XII of the 1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with corporate
powers but performing essential governmental or public functions. Congress has plenary authority to create government
instrumentalities vested with corporate powers provided these instrumentalities perform essential government functions or
public services. However, when the legislature creates through special charters corporations that perform economic or commercial
activities, such entities — known as "government-owned or controlled corporations" — must meet the test of economic viability
because they compete in the market place.
 
 This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar
government-owned or controlled corporations, which derive their income to meet operating expenses solely from commercial
transactions in competition with the private sector. The intent of the Constitution is to prevent the creation of government-owned or
controlled corporations that cannot survive on their own in the market place and thus merely drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission the
purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the government creates a
corporation, there is a sense in which this corporation becomes exempt from the test of economic performance.
We know what happened in the past. If a government corporation loses, then it makes its claim upon the
taxpayers' money through new equity infusions from the government and what is always invoked is the common
good. That is the reason why this year, out of a budget of P115 billion for the entire government, about P28 billion
of this will go into equity infusions to support a few government financial institutions. And this is all taxpayers'
money which could have been relocated to agrarian reform, to social services like health and education, to
augment the salaries of grossly underpaid public employees. And yet this is all going down the drain.
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good,"
this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of
meeting the market test so that they become viable. And so, Madam President, I reiterate, for the committee's
consideration and I am glad that I am joined in this proposal by Commissioner Foz, the insertion of the standard
of "ECONOMIC VIABILITY OR THE ECONOMIC TEST," together with the common good. 45
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987
Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant addition,
however, is the phrase "in the interest of the common good and subject to the test of economic viability." The
addition includes the ideas that they must show capacity to function efficiently in business and that they
should not go into activities which the private sector can do better. Moreover, economic viability is more than
financial viability but also includes capability to make profit and generate benefits not quantifiable in financial
terms. 46 (Emphasis supplied) DAEcIS
Clearly, the test of economic viability does not apply to government entities vested with corporate powers and performing
essential public services. The State is obligated to render essential public services regardless of the economic viability of providing
such service. The non-economic viability of rendering such essential public service does not excuse the State from withholding such
essential services from the public.
However, government-owned or controlled corporations with special charters, organized essentially for economic or
commercial objectives, must meet the test of economic viability. These are the government-owned or controlled corporations that are
usually organized under their special charters as stock corporations, like the Land Bank of the Philippines and the Development Bank
of the Philippines. These are the government-owned or controlled corporations, along with government-owned or controlled
corporations organized under the Corporation Code, that fall under the definition of "government-owned or controlled corporations" in
Section 2(10) of the Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in the market
place. MIAA does not compete in the market place because there is no competing international airport operated by the private sector.
MIAA performs an essential public service as the primary domestic and international airport of the Philippines. The operation of an
international airport requires the presence of personnel from the following government agencies:
1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers, screening out
those without visas or travel documents, or those with hold departure orders;
2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations;
3. The quarantine office of the Department of Health, to enforce health measures against the spread of infectious
diseases into the country;
4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases into the
country;
5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and the
escape of criminals, as well as to secure the airport premises from terrorist attack or seizure;
6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to enter
or leave Philippine airspace, as well as to land on, or take off from, the airport; and
 7. The MIAA, to provide the proper premises — such as runway and buildings — for the government personnel,
passengers, and airlines, and to manage the airport operations.
All these agencies of government perform government functions essential to the operation of an international airport.
MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its revenues
principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The terminal fees that MIAA charges
every passenger are regulatory or administrative fees 47 and not income from commercial transactions.
MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions of
the Administrative Code, which provides:
SEC. 2. General Terms Defined. — . . .
(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. .
. . (Emphasis supplied)
The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or controlled
corporation. Without a change in its capital structure, MIAA remains a government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code. More importantly, as long as MIAA renders essential public services, it need
not comply with the test of economic viability. Thus, MIAA is outside the scope of the phrase "government-owned or controlled
corporations" under Section 16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled corporation" as
merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions for the creation of
"government-owned or controlled corporations." The Administrative Code defines what constitutes a "government-owned or
controlled corporation." To belittle this phrase as "clarificatory or illustrative" is grave error.
To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory
Provisions of the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is MIAA a government-
owned or controlled corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test
of economic viability. MIAA is a government instrumentality vested with corporate powers and performing essential public services
pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government instrumentality, MIAA is not
subject to any kind of tax by local governments under Section 133(o) of the Local Government Code. The exception to the exemption
in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under the  Local Government Code. Such exception
applies only if the beneficial use of real property owned by the Republic is given to a taxable entity.
Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public
dominion. Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code provides:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed
by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public use, and are intended for some public
service or for the development of the national wealth. (Emphasis supplied)
The term "ports . . . constructed by the State" includes airports and seaports. The Airport Lands and Buildings of MIAA
are intended for public use, and at the very least intended for public service. Whether intended for public use or public service, the
Airport Lands and Buildings are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings
are owned by the Republic and thus exempt from real estate tax under Section 234(a) of the Local Government Code.
4. Conclusion
Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal relation and
status of government units, agencies and offices within the entire government machinery, MIAA is a government instrumentality and
not a government-owned or controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a
government instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges of any kind" by local
governments. The only exception is when MIAA leases its real property to a "taxable person" as provided in Section 234(a) of
the Local Government Code, in which case the specific real property leased becomes subject to real estate tax. Thus, only portions of
the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parañaque.
 
 Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties
of public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically mentions " ports . . .
constructed by the State," which includes public airports and seaports, as properties of public dominion and owned by the Republic.
As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport Lands and Buildings are
expressly exempt from real estate tax under Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that
properties of public dominion are not subject to execution or foreclosure sale.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5 October
2001 and 27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of the Manila International
Airport Authority EXEMPT from the real estate tax imposed by the City of Parañaque. We declare VOID all the real estate tax
assessments, including the final notices of real estate tax delinquencies, issued by the City of Parañaque on the Airport Lands and
Buildings of the Manila International Airport Authority, except for the portions that the Manila International Airport Authority has
leased to private parties. We also declare VOID the assailed auction sale, and all its effects, of the Airport Lands and Buildings of the
Manila International Airport Authority. ESHAcI
No costs.
SO ORDERED.
||| (Manila International Airport Authority v. Court of Appeals, G.R. No. 155650, [July 20, 2006], 528 PHIL 181-309)

EN BANC

[G.R. No. 177131. June 7, 2011.]

BOY SCOUTS OF THE PHILIPPINES, petitioner, vs. COMMISSION ON AUDIT, respondent.

DECISION

LEONARDO-DE CASTRO, J p:

The jurisdiction of the Commission on Audit (COA) over the Boy Scouts of the Philippines (BSP) is the subject matter
of this controversy that reached us via petition for prohibition 1 filed by the BSP under Rule 65 of the 1997 Rules of Court. In this
petition, the BSP seeks that the COA be prohibited from implementing its June 18, 2002 Decision, 2 its February 21,
2007 Resolution, 3 as well as all other issuances arising therefrom, and that all of the foregoing be rendered null and void. 4
Antecedent Facts and Background of
the Case
This case arose when the COA issued Resolution No. 99-011 5 on August 19, 1999 ("the COA Resolution"), with the
subject "Defining the Commission's policy with respect to the audit of the Boy Scouts of the Philippines." In its whereas clauses,
the COA Resolution stated that the BSP was created as a public corporation under Commonwealth Act No. 111, as amended
by Presidential Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the Philippines v. National Labor Relations
Commission, 6 the Supreme Court ruled that the BSP, as constituted under its charter, was a "government-controlled corporation
within the meaning of Article IX (B) (2) (1) of the Constitution"; and that "the BSP is appropriately regarded as a government
instrumentality under the 1987 Administrative Code." 7 The COA Resolution also cited its constitutional mandate under Section 2
(1), Article IX (D). Finally, the COA Resolution reads:
 NOW THEREFORE, in consideration of the foregoing premises, the COMMISSION PROPER HAS
RESOLVED, AS IT DOES HEREBY RESOLVE, to conduct an annual financial audit of the Boy Scouts of
the Philippines in accordance with generally accepted auditing standards, and express an opinion on whether
the financial statements which include the Balance Sheet, the Income Statement and the Statement of Cash Flows
present fairly its financial position and results of operations. SECATH
xxx xxx xxx
BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision, the Boy Scouts of the
Philippines shall be classified among the government corporations belonging to the Educational, Social,
Scientific, Civic and Research Sector under the Corporate Audit Office I, to be audited, similar to the subsidiary
corporations, by employing the team audit approach. 8 (Emphases supplied.)
