Republic of SUPREME Manila SECOND DIVISION

the

Philippines COURT

G.R. No. 82797 February 27, 1991 GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners, vs. HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC., respondents. A.E. Dacanay for petitioners. Antonio Quintos Law Office for private respondent. PARAS, J.:p This is a petition for review on certiorari of the December 29, 1987 decision * of the Court of Appeals in CA-G.R. No. 11960 entitled "ROCES-REYES REALTY, INC. vs. HONORABLE JUDGE REGIONAL TRIAL COURT OF MANILA, BRANCH 44, GOOD EARTH EMPORIUM, INC. and LIM KA PING" reversing the decision of respondent Judge ** of the Regional Trial Court of Manila, Branch 44 in Civil Case No. 85-30484, which reversed the resolution of the Metropolitan Trial Court Of Manila, Branch 28 in Civil Case No. 09639, *** denying herein petitioners' motion to quash the alias writ of execution issued against them. As gathered from the records, the antecedent facts of this case, are as follows: A Lease Contract, dated October 16, 1981, was entered into by and between ROCES-REYES REALTY, INC., as lessor, and GOOD EARTH EMPORIUM, INC., as lessee, for a term of three years beginning November 1, 1981 and ending October 31, 1984 at a monthly rental of P65,000.00 (Rollo, p. 32; Annex "C" of Petition). The building which was the subject of the contract of lease is a five-storey building located at the corner of Rizal Avenue and Bustos Street in Sta. Cruz, Manila. From March 1983, up to the time the complaint was filed, the lessee had defaulted in the payment of rentals, as a consequence of which, private respondent ROCES-REYES REALTY, INC., (hereinafter designated as ROCES for brevity) filed on October 14, 1984, an ejectment case (Unlawful Detainer) against herein petitioners, GOOD EARTH EMPORIUM, INC. and LIM KA PING, hereinafter designated as GEE, (Rollo, p. 21; Annex "B" of the Petition). After the latter had tendered their responsive pleading, the lower court (MTC, Manila) on motion of Roces rendered judgment on the pleadings dated April 17, 1984, the dispositive portion of which states:

Judgment is hereby rendered ordering defendants (herein petitioners) and all persons claiming title under him to vacate the premises and surrender the same to the plaintiffs (herein respondents); ordering the defendants to pay the plaintiffs the rental of P65,000.00 a month beginning March 1983 up to the time defendants actually vacate the premises and deliver possession to the plaintiff; to pay attorney's fees in the amount of P5,000.00 and to pay the costs of this suit. (Rollo, p. 111; Memorandum of Respondents) On May 16, 1984, Roces filed a motion for execution which was opposed by GEE on May 28, 1984 simultaneous with the latter's filing of a Notice of Appeal (Rollo, p. 112, Ibid.). On June 13, 1984, the trial court resolved such motion ruling: After considering the motion for the issuance of a writ of execution filed by counsel for the plaintiff (herein respondents) and the opposition filed in relation thereto and finding that the defendant failed to file the necessary supersedeas bond, this court resolved to grant the same for being meritorious. (Rollo, p. 112) On June 14, 1984, a writ of execution was issued by the lower court. Meanwhile, the appeal was assigned to the Regional Trial Court (Manila) Branch XLVI. However, on August 15, 1984, GEE thru counsel filed with the Regional Trial Court of Manila, a motion to withdraw appeal citing as reason that they are satisfied with the decision of the Metropolitan Trial Court of Manila, Branch XXVIII, which said court granted in its Order of August 27, 1984 and the records were remanded to the trial court (Rollo, p. 32; CA Decision). Upon an ex-parte Motion of ROCES, the trial court issued an Alias Writ of Execution dated February 25, 1985 (Rollo, p. 104; Annex "D" of Petitioner's Memorandum), which was implemented on February 27, 1985. GEE thru counsel filed a motion to quash the writ of execution and notice of levy and an urgent Exparte Supplemental Motion for the issuance of a restraining order, on March 7, and 20, 1985, respectively. On March 21, 1985, the lower court issued a restraining order to the sheriff to hold the execution of the judgment pending hearing on the motion to quash the writ of execution (Rollo, p. 22; RTC Decision). While said motion was pending resolution, GEE filed a Petition for Relief from judgment before another court, Regional Trial Court of Manila, Branch IX, which petition was docketed as Civil Case No. 80-30019, but the petition was dismissed and the injunctive writ issued in connection therewith set aside. Both parties appealed to the Court of Appeals; GEE on the order of dismissal and Roces on denial of his motion for indemnity,

both docketed as CA-G.R. No. 15873-CV. Going back to the original case, the Metropolitan Trial Court after hearing and disposing some other incidents, promulgated the questioned Resolution, dated April 8, 1985, the dispositive portion of which reads as follows: Premises considered, the motion to quash the writ is hereby denied for lack of merit. The restraining orders issued on March 11 and 23, 1985 are hereby recalled, lifted and set aside. (Rollo, p. 20, MTC Decision) GEE appealed and by coincidence. was raffled to the same Court, RTC Branch IX. Roces moved to dismiss the appeal but the Court denied the motion. On certiorari, the Court of Appeals dismissed Roces' petition and remanded the case to the RTC. Meantime, Branch IX became vacant and the case was re-raffled to Branch XLIV. On April 6, 1987, the Regional Trial Court of Manila, finding that the amount of P1 million evidenced by Exhibit "I" and another P1 million evidenced by the pacto de retro sale instrument (Exhibit "2") were in full satisfaction of the judgment obligation, reversed the decision of the Municipal Trial Court, the dispositive portion of which reads: Premises considered, judgment is hereby rendered reversing the Resolution appealed from quashing the writ of execution and ordering the cancellation of the notice of levy and declaring the judgment debt as having been fully paid and/or Liquidated. (Rollo, p. 29). On further appeal, the Court of Appeals reversed the decision of the Regional Trial Court and reinstated the Resolution of the Metropolitan Trial Court of Manila, the dispositive portion of which is as follows: WHEREFORE, the judgment appealed from is hereby REVERSED and the Resolution dated April 8, 1985, of the Metropolitan Trial Court of Manila Branch XXXIII is hereby REINSTATED. No pronouncement as to costs. (Rollo, p. 40). GEE's Motion for Reconsideration of April 5, 1988 was denied (Rollo, p. 43). Hence, this petition. The main issue in this case is whether or not there was full satisfaction of the judgment debt in favor of respondent corporation which would justify the quashing of the Writ of Execution. A careful study of the common exhibits (Exhibits 1/A and 2/B) shows that nowhere in any of said exhibits was there any writing alluding to or referring to any settlement between the parties of petitioners' judgment obligation (Rollo, pp. 45-48). Moreover, there is no indication in the receipt, Exhibit "1", that it was in payment, full or partial, of the judgment

obligation. Likewise, there is no indication in the pacto de retro sale which was drawn in favor of Jesus Marcos Roces and Marcos V. Roces and not the respondent corporation, that the obligation embodied therein had something to do with petitioners' judgment obligation with respondent corporation. Finding that the common exhibit, Exhibit 1/A had been signed by persons other than judgment creditors (RocesReyes Realty, Inc.) coupled with the fact that said exhibit was not even alleged by GEE and Lim Ka Ping in their original motion to quash the alias writ of execution (Rollo, p. 37) but produced only during the hearing (Ibid.) which production resulted in petitioners having to claim belatedly that there was an "overpayment" of about half a million pesos (Rollo, pp. 25-27) and remarking on the utter absence of any writing in Exhibits "1/A" and "2/B" to indicate payment of the judgment debt, respondent Appellate Court correctly concluded that there was in fact no payment of the judgment debt. As aptly observed by the said court: What immediately catches one's attention is the total absence of any writing alluding to or referring to any settlement between the parties of private respondents' (petitioners') judgment obligation. In moving for the dismissal of the appeal Lim Ka Ping who was then assisted by counsel simply stated that defendants (herein petitioners) are satisfied with the decision of the Metropolitan Trial Court (Records of CA, p. 54). Notably, in private respondents' (petitioners') Motion to Quash the Writ of Execution and Notice of Levy dated March 7, 1985, there is absolutely no reference to the alleged payment of one million pesos as evidenced by Exhibit 1 dated September 20, 1984. As pointed out by petitioner (respondent corporation) this was brought out by Linda Panutat, Manager of Good Earth only in the course of the latter's testimony. (Rollo, p. 37) Article 1240 of the Civil Code of the Philippines provides that: Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. or to its successor in interest nor is there positive evidence that the payment was made to a person authorized to receive it. No such proof was submitted but merely inferred by the Regional Trial Court (Rollo, p. 25) from Marcos Roces having signed the Lease Contract as President which was witnessed by Jesus Marcos Roces. The latter, however, was no longer

President or even an officer of Roces-Reyes Realty, Inc. at the time he received the money (Exhibit "1") and signed the sale with pacto de retro (Exhibit "2"). He, in fact, denied being in possession of authority to receive payment for the respondent corporation nor does the receipt show that he signed in the same capacity as he did in the Lease Contract at a time when he was President for respondent corporation (Rollo, p. 20, MTC decision). On the other hand, Jesus Marcos Roces testified that the amount of P1 million evidenced by the receipt (Exhibit "1") is the payment for a loan extended by him and Marcos Roces in favor of Lim Ka Ping. The assertion is home by the receipt itself whereby they acknowledged payment of the loan in their names and in no other capacity. A corporation has a personality distinct and separate from its individual stockholders or members. Being an officer or stockholder of a corporation does not make one's property also of the corporation, and vice-versa, for they are separate entities (Traders Royal Bank v. CA-G.R. No. 78412, September 26, 1989; Cruz v. Dalisay, 152 SCRA 482). Shareowners are in no legal sense the owners of corporate property (or credits) which is owned by the corporation as a distinct legal person (Concepcion Magsaysay-Labrador v. CA-G.R. No. 58168, December 19, 1989). As a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of the corporation (Prof. Jose Nolledo's "The Corporation Code of the Philippines, p. 5, 1988 Edition, citing Professor Ballantine). The absence of a note to evidence the loan is explained by Jesus Marcos Roces who testified that the IOU was subsequently delivered to private respondents (Rollo, pp. 97-98). Contrary to the Regional Trial Court's premise that it was incumbent upon respondent corporation to prove that the amount was delivered to the Roces brothers in the payment of the loan in the latter's favor, the delivery of the amount to and the receipt thereof by the Roces brothers in their names raises the presumption that the said amount was due to them. There is a disputable presumption that money paid by one to the other was due to the latter (Sec. 5(f) Rule 131, Rules of Court). It is for GEE and Lim Ka Ping to prove otherwise. In other words, it is for the latter to prove that the payments made were for the satisfaction of their judgment debt and not vice versa. The fact that at the time payment was made to the two Roces brothers, GEE was also indebted to respondent corporation for a larger amount, is not supportive of the Regional Trial Court's conclusions that the payment was in

favor of the latter, especially in the case at bar where the amount was not receipted for by respondent corporation and there is absolutely no indication in the receipt from which it can be reasonably inferred, that said payment was in satisfaction of the judgment debt. Likewise, no such inference can be made from the execution of the pacto de retro sale which was not made in favor of respondent corporation but in favor of the two Roces brothers in their individual capacities without any reference to the judgment obligation in favor of respondent corporation. In addition, the totality of the amount covered by the receipt (Exhibit "1/A") and that of the sale with pacto de retro(Exhibit "2/B") all in the sum of P2 million, far exceeds petitioners' judgment obligation in favor of respondent corporation in the sum of P1,560,000.00 by P440,000.00, which militates against the claim of petitioner that the aforesaid amount (P2M) was in full payment of the judgment obligation. Petitioners' explanation that the excess is interest and advance rentals for an extension of the lease contract (Rollo, pp. 25-28) is belied by the absence of any interest awarded in the case and of any agreement as to the extension of the lease nor was there any such pretense in the Motion to Quash the Alias Writ of Execution. Petitioners' averments that the respondent court had gravely abused its discretion in arriving at the assailed factual findings as contrary to the evidence and applicable decisions of this Honorable Court are therefore, patently unfounded. Respondent court was correct in stating that it "cannot go beyond what appears in the documents submitted by petitioners themselves (Exhibits "1" and "2") in the absence of clear and convincing evidence" that would support its claim that the judgment obligation has indeed been fully satisfied which would warrant the quashal of the Alias Writ of Execution. It has been an established rule that when the existence of a debt is fully established by the evidence (which has been done in this case), the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such a defense to the claim of the plaintiff creditor (herein respondent corporation) (Chua Chienco v. Vargas, 11 Phil. 219; Ramos v. Ledesma, 12 Phil. 656; Pinon v. De Osorio, 30 Phil. 365). For indeed, it is well-entrenched in Our jurisprudence that each party in a case must prove his own affirmative allegations by the degree of evidence required by law (Stronghold Insurance Co. v. CA, G.R. No. 83376, May 29,1989; Tai Tong Chuache & Co. v. Insurance Commission, 158 SCRA 366).

The appellate court cannot, therefore, be said to have gravely abused its discretion in finding lack of convincing and reliable evidence to establish payment of the judgment obligation as claimed by petitioner. The burden of evidence resting on the petitioners to establish the facts upon which their action is premised has not been satisfactorily discharged and therefore, they have to bear the consequences. PREMISES CONSIDERED, the petition is hereby DENIED and the Decision of the Respondent court is hereby AFFIRMED, reinstating the April 8, 1985 Resolution of the Metropolitan Trial Court of Manila. SO ORDERED. [G.R. No. 140923. September 16, 2005] MANUEL M. MENDOZA and EDGARDO A. YOTOKO, petitioners, vs. BANCO REAL DEVELOPMENT BANK (now LBC Development Bank),respondent. DECISION SANDOVAL-GUTIERREZ, J.: [1] Before us is a petition for review on certiorari , assailing [2] the Decision of the Court of Appeals dated September 21, 1998 in CA-G.R. No. 41544, entitled ―BANCO REAL DEVELOPMENT BANK, plaintiff, versus, TECHNICA VIDEO INC., ET. AL., MANUEL M. MENDOZA, ET. AL., defendants‖ and Resolution dated December 3, 1999. The petition alleges inter alia that on August 7, 1985, the Board of Directors of Technical Video, Inc. (TVI) passed a Resolution authorizing its President, Eduardo A. Yotoko, petitioner, or its General Manager-Secretary-Treasurer, Manuel M. Mendoza, also a petitioner, to apply for and secure a loan from the Pasay City Banco Real Development Bank (now LBC Development Bank), herein respondent. On September 11, 1985, respondent bank extended a loan of P500,000.00 to TVI. In his capacity as General Manager, petitioner Mendoza executed a promissory note and chattel mortgage over 195 units of Beta video machines and their equipment and accessories belonging to TVI in favor of respondent bank. On October 3, 1986, TVI and two other video firms, Fox Video and Galactica Video, organized a new corporation named FGT Video Network Inc. (FGT). It was registered [3] with the Securities and Exchange Commission. Petitioner Mendoza was the concurrent President of FGT and Operating General Manager of TVI. Thus, the office of TVI had to be transferred to the building of FGT for easier monitoring of the distribution and marketing aspects of the business.

For TVI’s failure to pay its loan upon maturity, respondent bank, on January 26, 1987, filed with the Office of the Clerk of Court of the Regional Trial Court (RTC), Pasay City, a petition for Extra Judicial Foreclosure and Sale of Chattel Mortgage. [4] However, the Sheriff’s Report/Return dated January 27, 1987 shows that TVI is no longer doing business at its given address; that its General Manager, Mr. Manuel M. Mendoza, is presently employed at FGT Video Network with offices at the Philcemcor Bldg., No. 4 Edsa cor. Connecticut St., Greenhills, San Juan, Metro Manila; that when asked about the whereabouts of the video machines, in the presence of the representative of respondent bank and its counsel, Mr. Mendoza denied any knowledge of their whereabouts; and that action on respondent’s petition is indefinitely postponed until further notice from the bank. Respondent then wrote TVI demanding the surrender of the video machines. In his letter dated February 19, 1987, petitioner Mendoza requested the bank to give him ―additional time to enable us to pay our total obligations‖ and proposed a repayment scheme to start not later than [5] March 10, 1987. Still, no payment was received by the bank. TVI simply refused and ignored the demand and kept silent as to the whereabouts of the video machines. Meanwhile, in a case entitled ―Republic of the Philippines, plaintiff vs. FGT Video Network Inc., Manuel Mendoza, Alfredo C. Ongyangco, Eric Apolonio, Susan Yang ang Eduardo A. Yotoko, defendants,‖ the RTC, Branch 167, Pasig City issued a search warrant. The agents of the National Bureau of Investigation (NBI) confiscated at the offices of FGT 638 machines and equipment including the 195 Beta machines mortgaged with respondent bank. On May 29, 1987, upon motion of FGT and herein petitioners, the same court issued another Order directing the NBI to release and return the said machines to them. However, Columbia Pictures Inc., Orion Pictures Corp., Paramount Pictures Corp., Universal City Studios Inc., The Walt Disney Company and Warner Bros. filed with this [6] Court a petition forcertiorari assailing the Order of the lower court. On June 18, 1987, this Court issued a temporary restraining order enjoining the RTC from enforcing its assailed order. The machines and equipment were left in the custody of the NBI until the petition for certiorari shall have been resolved with finality. On July 13, 1990, respondent bank filed with the RTC, [7] Branch 110, Pasig City, a complaint for collection of a [8] sum of money against TVI, FGT and petitioners. Only petitioners filed their joint answer to the complaint.

In their joint answer, petitioners specifically denied the allegations in the complaint, raising the defense that the loan is purely a corporate indebtedness of TVI. On April 29, 1991, the trial court rendered a Decision, holding that: ―As by these considerations, the Court finds that TVI was the mere alter ego or business conduit of Yotoko and Mendoza, and additionally considering 1) that Mendoza disclaimed knowledge of the whereabouts of the TVI mortgaged property at the time plaintiff’s petition for extrajudicial foreclosure was being effected, and 2) that Mendoza and Yotoko transferred the mortgaged property to FGT without first securing plaintiff’s consent despite their awareness that under the chattel mortgage, such consent was necessary, the doctrine of corporate entity must be pierced and the two must be held personally liable for TVI’s obligation to plaintiff for said doctrine cannot be used to defeat public convenience, justify wrong, protect fraud or avoid a legal obligation.‖ The dispositive portion of the trial court’s Decision reads: ―WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants TECHNICA VIDEO, INC., Mendoza and Yotoko, ordering them, 1) to pay plaintiff the sum of P500,000.00 plus interests, charges and penalties as agreed upon in the promissory note of September 11, 1985, until the same is fully paid; 2) to pay plaintiff the sum equivalent to ten (10%) of the total unpaid obligation as and for attorney’s fees, and 3) to pay the costs. SO ORDERED.‖ Upon appeal by herein petitioners, the Court of Appeals rendered its Decision dated September 21, 1998, affirming in toto the Decision of the trial court. Petitioners’ motion for reconsideration was denied in its Resolution dated December 3, 1999. Hence, the instant petition. The basic issue for our resolution is whether herein petitioners are personally liable for TVI’s indebtedness of P500,000.00 with respondent bank. Both the trial court and the Appellate Court found that the petitioners transferred the Beta video machines from TVI to FGT without the consent of respondent bank. Also, upon inquiry of the sheriff, petitioner Mendoza declined knowledge of the whereabouts of the mortgaged video machines. Moreover, the fact that the NBI seized the video machines from FGT glaringly shows that petitioners transferred the same from TVI. More importantly, a comparison of the list of video machines in the Chattel Mortgage Contract and the list of video machines seized by

the NBI from FGT shows that they have the same serial numbers. The courts below also found that TVI is petitioners’ mere alter ego or business conduit. They control the affairs of TVI. Among its stockholders or directors, they were the only ones who became incorporators of FGT. They transferred the assets of TVI to FGT. The general rule is that obligations incurred by a corporation, acting through its directors, officers or employees, are its sole liabilities. However, the veil with which the law covers and isolates the corporation from its directors, officers or employees will be lifted when the corporation is used by any of them as a cloak or cover for [9] fraud or illegality or injustice. Here, the fraud was committed by petitioners to the prejudice of respondent bank. It bears emphasis that as reported by the sheriff, TVI is no longer doing business at its given address and its whereabouts cannot be established as yet. Both the trial court and the Court of Appeals thus concluded that petitioners succeeded to hide the chattels, preventing the sheriff to foreclose the mortgage. Obviously, they acted in bad faith to defraud respondent bank. In fine, we hold that the Appellate Court, in affirming the Decision of the trial court, correctly ruled that petitioners, not TVI, are the ones personally liable to respondent bank for the payment of the loan. WHEREFORE, the petition is DENIED. Costs against petitioners. SO ORDERED. Panganiban, (Chairman), Corona, CarpioMorales, and Garcia, JJ., concur. Republic of the Philippines SUPREME COURT\ Manila SECOND DIVISION G.R. No. 108670 September 21, 1994 LBC EXPRESS, INC., petitioner, vs. THE COURT OF APPEALS, ADOLFO M. CARLOTO, and RURAL BANK OF LABASON, INC., respondents. Emmanuel D. Agustin for petitioner. Bernardo P. Concha for private respondents. PUNO, J.: In this Petition for Review on Certiorari, petitioner LBC 1 questions the decision of respondent Court of Appeals

affirming the judgment of the Regional Trial Court of Dipolog City, Branch 8, awarding moral and exemplary damages, reimbursement of P32,000.00, and costs of suit; but deleting the amount of attorney's fees. Private respondent Adolfo Carloto, incumbent PresidentManager of private respondent Rural Bank of Labason, alleged that on November 12, 1984, he was in Cebu City transacting business with the Central Bank Regional Office. He was instructed to proceed to Manila on or before November 21, 1984 to follow-up the Rural Bank's plan of payment of rediscounting obligations with Central Bank's 2 main office in Manila. He then purchased a round trip plane ticket to Manila. He also phoned his sister Elsie Carloto-Concha to send him ONE THOUSAND PESOS (P1,000.00) for his pocket money in going to Manila and some rediscounting papers thru petitioner's LBC Office at 3 Dipolog City. On November 16, 1984, Mrs. Concha thru her clerk, Adelina Antigo consigned thru LBC Dipolog Branch the pertinent documents and the sum of ONE THOUSAND PESOS (P1,000.00) to respondent Carloto at No. 2 Greyhound Subdivision, Kinasangan, Pardo, Cebu City. This was evidenced by LBC Air Cargo, Inc., Cashpack Delivery Receipt No. 34805. On November 17, 1984, the documents arrived without the cashpack. Respondent Carloto made personal follow-ups on that same day, and also on November 19 and 20, 1984 at LBC's office in Cebu but petitioner failed to deliver to him the cashpack. Consequently, respondent Carloto said he was compelled to go to Dipolog City on November 24, 1984 to claim the money at LBC's office. His effort was once more in vain. On November 27, 1984, he went back to Cebu City at LBC's office. He was, however, advised that the money has been returned to LBC's office in Dipolog City upon shipper's request. Again, he demanded for the ONE THOUSAND PESOS (P1,000.00) and refund of FORTY-NINE PESOS (P49.00) LBC revenue charges. He received the money only on December 15, 1984 less the revenue charges. Respondent Carloto claimed that because of the delay in the transmittal of the cashpack, he failed to submit the rediscounting documents to Central Bank on time. As a consequence, his rural bank was made to pay the Central Bank THIRTY-TWO THOUSAND PESOS (P32,000.00) as 4 penalty interest. He allegedly suffered embarrassment and humiliation.

Petitioner LBC, on the other hand, alleged that the cashpack was forwarded via PAL to LBC Cebu City branch 5 on November 22, 1984. On the same day, it was delivered at respondent Carloto's residence at No. 2 Greyhound Subdivision, Kinasangan, Pardo, Cebu City. However, he was not around to receive it. The delivery man served instead a claim notice to insure he would personally receive the money. This was annotated on Cashpack Delivery Receipt No. 342805. Notwithstanding the said notice, respondent Carloto did not claim the cashpack at LBC Cebu. On November 23, 1984, it was returned to the shipper, Elsie Carloto-Concha at Dipolog City. Claiming that petitioner LBC wantonly and recklessly disregarded its obligation, respondent Carloto instituted an action for Damages Arising from Non-performance of Obligation docketed as Civil Case No. 3679 before the Regional Trial Court of Dipolog City on January 4, 1985. On June 25, 1988, an amended complaint was filed where respondent rural bank joined as one of the plaintiffs and prayed for the reimbursement of THIRTY-TWO THOUSAND PESOS (P32,000.00). After hearing, the trial court rendered its decision, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered: 1. Ordering the defendant LBC Air Cargo, Inc. to pay unto plaintiff Adolfo M. Carloto and Rural Bank of Labason, Inc., moral damages in the amount of P10,000.00; exemplary damages in the amount of P5,000.00; attorney's fees in the amount of P3,000.00 and litigation expenses of P1,000.00; 2. Sentencing defendant LBC Air Cargo, Inc., to reimburse plaintiff Rural Bank of Labason, Inc. the sum of P32,000.00 which the latter paid as penalty interest to the Central Bank of the Philippines as penalty interest for failure to rediscount its due bills on time arising from the defendant's failure to deliver the cashpack, with legal interest computed from the date of filing of this case; and 3. Ordering defendant to pay the costs of these proceedings. 6 SO ORDERED. On appeal, respondent court modified the judgment by deleting the award of attorney's fees. Petitioner's Motion for Reconsideration was denied in a Resolution dated January 11, 1993. Hence, this petition raising the following questions, to wit: 1. Whether or not respondent Rural Bank of Labason Inc., being an artificial person should be awarded moral damages.

2. Whether or not the award of THIRTY-TWO THOUSAND PESOS (P32,000.00) was made with grave abuse of discretion. 3. Whether or not the respondent Court of Appeals gravely abused its discretion in affirming the trial court's decision ordering petitioner LBC to pay moral and exemplary damages despite performance of its obligation. We find merit in the petition. The respondent court erred in awarding moral damages to the Rural Bank of Labason, Inc., an artificial person. Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, 7 social humiliation, and similar injury. A corporation, being an artificial person and having existence only in legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical suffering and 8 mental anguish. Mental suffering can be experienced only by one having a nervous system and it flows from real ills, 9 sorrows, and griefs of life — all of which cannot be suffered by respondent bank as an artificial person. We can neither sustain the award of moral damages in favor of the private respondents. The right to recover moral damages is based on equity. Moral damages are recoverable only if the case falls under Article 2219 of the 10 Civil Code in relation to Article 21. Part of conventional wisdom is that he who comes to court to demand equity, must come with clean hands. In the case at bench, respondent Carloto is not without fault. He was fully aware that his rural bank's obligation would mature on November 21, 1984 and his bank has set 11 aside cash for these bills payable. He was all set to go to Manila to settle this obligation. He has received the documents necessary for the approval of their rediscounting application with the Central Bank. He has also received the plane ticket to go to Manila. Nevertheless, he did not immediately proceed to Manila but instead tarried for days allegedly claiming his ONE THOUSAND PESOS (P1,000.00) pocket money. Due to his delayed trip, he failed to submit the rediscounting papers to the Central Bank on time and his bank was penalized THIRTY-TWO THOUSAND PESOS (P32,000.00) for failure to pay its obligation on its due date. The undue importance given by respondent Carloto to his ONE THOUSAND PESOS (P1,000.00) pocket money is inexplicable for it was not indispensable for him to follow up his bank's rediscounting application with Central Bank. According to said respondent, he needed the money to "invite people for 12 a snack or dinner." The attitude of said respondent

speaks ill of his ways of business dealings and cannot be countenanced by this Court. Verily, it will be revolting to our sense of ethics to use it as basis for awarding damages in favor of private respondent Carloto and the Rural Bank of Labason, Inc. We also hold that respondents failed to show that petitioner LBC's late delivery of the cashpack was motivated by personal malice or bad faith, whether intentional or thru gross negligence. In fact, it was proved during the trial that the cashpack was consigned on November 16, 1984, a Friday. It was sent to Cebu on November 19, 1984, the next business day. Considering this circumstance, petitioner cannot be charged with gross neglect of duty. Bad faith under the law can not be presumed; it must be 13 established by clearer and convincing evidence. Again, the unbroken jurisprudence is that in breach of contract cases where the defendant is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of the branch of the obligation which the parties had foreseen or could reasonable have foreseen. The damages, however, will not 14 include liability for moral damages. Prescinding from these premises, the award of exemplary damages made by the respondent court would have no legal leg to support itself. Under Article 2232 of the Civil Code, in a contractual or quasi-contractual relationship, exemplary damages may be awarded only if the defendant had acted in "a wanton, fraudulent, reckless, oppressive, or malevolent manner." The established facts of not so warrant the characterization of the action of petitioner LBC. IN VIEW WHEREOF, the Decision of the respondent court dated September 30, 1992 is REVERSED and SET ASIDE; and the Complaint in Civil Case No. 3679 is ordered DISMISSED. No costs. SO ORDERED. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-78412 September 26, 1989 TRADERS ROYAL BANK, petitioner, vs. THE HONORABLE COURT OF APPEALS, HON. BALTAZAR M. DIZON, Presiding Judge, Regional Trial Court, Branch 113, Pasay City and ALFREDO CHING, respondents. San Juan, Africa, Gonzalez and San Agustin for petitioner. Balgos and Perez for respondents.

GRINO-AQUINO, J.: This petition for certiorari assails the Court of Appeals' decision dated April 29, 1987 in CA-G.R. SP No. 03593, entitled "Alfredo Ching vs. Hon. Baltazar M. Dizon and Traders Royal Bank" nullifying the Regional Trial Court's orders dated August 15,1983 and May 24,1984 and prohibiting it from further proceeding in Civil Case No. 1028-P. On March 30,1982, the Philippine Blooming Mills, Inc. (PBM) and Alfredo Ching jointly submitted to the Securities and Exchange Commission a petition for suspension of payments (SEC No. 2250) where Alfredo Ching was joined as co-petitioner because under the law, he was allegedly entitled, as surety, to avail of the defenses of PBM and he was expected to raise most of the stockholders' equity of Pl00 million being required under the plan for the rehabilitation of PBM. Traders Royal Bank was included among PBM's creditors named in Schedule A accompanying PBM's petition for suspension of payments. On May 13, 1983, the petitioner bank filed Civil Case No. 1028-P in the Regional Trial Court, Branch CXIII in Pasay City, against PBM and Alfredo Ching, to collect P22,227,794.05 exclusive of interests, penalties and other bank charges representing PBM's outstanding obligation to the bank. Alfredo Ching, a stockholder of PBM, was impleaded as co-defendant for having signed as a surety for PBM's obligations to the extent of ten million pesos (Pl0,000,000) under a Deed of Suretyship dated July 21, 1977. In its en banc decision in SEC-EB No. 018 (Chung Ka Bio, et al. vs. Hon. Antonio R. Manabat, et al.), the SEC declared that it had assumed jurisdiction over petitioner Alfredo Ching pursuant to Section 6, Rule 3 of the new Rules of Procedure of the SEC providing that "parties in interest without whom no final determination can be had of an action shall be joined either as complainant, petitioner or respondent" to prevent multiplicity of suits. On July 9, 1982, the SEC issued an Order placing PBM's business, including its assets and liabilities, under rehabilitation receivership, and ordered that "all actions for claims listed in Schedule A of the petition pending before any court or tribunal are hereby suspended in whatever stage the same may be, until further orders from the Commission" (p. 22, Rollo). As directed by the SEC, said order was published once a week for three consecutive weeks in the Bulletin Today, Philippine Daily Express and Times Journal at the expense of PBM and Alfredo Ching. PBM and Ching jointly filed a motion to dismiss Civil Case No. 1028-P in the RTC, Pasay City, invoking the pendency

in the SEC of PBM's application for suspension of payments (which Ching co-signed) and over which the SEC had already assumed jurisdiction. Before the motion to dismiss could be resolved, the court dropped PBM from the complaint, on motion of the plaintiff bank, for the reason that the SEC had already placed PBM under rehabilitation receivership. On August 15, 1983, the trial court denied Ching's motion to dismiss the complaint against himself. The court pointed out that "P.D. 1758 is only concerned with the activities of corporations, partnerships and associations. Never was it intended to regulate and/or control activities of individuals" (p.11, Rollo). Ching's motion for reconsideration of that order was denied on May 24,1984. Respondent Judge argued that under P ' D. 902-A, as amended, the SEC may not validly acquire jurisdiction over an individual, like Ching (p. 62, Rollo). Ching filed a petition for certiorari and prohibition in the Court of Appeals (CA-G.R. SP No. 03593) to annul the orders of respondent Judge and to prohibit him from further proceeding in the civil case. The main issue raised in the petition was whether the court a quo could acquire jurisdiction over Ching in his personal and individual capacity as a surety of PBM in the collection suit filed by the bank, despite the fact that PBM's obligation to the bank had been placed under receivership by the SEC. On April 29, 1987, the Court of Appeals granted the writs prayed for. It nullified the questioned orders of respondent Judge and prohibited him from further proceeding in Civil Case No. 1028-P, except to enter an order dismissing the case. The pertinent ruling of the Court of Appeals reads: In sum, since the SEC had assumed jurisdiction over petitioner in SEC Case No. 2250 and reiterating the propriety of such assumption in SEC-EB No. 018; and since under PD 902-A, as amended by PD 1758, ... upon appointment of a ... rehabilitation receiver... pursuant to this Decree, all actions for claims against corporation ... under management or receivership pending before any court, tribunal, board or body shall be suspended accordingly ... respondent judge clearly acted without jurisdiction in taking cognizance of the civil case in the court a quo brought by respondent bank to enforce the surety agreement against petitioner for the purpose of collecting payment of PBM's outstanding obligations. Respondent bank should have questioned the SEC's assumption of jurisdiction over petitioner in an appellate forum and not in the court a quo, a tribunal with which the SEC enjoys a co-equal and coordinate rank. (p. 27, Rollo.)

The Bank assails that decision in this petition for review alleging that the appellate court erred; 1. in holding that jurisdiction over respondent Alfredo Ching was assumed by the SEC because he was a co-signer or surety of PBM and that the lower court may not assume jurisdiction over him so as to avoid multiplicity of suits; and 2. in holding that the jurisdiction assumed by the SEC over Ching was to the exclusion of courts or tribunals of coordinate rank. The petition for review is meritorious. Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM, the SEC could not assume jurisdiction over his person and properties. The Securities and Exchange Commission was empowered, as rehabilitation receiver, to take custody and control of the assets and properties of PBM only, for the SEC has jurisdiction over corporations only not over private individuals, except stockholders in an intra-corporate dispute (Sec. 5, P.D. 902-A and Sec. 2 of P.D. 1758). Being a nominal party in SEC Case No. 2250, Ching's properties were not included in the rehabilitation receivership that the SEC constituted to take custody of PBM's assets. Therefore, the petitioner bank was not barred from filing a suit against Ching, as a surety for PBM. An anomalous situation would arise if individual sureties for debtor corporations may escape liability by simply co- filing with the corporation a petition for suspension of payments in the SEC whose jurisdiction is limited only to corporations and their corporate assets. The term "parties-in-interest" in Section 6, Rule 3 of the SEC's New Rules of Procedure contemplates only private individuals sued or suing as stockholders, directors, or officers of a corporation. Ching can be sued separately to enforce his liability as surety for PBM, as expressly provided by Article 1216 of the New Civil Code: ART. 1216. The creditor may proceed against any of the solidary debtors or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, as long as the debt has not been fully collected. It is elementary that a corporation has a personality distinct and separate from its individual stockholders or members. Being an officer or stockholder of a corporation does not make one's property the property also of the corporation, for they are separate entities (Adelio Cruz vs. Quiterio Dalisay, 152 SCRA 482). Ching's act of joining as a co-petitioner with PBM in SEC Case No. 2250 did not vest in the SEC jurisdiction over his

person or property, for jurisdiction does not depend on the consent or acts of the parties but upon express provision of law (Tolentino vs. Social Security System, 138 SCRA 428; Lee vs. Municipal Trial Court of Legaspi City, Br. I, 145 SCRA 408). WHEREFORE, the petition for review is granted. The decision of the Court of Appeals in CA-G.R. SP No. 03593 is set aside. Respondent Judge of the Regional Trial Court in Pasay City is ordered to reinstate Civil Case No. 1028-P and to proceed therein against the private respondent Alfredo Ching. Costs against the private respondent. SO ORDERED. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 75885 May 27, 1987 BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner, vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents. Apostol, Bernas, Gumaru, Ona and Associates for petitioner. Vicente G. Sison for intervenor A.T. Abesamis. NARVASA, J.: Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986 and March 12, 1986, respectively, and (2) the sequestration, takeover, and other orders issued, and acts done, in accordance with said executive orders by the Presidential Commission on Good Government and/or its Commissioners and agents, affecting said corporation. 1. The Sequestration, Takeover, and Other Orders Complained of a. The Basic Sequestration Order The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on April 14, 1986 by Commissioner Mary Concepcion Bautista. It was addressed to three of the agents of the Commission, hereafter simply referred to as PCGG. It reads as follows:

RE: SEQUESTRATION ORDER By virtue of the powers vested in the Presidential Commission on Good Government, by authority of the President of the Philippines, you are hereby directed to sequester the following companies. 1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and Mariveles Shipyard) 2. Baseco Quarry 3. Philippine Jai-Alai Corporation 4. Fidelity Management Co., Inc. 5. Romson Realty, Inc. 6. Trident Management Co. 7. New Trident Management 8. Bay Transport 9. And all affiliate companies of Alfredo "Bejo" Romualdez You are hereby ordered: 1. To implement this sequestration order with a minimum disruption of these companies' business activities. 2. To ensure the continuity of these companies as going concerns, the care and maintenance of these assets until such time that the Office of the President through the Commission on Good Government should decide otherwise. 3. To report to the Commission on Good Government periodically. Further, you are authorized to request for Military/Security Support from the Military/Police authorities, and such other acts essential to the achievement of this sequestration order. 1 b. Order for Production of Documents On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to the President and other officers of petitioner firm, reiterating an earlier request for the production of certain documents, to wit: 1. Stock Transfer Book 2. Legal documents, such as: 2.1. Articles of Incorporation 2.2. By-Laws 2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986 2.4. Minutes of the Regular and Special Meetings of the Board of Directors from 1973 to 1986 2.5. Minutes of the Executive Committee Meetings from 1973 to 1986 2.6. Existing contracts with suppliers/contractors/others. 3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986 duly certified by the Corporate Secretary.