The BSP sought reconsideration of the COA Resolution in a letter 9 dated November 26, 1999 signed by the BSP
National President Jejomar C. Binay, who is now the Vice President of the Republic, wherein he wrote:
It is the position of the BSP, with all due respect, that it is not subject to the Commission's jurisdiction on
the following grounds:
1. We reckon that the ruling in the case of Boy Scouts of the Philippines vs. National Labor Relations
Commission, et al. (G.R. No. 80767) classifying the BSP as a government-controlled corporation is
anchored on the "substantial Government participation" in the National Executive Board of the BSP. It is
to be noted that the case was decided when the BSP Charter is defined by Commonwealth Act No. 111 as
amended by Presidential Decree 460.
    However, may we humbly refer you to Republic Act No. 7278 which amended the BSP's charter after the cited
case was decided. The most salient of all amendments in RA No. 7278 is the alteration of the
composition of the National Executive Board of the BSP.
    The said RA virtually eliminated the "substantial government participation" in the National Executive Board by
removing: (i) the President of the Philippines and executive secretaries, with the exception of the
Secretary of Education, as members thereof; and (ii) the appointment and confirmation power of the
President of the Philippines, as Chief Scout, over the members of the said Board.
    The BSP believes that the cited case has been superseded by RA 7278. Thereby weakening the case's
conclusion that the BSP is a government-controlled corporation (sic). The 1987 Administrative
Code itself, of which the BSP vs. NLRC relied on for some terms, defines government-owned and
controlled corporations as agencies organized as stock or non-stock corporations which the BSP, under
its present charter, is not.
Also, the Government, like in other GOCCs, does not have funds invested in the BSP. What  RA
7278 only provides is that the Government or any of its subdivisions, branches, offices, agencies and
instrumentalities can from time to time donate and contribute funds to the BSP. CIHAED
xxx xxx xxx
Also the BSP respectfully believes that the BSP is not "appropriately regarded as a government
instrumentality under the 1987 Administrative Code" as stated in the COA resolution. As defined by Section 2(10)
of the said code, instrumentality refers to "any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter."
The BSP is not an entity administering special funds. It is not even included in the DECS National
Budget. . . .
It may be argued also that the BSP is not an "agency" of the Government. The  1987 Administrative
Code, merely referred the BSP as an "attached agency" of the DECS as distinguished from an actual line agency
of departments that are included in the National Budget. The BSP believes that an "attached agency" is different
from an "agency." Agency, as defined in Section 2(4) of the Administrative Code, is defined as any of the various
units of the Government including a department, bureau, office, instrumentality, government-owned or controlled
corporation or local government or distinct unit therein.
Under the above definition, the BSP is neither a unit of the Government; a department which refers to an
executive department as created by law (Section 2[7] of the Administrative Code); nor a bureau which refers to
any principal subdivision or unit of any department (Section 2[8], Administrative Code). 10
 Subsequently, requests for reconsideration of the COA Resolution were also made separately by Robert P. Valdellon,
Regional Scout Director, Western Visayas Region, Iloilo City and Eugenio F. Capreso, Council Scout Executive of Calbayog
City. 11
In a letter 12 dated July 3, 2000, Director Crescencio S. Sunico, Corporate Audit Officer (CAO) I of the COA, furnished
the BSP with a copy of the Memorandum 13 dated June 20, 2000 of Atty. Santos M. Alquizalas, the COA General Counsel. In
said Memorandum, the COA General Counsel opined that Republic Act No. 7278 did not supersede the Court's ruling in Boy
Scouts of the Philippines v. National Labor Relations Commission, even though said law eliminated the substantial government
participation in the selection of members of the National Executive Board of the BSP. The Memorandum further provides:
Analysis of the said case disclosed that the substantial government participation is only one (1) of the
three (3) grounds relied upon by the Court in the resolution of the case. Other considerations include  the character
of the BSP's purposes and functions which has a public aspect and the statutory designation of the BSP as a
"public corporation". These grounds have not been deleted by R.A. No. 7278. On the contrary, these were
strengthened as evidenced by the amendment made relative to BSP's purposes stated in Section 3 of R.A. No.
7278. ISHCcT
On the argument that BSP is not appropriately regarded as "a government instrumentality" and "agency"
of the government, such has already been answered and clarified. The Supreme Court has elucidated this matter in
the BSP case when it declared that BSP is regarded as, both a "government-controlled corporation with an original
charter" and as an "instrumentality" of the Government. Likewise, it is not disputed that the Administrative Code
of 1987 designated the BSP as one of the attached agencies of DECS. Being an attached agency, however, it does
not change its nature as a government-controlled corporation with original charter and, necessarily, subject to
COA audit jurisdiction. Besides, Section 2(1), Article IX-D of the Constitution provides that COA shall have the
power, authority, and duty to examine, audit and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of
its subdivisions, agencies or instrumentalities, including government-owned or controlled corporations with
original charters. 14
Based on the Memorandum of the COA General Counsel, Director Sunico wrote:
In view of the points clarified by said Memorandum upholding COA Resolution No. 99-011, we have to
comply with the provisions of the latter, among which is to conduct an annual financial audit of the Boy Scouts of
the Philippines. 15
In a letter dated November 20, 2000 signed by Director Amorsonia B. Escarda, CAO I, the COA informed the BSP that a
preliminary survey of its organizational structure, operations and accounting system/records shall be conducted on November 21
to 22, 2000. 16
Upon the BSP's request, the audit was deferred for thirty (30) days. The BSP then filed a Petition for Review with Prayer
for Preliminary Injunction and/or Temporary Restraining Order before the COA. This was denied by the COA in its questioned
Decision, which held that the BSP is under its audit jurisdiction. The BSP moved for reconsideration but this was likewise denied
under its questioned Resolution. 17
This led to the filing by the BSP of this petition for prohibition with preliminary injunction and temporary restraining
order against the COA. 
The Issue
As stated earlier, the sole issue to be resolved in this case is whether the BSP falls under the COA's audit jurisdiction.