4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to December 31, 1985. 5. Monthly Financial Statements for the current year up to March 31, 1986. 6. Consolidated Cash Position Reports from January to April 15, 1986. 7. Inventory listings of assets up dated up to March 31, 1986. 8. Updated schedule of Accounts Receivable and Accounts Payable. 9. Complete list of depository banks for all funds with the authorized signatories for withdrawals thereof. 2 10. Schedule of company investments and placements. 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 3 Finance, terminating the contract for security services within the Engineer Island compound between BASECO and "Anchor and FAIRWAYS" and "other civilian security agencies," CAPCOM military personnel having already been assigned to the area, (2) Change of Mode of Payment of Entry Charges On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and Contractors," particularly a "Mr. Buddy Ondivilla National Marine Corporation," advising of the amendment in part of their contracts with BASECO in the sense that the stipulated charges for use of the BASECO road network were made payable "upon entry and not anymore subject 4 to monthly billing as was originally agreed upon." 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 5 condition suitable for port operations." 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 6 at * * (Deltamarine's) own risk." 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 7 September 17, 1986. 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 8 guidelines and safeguards including audit and verification. 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 9 their affiliated companies." 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 Court1) declare unconstitutional and void Executive Orders Numbered 1 and 2; 2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on the basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of the services of the BASECO executives. 11 a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under the principle that the law promulgated by the ruler under a revolutionary regime is the law of the land, it ceased to be acceptable when the same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was adopted providing, among others, that "No person shall be deprived of life, liberty and property without due process of law." (Const., Art. I V, Sec. 1)." 12

It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order * * and Takeover Order * * issued purportedly under the authority of said Executive Orders, rests on four fundamental considerations: First, no notice and hearing was accorded * * (it) before its properties and business were taken over; Second, the PCGG is not a court, but a purely investigative agency and therefore not competent to act as prosecutor and judge in the same cause; Third, there is nothing in the issuances which envisions any proceeding, process or remedy by which petitioner may expeditiously challenge the validity of the takeover after the same has been effected; and Fourthly, being directed against specified persons, and in disregard of the constitutional presumption of innocence and general rules and procedures, they constitute a Bill of Attainder." 13 b. Re Order to Produce Documents It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied with, was issued without court authority and infringed its constitutional right against self-incrimination, and unreasonable search and seizure. 14 c. Re PCGG's Exercise of Right of Ownership and Management BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its business affairs by — 1) terminating its contract for security services with Fairways & Anchor, without the consent and against the will of the contracting parties; and amending the mode of payment of entry fees stipulated in its Lease Contract with National Stevedoring & Lighterage Corporation, these acts being in violation of the non-impairment clause of the constitution; 15 2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated Port Services, Inc., giving the latter free use of BASECO premises; 16 3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at Sesiman, Mariveles; 17 4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other materials; 18 5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies; 6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM

Moises M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19 20 7) planning to elect its own Board of Directors; 8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at Mariveles * * 21 rolls of cable wires, worth P600,000.00 on May 11, 1986; 9) allowing "indiscriminate diggings" at Engineer Island to 22 retrieve gold bars supposed to have been buried therein. 3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders have been engendered by misapprehension, or incomplete comprehension if not indeed downright ignorance of the law governing these remedies. It is needful that these misconceptions and doubts be dispelled so that uninformed and useless debates about them may be avoided, and arguments tainted b sophistry or intellectual dishonesty be quickly exposed and discarded. Towards this end, this opinion will essay an exposition of the law on the matter. In the process many of the objections raised by BASECO will be dealt with. 4. The Governing Law a. Proclamation No. 3 The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional 23 Constitution, ordained by Proclamation No. 3, that the President-in the exercise of legislative power which she was authorized to continue to wield "(until a legislature is elected and convened under a new Constitution" — "shall give priority to measures to achieve the mandate of the people," among others to (r)ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or 24 accounts." 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 25 close associates both here and abroad." Upon these premises, the Presidential Commission on Good 26 Government was created, "charged with the task of assisting the President in regard to (certain specified) matters," among which was precisely* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates,

whether located in the Philippines or abroad, including thetakeover 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 27 powers, authority, influence, connections or relationship. 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 illgotten 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 28 task under this order. 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 29 for contempt. It was given power also to promulgate such rules and regulations as may be necessary to carry out the 30 purposes of * * (its creation). 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 31 world." Upon these premises, the President1) froze "all assets and properties in the Philippines in which former President Marcos and/or his wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents, or nominees have any interest or participation; 2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives, subordinates, business associates, duties, agents, or nominees from transferring, conveying, encumbering, concealing or dissipating said assets or properties in the Philippines and abroad, pending the outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired by them through or as a result of improper or illegal use of or the conversion of funds belonging to the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their official position, authority, relationship, connection or influence to unjustly enrich themselves at the expense and to the grave damage and prejudice of the Filipino people and the Republic of the Philippines; 3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting or concealing such assets and properties or from assisting or taking part in their transfer, encumbrance, concealment or dissipation under pain of such penalties as are prescribed by law;" and 4) required "all persons in the Philippines holding such assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same to the Commission on Good Government within thirty (30) days from publication 32 of * (the) Executive Order, * *. d. Executive Order No. 14 A third executive order is relevant: Executive Order No. 33 14, 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 34 findings." All such cases, whether civil or criminal, are to be filed "with the Sandiganbayan which shall have 35 exclusive and original jurisdiction thereof." Executive Order No. 14 also pertinently provides that civil suits for restitution, reparation of damages, or indemnification for consequential damages, forfeiture proceedings provided for under Republic Act No. 1379, or any other civil actions under the Civil Code or other existing laws, in connection with * * (said Executive Orders Numbered 1 and 2) may be filed separately from and proceed independently of any criminal proceedings and may be proved by a preponderance of evidence;" and that, moreover, the "technical rules of procedure and evidence shall not be 36 strictly applied to* * (said)civil cases." 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 37 leaders and supporters of the previous regime"; a) more particularly, that ill-gotten wealth (was) accumulated by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and close associates, * * located in the Philippines or abroad, * * (and) business enterprises and entities (came to be) owned or controlled by them, during * * (the Marcos) administration, directly or through nominees, by taking undue advantage of their public office and/or using their 38 powers, authority, influence, Connections or relationship; 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 39 Philippines"; 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 40 world;" 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 41 Marcos. 6. Government's Right and Duty to Recover All Ill-gotten Wealth There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-gotten wealth." Neither can there be any debate about the proposition that assuming the above described factual premises of the Executive Orders and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from Marcos, his family and his dominions of the assets and properties involved, is not only a right but a duty on the part of Government. But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling necessity that a proper respect be accorded and adequate protection assured, the fundamental rights of private property and free enterprise which are deemed pillars of a free society such as ours, and to which all members of that society may without exception lay claim. * * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary components freedom of conscience, freedom of expression, and freedom in the pursuit of happiness. Along with these freedoms are included economic freedom and freedom of enterprise within reasonable bounds and under proper control. * * Evincing much concern for the protection of property, the Constitution distinctly recognizes the preferred position which real estate has occupied in law for ages. Property is bound up with every aspect of social life in a democracy as democracy is conceived in the Constitution. The Constitution realizes the indispensable role which property, owned in reasonable quantities and used legitimately, plays in the stimulation to economic effort and the formation and growth of a solid social middle class that is said to be the bulwark of democracy and the 42 backbone of every progressive and happy country. a. Need of Evidentiary Substantiation in Proper Suit Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly established by adequate proof in each case, in a proper judicial proceeding, so that the recovery of the ill-gotten wealth may be validly and properly adjudged and consummated; although there are some who maintain that

the fact-that an immense fortune, and "vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad," and they have resorted to all sorts of clever schemes and manipulations to disguise and hide their illicit acquisitions-is within the realm of judicial notice, being of so extensive notoriety as to dispense with proof thereof, Be this as it may, the requirement of evidentiary substantiation has been expressly acknowledged, and the procedure to be followed explicitly laid down, in Executive Order No. 14. b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as the evidence at hand may reveal, there is an obvious and imperative need for preliminary, provisional measures to prevent the concealment, disappearance, destruction, dissipation, or loss of the assets and properties subject of the suits, or to restrain or foil acts that may render moot and academic, or effectively hamper, delay, or negate efforts to recover the same. 7. Provisional Remedies Prescribed by Law To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2) freeze orders; and (3) provisional takeover. Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth." The remedy of "provisional takeover" is peculiar to cases where "business enterprises and properties (were) taken over by the government of the Marcos Administration or by entities 43 or persons close to former President Marcos." 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 willgotten," 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 44 the State. And this, too, is the sense in which the term is 45 commonly understood in other jurisdictions. 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 46 dissipation." 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 47 sense an involuntary depositary thereof. c. Provisional Takeover In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinction between "ill gotten" "business enterprises and entities" (going concerns, businesses in actual operation), generally, as to which the remedy of sequestration applies, it being necessarily inferred that the remedy entails no interference, or the least possible interference with the actual management and operations thereof; and "business enterprises which were taken over by the government government of the Marcos Administration or by entities or persons close to him," in particular, as to which a "provisional takeover" is authorized, "in the public interest or to prevent disposal or 48 dissipation of the enterprises." 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 ongoing activities. But, to repeat, such a "provisional takeover" is allowed only as regards "business enterprises * * taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos." d. No Divestment of Title Over Property Seized It may perhaps be well at this point to stress once again the provisional, contingent character of the remedies just described. Indeed the law plainly qualifies the remedy of

take-over by the adjective, "provisional." These remedies may be resorted to only for a particular exigency: to prevent in the public interest the disappearance or dissipation of property or business, and conserve it pending adjudgment in appropriate proceedings of the primary issue of whether or not the acquisition of title or other right thereto by the apparent owner was attended by some vitiating anomaly. None of the remedies is meant to deprive the owner or possessor of his title or any right to the property sequestered, frozen or taken over and vest it in the sequestering agency, the Government or other person. This can be done only for the causes and by the processes laid down by law. That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and exercised, the language of the executive orders in question leaves no doubt. Executive Order No. 1 declares that the sequestration of property the acquisition of which is suspect shall last "until the transactions leading to such acquisition * * can be disposed of by the appropriate 49 authorities." 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 50 BASECO 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 51 remedies. Section 26 of its Transitory Provisions, lays down the relevant rule in plain terms, apart from extending ratification or confirmation (although not really necessary) to the institution by presidential fiat of the remedy of sequestration and freeze orders: SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986 in relation to the recovery of ill-gotten wealth shag remain

operative for not more thaneighteen 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 52 herein provided. f. Kinship to Attachment Receivership As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of preliminary 53 attachment, or receivership. 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 54 intentionally or otherwise, pending the action. 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 55 possession over it. All these remedies — sequestration, freezing, provisional, takeover, attachment and receivership — are provisional, temporary, designed forparticular exigencies, attended by no character of permanency or finality, and always subject to the control of the issuing court or agency. g. Remedies, Non-Judicial Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of no moment. The Solicitor General draws attention to the writ of distraint and levy which since 1936 the Commissioner of Internal Revenue has been by law authorized to issue against 56 property of a delinquent taxpayer. 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." 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 replevinsuits, sequestration and provisional takeover 58 writs may issue ex parte. 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 59 of the people;" 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 selfevident, that "any transfer, disposition, concealment or disappearance of said assets and properties would frustrate, obstruct or hamper the efforts of the Government" 60 at the just recovery thereof. 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 61 nullification. 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 62 the requirements of fairness and due process." 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 63 authorities." 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 64 warranted. A similar requirement is now found in Section 26, Art. XVIII of the 1987 Constitution, which requires that a

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"sequestration or freeze order shall be issued only upon 65 showing of a prima facie case." 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 66 capricious, are condemned and struck down. 9. Constitutional Sanction of Remedies If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of sequestration, freeze and takeover orders, it should be dispelled by the fact that these particular remedies and the authority of the PCGG to issue them have received constitutional approbation and sanction. As already mentioned, the Provisional or "Freedom" Constitution recognizes the power and duty of the President to enact "measures to achieve the mandate of the people to * * * (recover ill- gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or accounts." And as also already adverted to, 67 Section 26, Article XVIII of the 1987 Constitution treats of, and ratifies the "authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986." The institution of these provisional remedies is also premised upon the State's inherent police power, regarded,

as t lie power of promoting the public welfare by restraining 68 and regulating the use of liberty and property," and as "the most essential, insistent and illimitable of powers * * in the promotion of general welfare and the public 69 interest," and said to be co-extensive with self-protection and * * not inaptly termed (also) the'law of overruling 70 necessity." " 10. PCGG not a "Judge"; General Functions It should also by now be reasonably evident from what has thus far been said that the PCGG is not, and was never intended to act as, a judge. Its general function is to conduct investigations in order to collect evidenceestablishing instances of "ill-gotten wealth;" issue sequestration, and such orders as may be warranted by the evidence thus collected and as may be necessary to preserve and conserve the assets of which it takes custody and control and prevent their disappearance, loss or dissipation; and eventually file and prosecute in the proper court of competent jurisdiction all cases investigated by it as may be warranted by its findings. It does not try and decide, or hear and determine, or adjudicate with any character of finality or compulsion, cases involving the essential issue of whether or not property should be forfeited and transferred to the State because "ill-gotten" within the meaning of the Constitution and the executive orders. This function is reserved to the designated court, in 71 this case, the Sandiganbayan. There can therefore be no serious regard accorded to the accusation, leveled by 72 BASECO, that the PCGG plays the perfidious role of prosecutor and judge at the same time. 11. Facts Preclude Grant of Relief to Petitioner Upon these premises and reasoned conclusions, and upon the facts disclosed by the record, hereafter to be discussed, the petition cannot succeed. The writs of certiorari and prohibition prayed for will not be issued. The facts show that the corporation known as BASECO was owned or controlled by President Marcos "during his administration, through nominees, by taking undue advantage of his public office and/or using his powers, authority, or influence, " and that it was by and through the same means, that BASECO had taken over the business and/or assets of the National Shipyard and Engineering Co., Inc., and other government-owned or controlled entities. 12. Organization and Stock Distribution of BASECO BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a domestic private corporation * * (on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping executives. Its main

office is at Engineer Island, Port Area, Manila, where its Engineer Island Shipyard is housed, and its main shipyard 73 is located at Mariveles Bataan." 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 74 P3,035,000.00 has been paid by the incorporators. 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 75 Book. Their names and the number of shares respectively held by them are as follows: 1. Jose A. Rojas 2. Severino G. de la Cruz 3. Emilio T. Yap 4. Jose Fernandez 5. Jose Francisco 6. Manuel S. Mendoza 7. Anthony P. Lee 8. Hilario M. Ruiz 9. Constante L. Fariñas 10. Fidelity Management, Inc. 11. Trident Management 12. United Phil. Lines 13. Renato M. Tanseco 1,248 shares 1,248 shares 2,508 shares 1,248 shares 128 shares 96 shares 1,248 shares 32 shares 8 shares 65,882 shares 7,412 shares 1,240 shares 8 shares

14. Fidel Ventura 15. Metro Bay Drydock 16. Manuel Jacela 17. Jonathan G. Lu 18. Jose J. Tanchanco 19. Dioscoro Papa 20. Edward T. Marcelo TOTAL

8 shares 136,370 shares 1 share 1 share 1 share 128 shares 4 shares 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 semiannually, 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 76 of turnover of the shipyard to BASECO. 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. 77 Ines, as General Manager. 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 semiannual installments over nine (9) years after a grace period of two (2) years, with interest at 7% per annum. 15. Acquisition of 300 Hectares from Export Processing Zone Authority On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export Processing Zone Authority for the price of P10,047,940.00 of which, as set out in the document of sale, P2,000.000.00 was paid upon its execution, and the balance stipulated to 78 be payable in installments. 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 79 entitled "Contract of Purchase and Sale," 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)." 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 81 the sum of P12,400,000.00. The claim has been made 82 that not a single centavo has been paid on these loans. 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. 83 Ruiz, BASECO president. The second was embodied in a confidential memorandum dated September 16, 1977 of 84 Capt. A.T. Romualdez. 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 85 inconsiderable amount of P165,854,000.00. He suggested that, to "save the situation," there be a "spinoff (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., 86 amounting to P32.538M. 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

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fact that "orders to build ships as expected * * did not materialize." He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1) Jose A. Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr. Magiliw Torres * * is already dead and Mr. Jose A. Rojas had a major heart attack," he made the following quite revealing, and it may be added, quite cynical and indurate recommendation, to wit: * * (that) their replacements (be effected) so we can register their names in the stock book prior to the implementation of your instructions to pass a board resolution to legalize the transfers under SEC regulations; 2. By getting their replacements, the families cannot question us later on; and 87 3. We will owe no further favors from them. He also transmitted to Marcos, together with the report, the 88 following documents: 1. Stock certificates indorsed and assigned in blank with 89 assignments and waivers; 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 90 rank-and-file employees. 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 91 you, Sir. 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. 92 For immediate compliance. 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, 93 1977. 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 94 Corporation (PDC)." b. Letter of Instructions No. 670 Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February 14, 1978, he issued Letter of Instructions No. 670 addressed to the Reparations Commission REPACOM the Philippine National Oil Company (PNOC), the Luzon

Stevedoring Company (LUSTEVECO), and the National Development Company (NDC). What is commanded therein is summarized by the Solicitor General, with pithy and not inaccurate observations as to the effects thereof (in italics), as follows: * * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to NDC subject to reimbursement by NDC to BASECO (of) the amount of s allegedly representing the handling and incidental expenses incurred by BASECO in the installation of said equipment (so instead of NDC getting paid on its loan to BASECO, it was made to pay BASECO instead the amount of P18.285M); 2) the shipbuilding equipment procured from reparations through EPZA, now in the possession of BASECO and BSDI (Bay Shipyard & Drydocking, Inc.) be transferred to LUSTEVECO through PNOC; and 3) the shipbuilding equipment (thus) transferred be invested by LUSTEVECO, acting through PNOC and NDC, as the government's equity participation in a shipbuilding corporation to be established in partnership with the private sector. xxx xxx xxx And so, through a simple letter of instruction and memorandum, BASECO's loan obligation to NDC and REPACOM * * in the total amount of P83.365M and BSD's REPACOM loan of P32.438M were wiped out and 95 converted into non-voting preferred shares. 20. Evidence of Marcos' Ownership of BASECO It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control by President Marcos of BASECO has been sufficiently shown. Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised control over BASECO, but also that he actually owns well nigh one hundred percent of its outstanding stock. It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock outstanding, ostensibly owned by twenty (20) 96 stockholders. Four of these twenty are juridical persons: (1)Metro Bay Drydock, recorded as holding 136,370 shares; (2) Fidelity Management, Inc., 65,882 shares; (3)Trident Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares. The first three corporations, among themselves, own an aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding stock. Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in Malacanang shortly after the sudden flight of President Marcos, were

certificates corresponding to more than ninety-five percent (95%) of all the outstanding shares of stock of BASECO, endorsed in blank, together with deeds of assignment of practically all the outstanding shares of stock of the three (3) corporations above mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof although not 97 notarized. More specifically, found in Malacanang (and now in the custody of the PCGG) were: 1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. — which supposedly owns as aforesaid 65,882 shares of BASECO stock; 2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro Bay Drydock Corporation — which allegedly owns 136,370 shares of BASECO stock; 3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc. — which allegedly owns 98 7,412 shares of BASECO stock, assigned in blank; and 4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of BASECO stock; that is, all 99 but 5 % — all endorsed in blank. 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." 102On the same day he filed another motion praying that he be allowed "to secure copies of the Certificates of Stock in the name of Metro Bay Drydock, Inc., and of all other Certificates, of Stock of petitioner's stockholders in possession of respondents." 103 In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that counsel's aforestated motion to secure copies of the stock certificates "confirms the fact that stockholders of petitioner corporation are not in possession of * * (their) certificates of stock," and

the reason, according to him, was "that 95% of said shares * * have been endorsed in blank and found in Malacañang after the former President and his family fled the country." To this manifestation BASECO's counsel replied on November 5, 1986, as already mentioned, Stubbornly insisting that the firm's stockholders had not really assigned their stock. 105 In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 among other things "to require * * the petitioner * * to deposit upon proper receipt with Clerk of Court Juanito Ranjo the originals of the stock certificates alleged to be in its possession or accessible to it, mentioned and described in Annex 'P' of its petition, (and other pleadings) * * within ten (10) days from notice." 106 In a motion filed on December 5, 1986, 107BASECO's counsel made the statement, quite surprising in the premises, that "it will negotiate with the owners (of the BASECO stock in question) to allow petitioner to borrow from them, if available, the certificates referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's counsel however eventually had to confess inability to produce the originals of the stock certificates, putting up the feeble excuse that while he had "requested the stockholders to allow * * (him) to borrow said certificates, * * some of * * (them) claimed that they had delivered the certificates to third parties by way of pledge and/or to secure performance of obligations, while others allegedly have entrusted them to third parties in view of last national emergency." 108 He has conveniently omitted, nor has he offered to give the details of the transactions adverted to by him, or to explain why he had not impressed on the supposed stockholders the primordial importance of convincing this Court of their present custody of the originals of the stock, or if he had done so, why the stockholders are unwilling to agree to some sort of arrangement so that the originals of their certificates might at the very least be exhibited to the Court. Under the circumstances, the Court can only conclude that he could not get the originals from the stockholders for the simple reason that, as the Solicitor General maintains, said stockholders in truth no longer have them in their possession, these having already been assigned in blank to then President Marcos. 21. Facts Justify Issuance of Sequestration and Takeover Orders In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors of BASECO as of April, 1986 109 were mere "dummies," nominees or alter egos of President Marcos; at any rate,

that they are no longer owners of any shares of stock in the corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no standing whatever to cause the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the petition, would in effect be to restore the assets, properties and business sequestered and taken over by the PCGG to persons who are "dummies," nominees or alter egos of the former president. From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private corporation known as BASECO was "owned or controlled by former President Ferdinand E. Marcos * * during his administration, * * through nominees, by taking advantage of * * (his) public office and/or using * * (his) powers, authority, influence * *," and that NASSCO and other property of the government had been taken over by BASECO; and the situation justified the sequestration as well as the provisional takeover of the corporation in the public interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the filing of the requisite actions with the Sandiganbayan to cause divestment of title thereto from Marcos, and its adjudication in favor of the Republic pursuant to Executive Order No. 14. As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it sustains the acts of sequestration and takeover by the PCGG as being in accord with the law, and, in view of what has thus far been set out in this opinion, pronounces to be without merit the theory that said acts, and the executive orders pursuant to which they were done, are fatally defective in not according to the parties affected prior notice and hearing, or an adequate remedy to impugn, set aside or otherwise obtain relief therefrom, or that the PCGG had acted as prosecutor and judge at the same time. 22. Executive Orders Not a Bill of Attainder Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A bill of attainder is a legislative act which inflicts punishment without judicial trial." 111 "Its essence is the substitution of a legislative for a judicial determination of guilt." 112 In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of guilt. On the contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the second place, no

punishment is inflicted by the executive orders, as the merest glance at their provisions will immediately make apparent. In no sense, therefore, may the executive orders be regarded as a bill of attainder. 23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been transgressed by the Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if it fails to do so." The order was issued upon the authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the production of such books, papers, contracts, records, statements of accounts and other documents as may be material to the investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power to "require all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same * *." The contention lacks merit. It is elementary that the right against self-incrimination has no application to juridical persons. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse ofsuchprivileges * * 113 Relevant jurisprudence is also cited by the Solicitor General. 114 * * corporations are not entitled to all of the constitutional protections which private individuals have. * * They are not at all within the privilege against self-incrimination, although this court more than once has said that the privilege runs very closely with the 4th Amendment's Search and Seizure provisions.It is also settled that an officer of the company cannot refuse to produce its records in its possession upon the plea that they will either incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's). * * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the

laws of its creation. There is a reserve right in the legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose. The defense amounts to this, that an officer of the corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a refusal to produce its books. To state this proposition is to answer it. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises may refuse to show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor General's]) At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals required to produce evidence before the PCGG against any possible violation of his right against self-incrimination. It gives them immunity from prosecution on the basis of testimony or information he is compelled to present. As amended, said Section 4 now provides that — xxx xxx xxx The witness may not refuse to comply with the order on the basis of his privilege against self-incrimination; but no testimony or other information compelled under the order (or any information directly or indirectly derived from such testimony, or other information) may be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise failing to comply with the order. The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof. 24. Scope and Extent of Powers of the PCGG One other question remains to be disposed of, that respecting the scope and extent of the powers that may be wielded by the PCGG with regard to the properties or businesses placed under sequestration or provisionally taken over. Obviously, it is not a question to which an answer can be easily given, much less one which will suffice for every conceivable situation. a. PCGG May Not Exercise Acts of Ownership

One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally taken over. AS already earlier stressed with no little insistence, the act of sequestration; freezing or provisional takeover of property does not import or bring about a divestment of title over said property; does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict ownership; and this is specially true in the situations contemplated by the sequestration rules where, unlike cases of receivership, for example, no court exercises effective supervision or can upon due application and hearing, grant authority for the performance of acts of dominion. Equally evident is that the resort to the provisional remedies in question should entail the least possible interference with business operations or activities so that, in the event that the accusation of the business enterprise being "ill gotten" be not proven, it may be returned to its rightful owner as far as possible in the same condition as it was at the time of sequestration. b. PCGG Has Only Powers of Administration The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over, much like a court-appointed receiver, 115 such as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek and secure the assistance of any office, agency or instrumentality of the government. 116 In the case of sequestered businesses generally (i.e., going concerns, businesses in current operation), as in the case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not that of manager, or innovator, much less an owner. c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him; Limitations Thereon Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the

government of the Marcos Administration or by entities or persons close to former President Marcos," 117 the PCGG is given power and authority, as already adverted to, to "provisionally take (it) over in the public interest or to prevent * * (its) disposal or dissipation;" and since the term is obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody is connoted; the PCGG may in this case exercise some measure of control in the operation, running, or management of the business itself. But even in this special situation, the intrusion into management should be restricted to the minimum degree necessary to accomplish the legislative will, which is "to prevent the disposal or dissipation" of the business enterprise. There should be no hasty, indiscriminate, unreasoned replacement or substitution of management officials or change of policies, particularly in respect of viable establishments. In fact, such a replacement or substitution should be avoided if at all possible, and undertaken only when justified by demonstrably tenable grounds and in line with the stated objectives of the PCGG. And it goes without saying that where replacement of management officers may be called for, the greatest prudence, circumspection, care and attention - should accompany that undertaking to the end that truly competent, experienced and honest managers may be recruited. There should be no role to be played in this area by rank amateurs, no matter how wen meaning. The road to hell, it has been said, is paved with good intentions. The business is not to be experimented or played around with, not run into the ground, not driven to bankruptcy, not fleeced, not ruined. Sight should never be lost sight of the ultimate objective of the whole exercise, which is to turn over the business to the Republic, once judicially established to be "ill-gotten." Reason dictates that it is only under these conditions and circumstances that the supervision, administration and control of business enterprises provisionally taken over may legitimately be exercised. d. Voting of Sequestered Stock; Conditions Therefor So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the prerogative to vote sequestered stock of corporations, granted to it by the President of the Philippines through a Memorandum dated June 26, 1986. That Memorandum authorizes the PCGG, "pending the outcome of proceedings to determine the ownership of * * (sequestered) shares of stock," "to vote such shares of stock as it may have sequestered in corporations at all stockholders' meetings called for the election of directors,

declaration of dividends, amendment of the Articles of Incorporation, etc." The Memorandum should be construed in such a manner as to be consistent with, and not contradictory of the Executive Orders earlier promulgated on the same matter. There should be no exercise of the right to vote simply because the right exists, or because the stocks sequestered constitute the controlling or a substantial part of the corporate voting power. The stock is not to be voted to replace directors, or revise the articles or by-laws, or otherwise bring about substantial changes in policy, program or practice of the corporation except for demonstrably weighty and defensible grounds, and always in the context of the stated purposes of sequestration or provisional takeover, i.e., to prevent the dispersion or undue disposal of the corporate assets. Directors are not to be voted out simply because the power to do so exists. Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at an possible, and undertaken only when essential to prevent disappearance or wastage of corporate property, and always under such circumstances as assure that the replacements are truly possessed of competence, experience and probity. In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in their stead because the evidence showed prima facie that the former were just tools of President Marcos and were no longer owners of any stock in the firm, if they ever were at all. This is why, in its Resolution of October 28, 1986; 118 this Court declared that — Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and holding of a stockholders' meeting for the election of directors as authorized by the Memorandum of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in this case, the government can, through its designated directors, properly exercise control and management over what appear to be properties and assets owned and belonging to the government itself and over which the persons who appear in this case on behalf of BASECO have failed to show any right or even any shareholding in said corporation. It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of the company's affairs should henceforth be guided and governed by the norms herein laid down. They should never for a moment allow themselves to forget that they are conservators, not owners of the business; they are fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in the premises, required.

25. No Sufficient Showing of Other Irregularities As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution of certain contracts, inclusive of the termination of the employment of some of its executives, 119 this Court cannot, in the present state of the evidence on record, pass upon them. It is not necessary to do so. The issues arising therefrom may and will be left for initial determination in the appropriate action. But the Court will state that absent any showing of any important cause therefor, it will not normally substitute its judgment for that of the PCGG in these individual transactions. It is clear however, that as things now stand, the petitioner cannot be said to have established the correctness of its submission that the acts of the PCGG in question were done without or in excess of its powers, or with grave abuse of discretion. WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted. Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 89561 September 13, 1990 BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M. CASTILLO, BERTILLA C. RADA, MARIETTA C. ABAÑEZ, LEOVINA C. JALBUENA and SANTIAGO M. RIVERA, petitioners, vs. COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS MANUFACTURING CO., INC.,respondents. Edmundo T. Zepeda for petitioners. Martin M. De Guzman for respondent BORMAHECO, Inc. Renato J. Robles for P.M. Parts Manufacturing Co., Inc. REGALADO, J.: This is a petition to review the decision of respondent Court of Appeals, dated August 3, 1989, in CA-GR CV No. 15412, entitled "Buenaflor M. Castillo Umali, et al. vs. Philippine Machinery Parts Manufacturing Co., Inc., et 1 al.," the dispositive portion whereof provides: WHEREFORE, viewed in the light of the entire record, the judgment appealed from must be, as it is hereby REVERSED. In lieu thereof, a judgment is hereby rendered1) Dismissing the complaint, with cost against plaintiffs; 2) Ordering plaintiffs-appellees to vacate the subject properties; and 3) Ordering plaintiffs-appellees to pay upon defendants' counterclaims: a) To defendant-appellant PM Parts: (i) damages consisting of the value of the fruits in the subject parcels of land of which they were deprived in the sum of P26,000.00 and (ii) attorney's fees of P15,000.00 b) To defendant-appellant Bormaheco: (i) expenses of litigation in the amount of P5,000.00 and (ii) attorney's fees of P15,000.00. SO ORDERED. The original complaint for annulment of title filed in the court a quo by herein petitioners included as party defendants the Philippine Machinery Parts Manufacturing Co., Inc. (PM Parts), Insurance Corporation of the Philippines (ICP), Bormaheco, Inc., (Bormaheco) and Santiago M. Rivera (Rivera). A Second Amended

Complaint was filed, this time impleading Santiago M. Rivera as party plaintiff. During the pre-trial conference, the parties entered into the following stipulation of facts: As between all parties: Plaintiff Buenaflor M. Castillo is the judicial administratrix of the estate of Felipe Castillo in Special Proceeding No. 4053, pending before Branch IX, CFI of Quezon (per Exhibit A) which intestate proceedings was instituted by Mauricia Meer Vda. de Castillo, the previous administratrix of the said proceedings prior to 1970 (per exhibits A-1 and A-2) which case was filed in Court way back in 1964; b) The four (4) parcels of land described in paragraph 3 of the Complaint were originally covered by TCT No. T-42104 and Tax Dec. No. 14134 with assessed value of P3,100.00; TCT No. T 32227 and Tax Dec. No. 14132, with assessed value of P5,130,00; TCT No. T-31762 and Tax Dec. No. 14135, with assessed value of P6,150.00; and TCT No. T42103 with Tax Dec. No. 14133, with assessed value of P3,580.00 (per Exhibits A-2 and B, B-1 to B-3 C, C-1 -to C3 c) That the above-enumerated four (4) parcels of land were the subject of the Deed of Extra-Judicial Partition executed by the heirs of Felipe Castillo (per Exhibit D) and by virtue thereof the titles thereto has (sic) been cancelled and in lieu thereof, new titles in the name of Mauricia Meer Vda. de Castillo and of her children, namely: Buenaflor, Bertilla, Victoria, Marietta and Leovina, all surnamed Castillo has (sic) been issued, namely: TCT No. T-12113 (Exhibit E ); TCT No. T-13113 (Exhibit F); TCT No. T-13116 (Exhibit G ) and TCT No. T13117 (Exhibit H ) d) That mentioned parcels of land were submitted as guaranty in the Agreement of Counter-Guaranty with Chattel-Real Estate Mortgage executed on 24 October 1970 between Insurance Corporation of the Philippines and Slobec Realty Corporation represented by Santiago Rivera (Exhibit 1); e) That based on the Certificate of Sale issued by the Sheriff of the Province of Quezon in favor of Insurance Corporation of the Philippines it was able to transfer to itself the titles over the lots in question, namely: TCT No. T23705 (Exhibit M), TCT No. T 23706 (Exhibit N ), TCT No. T-23707 (Exhibit 0) and TCT No. T 23708 (Exhibit P); f) That on 10 April 1975, the Insurance Corporation of the Philippines sold to PM Parts the immovables in question (per Exhibit 6 for PM Parts) and by reason thereof, succeeded in transferring unto itself the titles over the lots in dispute, namely: per TCT No. T-24846 (Exhibit Q ), per TCT No. T-24847 (Exhibit R ), TCT No. T-24848 (Exhibit), TCT No. T-24849 (Exhibit T );

g) On 26 August l976, Mauricia Meer Vda. de Castillo' genther letter to Modesto N. Cervantes stating that she and her children refused to comply with his demands (Exhibit V2); h) That from at least the months of October, November and December 1970 and January 1971, Modesto N. Cervantes was the Vice-President of Bormaheco, Inc. later President thereof, and also he is one of the Board of Directors of PM Parts; on the other hand, Atty. Martin M. De Guzman was the legal counsel of Bormaheco, Inc., later Executive VicePresident thereof, and who also is the legal counsel of Insurance Corporation of the Philippines and PM Parts; that Modesto N. Cervantes served later on as President of PM Parts, and that Atty. de Guzman was retained by Insurance Corporation of the Philippines specifically for foreclosure purposes only; i) Defendant Bormaheco, Inc. on November 25, 1970 sold to Slobec Realty and Development, Inc., represented by Santiago Rivera, President, one (1) unit Caterpillar Tractor D-7 with Serial No. 281114 evidenced by a contract marked Exhibit J and Exhibit I for Bormaheco, Inc.; j) That the Surety Bond No. 14010 issued by co-defendant ICP was likewise secured by an Agreement with CounterGuaranty with Real Estate Mortgage executed by Slobec Realty & Development, Inc., Mauricia Castillo Meer, Buenaflor Castillo, Bertilla Castillo, Victoria Castillo, Marietta Castillo and Leovina Castillo, as mortgagors in favor of ICP which document was executed and ratified before notary public Alberto R. Navoa of the City of Manila on October 24,1970; k) That the property mortgaged consisted of four (4) parcels of land situated in Lucena City and covered by TCT Nos. T-13114, T13115, T-13116 and T-13117 of the Register of Deeds of Lucena City; l) That the tractor sold by defendant Bormaheco, Inc. to Slobec Realty & Development, Inc. was delivered to Bormaheco, Inc. on or about October 2,1973, by Mr. Menandro Umali for purposes of repair; m) That in August 1976, PM Parts notified Mrs. Mauricia Meer about its ownership and the assignment of Mr. Petronilo Roque as caretaker of the subject property; n) That plaintiff and other heirs are harvest fruits of the property (daranghita) which is worth no less than Pl,000.00 per harvest. As between plaintiffs and defendant Bormaheco, Inc o) That on 25 November 1970, at Makati, Rizal, Same Rivera, in representation of the Slobec Realty &