The Parties' Respective Arguments
The BSP contends that Boy Scouts of the Philippines v. National Labor Relations Commission is inapplicable for
purposes of determining the audit jurisdiction of the COA as the issue therein was the jurisdiction of the National Labor Relations
Commission over a case for illegal dismissal and unfair labor practice filed by certain BSP employees. 18
While the BSP concedes that its functions do relate to those that the government might otherwise completely assume on
its own, it avers that this alone was not determinative of the COA's audit jurisdiction over it. The BSP further avers that the Court
in Boy Scouts of the Philippines v. National Labor Relations Commission "simply stated . . . that in respect of functions, the BSP
is akin to a public corporation" but this was not synonymous to holding that the BSP is a government corporation or entity subject
to audit by the COA. 19
The BSP contends that Republic Act No. 7278 introduced crucial amendments to its charter; hence, the findings of the
Court in Boy Scouts of the Philippines v. National Labor Relations Commission are no longer valid as the government has ceased
to play a controlling influence in it. The BSP claims that the pronouncements of the Court therein must be taken only within the
context of that case; that the Court had categorically found that its assets were acquired from the Boy Scouts of America and not
from the Philippine government, and that its operations are financed chiefly from membership dues of the Boy Scouts themselves
as well as from property rentals; and that "the BSP may correctly be characterized as non-governmental, and hence, beyond the
audit jurisdiction of the COA." It further claims that the designation by the Court of the BSP as a government agency or
instrumentality is mere obiter dictum. 20 CAaDSI
The BSP maintains that the provisions of Republic Act No. 7278 suggest that "governance of BSP has come to be
overwhelmingly a private affair or nature, with government participation restricted to the seat of the Secretary of Education,
Culture and Sports." 21 It cites Philippine Airlines, Inc. v. Commission on Audit 22 wherein the Court declared that, "PAL,
having ceased to be a government-owned or controlled corporation is no longer under the audit jurisdiction of the
COA." 23 Claiming that the amendments introduced by Republic Act No. 7278 constituted a supervening event that changed the
BSP's corporate identity in the same way that the government's privatization program changed PAL's, the BSP makes the case that
the government no longer has control over it; thus, the COA cannot use the Boy Scouts of the Philippines v. National Labor
Relations Commission as its basis for the exercise of its jurisdiction and the issuance of COA Resolution No. 99-011. 24 The BSP
further claims as follows:
It is not far-fetched, in fact, to concede that BSP's funds and assets are private in character. Unlike
ordinary public corporations, such as provinces, cities, and municipalities, or government-owned and controlled
corporations, such as Land Bank of the Philippines and the Development Bank of the Philippines, the assets and
funds of BSP are not derived from any government grant. For its operations, BSP is not dependent in any way on
any government appropriation; as a matter of fact, it has not even been included in any appropriations for the
government. To be sure, COA has not alleged, in its Resolution No. 99-011 or in the Memorandum of its General
Counsel, that BSP received, receives or continues to receive assets and funds from any agency of the government.
The foregoing simply point to the private nature of the funds and assets of petitioner BSP.
xxx xxx xxx
As stated in petitioner's third argument, BSP's assets and funds were never acquired from the
government. Its operations are not in any way financed by the government, as BSP has never been included in any
appropriations act for the government. Neither has the government invested funds with BSP. BSP, has not been, at
any time, a user of government property or funds; nor have properties of the government been held in trust by
BSP. This is precisely the reason why, until this time, the COA has not attempted to subject BSP to its audit
jurisdiction. . . . . 25
To summarize its other arguments, the BSP contends that it is not a government-owned or controlled corporation; neither
is it an instrumentality, agency, or subdivision of the government.
In its Comment, 26 the COA argues as follows:
1. The BSP is a public corporation created under Commonwealth Act No. 111 dated October 31, 1936, and whose
functions relate to the fostering of public virtues of citizenship and patriotism and the general
improvement of the moral spirit and fiber of the youth. The manner of creation and the purpose for which
the BSP was created indubitably prove that it is a government agency.
2. Being a government agency, the funds and property owned or held in trust by the BSP are subject to the audit
authority of respondent Commission on Audit pursuant to Section 2 (1), Article IX-D of the 1987
Constitution.
3. Republic Act No. 7278 did not change the character of the BSP as a government-owned or controlled
corporation and government instrumentality. 27
The COA maintains that the functions of the BSP that include, among others, the teaching to the youth of patriotism,
courage, self-reliance, and kindred virtues, are undeniably sovereign functions enshrined under the Constitution and discussed by
the Court in Boy Scouts of the Philippines v. National Labor Relations Commission. The COA contends that any attempt to
classify the BSP as a private corporation would be incomprehensible since no less than the law which created it had designated it
as a public corporation and its statutory mandate embraces performance of sovereign functions. 28 ACDIcS
The COA claims that the only reason why the BSP employees fell within the scope of the Civil Service Commission
even before the 1987 Constitution was the fact that it was a government-owned or controlled corporation; that as an attached
agency of the Department of Education, Culture and Sports (DECS), the BSP is an agency of the government; and that the BSP is
a chartered institution under Section 1 (12) of the Revised Administrative Code of 1987, embraced under the term government
instrumentality. 29
The COA concludes that being a government agency, the funds and property owned or held by the BSP are subject to the
audit authority of the COA pursuant to Section 2 (1), Article IX (D) of the 1987 Constitution.
In support of its arguments, the COA cites The Veterans Federation of the Philippines (VFP) v. Reyes, 30 wherein the
Court held that among the reasons why the VFP is a public corporation is that its charter, Republic Act No. 2640, designates it as
one. Furthermore, the COA quotes the Court as saying in that case:
 In several cases, we have dealt with the issue of whether certain specific activities can be classified as
sovereign functions. These cases, which deal with activities not immediately apparent to be sovereign functions,
upheld the public sovereign nature of operations needed either to promote social justice or to stimulate patriotic
sentiments and love of country.
xxx xxx xxx
Petitioner claims that its funds are not public funds because no budgetary appropriations or government
funds have been released to the VFP directly or indirectly from the DBM, and because VFP funds come from
membership dues and lease rentals earned from administering government lands reserved for the VFP.
The fact that no budgetary appropriations have been released to the VFP does not prove that it is a private
corporation. The DBM indeed did not see it fit to propose budgetary appropriations to the VFP, having itself
believed that the VFP is a private corporation. If the DBM, however, is mistaken as to its conclusion regarding the
nature of VFP's incorporation, its previous assertions will not prevent future budgetary appropriations to the VFP.
The erroneous application of the law by public officers does not bar a subsequent correct application of the
law. 31 (Citations omitted.)
The COA points out that the government is not precluded by law from extending financial support to the BSP and adding
to its funds, and that "as a government instrumentality which continues to perform a vital function imbued with public interest and
reflective of the government's policy to stimulate patriotic sentiments and love of country, the BSP's funds from whatever source
are public funds, and can be used solely for public purpose in pursuance of the provisions of Republic Act No.
[7278]." 32 HCTaAS
The COA claims that the fact that it has not yet audited the BSP's funds may not bar the subsequent exercise of its audit
jurisdiction.
The BSP filed its Reply 33 on August 29, 2007 maintaining that its statutory designation as a "public corporation" and
the public character of its purpose and functions are not determinative of the COA's audit jurisdiction; reiterating its stand
that Boy Scouts of the Philippines v. National Labor Relations Commission is not applicable anymore because the aspect of
government ownership and control has been removed by Republic Act No. 7278; and concluding that the funds and property that
it either owned or held in trust are not public funds and are not subject to the COA's audit jurisdiction.
Thereafter, considering the BSP's claim that it is a private corporation, this Court, in a Resolution 34 dated July 20,
2010, required the parties to file, within a period of twenty (20) days from receipt of said Resolution, their respective comments
on the issue of whether Commonwealth Act No. 111, as amended by Republic Act No. 7278, is constitutional. 
In compliance with the Court's resolution, the parties filed their respective Comments.