Development Corporation executed in favor of Bormaheco, Inc., represented by its Vice-President Modesto N. Cervantes a Chattel Mortgage concerning one unit model CAT D7 Caterpillar Crawler Tractor as described therein as security for the payment in favor of the mortgagee of the amount of P180,000.00 (per Exhibit K) that Id document was superseded by another chattel mortgage dated January 23, 1971 (Exhibit 15); p) On 18 December 1970, at Makati, Rizal, the Bormaheco, Inc., represented by its Vice-President Modesto Cervantes and Slobec Realty Corporation represented by Santiago Rivera executed the sales agreement concerning the sale of one (1) unit Model CAT D7 Caterpillar Crawler Tractor as described therein for the amount of P230,000.00 (per Exhibit J) which document was superseded by the Sales Agreement dated January 23,1971 (Exhibit 16); q) Although it appears on the document entitled Chattel Mortgage (per Exhibit K) that it was executed on 25 November 1970, and in the document entitled Sales Agreement (per Exhibit J) that it was executed on 18 December 1970, it appears in the notarial register of the notary public who notarized them that those two documents were executed on 11 December 1970. The certified xerox copy of the notarial register of Notary Public Guillermo Aragones issued by the Bureau of Records Management is hereto submitted as Exhibit BB That said chattel mortgage was superseded by another document dated January 23, 1971; r) That on 23 January 1971, Slobec Realty Development Corporation, represented by Santiago Rivera, received from Bormaheco, Inc. one (1) tractor Caterpillar Model D-7 pursuant to Invoice No. 33234 (Exhibits 9 and 9-A, Bormaheco, Inc.) and delivery receipt No. 10368 (per Exhibits 10 and 10-A for Bormaheco, Inc s) That on 28 September 1973, Atty. Martin M. de Guzman, as counsel of Insurance Corporation of the Philippines purchased at public auction for said corporation the four (4) parcels of land subject of tills case (per Exhibit L), and which document was presented to the Register of Deeds on 1 October 1973; t) Although it appears that the realties in issue has (sic) been sold by Insurance Corporation of the Philippines in favor of PM Parts on 1 0 April 1975, Modesto N. Cervantes, formerly Vice- President and now President of Bormaheco, Inc., sent his letter dated 9 August 1976 to Mauricia Meer Vda. de Castillo (Exhibit V), demanding that she and her children should vacate the premises;

u) That the Caterpillar Crawler Tractor Model CAT D-7 which was received by Slobec Realty Development 2 Corporation was actually reconditioned and repainted. " We cull the following antecedents from the decision of respondent Court of Appeals: Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de Castillo. The Castillo family are the owners of a parcel of land located in Lucena City which was given as security for a loan from the Development Bank of the Philippines. For their failure to pay the amortization, foreclosure of the said property was about to be initiated. This problem was made known to Santiago Rivera, who proposed to them the conversion into subdivision of the four (4) parcels of land adjacent to the mortgaged property to raise the necessary fund. The Idea was accepted by the Castillo family and to carry out the project, a Memorandum of Agreement (Exh. U p. 127, Record) was executed by and between Slobec Realty and Development, Inc., represented by its President Santiago Rivera and the Castillo family. In this agreement, Santiago Rivera obliged himself to pay the Castillo family the sum of P70,000.00 immediately after the execution of the agreement and to pay the additional amount of P400,000.00 after the property has been converted into a subdivision. Rivera, armed with the agreement, Exhibit U , approached Mr. Modesto Cervantes, President of defendant Bormaheco, and proposed to purchase from Bormaheco two (2) tractors Model D-7 and D-8 Subsequently, a Sales Agreement was executed on December 28,1970 (Exh. J, p. 22, Record). On January 23, 1971, Bormaheco, Inc. and Slobec Realty and Development, Inc., represented by its President, Santiago Rivera, executed a Sales Agreement over one unit of Caterpillar Tractor D-7 with Serial No. 281114, as evidenced by the contract marked Exhibit '16'. As shown by the contract, the price was P230,000.00 of which P50,000.00 was to constitute a down payment, and the balance of P180,000.00 payable in eighteen monthly installments. On the same date, Slobec, through Rivera, executed in favor of Bormaheco a Chattel Mortgage (Exh. K, p. 29, Record) over the said equipment as security for the payment of the aforesaid balance of P180,000.00. As further security of the aforementioned unpaid balance, Slobec obtained from Insurance Corporation of the Phil. a Surety Bond, with ICP (Insurance Corporation of the Phil.) as surety and Slobec as principal, in favor of Bormaheco, as borne out by Exhibit '8' (p. 111, Record). The aforesaid surety bond was in turn secured by an Agreement of Counter-Guaranty with Real Estate Mortgage (Exhibit I, p. 24, Record) executed by Rivera as president of Slobec and

Mauricia Meer Vda. de Castillo, Buenaflor Castillo Umali, Bertilla Castillo-Rada, Victoria Castillo, Marietta Castillo and Leovina Castillo Jalbuena, as mortgagors and Insurance Corporation of the Philippines (ICP) as mortgagee. In this agreement, ICP guaranteed the obligation of Slobec with Bormaheco in the amount of P180,000.00. In giving the bond, ICP required that the Castillos mortgage to them the properties in question, namely, four parcels of land covered by TCTs in the name of the aforementioned mortgagors, namely TCT Nos. 13114, 13115, 13116 and 13117 all of the Register of Deeds for Lucena City. On the occasion of the execution on January 23, 1971, of the Sales Agreement Exhibit '16', Slobec, represented by Rivera received from Bormaheco the subject matter of the said Sales Agreement, namely, the aforementioned tractor Caterpillar Model D-7 as evidenced by Invoice No. 33234 (Exhs. 9 and 9-A, p. 112, Record) and Delivery Receipt No. 10368 (Exhs. 10 and 10-A, p. 113). This tractor was known by Rivera to be a reconditioned and repainted one [Stipulation of Facts, Pre-trial Order, par. (u)]. Meanwhile, for violation of the terms and conditions of the Counter-Guaranty Agreement (Exh. 1), the properties of the Castillos were foreclosed by ICP As the highest bidder with a bid of P285,212.00, a Certificate of Sale was issued by the Provincial Sheriff of Lucena City and Transfer Certificates of Title over the subject parcels of land were issued by the Register of Deeds of Lucena City in favor of ICP namely, TCT Nos. T-23705, T 23706, T-23707 and T23708 (Exhs. M to P, pp. 38-45). The mortgagors had one (1) year from the date of the registration of the certificate of sale, that is, until October 1, 1974, to redeem the property, but they failed to do so. Consequently, ICP consolidated its ownership over the subject parcels of land through the requisite affidavit of consolidation of ownership dated October 29, 1974, as shown in Exh. '22'(p. 138, Rec.). Pursuant thereto, a Deed of Sale of Real Estate covering the subject properties was issued in favor of ICP (Exh. 23, p. 139, Rec.). On April 10, 1975, Insurance Corporation of the Phil. ICP sold to Phil. Machinery Parts Manufacturing Co. (PM Parts) the four (4) parcels of land and by virtue of said conveyance, PM Parts transferred unto itself the titles over the lots in dispute so that said parcels of land are now covered by TCT Nos. T-24846, T-24847, T-24848 and T24849 (Exhs. Q-T, pp. 46-49, Rec.). Thereafter, PM Parts, through its President, Mr. Modesto Cervantes, sent a letter dated August 9,1976 addressed to plaintiff Mrs. Mauricia Meer Castillo requesting her and her

children to vacate the subject property, who (Mrs. Castillo) in turn sent her reply expressing her refusal to comply with his demands. On September 29, 1976, the heirs of the late Felipe Castillo, particularly plaintiff Buenaflor M. Castillo Umali as the appointed administratrix of the properties in question filed an action for annulment of title before the then Court of First Instance of Quezon and docketed thereat as Civil Case No. 8085. Thereafter, they filed an Amended Complaint on January 10, 1980 (p. 444, Record). On July 20, 1983, plaintiffs filed their Second Amended Complaint, impleading Santiago M. Rivera as a party plaintiff (p. 706, Record). They contended that all the aforementioned transactions starting with the Agreement of CounterGuaranty with Real Estate Mortgage (Exh. I), Certificate of Sale (Exh. L) and the Deeds of Authority to Sell, Sale and the Affidavit of Consolidation of Ownership (Annexes F, G, H, I) as well as the Deed of Sale (Annexes J, K, L and M) are void for being entered into in fraud and without the consent and approval of the Court of First Instance of Quezon, (Branch IX) before whom the administration proceedings has been pending. Plaintiffs pray that the four (4) parcels of land subject hereof be declared as owned by the estate of the late Felipe Castillo and that all Transfer Certificates of Title Nos. 13114,13115,13116,13117, 23705, 23706, 23707, 23708, 24846, 24847, 24848 and 24849 as well as those appearing as encumbrances at the back of the certificates of title mentioned be declared as a nullity and defendants to pay damages and attorney's fees (pp. 71071 1, Record). In their amended answer, the defendants controverted the complaint and alleged, by way of affirmative and special defenses that the complaint did not state facts sufficient to state a cause of action against defendants; that plaintiffs are not entitled to the reliefs demanded; that plaintiffs are estopped or precluded from asserting the matters set forth in the Complaint; that plaintiffs are guilty of laches in not asserting their alleged right in due time; that defendant PM Parts is an innocent purchaser for value and relied on the face of the title before it bought the subject property (p. 3 744, Record). After trial, the court a quo rendered judgment, with the following decretal portion: WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants, declaring the following documents: Agreement of Counter-Guaranty with Chattel-Real Estate Mortgage dated October 24,1970 (Exhibit 1); Sales Agreement dated December 28, 1970 (Exhibit J)

Chattel Mortgage dated November 25, 1970 (Exhibit K) Sales Agreement dated January 23, 1971 (Exhibit 16); Chattel Mortgage dated January 23, 1971 (Exhibit 17); Certificate of Sale dated September 28, 1973 executed by the Provincial Sheriff of Quezon in favor of Insurance Corporation of the Philippines (Exhibit L); null and void for being fictitious, spurious and without consideration. Consequently, Transfer Certificates of Title Nos. T 23705, T-23706, T23707 and T-23708 (Exhibits M, N, O and P) issued in the name of Insurance Corporation of the Philippines, are likewise null and void. The sale by Insurance Corporation of the- Philippines in favor of defendant Philippine Machinery Parts Manufacturing Co., Inc., over Id four (4) parcels of land and Transfer Certificates of Title Nos. T 24846, T-24847, T24848 and T-24849 subsequently issued by virtue of said sale in the name of Philippine Machinery Parts Manufacturing Co., Inc., are similarly declared null and void, and the Register of Deeds of Lucena City is hereby directed to issue, in lieu thereof, transfer certificates of title in the names of the plaintiffs, except Santiago Rivera. Orders the defendants jointly and severally to pay the plaintiffs moral damages in the sum of P10,000.00, exemplary damages in the amount of P5,000.00, and actual litigation expenses in the sum of P6,500.00. Defendants are likewise ordered to pay the plaintiffs, jointly and severally, the sum of P10,000.00 for and as attomey's fees. With costs against the defendants. 4 SO ORDERED. As earlier stated, respondent court reversed the aforequoted decision of the trial court and rendered the judgment subject of this petitionPetitioners contend that respondent Court of Appeals erred: 1. In holding and finding that the actions entered into between petitioner Rivera with Cervantes are all fair and regular and therefore binding between the parties thereto; 2. In reversing the decision of the lower court, not only based on erroneous conclusions of facts, erroneous presumptions not supported by the evidence on record but also, holding valid and binding the supposed payment by ICP of its obligation to Bormaheco, despite the fact that the surety bond issued it had already expired when it opted to foreclose extrajudically the mortgage executed by the petitioners; 3. In aside the finding of the lower court that there was necessity to pierce the veil of corporate existence; and 4. In reversing the decision of the lower court of affirming 5 the same

I. Petitioners aver that the transactions entered into between Santiago M. Rivera, as President of Slobec Realty and Development Company (Slobec) and Mode Cervantes, as Vice-President of Bormaheco, such as the Sales 6 7 Agreement, Chattel Mortgage and the Agreement of 8 Counter-Guaranty with Chattel/Real Estate Mortgage, are all fraudulent and simulated and should, therefore, be declared nun and void. Such allegation is premised primarily on the fact that contrary to the stipulations agreed upon in the Sales Agreement (Exhibit J), Rivera never made any advance payment, in the alleged amount of P50,000.00, to Bormaheco; that the tractor was received by Rivera only on January 23, 1971 and not in 1970 as stated in the Chattel Mortgage (Exhibit K); and that when the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage was executed on October 24, 1970, to secure the obligation of ICP under its surety bond, the Sales Agreement and Chattel Mortgage had not as yet been executed, aside from the fact that it was Bormaheco, and not Rivera, which paid the premium for the surety bond issued by ICP At the outset, it will be noted that petitioners submission under the first assigned error hinges purely on questions of fact. Respondent Court of Appeals made several findings to the effect that the questioned documents are valid and binding upon the parties, that there was no fraud employed by private respondents in the execution thereof, and that, contrary to petitioners' allegation, the evidence on record reveals that petitioners had every intention to be bound by their undertakings in the various transactions had with private respondents. It is a general rule in this jurisdiction that findings of fact of said appellate court are final and conclusive and, thus, binding on this Court in the absence of sufficient and convincing proof, inter alia, that the former acted with grave abuse of discretion. Under the circumstances, we find no compelling reason to deviate from this long-standing jurisprudential pronouncement. In addition, the alleged failure of Rivera to pay the consideration agreed upon in the Sales Agreement, which clearly constitutes a breach of the contract, cannot be availed of by the guilty party to justify and support an action for the declaration of nullity of the contract. Equity and fair play dictates that one who commits a breach of his contract may not seek refuge under the protective mantle of the law. The evidence of record, on an overall calibration, does not convince us of the validity of petitioners' contention that the contracts entered into by the parties are either absolutely simulated or downright fraudulent.

There is absolute simulation, which renders the contract null and void, when the parties do not intend to be bound at 9 all by the same. The basic characteristic of this type of simulation of contract is the fact that the apparent contract is not really desired or intended to either produce legal effects or in any way alter the juridical situation of the parties. The subsequent act of Rivera in receiving and making use of the tractor subject matter of the Sales Agreement and Chattel Mortgage, and the simultaneous issuance of a surety bond in favor of Bormaheco, concomitant with the execution of the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage, conduce to the conclusion that petitioners had every intention to be bound by these contracts. The occurrence of these series of transactions between petitioners and private respondents is a strong indication that the parties actually intended, or at least expected, to exact fulfillment of their respective obligations from one another. Neither will an allegation of fraud prosper in this case where petitioners failed to show that they were induced to enter into a contract through the insidious words and machinations of private respondents without which the former would not have executed such contract. To set aside a document solemnly executed and voluntarily delivered, the proof of fraud must be clear and 10 convincing. We are not persuaded that such quantum of proof exists in the case at bar. The fact that it was Bormaheco which paid the premium for the surety bond issued by ICP does not per se affect the validity of the bond. Petitioners themselves admit in their present petition that Rivera executed a Deed of Sale with Right of Repurchase of his car in favor of Bormaheco and agreed that a part of the proceeds thereof shall be used to 11 pay the premium for the bond. In effect, Bormaheco accepted the payment of the premium as an agent of ICP The execution of the deed of sale with a right of repurchase in favor of Bormaheco under such circumstances sufficiently establishes the fact that Rivera recognized Bormaheco as an agent of ICP Such payment to the agent of ICP is, therefore, binding on Rivera. He is now estopped from questioning the validity of the suretyship contract. II. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction that a corporation is an entity with a juridical personality separate and distinct from its members or stockholders may be disregarded. In such cases, the corporation will be considered as a mere association of persons. The members or stockholders of the corporation will be considered as the corporation, that is, liability will attach

directly to the officers and stockholders. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend 13 crime, or when it is made as a shield to confuse the 14 legitimate issues or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, 15 agency, conduit or adjunct of another corporation. In the case at bar, petitioners seek to pierce the V621 Of corporate entity of Bormaheco, ICP and PM Parts, alleging that these corporations employed fraud in causing the foreclosure and subsequent sale of the real properties belonging to petitioners While we do not discount the possibility of the existence of fraud in the foreclosure proceeding, neither are we inclined to apply the doctrine invoked by petitioners in granting the relief sought. It is our considered opinion that piercing the veil of corporate entity is not the proper remedy in order that the foreclosure proceeding may be declared a nullity under the circumstances obtaining in the legal case at bar. In the first place, the legal corporate entity is disregarded only if it is sought to hold the officers and stockholders directly liable for a corporate debt or obligation. In the instant case, petitioners do not seek to impose a claim against the individual members of the three corporations involved; on the contrary, it is these corporations which desire to enforce an alleged right against petitioners. Assuming that petitioners were indeed defrauded by private respondents in the foreclosure of the mortgaged properties, this fact alone is not, under the circumstances, sufficient to justify the piercing of the corporate fiction, since petitioners do not intend to hold the officers and/or members of respondent corporations personally liable therefor. Petitioners are merely seeking the declaration of the nullity of the foreclosure sale, which relief may be obtained without having to disregard the aforesaid corporate fiction attaching to respondent corporations. Secondly, petitioners failed to establish by clear and convincing evidence that private respondents were purposely formed and operated, and thereafter transacted with petitioners, with the sole intention of defrauding the latter. The mere fact, therefore, that the businesses of two or more corporations are interrelated is not a justification for 16 disregarding their separate personalities, absent sufficient showing that the corporate entity was purposely used as a shield to defraud creditors and third persons of their rights.

12

III. The main issue for resolution is whether there was a valid foreclosure of the mortgaged properties by ICP Petitioners argue that the foreclosure proceedings should be declared null and void for two reasons, viz.: (1) no written notice was furnished by Bormaheco to ICP anent the failure of Slobec in paying its obligation with the former, plus the fact that no receipt was presented to show the amount allegedly paid by ICP to Bormaheco; and (b) at the time of the foreclosure of the mortgage, the liability of ICP under the surety bond had already expired. Respondent court, in finding for the validity of the foreclosure sale, declared: Now to the question of whether or not the foreclosure by the ICP of the real estate mortgage was in the exercise of a legal right, We agree with the appellants that the foreclosure proceedings instituted by the ICP was in the exercise of a legal right. First, ICP has in its favor the legal presumption that it had indemnified Bormaheco by reason of Slobec's default in the payment of its obligation under the Sales Agreement, especially because Bormaheco consented to ICPs foreclosure of the mortgage. This presumption is in consonance with pars. R and Q Section 5, Rule 5, * New Rules of Court which provides that it is disputably presumed that private transactions have been fair and regular. likewise, it is disputably presumed that the ordinary course of business has been followed: Second, ICP had the right to proceed at once to the foreclosure of the mortgage as mandated by the provisions of Art. 2071 Civil Code for these further reasons: Slobec, the principal debtor, was admittedly insolvent; Slobec's obligation becomes demandable by reason of the expiration of the period of payment; and its authorization to foreclose the mortgage upon Slobec's default, which resulted in the accrual of ICPS liability to Bormaheco. Third, the Agreement of Counter-Guaranty with Real Estate Mortgage (Exh. 1) expressly grants to ICP the right to foreclose the real estate mortgage in the event of 'non-payment or nonliquidation of the entire indebtedness or fraction thereof upon maturity as stipulated in the contract'. This is a valid and binding stipulation in the absence of showing that it is contrary to law, morals, good customs, public order or 17 public policy. (Art. 1306, New Civil Code). 1. Petitioners asseverate that there was no notice of default issued by Bormaheco to ICP which would have entitled Bormaheco to demand payment from ICP under the suretyship contract. Surety Bond No. B-1401 0 which was issued by ICP in favor of Bormaheco, wherein ICP and Slobec undertook to guarantee the payment of the balance of P180,000.00

payable in eighteen (18) monthly installments on one unit of Model CAT D-7 Caterpillar Crawler Tractor, pertinently provides in part as follows: 1. The liability of INSURANCE CORPORATION OF THE PHILIPPINES, under this BOND will expire Twelve (I 2) months from date hereof. Furthermore, it is hereby agreed and understood that the INSURANCE CORPORATION OF THE PHILIPPINES will not be liable for any claim not presented in writing to the Corporation within THIRTY (30) DAYS from the expiration of this BOND, and that the obligee hereby waives his right to bring claim or file any action against Surety and after the termination of one (1) 18 year from the time his cause of action accrues. The surety bond was dated October 24, 1970. However, an annotation on the upper part thereof states: "NOTE: EFFECTIVITY DATE OF THIS BOND SHALL BE ON 19 JANUARY 22, 1971." On the other hand, the Sales Agreement dated January 23, 1971 provides that the balance of P180,000.00 shall be 20 payable in eighteen (18) monthly installments. The Promissory Note executed by Slobec on even date in favor of Bormaheco further provides that the obligation shall be payable on or before February 23, 1971 up to July 23, 1972, and that non-payment of any of the installments when due shall make the entire obligation immediately due 21 and demandable. It is basic that liability on a bond is contractual in nature and is ordinarily restricted to the obligation expressly assumed therein. We have repeatedly held that the extent of a surety's liability is determined only by the clause of the contract of suretyship as well as the conditions stated in the bond. It cannot be extended by implication beyond the 22 terms the contract. Fundamental likewise is the rule that, except where required by the provisions of the contract, a demand or notice of default is not required to fix the surety's 23 liability. Hence, where the contract of suretyship stipulates that notice of the principal's default be given to the surety, generally the failure to comply with the condition will prevent recovery from the surety. There are certain instances, however, when failure to comply with the condition will not extinguish the surety's liability, such as a failure to give notice of slight defaults, which are waived by the obligee; or on mere suspicion of possible default; or where, if a default exists, there is excuse or provision in the suretyship contract exempting the surety for liability therefor, or where the surety already has knowledge or is 24 chargeable with knowledge of the default.

In the case at bar, the suretyship contract expressly provides that ICP shag not be liable for any claim not filed in writing within thirty (30) days from the expiration of the bond. In its decision dated May 25 1987, the court a quocategorically stated that '(n)o evidence was presented to show that Bormaheco demanded payment from ICP nor was there any action taken by Bormaheco on the bond posted by ICP to guarantee the payment of plaintiffs obligation. There is nothing in the records of the proceedings to show that ICP indemnified Bormaheco for 25 the failure of the plaintiffs to pay their obligation. " The failure, therefore, of Bormaheco to notify ICP in writing about Slobec's supposed default released ICP from liability under its surety bond. Consequently, ICP could not validly foreclose that real estate mortgage executed by petitioners in its favor since it never incurred any liability under the surety bond. It cannot claim exemption from the required written notice since its case does not fall under any of the exceptions hereinbefore enumerated. Furthermore, the allegation of ICP that it has paid Bormaheco is not supported by any documentary evidence. Section 1, Rule 131 of the Rules of Court provides that the burden of evidence lies with the party who asserts an affirmative allegation. Since ICP failed to duly prove the fact of payment, the disputable presumption that private transactions have been fair and regular, as erroneously relied upon by respondent Court of Appeals, finds no application to the case at bar. 2. The liability of a surety is measured by the terms of his contract, and, while he is liable to the full extent thereof, such liability is strictly limited to that assumed by its 26 terms. While ordinarily the termination of a surety's liability is governed by the provisions of the contract of suretyship, where the obligation of a surety is, under the terms of the bond, to terminate at a specified time, his obligation cannot be enlarged by an unauthorized 27 extension thereof. This is an exception to the general rule that the obligation of the surety continues for the same 28 period as that of the principal debtor. It is possible that the period of suretyship may be shorter than that of the principal obligation, as where the principal 29 debtor is required to make payment by installments. In the case at bar, the surety bond issued by ICP was to expire on January 22, 1972, twelve (1 2) months from its effectivity date, whereas Slobec's installment payment was to end on July 23, 1972. Therefore, while ICP guaranteed the payment by Slobec of the balance of P180,000.00, such guaranty was valid only for and within twelve (1 2) months from the date of effectivity of the surety bond, or

until January 22, 1972. Thereafter, from January 23, 1972 up to July 23, 1972, the liability of Slobec became an unsecured obligation. The default of Slobec during this period cannot be a valid basis for the exercise of the right to foreclose by ICP since its surety contract had already been terminated. Besides, the liability of ICP was extinguished when Bormaheco failed to file a written claim against it within thirty (30) days from the expiration of the surety bond. Consequently, the foreclosure of the mortgage, after the expiration of the surety bond under which ICP as surety has not incurred any liability, should be declared null and void. 3. Lastly, it has been held that where The guarantor holds property of the principal as collateral surety for his personal indemnity, to which he may resort only after payment by himself, until he has paid something as such guarantor 30 neither he nor the creditor can resort to such collaterals. The Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage states that it is being issued for and in consideration of the obligations assumed by the Mortgagee-Surety Company under the terms and conditions of ICP Bond No. 14010 in behalf of Slobec Realty Development Corporation and in favor of 31 Bormaheco, Inc. There is no doubt that said Agreement of Counter-Guaranty is issued for the personal indemnity of ICP Considering that the fact of payment by ICP has never been established, it follows, pursuant to the doctrine above adverted to, that ICP cannot foreclose on the subject properties, IV. Private respondent PM Parts posits that it is a buyer in good faith and, therefore, it acquired a valid title over the subject properties. The submission is without merit and the conclusion is specious We have stated earlier that the doctrine of piercing the veil of corporate fiction is not applicable in this case. However, its inapplicability has no bearing on the good faith or bad faith of private respondent PM Parts. It must be noted that Modesto N. Cervantes served as Vice-President of Bormaheco and, later, as President of PM Parts. On this fact alone, it cannot be said that PM Parts had no knowledge of the aforesaid several transactions executed between Bormaheco and petitioners. In addition, Atty. Martin de Guzman, who is the Executive Vice-President of Bormaheco, was also the legal counsel of ICP and PM Parts. These facts were admitted without qualification in the stipulation of facts submitted by the parties before the trial court. Hence, the defense of good faith may not be resorted to by private respondent PM Parts which is charged with knowledge of the true relations existing

between Bormaheco, ICP and herein petitioners. Accordingly, the transfer certificates of title issued in its name, as well as the certificate of sale, must be declared null and void since they cannot be considered altogether free of the taint of bad faith. WHEREFORE, the decision of respondent Court of Appeals is hereby REVERSED and SET ASIDE, and judgment is hereby rendered declaring the following as null and void: (1) Certificate of Sale, dated September 28,1973, executed by the Provincial Sheriff of Quezon in favor of the Insurance Corporation of the Philippines; (2) Transfer Certificates of Title Nos. T-23705, T-23706, T-23707 and T23708 issued in the name of the Insurance Corporation of the Philippines; (3) the sale by Insurance Corporation of the Philippines in favor of Philippine Machinery Parts Manufacturing Co., Inc. of the four (4) parcels of land covered by the aforesaid certificates of title; and (4) Transfer Certificates of Title Nos. T-24846, T-24847, T24848 and T24849 subsequently issued by virtue of said sale in the name of the latter corporation. The Register of Deeds of Lucena City is hereby directed to cancel Transfer Certificates of Title Nos. T-24846, T-24847, T24848 and T-24849 in the name of Philippine Machinery Parts Manufacturing Co., Inc. and to issue in lieu thereof the corresponding transfer certificates of title in the name of herein petitioners, except Santiago Rivera. The foregoing dispositions are without prejudice to such other and proper legal remedies as may be available to respondent Bormaheco, Inc. against herein petitioners. SO ORDERED.

[G.R. No. 136456. October 24, 2000] HEIRS OF RAMON DURANO, SR., RAMON DURANO III, AND ELIZABETHHOTCHKISS DURANO, petitioners, vs. SPOUSES ANGELES SEPULVEDA UY AND EMIGDIO BING SING UY, SPOUSES FAUSTINO ALATAN AND VALERIANA GARRO, AURELIA MATA, SILVESTRE RAMOS, HERMOGENES TITO, TEOTIMO GONZALES, PRIMITIVA GARRO, JULIAN GARRO, ISMAEL GARRO, BIENVENIDO CASTRO, GLICERIO BARRIGA, BEATRIZ CALZADA, ANDREA MATA DE BATULAN, TEOFISTA ALCALA, FILEMON LAVADOR, CANDELARIO LUMANTAO, GAVINO QUIMBO, JUSTINO TITO, MARCELINO GONZALES, SALVADOR DAYDAY, VENANCIA REPASO, LEODEGARIO GONZALES, and RESTITUTA GONZALES, respondents. DECISION

GONZAGA-REYES, J.: Petitioners seek the reversal of the decision of the First Division of the Court of Appeals dated November 14, 1997 in CA-G.R. CV No. 27220, entitled ―Heirs of Ramon Durano, Sr., et. al. versus Spouses Angeles Supelveda Uy, et. al.‖, and the resolution of the Court of Appeals dated October 29, 1998 which denied petitioners’ motion for reconsideration. The antecedents of this case may be traced as far back as August 1970; it involves a 128-hectare parcel of land located in the barrios of Dunga and Cahumayhumayan, Danao City. On December 27, 1973, the late Congressman Ramon Durano, Sr., together with his son Ramon Durano III, and the latter’s wife, Elizabeth Hotchkiss Durano (petitioners in the herein case), instituted an action for damages against spouses Angeles Supelveda Uy and Emigdio Bing Sing Uy, spouses Faustino Alatan and Valeriana Garro, spouses Rufino Lavador and Aurelia Mata, Silvestre Ramos, Hermogenes Tito, Teotimo Gonzales, Primitiva Garro, Julian Garro, Ismael Garro, Bienvenido Castro, Glicerio Barriga, Beatriz Calzada, Andrea Mata de Batulan, Teofista Alcala, Filemon Lavador, Candelario Lumantao, Gavino Quimbo, Justino Tito, Marcelino Gonzales, Salvador Dayday, Venancia Repaso, Leodegario Gonzales, Jose de la Calzada, Restituta [1] Gonzales, and Cosme Ramos (herein respondents ) before Branch XVII of the then Court of First Instance of Cebu, Danao City. In that case, docketed as Civil Case No. DC-56, petitioners accused respondents of officiating a ―hate campaign‖ against them by lodging complaints in the Police Department of Danao City in August 1970, over petitioners’ so-called ―invasion‖ of respondents’ alleged properties in Cahumayhumayan, Danao City. This was followed by another complaint sent by respondents to the President of the Philippines in February 1971, which depicted petitioners as ―oppressors‖, ―landgrabbers‖ and ―usurpers‖ of respondents’ alleged rights. Upon the direction of the President, the Department of Justice through City Fiscal Jesus Navarro and the Philippine Constabulary of Cebu simultaneously conducted investigations on the matter. Respondents’ complaints were dismissed as ―baseless‖, and they appealed the same to the Secretary of Justice, who called for another investigation to be jointly conducted by the Special Prosecutor and the Office of the City Fiscal of Danao City. During the course of said joint investigation, respondents Hermogenes Tito and Salvador Dayday again lodged a complaint with the Office of the President, airing the same charges of ―landgrabbing‖. The

investigations on this new complaint, jointly conducted by rd the 3 Philippine Constabulary Zone and the Citizens Legal Assistance Office resulted in the finding that ―(petitioners) [2] should not be held answerable therefor.‖ Petitioners further alleged in their complaint before the CFI that during the course of the above investigations, respondents kept spreading false rumors and damaging tales which put petitioners into public contempt and [3] ridicule. In their Answer, respondents lodged their affirmative defenses, demanded the return of their respective properties, and made counterclaims for actual, moral and exemplary damages.Respondents stated that sometime in the early part of August 1970 and months thereafter they received mimeographed notices dated August 2, 1970 and signed by the late Ramon Durano, Sr., informing them that the lands which they are tilling and residing in, formerly owned by the Cebu Portland Cement Company (hereafter, ―Cepoc‖), had been purchased by Durano & Co., Inc. The notices also declared that the lands were needed by Durano & Co. for planting to sugar and for roads or residences, and directed respondents to immediately turn over the said lands to the representatives of the company. Simultaneously, tall bamboo poles with pennants at the tops thereof were planted in some areas of the lands and metal sheets bearing the initials ―RMD‖ were nailed to posts. As early as the first week of August 1970, and even before many of the respondents received notices to vacate, men who identified themselves as employees of Durano & Co. proceeded to bulldoze the lands occupied by various respondents, destroying in their wake the plantings and improvements made by the respondents therein. On some occasions, respondents alleged, these men fired shots in the air, purportedly acting upon the instructions of petitioner Ramon Durano III and/or Ramon Durano, Jr. On at least one instance, petitioners Ramon Durano III and Elizabeth Hotchkiss Durano were seen on the site of the bulldozing operations. On September 15, 1970, Durano & Co. sold the disputed property to petitioner Ramon Durano III, who procured the registration of these lands in his name under TCT No. T103 and TCT No. T-104. Respondents contended that the display of force and the known power and prestige of petitioners and their family restrained them from directly resisting this wanton depredation upon their property. During that time, the mayor of Danao City was Mrs. Beatriz Durano, wife of Ramon Durano, Sr. and mother of petitioner Ramon

Durano III. Finding no relief from the local police, who respondents said merely laughed at them for daring to complain against the Duranos, they organized themselves and sent a letter to then President Ferdinand Marcos reporting dispossession of their properties and seeking a determination of the ownership of the land. This notwithstanding, the bulldozing operations continued until the City Fiscal was requested by the Department of Justice to conduct an investigation on the matter. When, on July 27, 1971, the City Fiscal announced that he would be unable to conduct a preliminary investigation, respondents urged the Department of Justice to conduct the preliminary investigation. This was granted, and the investigations which spanned the period March 1972 to April 1973 led to the conclusion that respondents’ complaint was [4] untenable. In their counterclaim, respondents alleged that petitioners’ acts deprived most of them of their independent source of income and have made destitutes of some of them. Also, petitioners have done serious violence to respondents’ spirit, as citizens and human beings, to the extent that one of them had been widowed by the emotional shock that the [5] damage and dispossession has caused. Thus, in addition to the dismissal of the complaint, respondents demanded actual damages for the cost of the improvements they made on the land, together with the damage arising from the dispossession itself; moral damages for the anguish they underwent as a result of the high-handed display of power by petitioners in depriving them of their possession and property; as well as exemplary damages, attorney’s fees and expenses of litigation. Respondents’ respective counterclaims --- referring to the improvements destroyed, their values, and the approximate areas of the properties they owned and occupied --- are as follows: a) TEOFISTA ALCALA - Tax Declaration No. 00223; .2400 ha.; bulldozed on August, 10, 1970. Improvements destroyed consist of 47 trees, 10 bundles beatilis firewood and 2 sacks of cassava, all valued at P5,437.00. (Exh. B, including submarkings) b) FAUSTINO ALATAN and VALERIANA GARRO - Tax Declaration No. 30758; .2480 ha.; Tax Declaration No. 32974; .8944 ha.; Tax Declaration No. 38908; .8000 ha.; Bulldozed on September 9, 1970; Improvements destroyed consist of 682 trees, a cornfield with one cavan per harvest 3 times a year, valued at P71,770.00; Bulldozed on March 13, 1971; 753 trees, 1,000 bundles beatilis firewood every year, valued at P29,100.00; Cut down in the later part of March, 1971 - 22 trees, 1,000 bundles beatilis firewood

every year, 6 cavans corn harvest per year, valued at P1,940.00 or a total value of P102,810.00. (Exh. C, including submarkings) c) ANDREA MATA DE BATULAN - Tax Declaration No. 33033; .4259 has.; bulldozed on September 11, 1970. Improvements destroyed consist of 512 trees and 15 sacks cassava all valued at P79,425.00. (Exh. D, including submarkings) d) GLICERIO BARRIGA - Tax Declaration No. 32290; .4000 ha.; bulldozed on September 10, 1990. Improvements destroyed consist of 354 trees, cassava field if planted with corn good for one liter, 30 cavans harvest a year of corn, and one resthouse, all valued at P35,500.00. (Exh. E, including submarkings) e) BEATRIZ CALZADA - Tax Declaration No. 03449; .900 ha.; Bulldozed on June 16, 1971. Improvements destroyed consist of 2,864 trees, 1,600 bundles of beatilis firewood, 12 kerosene cans cassava every year and 48 cavans harvest a year of corn all valued at P34,800.00. (Exh. F, including submarkings) f) BIENVENIDO CASTRO - Tax Declaration No. 04883; .6000 ha.; bulldozed on September 10, 1970. Improvements destroyed consist of 170 trees, 10 sacks cassava every year, 500 bundles beatilis firewood every year, 60 cavans corn harvest per year, all valued at (5,550.00. (Exh. G, including submarkings) g) ISMAEL GARRO - Tax Declaration No. 7185; 2 has. Bulldozed in August, 1970. Improvements destroyed consist of 6 coconut trees valued at P1,800.00. Bulldozed on February 3, 1971 - improvements destroyed consist of 607 trees, a corn field of 5 cavans produce per harvest thrice a year, all valued at P67,890.00. (Exh. H, including submarkings) h) JULIAN GARRO - Tax Declaration No. 28653; 1 ha.; Bulldozed in the latter week of August, 1970. Improvements destroyed consist of 365 trees, 1 bamboo grove, 1 tisa, 1,000 bundles of beatilis firewood, 24 cavans harvest a year of corn, all valued at P46,060.00. (Exh. I, including submarkings) i) PRIMITIVA GARRO - Tax Declaration No. 28651; .3000 ha.; Bulldozed on September 7, 1970. Improvements destroyed consist of 183 trees, 10 pineapples, a cassava field, area if planted with corn good for ½ liter, sweet potato, area if planted with corn good for ½ liter all valued at P10,410.00. (Exh. J, including submarkings) j) TEOTIMO GONZALES - Tax Declaration No. 38159; .8644 ha.; Tax Declaration No. 38158; .8000 ha.; Bulldozed on September 10, 1970 - improvements destroyed consist of 460 trees valued at P20,000.00. Bulldozed on December