In its Comment 35 dated October 22, 2010, the COA argues that the constitutionality of Commonwealth Act No. 111, as
amended, is not determinative of the resolution of the present controversy on the COA's audit jurisdiction over petitioner, and in
fact, the controversy may be resolved on other grounds; thus, the requisites before a judicial inquiry may be made, as set forth
in Commissioner of Internal Revenue v. Court of Tax Appeals, 36 have not been fully met. 37 Moreover, the COA maintains that
behind every law lies the presumption of constitutionality. 38 The COA likewise argues that contrary to the BSP's position, repeal
of a law by implication is not favored. 39 Lastly, the COA claims that there was no violation of Section 16, Article XII of
the 1987 Constitution with the creation or declaration of the BSP as a government corporation. Citing Philippine Society for the
Prevention of Cruelty to Animals v. Commission on Audit, 40 the COA further alleges:
The true criterion, therefore, to determine whether a corporation is public or private is found in the
totality of the relation of the corporation to the State. If the corporation is created by the State as the latter's own
agency or instrumentality to help it in carrying out its governmental functions, then that corporation is considered
public; otherwise, it is private. . . . . 41
For its part, in its Comment 42 filed on December 3, 2010, the BSP submits that its charter, Commonwealth Act No.
111, as amended by Republic Act No. 7278, is constitutional as it does not violate Section 16, Article XII of the Constitution. The
BSP alleges that "while [it] is not a public corporation within the purview of COA's audit jurisdiction, neither is it a private
corporation created by special law falling within the ambit of the constitutional prohibition . . . ." 43 The BSP further
alleges: SCcHIE
Petitioner's purpose is embodied in Section 3 of C.A. No. 111, as amended by Section 1 of R.A. No.
7278, thus:
xxx xxx xxx
A reading of the foregoing provision shows that petitioner was created to advance the interest of the
youth, specifically of young boys, and to mold them into becoming good citizens. Ultimately, the creation of
petitioner redounds to the benefit, not only of those boys, but of the public good or welfare. Hence, it can be said
that petitioner's purpose and functions are more of a public rather than a private character. Petitioner caters to all
 boys who wish to join the organization without any distinction. It does not limit its membership to a particular
class of boys. Petitioner's members are trained in scoutcraft and taught patriotism, civic consciousness and
responsibility, courage, self-reliance, discipline and kindred virtues, and moral values, preparing them to become
model citizens and outstanding leaders of the country. 44
The BSP reiterates its stand that the public character of its purpose and functions do not place it within the ambit of the
audit jurisdiction of the COA as it lacks the government ownership or control that the Constitution requires before an entity may
be subject of said jurisdiction. 45 It avers that it merely stated in its Reply that the withdrawal of government control is akin to
privatization, but it does not necessarily mean that petitioner is a private corporation. 46 The BSP claims that it has a unique
characteristic which "neither classifies it as a purely public nor a purely private corporation"; 47 that it is not a quasi-public
corporation; and that it may belong to a different class altogether. 48
The BSP claims that assuming arguendo that it is a private corporation, its creation is not contrary to the purpose of
Section 16, Article XII of the Constitution; and that the evil sought to be avoided by said provision is inexistent in the enactment
of the BSP's charter, 49 as, (i) it was not created for any pecuniary purpose; (ii) those who will primarily benefit from its creation
are not its officers but its entire membership consisting of boys being trained in scoutcraft all over the country; (iii) it caters to all
boys who wish to join the organization without any distinction; and (iv) it does not limit its membership to a particular class or
group of boys. Thus, the enactment of its charter confers no special privilege to particular individuals, families, or groups; nor
does it bring about the danger of granting undue favors to certain groups to the prejudice of others or of the interest of the country,
which are the evils sought to be prevented by the constitutional provision involved. 50
Finally, the BSP states that the presumption of constitutionality of a legislative enactment prevails absent any clear
showing of its repugnancy to the Constitution. 51
The Ruling of the Court
After looking at the legislative history of its amended charter and carefully studying the applicable laws and the
arguments of both parties, we find that the BSP is a public corporation and its funds are subject to the COA's audit jurisdiction.
The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936), entitled "An Act to Create a Public
Corporation to be Known as the Boy Scouts of the Philippines, and to Define its Powers and Purposes" created the BSP as a
"public corporation" to serve the following public interest or purpose:
Sec. 3. The purpose of this corporation shall be to promote through organization and cooperation with
other agencies, the ability of boys to do useful things for themselves and others, to train them in scoutcraft, and to
inculcate in them patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred
virtues, and moral values, using the method which are in common use by boy scouts. STaAcC
Presidential Decree No. 460, approved on May 17, 1974, amended Commonwealth Act No. 111 and provided substantial
changes in the BSP organizational structure. Pertinent provisions are quoted below:
Section II.Section 5 of the said Act is also amended to read as follows:
The governing body of the said corporation shall consist of a National Executive Board composed of (a)
the President of the Philippines or his representative; (b) the charter and life members of the Boy Scouts of the
Philippines; (c) the Chairman of the Board of Trustees of the Philippine Scouting Foundation; (d) the Regional
Chairman of the Scout Regions of the Philippines; (e) the Secretary of Education and Culture, the Secretary of
Social Welfare, the Secretary of National Defense, the Secretary of Labor, the Secretary of Finance, the Secretary
of Youth and Sports, and the Secretary of Local Government and Community Development; (f) an equal number
of individuals from the private sector; (g) the National President of the Girl Scouts of the Philippines; (h) one
Scout of Senior age from each Scout Region to represent the boy membership; and (i) three representatives of the
cultural minorities. Except for the Regional Chairman who shall be elected by the Regional Scout Councils during
their annual meetings, and the Scouts of their respective regions, all members of the National Executive Board
shall be either by appointment or cooption, subject to ratification and confirmation by the Chief Scout, who shall
be the Head of State. Vacancies in the Executive Board shall be filled by a majority vote of the remaining
members, subject to ratification and confirmation by the Chief Scout. The by-laws may prescribe the number of
members of the National Executive Board necessary to constitute a quorum of the board, which number may be
less than a majority of the whole number of the board. The National Executive Board shall have power to make
and to amend the by-laws, and, by a two-thirds vote of the whole board at a meeting called for this purpose, may
authorize and cause to be executed mortgages and liens upon the property of the corporation.
Subsequently, on March 24, 1992, Republic Act No. 7278 further amended Commonwealth Act No. 111 "by
strengthening the volunteer and democratic character" of the BSP and reducing government representation in its governing body,
as follows:
Section 1. Sections 2 and 3 of Commonwealth Act No. 111, as amended, is hereby amended to read as
follows:
 "Sec. 2. The said corporation shall have the powers of perpetual succession, to sue and be sued;
to enter into contracts; to acquire, own, lease, convey and dispose of such real and personal estate, land
grants, rights and choses in action as shall be necessary for corporate purposes, and to accept and receive
funds, real and personal property by gift, devise, bequest or other means, to conduct fund-raising
activities; to adopt and use a seal, and the same to alter and destroy; to have offices and conduct its
business and affairs in Metropolitan Manila and in the regions, provinces, cities, municipalities, and
barangays of the Philippines, to make and adopt by-laws, rules and regulations not inconsistent with this
Act and the laws of the Philippines, and generally to do all such acts and things, including the
establishment of regulations for the election of associates and successors, as may be necessary to carry
into effect the provisions of this Act and promote the purposes of said corporation: Provided, That said
corporation shall have no power to issue certificates of stock or to declare or pay dividends, its objectives
and purposes being solely of benevolent character and not for pecuniary profit of its members.
"Sec. 3. The purpose of this corporation shall be to promote through organization and
cooperation with other agencies, the ability of boys to do useful things for themselves and others, to
train them in scoutcraft, and to inculcate in them patriotism, civic consciousness and responsibility,
courage, self-reliance, discipline and kindred virtues, and moral values, using the method which
are in common use by boy scouts." 
Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is hereby repealed and in lieu thereof,
Section 4 shall read as follows:
"Sec. 4. The President of the Philippines shall be the Chief Scout of the Boy Scouts of the
Philippines."
Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as amended, are hereby amended to read as
follows:
"Sec. 5. The governing body of the said corporation shall consist of a National Executive
Board, the members of which shall be Filipino citizens of good moral character. The Board shall be
composed of the following:
"(a) One (1) charter member of the Boy Scouts of the Philippines who shall be elected by the
members of the National Council at its meeting called for this purpose; EcaDCI
"(b) The regional chairmen of the scout regions who shall be elected by the representatives of all
the local scout councils of the region during its meeting called for this purpose: Provided, That a
candidate for regional chairman need not be the chairman of a local scout council;
"(c) The Secretary of Education, Culture and Sports;
"(d) The National President of the Girl Scouts of the Philippines;
"(e) One (1) senior scout, each from Luzon, Visayas and Mindanao areas, to be elected by the
senior scout delegates of the local scout councils to the scout youth forums in their respective areas, in its
meeting called for this purpose, to represent the boy scout membership;
"(f) Twelve (12) regular members to be elected by the members of the National Council in its
meeting called for this purpose;
"(g) At least ten (10) but not more than fifteen (15) additional members from the private sector
who shall be elected by the members of the National Executive Board referred to in the immediately
preceding paragraphs (a), (b), (c), (d), (e) and (f) at the organizational meeting of the newly reconstituted
National Executive Board which shall be held immediately after the meeting of the National Council
wherein the twelve (12) regular members and the one (1) charter member were elected.
xxx xxx xxx
"Sec. 8. Any donation or contribution which from time to time may be made to the Boy Scouts
of the Philippines by the Government or any of its subdivisions, branches, offices, agencies or
instrumentalities or by a foreign government or by private, entities and individuals shall be expended by
the National Executive Board in pursuance of this Act.
The BSP as a Public Corporation under
Par. 2, Art. 2 of the Civil Code
There are three classes of juridical persons under Article 44 of the Civil Code and the BSP, as presently constituted
under Republic Act No. 7278, falls under the second classification. Article 44 reads:
 Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose created by law; their
personality begins as soon as they have been constituted according to law;
(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a
juridical personality, separate and distinct from that of each shareholder, partner or member. (Emphases supplied.)
The BSP, which is a corporation created for a public interest or purpose, is subject to the law creating it under Article 45
of the Civil Code, which provides:
Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by the
laws creating or recognizing them.
Private corporations are regulated by laws of general application on the subject.
Partnerships and associations for private interest or purpose are governed by the provisions of this Code
concerning partnerships. (Emphasis and underscoring supplied.) SDaHEc
The purpose of the BSP as stated in its amended charter shows that it was created in order to implement a State policy
declared in Article II, Section 13 of the Constitution, which reads:
ARTICLE II — DECLARATION OF PRINCIPLES AND STATE POLICIES
Section 13. The State recognizes the vital role of the youth in nation-building and shall promote and
protect their physical, moral, spiritual, intellectual, and social well-being. It shall inculcate in the youth patriotism
and nationalism, and encourage their involvement in public and civic affairs.
Evidently, the BSP, which was created by a special law to serve a public purpose in pursuit of a constitutional mandate,
comes within the class of "public corporations" defined by paragraph 2, Article 44 of the Civil Code and governed by the law
which creates it, pursuant to Article 45 of the same Code.
The BSP's Classification Under the
Administrative Code of 1987
The public, rather than private, character of the BSP is recognized by the fact that, along with the Girl Scouts of the
Philippines, it is classified as an attached agency of the DECS under Executive Order No. 292, or the Administrative Code of
1987, which states:
TITLE VI — EDUCATION, CULTURE AND SPORTS
Chapter 8 — Attached Agencies
SEC. 20. Attached Agencies. — The following agencies are hereby attached to the Department:
xxx xxx xxx
(12) Boy Scouts of the Philippines;
(13) Girl Scouts of the Philippines.
The administrative relationship of an attached agency to the department is defined in the Administrative Code of 1987 as
follows:
BOOK IV
THE EXECUTIVE BRANCH
Chapter 7 — ADMINISTRATIVE RELATIONSHIP
SEC. 38. Definition of Administrative Relationship. — Unless otherwise expressly stated in the Code or
in other laws defining the special relationships of particular agencies, administrative relationships shall be
categorized and defined as follows:
xxx xxx xxx
(3) Attachment. — (a) This refers to the lateral relationship between the department or its equivalent and
the attached agency or corporation for purposes of policy and program coordination. The coordination may
be accomplished by having the department represented in the governing board of the attached agency or
corporation, either as chairman or as a member, with or without voting rights, if this is permitted by the
 charter; having the attached corporation or agency comply with a system of periodic reporting which shall reflect
the progress of programs and projects; and having the department or its equivalent provide general policies
through its representative in the board, which shall serve as the framework for the internal policies of the attached
corporation or agency. (Emphasis ours.) IHCESD
As an attached agency, the BSP enjoys operational autonomy, as long as policy and program coordination is achieved by
having at least one representative of government in its governing board, which in the case of the BSP is the DECS Secretary.
In this sense, the BSP is not under government control or "supervision and control." Still this characteristic does not make the
attached chartered agency a private corporation covered by the constitutional proscription in question.
Art. XII, Sec. 16 of the Constitution refers
to "private corporations" created by
government for proprietary or
economic/business purposes
At the outset, it should be noted that the provision of Section 16 in issue is found in  Article XII of the Constitution,
entitled "National Economy and Patrimony." Section 1 of Article XII is quoted as follows:
SECTION 1. The goals of the national economy are a more equitable distribution of opportunities,
income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the
benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the
underprivileged.
The State shall promote industrialization and full employment based on sound agricultural development
and agrarian reform, through industries that make full and efficient use of human and natural resources, and which
are competitive in both domestic and foreign markets. However, the State shall protect Filipino enterprises against
unfair foreign competition and trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given
optimum opportunity to develop. Private enterprises, including corporations, cooperatives, and similar collective
organizations, shall be encouraged to broaden the base of their ownership.
The scope and coverage of Section 16, Article XII of the Constitution can be seen from the aforementioned declaration
of state policies and goals which pertains to national economy and patrimony and the interests of the people in economic
development. aETAHD
Section 16, Article XII deals with "the formation, organization, or regulation of private corporations," 52 which
should be done through a general law enacted by Congress, provides for an exception, that is: if the corporation is government
owned or controlled; its creation is in the interest of the common good; and it meets the test of economic viability. The rationale
behind Article XII, Section 16 of the 1987 Constitution was explained in Feliciano v. Commission on Audit, 53 in the following
manner:
The Constitution emphatically prohibits the creation of private corporations except by a general law
applicable to all citizens. The purpose of this constitutional provision is to ban private corporations created
by special charters, which historically gave certain individuals, families or groups special privileges denied
to other citizens. 54 (Emphasis added.)
It may be gleaned from the above discussion that Article XII, Section 16 bans the creation of "private corporations" by
special law. The said constitutional provision should not be construed so as to prohibit the creation of  public corporations or a
corporate agency or instrumentality of the government intended to serve a public interest or purpose, which should not be
measured on the basis of economic viability, but according to the public interest or purpose it serves as envisioned by paragraph
(2), of Article 44 of the Civil Code and the pertinent provisions of the Administrative Code of 1987. 
The BSP is a Public Corporation Not
Subject to the Test of Government
Ownership or Control and Economic
Viability
The BSP is a public corporation or a government agency or instrumentality with juridical personality, which does not fall
within the constitutional prohibition in Article XII, Section 16, notwithstanding the amendments to its charter. Not all
corporations, which are not government owned or controlled, are ipso facto to be considered private corporations as there exists
another distinct class of corporations or chartered institutions which are otherwise known as "public corporations." These
corporations are treated by law as agencies or instrumentalities of the government which are not subject to the tests of ownership
or control and economic viability but to different criteria relating to their public purposes/interests or constitutional policies and
objectives and their administrative relationship to the government or any of its Departments or Offices. AaHcIT
Classification of Corporations Under
Section 16, Article XII of the Constitution
on National Economy and Patrimony
The dissenting opinion of Associate Justice Antonio T. Carpio, citing a line of cases, insists that
the Constitution recognizes only two classes of corporations: private corporations under a general law, and government-owned
or controlled corporations created by special charters.