10, 1970 - Improvements destroyed consist of 254 trees valued at P65,600.00 - or a total value of P85,600.00. (Exh. K, including submarkings) k) LEODEGARIO GONZALES - Tax Declaration No. 36884; Bulldozed on February 24, 1971. Improvements destroyed consist of 946 trees, 40 ubi, 15 cavans harvest a year of corn, all valued at P72,270.00. (Exh. L, including submarkings) l) FILEMON LAVADOR - Tax Declaration No. 14036; 1 ha.; Bulldozed on February 5, 1971. Improvements destroyed consist of 675 trees and 9 cavans harvest a year of corn all valued at P63,935.00. (Exh. M, including submarkings) m) CANDELARIO LUMANTAO - Tax Declaration No. 18791; 1.660 ha. Bulldozed on the second week of August, 1970 - Improvements destroyed consist of 1,377 trees, a cornfield with 3 cavans per harvest thrice a year and a copra dryer all valued at P193,960.00. Bulldozed on February 26, 1971 - Improvements destroyed consist of 44 trees, one pig pen and the fence thereof and the chicken roost all valued at P12,650.00. Tax Declaration No. 33159; 3.500 has. Bulldozed in the last week of March, 1971 Improvements destroyed consist of 13 trees valued at P1,550.00.Bulldozed in the latter part consist of 6 Bamboo groves and Ipil-Ipil trees valued at P700.00 with total value of P208,860.00. (Exh. N, including submarkings) n) AURELIA MATA - Tax Declaration No. 38071; .3333 ha.; Bulldozed sometime in the first week of March, 1971 Improvements destroyed consist of 344 trees and 45 cavans corn harvest per year valued at P30,965.00. (Exh. Q, including submarkings) o) GAVINO QUIMBO - Tax Declaration No. 33231; 2.0978 has.; Tax Declaration No. 24377; .4960 ha. (.2480 ha. Belonging to your defendant) Bulldozed on September 12, 1970 - Improvements destroyed consist of 200 coconut trees and 500 banana fruit trees valued at P68,500.00. Bulldozed on consist of 59 trees, 20 sacks cassava and 60 cavans harvest a year of corn valued at P9,660.00 or a total value of P78,160.00. (Exh. R, including submarkings) p) SILVESTRE RAMOS - Tax Declaration No. 24288; 1.5568 has.; Bulldozed on February 23, 1971. Improvements destroyed consist of 737 trees, a cornfield with 3 cavans per harvest 3 times a year and 50 bundles of beatilis firewood, all valued at P118,170.00. (Exh. S, including submarkings) q) MARCELINO GONZALES - Tax Declaration No. 34057; .4049 ha. Bulldozed on March 20, 1972 - Improvements destroyed consist of 5 coconut trees and 9 cavans harvest a year of corn valued at P1,860.00. Bulldozed on July 4,

1972 - destroying 19 coconut trees valued at P5,700.00 or a total value of P7,560.00. (Exh. U, including submarkings) r) JUSTINO TITO -Tax Declaration No. 38072; .2000 has.; Bulldozed on February 25, 1971 - Improvements destroyed consist of 338 trees and 5 kamongay all valued at P29,650.00. (Exh. T, including submarkings) s) EMIGDIO BING SING UY and ANGELES SEPULVEDA UY - Transfer Certificate of Title No. T-35 (Register of Deeds of Danao City); 140.4395 has.; Area bulldozed20.000 has. Bulldozed on August 5, 6 and 7, 1970 destroying 565 coconut trees, 2-1/2 yrs. old, 65,422 banana groves with 3,600 mango trees, 3 years old, grafted and about to bear fruit valued at P212,260.00. Bulldozed on November 24, 1970 and on February 16, 1971 - destroying 8,520 madri-cacao trees and 24 cylindrical cement posts boundaries valued at P18,540.00. Bulldozed on November 24, 1970 - destroying 90 coconut trees, 3 years old cornfield at 40 cavans per harvest and at 3 harvests a year (120 cavans) valued at P31,800.00. Bulldozed on February 16, 1971 - destroying 25,727 trees and sugarcane field value P856,725.00 or a total value of P1,123,825.00. (Exh. V, including submarkings) t) SALVADOR DAYDAY - Tax Declaration No. (unnumbered) dated September 14, 1967; 4.000 has. Bulldozed on May 6, 1971 - destroying 576 trees, 9 cavans yearly of corn, 30 kerosene cans of cassava yearly valued at P4,795.00. Bulldozed from March 26, 1973 to the first week of April, 1973 - destroying 108 trees and cornland, 6 cavans harvest per year valued at P53,900.00 or a total value of P58,695.00. (Exh. A, including submarkings) u) VENANCIA REPASO - Tax Declaration No. 18867; 1.1667 has. Bulldozed on April 15, 1971 - Improvements destroyed were 775 trees, 500 abaca, about to be reaped, and being reaped 3 times a year 2 bamboo groves all valued at P47,700.00. (Exh. O, including submarkings) v) HERMOGENES TITO - Tax Declaration No. 38009; over one (1) ha. Bulldozed in the latter part of September, 1970 - destroying 1 coconut tree, 18 sacks of corn per year valued at P1,020.00.Bulldozed on March 15, 1973 destroying 2 coconut trees, 5 buri trees, 1 bamboo grove valued at P1,400.00. Bulldozed on March 26, 1974 destroying 3 coconut trees valued at P1,500.00 with a total [6] value of P3,920.00. (Exh. P, including submarkings). On April 22, 1975, petitioners moved to dismiss their complaint with the trial court. The trial court granted the motion to dismiss, without prejudice to respondents’ right to proceed with their counterclaim.

Hence, the trial proceeded only on the counterclaim. On September 23, 1980, this Court issued a resolution in Administrative Matter No. 6290 changing the venue of trial in Civil Case No. DC-56 to the Regional Trial Court of Cebu City. The change was mainly in line with the transfer of Judge Bernardo Ll. Salas, who presided over the case in Danao City, to Cebu City. The parties agreed to dispense with pre-trial, and for the evidence-in-chief to be submitted by way of affidavits together with a schedule of documentary exhibits, subject to additional direct examination, cross examination and presentation of rebuttal evidence by the parties. The trial court and later, the Court of Appeals, took note of the following portions of affidavits submitted by petitioners: xxx City Fiscal Jesus Navarro said that in August, 1967, he issued subpoenas to several tenants in Cahumayhumayan upon representation by Cepoc, the latter protesting failure by the tenants to continue giving Cepoc its share of the corn produce. He learned from the tenants that the reason why they were reluctant and as a matter of fact some defaulted in giving Cepoc its share, was that Uy Bing Sepulveda made similar demands to them for his share in the produce, and that they did not know to whom the shares should be given. xxx xxx xxx Jesus Capitan said that he is familiar with the place Cahumayhumayan and that the properties in said locality were acquired by Durano and Company and Ramon Durano III, but formerly owned by Cepoc. When the properties of Ramonito Durano were cultivated, the owners of the plants requested him that they be given something for their effort even if the properties do not belong to them but to Cepoc, and that he was directed by Ramonito Durano to do a listing of the improvements as well as the owners. After he made a listing, this was given to Ramonito who directed Benedicto Ramos to do payment. When he was preparing the list, they did not object to the removal of the plants because the counterclaimants understood that the lands did not belong to them, but later and because of politics a complaint was filed, and finally that when he was doing the listing, the improvements were even pointed to him by the counterclaimants themselves. (Exh. 48, Records, p. 385-386). xxx xxx xxx Ruperto Rom said that he had an occasion to work at Cepoc from 1947 to 1950 together with Benedicto and Tomas Ramos, the latter a capataz of the Durano Sugar

Mills. Owner of the properties, subject of the complaint, was Cepoc. The persons who eventually tilled the Cepoc properties were merely allowed to do cultivation if planted to corn, and for Cepoc to be given a share, which condition was complied with by all including the counterclaimants.He even possessed one parcel which he planted to coconuts, jackfruit trees and other plants. (Exh. 51, Records, pp. 383384) xxx xxx xxx Co-defendant Ramon Durano III said that he agreed with the dismissal of the complaint because his father’s wish was reconciliation with the defendants following the death of Pedro Sepulveda, father of Angeles Sepulveda Uy, but inspite of the dismissal of the complaint, the defendants still prosecuted their counterclaim. The disputed properties were owned formerly by Cepoc, and then of the latter selling the properties to Durano and Company and then by the latter to him as of September 15, 1970. As a matter of fact, TCT T-103 and T-104 were issued to him and that from that time on, he paid the taxes. At the time he purchased the properties, they were not occupied by the defendants. The first time he learned about the alleged bulldozing of the improvements was when the defendants filed the complaint of land grabbing against their family with the Office of the President and the attendant publicity. Precisely his family filed the complaint against them. (Exh. 57, Records, pp. 723-730) xxx xxx xxx Congressman Ramon Durano said he is familiar with the properties, being owned originally by Cepoc. Thereafter they were purchased by Durano and Company and then sold to Ramon Durano III, the latter now the owner. He filed a motion to dismiss the case against Angeles Sepulveda et al. as a gesture of respect to the deceased Pedro Sepulveda, father of Angeles Sepulveda, and as a Christian, said Pedro Sepulveda being the former Mayor of Danao, if only to stop all misunderstanding between their families. xxx xxx xxx He was the one who did the discovery of the properties that belonged to Cepoc, which happened when he was doing mining work near Cahumayhumayan and without his knowledge extended his operation within the area belonging to Cepoc. After Cepoc learned of the substantial coal deposits, the property was claimed by Cepoc and then a survey was made to relocate the muniments. Eventually he desisted doing mining work and limited himself within the confines of his property that was adjacent to Cepoc’s

property. All the claimants except Sepulveda Uy were occupants of the Cepoc properties. Durano and Company purchased the property adjacent to Cepoc, developed the area, mined the coal and had the surveyed area planted with sugar cane, and finally the notices to the occupants because of their intention to plant sugar cane and other crops (T.S. N. December 4, 1985, pp. 31-32, 44-54, RTC [7] Decision, pp. 16-19, Records, pp. 842-845). Petitioners also presented Court Commissioner, Engineer Leonidas Gicain, who was directed by the trial court to conduct a field survey of the disputed property. Gicain conducted surveys on the areas subjected to bulldozing, including those outside the Cepoc properties. The survey -- which was based on TCT No. T-103 and TCT No. T-104, titled in the name of Ramon Durano III, and TCT No. 35, in the name of respondent Emigdio Bing Sing Uy --- was paid [8] for by petitioners. Respondents, for their part, also presented their affidavits and supporting documentary evidence, including tax declarations covering such portions of the property as they formerly inhabited and cultivated. On March 8, 1990, the RTC issued a decision upholding respondents’ counterclaim. The dispositive portion of said decision reads: ―THE FOREGOING CONSIDERED, judgment is hereby rendered in favor of the counter claimants and against the plaintiffs directing the latter to pay the former: a) With respect to Salvador Dayday P 14,400.00 b) With respect to Teofista Alcala 4,400.00 c) With respect to Faustino Alatan 118,400.00 d) With respect to Andrea Mata de Batulan 115,050.00 e) With respect to Glicerio Barriga 35,500.00 f) With respect to Beatriz Galzada 70,300.00 g) With respect to Bienvenido Castro 5,000.00 h) With respect to Ismael Garro 66,060.00 i) With respect to Julian Garro 48,600.00 j) With respect to Primitiva Garro 13,000.00 k) With respect to Teotimo Gonzales 63,200.00 l) With respect to Leodegario Gonzales 85,300.00 m) With respect to Filemon Lavador 70,860.00 n) With respect to Venancia Repaso 101,700.00 o) With respect to Candelario Lumantao 192,550.00 p) With respect to Hermogenes Tito 1,200.00 q) With respect to Aurelia Mata 28,560.00 r) With respect to Gavino Quimbo 81,500.00 s) With respect to Silvestre Ramos 101,700.00 t) With respect to Justino Tito 27,800.00 u) With respect to Marcelino Gonzales 2,360.00 v) With respect to Angeles Supelveda 902,840.00

P120,000.00 should be the figure in terms of litigation expenses and a separate amount of P100,000.00 as attorney’s fees. Return of the properties to Venancia Repaso, Hermogenes Tito and Marcelino Gonzales is hereby directed. With respect to counter claimant Angeles Sepulveda Uy, return of the property to her should be with respect to the areas outside of the Cepoc property, as mentioned in the sketch, Exhibit 56-A. Finally with costs against the plaintiffs. [9] SO ORDERED. The RTC found that the case preponderated in favor of respondents, who all possessed their respective portions of the property covered by TCT Nos. T-103 and T-104 thinking that they were the absolute owners thereof. A number of these respondents alleged that they inherited these properties from their parents, who in turn inherited them from their own parents. Some others came into the properties by purchase from the former occupants thereof. They and their predecessors were responsible for the plantings and improvements on the property. They were the ones who sought for the properties to be taxdeclared in their respective names, and they continually paid the taxes thereto. Respondents maintained that they were unaware of anyone claiming adverse possession or ownership of these lands until the bulldozing operations in 1970. As for Venancia Repaso, Hermogenes Tito and Marcelino Gonzales, the Court found that the properties they laid claim to were not part of the land that was purchased by Durano & Co. from Cepoc. Thus, it found the bulldozing of these lands by petitioners totally unjustified and ordered not only the total reimbursement of useful and necessary expenses on the properties but also the return of these properties to Repaso, Tito and Gonzales, respectively. As for all the other respondents, the RTC found their possession of the properties to be in the concept of owner and adjudged them to be builders in good faith. Considering that petitioners in the instant case appropriated the improvements on the areas overran by the bulldozers, the RTC ruled that ―(t)he right of retention to the improvements necessarily should be secured (in favor of respondents) until reimbursed not only of the necessary but [10] also useful expenses.‖ On the matter of litigation expenses and attorney’s fees, the RTC observed that the trial period alone consisted of forty (40) trial dates spread over a period of sixteen (16) years. At the time, respondents were represented by counsel based in Manila, and the trial court took into

consideration the travel, accommodation and miscellaneous expenses of their lawyer that respondents must have shouldered during the trial of the case. Dissatisfied, petitioners appealed the RTC decision to the Court of Appeals, which, in turn, affirmed the said decision and ordered the return of the property to all the respondents-claimants, in effect modifying the RTC decision which allowed return only in favor of respondents Repaso, Tito and Gonzales. In its decision, the Court of Appeals upheld the factual findings and conclusions of the RTC, including the awards for actual damages, attorney’s fees and litigation expenses, and found additionally that the issuance of TCT Nos. T-103 and T-104 in the name of Ramon Durano III was attended by fraud. Evaluating the evidence before it, the Court of Appeals observed that the alleged reconstituted titles of Cepoc over the property, namely, TCT No. (RT-38) (T14457) -4 and TCT No. (RT-39) (T-14456) -3 (Exhibits ―19‖ and ―20‖ of this case), which were claimed to be the derivative titles of TCT Nos. T-103 and T-104, were not submitted in evidence before the RTC. Thus, in an Order dated June 15, 1988, the RTC ordered Exhibits ―19‖ and ―20‖ deleted from petitioners’ Offer of Exhibits. The Court of Appeals further noted that even among the exhibits subsequently produced by petitioners before the RTC, said [11] Exhibits ―19‖ and ―20‖ were still not submitted. Moreover, Cepoc had no registered title over the disputed property as indicated in TCT Nos. T-103 and T-104. Thus: TRANSFER CERTIFICATE OF TITLE NO. - 103 xxx xxx IT IS FURTHER CERTIFIED that said land was originally registered on the N.A. day of N.A., in the year nineteen hundred and N.A. in Registration Book No. N.A. page N.A. of the Office of the Register of Deeds ofN.A., as Original Certificate of Title No. N.A., pursuant to a N.A. patent granted by the President of the Philippines, on the N.A. day of N.A., in the year nineteen hundred and N.A., under Act No. N.A. This certificate is a transfer from Transfer Certificate of Title No. (RT-39) (T-14456) -3 which is cancelled by virtue hereof in so far as the above described land is concerned. xxx xxx TRANSFER CERTIFICATE OF TITLE NO. T - 104 xxx xxx IT IS FURTHER CERTIFIED that said land was originally registered on the N.A. day of N.A., in the year nineteen hundred and N.A. in Registration Book

No. N.A. page N.A. of the Office of the Register of Deeds ofN.A., as Original Certificate of Title No. N.A., pursuant to a N.A. patent granted by the President of the Philippines, on the N.A. day of N.A., in the year nineteen hundred and N.A., under Act No. N.A. This certificate is a transfer from Transfer Certificate of Title No. (RT-38) (T-14457) -4 which is cancelled by virtue hereof in so far as the above described land is [12] concerned. From the foregoing, the Court of Appeals concluded that the issuance of the TCT Nos. T-103 and T-104 in favor of petitioner Ramon Durano III was attended by fraud; hence, petitioners could not invoke the principle of indefeasibility of title. Additionally, the Court of Appeals found that the alleged Deed of Absolute Sale, undated, between Cepoc Industries, Inc. and Durano & Co. was not notarized and thus, unregistrable. The Court of Appeals went on to state that while, on the one hand, no valid issuance of title may be imputed in favor of petitioners from the private Deed of Sale and the alleged reconstituted titles of Cepoc that were not presented in evidence, respondents, in contrast --- who although admittedly had no registered titles in their names --- were able to demonstrate possession that was public, continuous and adverse --- or possession in the concept of owner, and which was much prior (one or two generations back for many of respondents) to the claim of ownership of petitioners. Thus, the Court of Appeals ordered the return of the properties covered by TCT Nos. T-103 and T-104 to all respondents who made respective claims thereto. Corollarily, it declared that petitioners were possessors in bad faith, and were not entitled to reimbursement for useful expenses incurred in the conversion of the property into sugarcane lands. It also gave no merit to petitioners’ allegation that the actual damages awarded by the trial court were excessive, or to petitioners’ argument that they should not have been held personally liable for any damages imputable to Durano & Co. Following is the dispositive portion of the decision of the Court of Appeals: WHEREFORE, the appealed decision of the lower court in Civil Case No. DC-56 is hereby AFFIRMED with MODIFICATION ordering the return of the respective subject properties to all the defendants-appellees, without indemnity to the plaintiffs-appellants as regards whatever improvements made therein by the latter. In all other respects, said decision in affirmed.