We strongly disagree. Section 16, Article XII should not be construed so as to prohibit Congress from creating public
corporations. In fact, Congress has enacted numerous laws creating public corporations or government agencies or
instrumentalities vested with corporate powers. Moreover, Section 16, Article XII, which relates to National Economy and
Patrimony, could not have tied the hands of Congress in creating public corporations to serve any of the constitutional policies or
objectives.
In his dissent, Justice Carpio contends that this ponente introduces "a totally different species of corporation, which is
neither a private corporation nor a government owned or controlled corporation" and, in so doing, is missing the fact that the BSP,
"which was created as a non-stock, non-profit corporation, can only be either a private corporation or a government owned or
controlled corporation."
Note that in Boy Scouts of the Philippines v. National Labor Relations Commission, the BSP, under its former charter,
was regarded as both a government owned or controlled corporation with original charter  and a "public corporation." The said
case pertinently stated:
While the BSP may be seen to be a mixed type of entity, combining aspects of both public and
private entities, we believe that considering the character of its purposes and its functions, the statutory
designation of the BSP as "a public corporation" and the substantial participation of the Government in the
selection of members of the National Executive Board of the BSP, the BSP, as presently constituted under its
charter, is a government-controlled corporation within the meaning of Article IX (B) (2) (1) of
the Constitution. SHCaEA
We are fortified in this conclusion when we note that the Administrative Code of 1987 designates the
BSP as one of the attached agencies of the Department of Education, Culture and Sports ("DECS"). An "agency of
the Government" is defined as referring to any of the various units of the Government including a department,
bureau, office, instrumentality, government-owned or -controlled corporation, or local government or distinct unit
therein. "Government instrumentality" is in turn defined in the 1987 Administrative Code in the following
manner:
Instrumentality — refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not
all corporate powers, administering special funds, and enjoying operational autonomy usually through a
charter. This term includes regulatory agencies, chartered institutions and government-owned or
controlled corporations.
The same Code describes a "chartered institution" in the following terms:
Chartered institution — refers to any agency organized or operating under a special charter,
and vested by law with functions relating to specific constitutional policies or objectives. This term
includes the state universities and colleges, and the monetary authority of the State.
We believe that the BSP is appropriately regarded as "a government instrumentality" under the 1987
Administrative Code.
It thus appears that the BSP may be regarded as both a "government controlled corporation with
an original charter" and as an "instrumentality" of the Government within the meaning of Article IX (B)
(2) (1) of the Constitution. . . . . 55 (Emphases supplied.)
The existence of public or government corporate or juridical entities or chartered institutions by legislative fiat distinct
from private corporations and government owned or controlled corporation is best exemplified by the 1987 Administrative
Code cited above, which we quote in part:
Sec. 2. General Terms Defined. — Unless the specific words of the text, or the context as a whole, or a
particular statute, shall require a different meaning:
xxx xxx xxx
(10) "Instrumentality" refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy, usually through a
 charter. This term includes regulatory agencies, chartered institutions and government-owned or controlled
corporations.
xxx xxx xxx
(12) "Chartered institution" refers to any agency organized or operating under a special charter, and
vested by law with functions relating to specific constitutional policies or objectives. This term includes the
state universities and colleges and the monetary authority of the State.
(13) "Government-owned or controlled corporation" refers to any agency organized as a stock or non-
stock corporation, vested with functions relating to public needs whether governmental or proprietary in
nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable
as in the case of stock corporations, to the extent of at least fifty-one (51) per cent of its capital stock:
Provided, That government-owned or controlled corporations may be further categorized by the
Department of the Budget, the Civil Service Commission, and the Commission on Audit for purposes of the
exercise and discharge of their respective powers, functions and responsibilities with respect to such
corporations.
Assuming for the sake of argument that the BSP ceases to be owned or controlled by the government because of
reduction of the number of representatives of the government in the BSP Board, it does not follow that it also ceases to be a
government instrumentality as it still retains all the characteristics of the latter as an attached agency of the DECS under  the
Administrative Code. Vesting corporate powers to an attached agency or instrumentality of the government is not constitutionally
prohibited and is allowed by the above-mentioned provisions of the Civil Code and the 1987 Administrative Code. IDCHTE
Economic Viability and Ownership and
Control Tests Inapplicable to Public
Corporations
As presently constituted, the BSP still remains an instrumentality of the national government. It is a public corporation
created by law for a public purpose, attached to the DECS pursuant to its Charter and the  Administrative Code of 1987. It is not a
private corporation which is required to be owned or controlled by the government and be economically viable to justify its
existence under a special law.
The dissent of Justice Carpio also submits that by recognizing "a new class of public corporation(s)" created by special
charter that will not be subject to the test of economic viability, the constitutional provision will be circumvented.
However, a review of the Record of the 1986 Constitutional Convention reveals the intent of the framers of the highest
law of our land to distinguish between government corporations performing governmental functions and corporations
involved in business or proprietary functions:
THE PRESIDENT.
Commissioner Foz is recognized.
MR. FOZ.
Madam President, I support the proposal to insert "ECONOMIC VIABILITY" as one of the grounds for
organizing government corporations. . . . .
MR. OPLE.
Madam President, the reason for this concern is really that when the government creates a corporation,
there is a sense in which this corporation becomes exempt from the test of economic performance. We
know what happened in the past. If a government corporation loses, then it makes its claim upon the
taxpayers' money through new equity infusions from the government and what is always invoked is the
common good. . . .
Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good,"
this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the
responsibility of meeting the market test so that they become viable. . . . . aETDIc
xxx xxx xxx
THE PRESIDENT.
Commissioner Quesada is recognized.
MS. QUESADA.
Madam President, may we be clarified by the committee on what is meant by economic viability?
THE PRESIDENT.
Please proceed.
MR. MONSOD.
Economic viability normally is determined by cost-benefit ratio that takes into consideration all benefits,
including economic external as well as internal benefits. These are what they call externalities in
economics, so that these are not strictly financial criteria. Economic viability involves what we call
economic returns or benefits of the country that are not quantifiable in financial terms. . . . . 
xxx xxx xxx
MS. QUESADA.
So, would this particular formulation now really limit the entry of government corporations into activities
engaged in by corporations?
MR. MONSOD.
Yes, because it is also consistent with the economic philosophy that this Commission approved —
that there should be minimum government participation and intervention in the economy.
MS. QUESADA.
Sometimes this Commission would just refer to Congress to provide the particular requirements when the
government would get into corporations. But this time around, we specifically mentioned economic
viability. . . . .
MR. VILLEGAS.
Commissioner Ople will restate the reason for his introducing that amendment.
MR. OPLE.
I am obliged to repeat what I said earlier in moving for this particular amendment jointly with
Commissioner Foz. During the past three decades, there had been a proliferation of government
corporations, very few of which have succeeded, and many of which are now earmarked by the
Presidential Reorganization Commission for liquidation because they failed the economic test. . . . .
xxx xxx xxx
MS. QUESADA.
But would not the Commissioner say that the reason why many of the government-owned or controlled
corporations failed to come up with the economic test is due to the management of these corporations,
and not the idea itself of government corporations? It is a problem of efficiency and effectiveness of
management of these corporations which could be remedied, not by eliminating government corporations
or the idea of getting into state-owned corporations, but improving management which our technocrats
should be able to do, given the training and the experience.
MR. OPLE.
That is part of the economic viability, Madam President.
MS. QUESADA.
So, is the Commissioner saying then that the Filipinos will benefit more if these government-controlled
corporations were given to private hands, and that there will be more goods and services that will be
affordable and within the reach of the ordinary citizens?
MR. OPLE.
Yes. There is nothing here, Madam President, that will prevent the formation of a government
corporation in accordance with a special charter given by Congress. However, we are raising the
standard a little bit so that, in the future, corporations established by the government will meet the
test of the common good but within that framework we should also build a certain standard of
economic viability.
xxx xxx xxx
 THE PRESIDENT.
Commissioner Padilla is recognized. aTCAcI
MR. PADILLA.
This is an inquiry to the committee. With regard to corporations created by a special charter for
government-owned or controlled corporations, will these be in the pioneer fields or in places where the
private enterprise does not or cannot enter? Or is this so general that these government corporations can
compete with private corporations organized under a general law?
MR. MONSOD.
Madam President, . . . . There are two types of government corporations — those that are involved
in performing governmental functions, like garbage disposal, Manila waterworks, and so on; and those
government corporations that are involved in business functions. As we said earlier, there are two
criteria that should be followed for corporations that want to go into business. First is for
government corporations to first prove that they can be efficient in the areas of their proper functions.
This is one of the problems now because they go into all kinds of activities but are not even efficient in
their proper functions. Secondly, they should not go into activities that the private sector can do better.
MR. PADILLA.
There is no question about corporations performing governmental functions or functions that are
impressed with public interest. But the question is with regard to matters that are covered,
perhaps not exhaustively, by private enterprise. It seems that under this provision the only
qualification is economic viability and common good, but shall government, through government-
controlled corporations, compete with private enterprise?
MR. MONSOD.
No, Madam President. As we said, the government should not engage in activities that private enterprise
is engaged in and can do better. . . . . 56 (Emphases supplied.)
Thus, the test of economic viability clearly does not apply to public corporations dealing with governmental functions, to
which category the BSP belongs. The discussion above conveys the constitutional intent not to apply this constitutional ban on the
creation of public corporations where the economic viability test would be irrelevant. The said test would only apply if the
corporation is engaged in some economic activity or business function for the government.
It is undisputed that the BSP performs functions that are impressed with public interest. In fact, during the consideration
of the Senate Bill that eventually became Republic Act No. 7278, which amended the BSP Charter, one of the bill's sponsors,
Senator Joey Lina, described the BSP as follows:
Senator Lina. Yes, I can only think of two organizations involving the masses of our youth, Mr.
President, that should be given this kind of a privilege — the Boy Scouts of the Philippines and the Girl Scouts of
the Philippines. Outside of these two groups, I do not think there are other groups similarly situated.
The Boy Scouts of the Philippines has a long history of providing value formation to our young,
and considering how huge the population of the young people is, at this point in time, and also considering
the importance of having an organization such as this that will inculcate moral uprightness among the
young people, and further considering that the development of these young people at that tender age of
seven to sixteen is vital in the development of the country producing good citizens, I believe that we can make
an exception of the Boy Scouting movement of the Philippines from this general prohibition against providing tax
exemption and privileges. 57
Furthermore, this Court cannot agree with the dissenting opinion which equates the changes introduced by Republic Act
No. 7278 to the BSP Charter as clear manifestation of the intent of Congress "to return the BSP to the private sector." It was not
the intent of Congress in enacting Republic Act No. 7278 to give up all interests in this basic youth organization, which has been
its partner in forming responsible citizens for decades. DaTICE
In fact, as may be seen in the deliberation of the House Bills that eventually resulted to Republic Act No. 7278, Congress
worked closely with the BSP to rejuvenate the organization, to bring it back to its former glory reached under its original
charter, Commonwealth Act No. 111, and to correct the perceived ills introduced by the amendments to its Charter
under Presidential Decree No. 460. The BSP suffered from low morale and decrease in number because the Secretaries of the
different departments in government who were too busy to attend the meetings of the BSP's National Executive Board ("the
Board") sent representatives who, as it turned out, changed from meeting to meeting. Thus, the Scouting Councils established in
the provinces and cities were not in touch with what was happening on the national level, but they were left to implement what
was decided by the Board. 58
A portion of the legislators' discussion is quoted below to clearly show their intent:
HON. DEL MAR. . . . I need not mention to you the value and the tremendous good that the Boy
Scout Movement has done not only for the youth in particular but for the country in general. And that is
why, if we look around, our past and present national leaders, prominent men in the various fields of
endeavor, public servants in government offices, and civic leaders in the communities all over the land, and
not only in our country but all over the world many if not most of them have at one time or another been
beneficiaries of the Scouting Movement. And so, it is along this line, Mr. Chairman, that we would like to have
the early approval of this measure if only to pay back what we owe much to the Scouting Movement. Now, going
to the meat of the matter, Mr. Chairman, if I may just — the Scouting Movement was enacted into law in October
31, 1936 under Commonwealth Act No. 111. . . . [W]e were acknowledged as the third biggest scouting
organization in the world . . . . And to our mind, Mr. Chairman, this erratic growth and this decrease in
membership [number] is because of the bad policy measures that were enunciated with the enactment or
promulgation by the President before of Presidential Decree No. 460 which we feel is the culprit of the ills that is
flagging the Boy Scout Movement today. And so, this is specifically what we are attacking, Mr. Chairman, the
disenfranchisement of the National Council in the election of the national board. . . . . And so, this is what we
would like to be appraised of by the officers of the Boy [Scouts] of the Philippines whom we are also confident,
have the best interest of the Boy Scout Movement at heart and it is in this spirit, Mr. Chairman, that we see no
impediment towards working together, the Boy Scout of the Philippines officers working together with the House
of Representatives in coming out with a measure that will put back the vigor and enthusiasm of the Boy Scout
Movement. . . . . 59 (Emphasis ours.)
The following is another excerpt from the discussion on the House version of the bill, in the Committee on Government
Enterprises:
HON. AQUINO:
. . . Well, obviously, the two bills as well as the previous laws that have created the Boy Scouts of the
Philippines did not provide for any direct government support by way of appropriation from the national
budget to support the activities of this organization. The point here is, and at the same time they have
been subjected to a governmental intervention, which to their mind has been inimical to the objectives
and to the institution per se, that is why they are seeking legislative fiat to restore back the original
mandate that they had under Commonwealth Act 111. Such having been the experience in the hands
of government, meaning, there has been negative interference on their part and inasmuch as their
mandate is coming from a legislative fiat, then shouldn't it be, this rhetorical question, shouldn't it
be better for this organization to seek a mandate from, let's say, the government the Corporation
Code of the Philippines and register with the SEC as non-profit non-stock corporation so that
government intervention could be very very minimal. Maybe that's a rhetorical question, they may or
they may not answer, ano. I don't know what would be the benefit of a charter or a mandate being
provided for by way of legislation versus a registration with the SEC under the Corporation Code of the
Philippines inasmuch as they don't get anything from the government anyway insofar as direct funding.
In fact, the only thing that they got from government was intervention in their affairs. Maybe we can
solicit some commentary comments from the resource persons. Incidentally, don't take that as an
objection, I'm not objecting. I'm all for the objectives of these two bills. It just occurred to me that since
you have had very bad experience in the hands of government and you will always be open to such
possible intervention even in the future as long as you have a legislative mandate or your mandate or
your charter coming from legislative action.  
xxx xxx xxx
MR. ESCUDERO:
Mr. Chairman, there may be a disadvantage if the Boy Scouts of the Philippines will be required to
register with the SEC. If we are registered with the SEC, there could be a danger of proliferation of
scout organization. Anybody can organize and then register with the SEC. If there will be a proliferation
of this, then the organization will lose control of the entire organization. Another disadvantage, Mr.
Chairman, anybody can file a complaint in the SEC against the Boy Scouts of the Philippines and the
SEC may suspend the operation or freeze the assets of the organization and hamper the operation of the
organization. I don't know, Mr. Chairman, how you look at it but there could be a danger for anybody
filing a complaint against the organization in the SEC and the SEC might suspend the registration permit
of the organization and we will not be able to operate.
 HON. AQUINO:
Well, that I think would be a problem that will not be exclusive to corporations registered with the SEC
because even if you are government corporation, court action may be taken against you in other judicial
bodies because the SEC is simply another quasi-judicial body. But, I think, the first point would be
very interesting, the first point that you raised. In effect, what you are saying is that with the
legislative mandate creating your charter, in effect, you have been given some sort of a franchise
with this movement.
MR. ESCUDERO:
Yes.
HON. AQUINO:
Exclusive franchise of that movement?
MR. ESCUDERO:
Yes.
HON. AQUINO:
Well, that's very well taken so I will proceed with other issues, Mr. Chairman. . . . . 60 (Emphases
added.)
Therefore, even though the amended BSP charter did away with most of the governmental presence in the BSP Board,
this was done to more strongly promote the BSP's objectives, which were not supported under  Presidential Decree No. 460. The
BSP objectives, as pointed out earlier, are consistent with the public purpose of the promotion of the well-being of the youth, the
future leaders of the country. The amendments were not done with the view of changing the character of the BSP into a privatized
corporation. The BSP remains an agency attached to a department of the government, the DECS, and it was not at all stripped of
its public character. cTEICD
The ownership and control test is likewise irrelevant for a public corporation like the BSP. To reiterate, the relationship
of the BSP, an attached agency, to the government, through the DECS, is defined in the Revised Administrative Code of 1987.
The BSP meets the minimum statutory requirement of an attached government agency as the DECS Secretary sits at the BSP
Board ex officio, thus facilitating the policy and program coordination between the BSP and the DECS.
Requisites for Declaration of
Unconstitutionality Not Met in this Case
The dissenting opinion of Justice Carpio improperly raised the issue of unconstitutionality of certain provisions of the
BSP Charter. Even if the parties were asked to Comment on the validity of the BSP charter by the Court, this alone does not
comply with the requisites for judicial review, which were clearly set forth in a recent case:
When questions of constitutional significance are raised, the Court can exercise its power of judicial
review only if the following requisites are present: (1) the existence of an actual and appropriate case; (2) the
existence of personal and substantial interest on the part of the party raising the constitutional question; (3)
recourse to judicial review is made at the earliest opportunity; and (4) the constitutional question is the  lis
mota of the case. 61 (Emphasis added.)
Thus, when it comes to the exercise of the power of judicial review, the constitutional issue should be the very lis mota,
or threshold issue, of the case, and that it should be raised by either of the parties. These requirements would be ignored under the
dissent's rather overreaching view of how this case should have been decided. True, it was the Court that asked the parties to
comment, but the Court cannot be the one to raise a constitutional issue. Thus, the Court chooses to once more exhibit restraint in
the exercise of its power to pass upon the validity of a law. EISCaD
Re: the COA's Jurisdiction
Regarding the COA's jurisdiction over the BSP, Section 8 of its amended charter allows the BSP to receive contributions
or donations from the government. Section 8 reads:
Section 8.Any donation or contribution which from time to time may be made to the Boy Scouts of
the Philippines by the Government or any of its subdivisions, branches, offices, agencies or
instrumentalities shall be expended by the Executive Board in pursuance of this Act.
The sources of funds to maintain the BSP were identified before the House Committee on Government Enterprises while
the bill was being deliberated, and the pertinent portion of the discussion is quoted below:
 MR. ESCUDERO. Yes, Mr. Chairman. The question is the sources of funds of the organization. First,
Mr. Chairman, the Boy Scouts of the Philippines do not receive annual allotment from the government. The
organization has to raise its own funds through fund drives and fund campaigns or fund raising activities. Aside
from this, we have some revenue producing projects in the organization that gives us funds to support the
operation. . . . From time to time, Mr. Chairman, when we have special activities we request for assistance or
financial assistance from government agencies, from private business and corporations, but this is only during
special activities that the Boy Scouts of the Philippines would conduct during the year. Otherwise, we have to
raise our own funds to support the organization. 62
The nature of the funds of the BSP and the COA's audit jurisdiction were likewise brought up in said congressional
deliberations, to wit:
HON. AQUINO:
. . . Insofar as this organization being a government created organization, in fact, a government
corporation classified as such, are your funds or your finances subjected to the COA audit?
MR. ESCUDERO:
Mr. Chairman, we are not. Our funds is not subjected. We don't fall under the jurisdiction of the COA.
HON. AQUINO:
All right, but before were you?
MR. ESCUDERO:
No, Mr. Chairman.
MR. JESUS:
May I? As historical backgrounder, Commonwealth Act 111 was written by then Secretary Jorge Vargas
and before and up to the middle of the Martial Law years, the BSP was receiving a subsidy in the form of
an annual . . . a one draw from the Sweepstakes. And, this was the case also with the Girl Scouts at the
Anti-TB, but then this was . . . and the Boy Scouts then because of this funding partly from
government was being subjected to audit in the contributions being made in the part of the
Sweepstakes. But this was removed later during the Martial Law years with the creation of the Human
Settlements Commission. So the situation right now is that the Boy Scouts does not receive any funding
from government, but then in the case of the local councils and this legislative charter, so to speak,
enables the local councils even the national headquarters in view of the provisions in the existing law to
receive donations from the government or any of its instrumentalities, which would be difficult if the Boy
Scouts is registered as a private corporation with the Securities and Exchange Commission. Government
bodies would be estopped from making donations to the Boy Scouts, which at present is not the case
because there is the Boy Scouts charter, this Commonwealth Act 111 as amended by PD 463.
xxx xxx xxx
HON. AMATONG:
Mr. Chairman, in connection with that. aTICAc
THE CHAIRMAN:
Yeah, Gentleman from Zamboanga.
HON. AMATONG:
There is no auditing being made because there's no money put in the organization, but how about donated
funds to this organization? What are the remedies of the donors of how will they know how their money
are being spent?
MR. ESCUDERO:
May I answer, Mr. Chairman?
THE CHAIRMAN:
Yes, gentleman.
MR. ESCUDERO:
 The Boy Scouts of the Philippines has an external auditor and by the charter we are required to submit a
financial report at the end of each year to the National Executive Board. So all the funds donated or
otherwise is accounted for at the end of the year by our external auditor. In this case the SGV. 63
Historically, therefore, the BSP had been subjected to government audit in so far as public funds had been infused
thereto. However, this practice should not preclude the exercise of the audit jurisdiction of COA, clearly set forth under
the Constitution, which pertinently provides:
Section 2. (1)The Commission on Audit shall have the power, authority, and duty to examine, audit,
and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and
property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies,
or instrumentalities, including government-owned and controlled corporations with original charters, and
on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy
under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled
corporations with original charters and their subsidiaries; and (d) such non-governmental entities receiving
subsidy or equity, directly or indirectly, from or through the Government, which are required by law of the
granting institution to submit to such audit as a condition of subsidy or equity. . . . . 64
Since the BSP, under its amended charter, continues to be a public corporation or a government instrumentality, we
come to the inevitable conclusion that it is subject to the exercise by the COA of its audit jurisdiction in the manner consistent
with the provisions of the BSP Charter. 
WHEREFORE, premises considered, the instant petition for prohibition is DISMISSED.
SO ORDERED.
||| (Boy Scouts of the Philippines v. Commission on Audit, G.R. No. 177131, [June 7, 2011], 666 PHIL 140-224)