Costs against plaintiffs-appellants. [13] SO ORDERED. On October 29, 1998, the Court of Appeals denied petitioners’ motion for reconsideration for lack of merit. Hence, this petition. Petitioners assign the following errors from the CA decision: 1. The Court of Appeals erred in granting relief to the respondents who did not appeal the decision of the lower court. 2. The Court of Appeals erred in collaterally attacking the validity of the title of petitioner Ramon Durano III. 3. The respondents should not have been adjudged builders in good faith. 4. The petitioners should not be held personally liable for damages because of the doctrine of separate corporate personality. 5. It was an error to hold that the respondents had proved the existence of improvements on the land by preponderance of evidence, and in awarding excessive damages therefor. 6. It was error to direct the return of the properties to respondents Venancia Repaso, Hermogenes Tito and Marcelino Gonzales. 7. The award of litigation expenses and attorney’s fees was erroneous. 8. The petitioners are not possessors in bad faith. On their first assignment of error, petitioners contend that before the Court of Appeals, they only questioned that portion of the RTC decision which directed the return of the properties to respondents Repaso, Tito and Gonzales. They argued that the return of the properties to all the other respondents by the Court of Appeals was erroneous because it was not among the errors assigned or argued by petitioners on appeal. Besides, since respondents themselves did not appeal from the RTC decision on the issue of return of the physical possession of the property, it is understood that judgment as to them has already become final by operation of law. To support its argument, petitioners cited the cases of Madrideo vs. [14] [15] Court of Appeals and Medida vs. Court of Appeals , which held that ―whenever an appeal is taken in a civil case an appellee who has not himself appealed cannot obtain from the appellate court any affirmative relief other than the ones granted in the decision of the court below.‖ Rule 51 of the New Rules of Civil Procedure provides: Sec. 8. Questions that may be decided. --- No error which does not affect the jurisdiction over the subject matter or the validity of the judgment appealed from or the

proceedings therein will be considered unless stated in the assignment of errors, or closely related to or dependent on an assigned error and properly argued in the brief, save as the court may pass upon plain errors and clerical errors. We find untenable petitioners’ argument that since no party (whether petitioners or respondents) appealed for the return of the properties to respondents other than Repaso, Tito and Gonzales, that portion of the RTC decision that awards damages to such other respondents is final and may no longer be altered by the Court of Appeals. A reading of the provisions of Section 8, Rule 51, aforecited, indicates that the Court of Appeals is not limited to reviewing only those errors assigned by appellant, but also those that are closely related to or dependent on an [16] assigned error. In other words, the Court of Appeals is imbued with sufficient discretion to review matters, not otherwise assigned as errors on appeal, if it finds that their consideration is necessary in arriving at a complete and just resolution of the case. In this case, the Court of Appeals ordered the return of the properties to respondents merely as a legal consequence of the finding that respondents had a better right of possession than petitioners over the disputed properties, the former being possessors in the concept of owner. Thus, it held --Plaintiffs-appellants have to return possession of the subject property, not only to defendants-appellees Venancia Repaso, Hermogenes Tito and Marcelino Gonzales but to all other defendants-appellees herein, by virtue of the latter’s priority in time of declaring the corresponding portions of the subject properties in their name and/or their predecessors-in-interest coupled with actual possession of the same property through their predecessors-in-interest in the concept of an owner. Plaintiffs-appellants who had never produced in court a valid basis by which they are claiming possession or ownership over the said property cannot have a better right over the subject properties than defendants[17] appellees. Moreover, petitioners’ reliance on the Madrideo and Medida cases is misplaced. In the Madrideo case, the predecessors-in-interest of the Llorente Group sold the disputed property to the Alcala Group, who in turn sold the same to the spouses Maturgo. The RTC adjudged the spouses Maturgo purchasers in good faith, such that they could retain their title to the property, but held that the Lllorente Group was unlawfully divested of its ownership of the property by the Alcala Group. The Alcala Group appealed this decision to the Court of Appeals, who denied the appeal and ordered

the reinstatement in the records of the Registry of Deeds of the Original Certificates of Title of the predecessors-ininterest of the Llorente Group. In setting aside the decision of the Court of Appeals, this Court held that no relief may be afforded in favor of the Llorente Group to the prejudice of the spouses Maturgo, who --- the Court carefully emphasized --- were third parties to the appeal, being neither appellants nor appellees before the Court of Appeals, and whose title to the disputed property was confirmed by the RTC. The application of the ruling in Madrideo to the instant case bears no justification because it is clear that petitioners, in appealing the RTC decision, impleaded all the herein respondents. Meanwhile, in the Medida case, petitioners (who were the appellees before the Court of Appeals) sought the reversal of a finding of the RTC before the Supreme Court. The Court explained that since petitioners failed to appeal from the RTC decision, they --- as appellees before the Court of Appeals --- could only argue for the purpose of sustaining the judgment in their favor, and could not ask for any affirmative relief other than that granted by the court below. The factual milieu in Medida is different from that of the instant case, where the return of the properties to respondents was not an ―affirmative relief‖ sought by respondents but an independent determination of the Court of Appeals proceeding from its findings that respondents were long-standing possessors in the concept of owner while petitioners were builders in bad faith. Certainly, under such circumstances, the Court of Appeals is not precluded from modifying the decision of the RTC in order to accord complete relief to respondents. Moving now to the other errors assigned in the petition, the return of the properties to respondents Repaso, Tito and Gonzales was premised upon the factual finding that these lands were outside the properties claimed by petitioners under TCT Nos. T-103 and T-104. Such factual finding of the RTC, sustained by the Court of Appeals, is now final and binding upon this Court. In respect of the properties supposedly covered by TCT Nos. T-103 and T-104, the Court of Appeals basically affirmed the findings of the RTC that respondents have shown prior and actual possession thereof in the concept of owner, whereas petitioners failed to substantiate a valid and legitimate acquisition of the property --- considering that the alleged titles of Cepoc from which TCT Nos. T-103 and T-104 were supposed to have derived title were not produced, and the deed of sale between Cepoc and Durano & Co. was unregistrable.

The records clearly bear out respondents’ prior and actual possession; more exactly, the records indicate that respondents’ possession has ripened into ownership by acquisitive prescription. Ordinary acquisitive prescription, in the case of immovable property, requires possession of the thing in good faith and [18] [19] with just title, for a period of ten years. A possessor is deemed to be ―in good faith‖ when he is not aware of any [20] flaw in his title or mode of acquisition of the property. On the other hand, there is ―just title‖ when the adverse claimant came into possession of the property through one of the modes for acquiring ownership recognized by law, but the grantor was not the owner or could not transmit any [21] right. The claimant by prescription may compute the tenyear period by tacking his possession to that of his grantor [22] or predecessor-in-interest. The evidence shows that respondents successfully complied with all the requirements for acquisitive prescription to set in. The properties were conveyed to respondents by purchase or inheritance, and in each case the respondents were in actual, continuous, open and adverse possession of the properties. They exercised rights of ownership over the lands, including the regular payment of taxes and introduction of plantings and improvements. They were unaware of anyone claiming to be the owner of these lands other than themselves until the notices of demolition in 1970 --- and at the time each of them had already completed the ten-year prescriptive period either by their own possession or by obtaining from the possession of their predecessors-in-interest.Contrary to the allegation of petitioners that the claims of all twenty-two (22) respondents were lumped together and indiscriminately sustained, the lower courts (especially the RTC) took careful consideration of the claims individually, taking note of the respective modes and dates of acquisition. Whether respondents’ predecessors-in-interest in fact had title to convey is irrelevant under the concept of just title and for purposes of prescription. Thus, respondents’ counterclaim for reconveyance and damages before the RTC was premised upon a claim of ownership as indicated by the following allegations: (Y)our defendants are owners and occupants of different parcels of land located in Barrio Cahumayhumayan, your defendants having occupied these parcels of land for various periods by themselves or through their predecessors-in-interest, some for over fifty years, and some with titles issued under the Land Registration [23] Act; xxxxx

Respondents’ claim of ownership by acquisitive prescription (in respect of the properties covered by TCT Nos. T-103 and T-104) having been duly alleged and proven, the Court deems it only proper that such claim be categorically upheld. Thus, the decision of the Court of Appeals insofar as it merely declares those respondents possessors in the concept of owner is modified to reflect the evidence on record which indicates that such possession had been converted to ownership by ordinary prescription. Turning now to petitioners’ claim to ownership and title, it is uncontested that their claim hinges largely on TCT Nos. T103 and T-104, issued in the name of petitioner Ramon Durano III.However, the validity of these certificates of title was put to serious doubt by the following: (1) the certificates reveal the lack of registered title of Cepoc to the [24] properties; (2) the alleged reconstituted titles of Cepoc were not produced in evidence; and (3) the deed of sale between Cepoc and Durano & Co. was unnotarized and thus, unregistrable. It is true that fraud in the issuance of a certificate of title may be raised only in an action expressly instituted for that [25] purpose, and not collaterally as in the instant case which is an action for reconveyance and damages. While we cannot sustain the Court of Appeals’ finding of fraud because of this jurisdictional impediment, we observe that the above-enumerated circumstances indicate none too clearly the weakness of petitioners’ evidence on their claim of ownership. For instance, the non-production of the alleged reconstituted titles of Cepoc despite demand therefor gives rise to a presumption (unrebutted by petitioners) that such evidence, if produced, would be [26] adverse to petitioners. Also, the unregistrability of the deed of sale is a serious defect that should affect the validity of the certificates of title. Notarization of the deed of [27] sale is essential to its registrability, and the action of the Register of Deeds in allowing the registration of the unacknowledged deed of sale was unauthorized and did [28] not render validity to the registration of the document. Furthermore, a purchaser of a parcel of land cannot close his eyes to facts which should put a reasonable man upon his guard, such as when the property subject of the purchase is in the possession of persons other than the [29] seller. A buyer who could not have failed to know or discover that the land sold to him was in the adverse [30] possession of another is a buyer in bad faith. In the herein case, respondents were in open possession and occupancy of the properties when Durano & Co. supposedly purchased the same from Cepoc. Petitioners

made no attempt to investigate the nature of respondents’ possession before they ordered demolition in August 1970. In the same manner, the purchase of the property by petitioner Ramon Durano III from Durano & Co. could not be said to have been in good faith. It is not disputed that Durano III acquired the property with full knowledge of respondents’ occupancy thereon. There even appears to be undue haste in the conveyance of the property to Durano III, as the bulldozing operations by Durano & Co. were still underway when the deed of sale to Durano III was executed on September 15, 1970. There is not even an indication that Durano & Co. attempted to transfer registration of the property in its name before it conveyed the same to Durano III. In the light of these circumstances, petitioners could not justifiably invoke the defense of indefeasibility of title to defeat respondents’ claim of ownership by prescription. The rule on indefeasibility of title, i.e., that Torrens titles can be attacked for fraud only within one year from the date of issuance of the decree of registration, does not altogether deprive an aggrieved party of a remedy at law. As clarified by the Court in Javier vs. Court of [31] Appeals --The decree (of registration) becomes incontrovertible and can no longer be reviewed after one (1) year from the date of the decree so that the only remedy of the landowner whose property has been wrongfully or erroneously registered in another’s name is to bring an ordinary action in court for reconveyance, which is an action in personam and is always available as long as the property has not passed to an innocent third party for value. If the property has passed into the hands of an innocent purchaser for value, the remedy is an action for damages. In the instant case, respondents’ action for reconveyance will prosper, it being clear that the property, wrongfully registered in the name of petitioner Durano III, has not passed to an innocent purchaser for value. Since petitioners knew fully well the defect in their titles, they were correctly held by the Court of Appeals to be builders in bad faith. The Civil Code provides: Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built, planted or sown without right of indemnity. Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith may demand the demolition of the work, or that the planting or sowing be removed, in order to replace things in their former condition at the expense of the person who built, planted or sowed;

or he may compel the builder or planter to pay the price of the land, and the sower the proper rent. Art. 451. In the cases of the two preceding articles, the landowner is entitled to damages from the builder, planter or sower. Based on these provisions, the owner of the land has three alternative rights: (1) to appropriate what has been built without any obligation to pay indemnity therefor, or (2) to demand that the builder remove what he had built, or (3) to [32] compel the builder to pay the value of the land. In any case, the landowner is entitled to damages under Article 451, abovecited. We sustain the return of the properties to respondents and the payment of indemnity as being in accord with the reliefs under the Civil Code. On petitioners’ fifth assignment of error that respondents had not proved the existence of improvements on the property by preponderance of evidence, and that the damages awarded by the lower courts were excessive and not actually proved, the Court notes that the issue is essentially factual. Petitioners, however, invoke Article 2199 of the Civil Code which requires actual damages to be duly proved. Passing upon this matter, the Court of Appeals cited with approval the decision of the RTC which stated: The counter claimants made a detail of the improvements that were damaged. Then the query, how accurate were the listings, supposedly representing damaged improvements. The Court notes, some of the counter claimants’ improvements in the tax declarations did not tally with the listings as mentioned in their individual affidavits. Also, others did not submit tax declarations supporting identity of the properties they possessed. The disparity with respect to the former and absence of tax declarations with respect to the latter, should not be a justification for defeating right of reimbursement. As a matter of fact, no controverting evidence was presented by the plaintiffs that the improvements being mentioned individually in the affidavits did not reflect the actual improvements that were overran by the bulldozing operation. Aside from that, the City Assessor, or any member of his staff, were not presented as witnesses. Had they been presented by the plaintiffs, the least that can be expected is that they would have enlightened the Court the extent of their individual holdings being developed in terms of existing improvements. This, the plaintiffs defaulted. It might be true that there were tax declarations, then presented as supporting documents by the counter claimants, but then mentioning improvements but in

variance with the listings in the individual affidavits. This disparity similarly cannot be accepted as a basis for the setting aside of the listing of improvements being adverted to by the counter claimants in their affidavits. This Court is not foreclosing the possibility that the tax declarations on record were either table computations by the Assessor or his deputy, or tax declarations whose entries were merely copied from the old tax declarations during the period of [33] revision. (RTC Decision, p. 36, Records, p. 862) The right of the owner of the land to recover damages from a builder in bad faith is clearly provided for in Article 451 of the Civil Code. Although said Article 451 does not elaborate on the basis for damages, the Court perceives that it should reasonably correspond with the value of the properties lost or destroyed as a result of the occupation in bad faith, as well as the fruits (natural, industrial or civil) from those properties that the owner of the land reasonably expected to obtain. We sustain the view of the lower courts that the disparity between respondents’ affidavits and their tax declarations on the amount of damages claimed should not preclude or defeat respondents’ right to damages, which is guaranteed by Article 451. Moreover, under Article 2224 of the Civil Code: Temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of the case, be proved with certainty. We also uphold the award of litigation expenses and attorney’s fees, it being clear that petitioners’ acts compelled respondents to litigate and incur expenses to regain rightful possession and ownership over the disputed [34] property. The last issue presented for our resolution is whether petitioners could justifiably invoke the doctrine of separate corporate personality to evade liability for damages. The Court of Appeals applied the well-recognized principle of ―piercing the corporate veil‖, i.e., the law will regard the act of the corporation as the act of its individual stockholders when it is shown that the corporation was used merely as an alter ego by those persons in the commission of fraud or other illegal acts. The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as follows: 1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust acts in contravention of plaintiff’s legal rights; and 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any one of these elements prevents ―piercing the corporate veil‖. In applying the ―instrumentality‖ or ―alter ego‖ doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant’s [35] relationship to that operation. The question of whether a corporation is a mere alter ego [36] is purely one of fact. The Court sees no reason to reverse the finding of the Court of Appeals. The facts show that shortly after the purported sale by Cepco to Durano & Co., the latter sold the property to petitioner Ramon Durano III, who immediately procured the registration of the property in his name. Obviously, Durano & Co. was used by petitioners merely as an instrumentality to appropriate the disputed property for themselves. WHEREFORE, the instant petition is DENIED. The decision of the Court of Appeals is MODIFIED to declare respondents with claims to the properties covered by Transfer Certificate of Title Nos. T-103 and T-104 owners by acquisitive prescription to the extent of their respective claims. In all other respects, the decision of the Court of Appeals is AFFIRMED. Costs against petitioners. SO ORDERED. Melo, (Chairman), Vitug, and Panganiban, JJ., concur. Purisima, J., no part. [G.R. No. 135270. December 30, 2003] RAMON ARCILLA, JIMMY SALAZAR and REYNALDO PERALTA, petitioners, vs. COURT OF APPEALS and PEOPLE OF THE PHILIPPINES,respondents. DECISION CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision of the Court of Appeals (CA) in CA-G.R. CR No. 20802 affirming with modification the Decision of the Regional Trial Court of Manila, Branch 54, in Criminal Cases Nos. 96-148018 to 96-148019 and 96-148021 for violation of Section 2(e)(f)(m)(q), Article 1 in relation to Section 21 of Republic Act No. 6425, as amended. The Antecedents The petitioners Jimmy Salazar, Reynaldo Peralta and Napolinario Villa were charged of violation of Rep. Act No. 6425, as amended, under three Informations docketed as Criminal Cases Nos. 96-148018, 96-148019 and 96-

148021. The accusatory portion of each of the Informations and the corresponding docket numbers thereof are as follows: CRIMINAL CASE NO. 96-148018 (People of the Philippines vs. Ramon Arcilla and Jimmy Salazar) That on or about March 1, 1996 in the City of Manila, Philippines, the said accused, conspiring and confederating together and mutually helping each other, not having been authorized by law to sell, dispose, deliver, transport and distribute any regulated drug, did then and there wilfully, and unlawfully sell or offer for sale one (1) small transparent plastic sachet containing fifty three (53 mg.) or 0.053 g. of white crystalline granules substance known as ―shabu‖ containing metamphetamine hydrochloride. Contrary to law. CRIMINAL CASE NO. 96-148019 (People of the Philippines vs. Ramon Arcilla and Jimmy Salazar) That on or about March 1, 1996 in the City of Manila, Philippines, the said accused, conspiring and confederating together and mutually helping each other, not being authorized by law to possess, sell, deliver, give away to another or distribute any prohibited drug, did then and there wilfully and unlawfully possess for sale one (1) brick/block of compressed dried plant of marijuana weighing two hundred seventy five grams (275 grams) or 0.275 kilograms wrapped with newspaper, which are prohibited drugs. Contrary to law. CRIMINAL CASE NO. 96-148021 (People of the Philippines vs. Reynaldo Peralta) That on or about March 1, 1996 in the City of Manila, Philippines, the said accused not being authorized by law to possess or use any prohibited drug, did then and there wilfully and knowingly have in their possession and their custody and control one (1) small transparent plastic sachet containing 50 mg. or 0.050 g. of white crystalline substance, one (1) improvised tooter/water pipe and two (2) pieces of aluminum foil with specks of white crystalline substance containing methamphetamine hydrocholoride (sic), a regulated drug, without the corresponding license or prescription thereof. [1] Contrary to law. On arraignment, the petitioners, assisted by counsel, pleaded not guilty to all the charges against them. As synthesized by the CA, the case for the prosecution based on its evidence is as follows: Testifying as principal witness for the prosecution, SPO1 Rodolfo Samoranos of the Western Police District (WPD),

City Hall Detachment (CHD) gave the following version of the incident: On the basis of a report on February 22, 1996 of the Barangay Chairman of Barangay 899, Zone 100 and Barangay 900, Zone 100 of Punta, Sta. Ana, Manila, he and SPO1 Bernardo O. were dispatched by their superior police officer on the same day to conduct surveillance on the illegal drug activities of two (2) persons by the name of Ramon Arcilla and Jimmy Salazar (TSN, pp. 3-4, October 15, 1996). After almost one (1) week of surveillance, they found out that the report was true and so on March 1, 1996, they conducted a buy-bust operation which was planned by Senior Inspector Abad Osit (TSN, pp. 4-5, October 15, 1996). With several police companions and himself (witness) as the poseur-buyer they went to the place of Arcilla at 1880 Mayon Street, Punta, Sta. Ana, Manila, at around 8:00 o’clock in the evening of March 1, 1996 (TSN, p. 5, October 15, 1996). When he and the confidential informant arrived in Mayon Street, they met Jimmy Salazar in an alley leading to the residence of Ramon Arcilla, who whispered to them if they were buying ―gamot.‖ After replying that they wanted to buy P500.00 worth of shabu and P500.00 worth of marijuana. Jimmy Salazar accompanied them to the house of Arcilla a few steps away and introduced them to Arcilla as buyers (TSN, pp. 6-7, October 15, 1996). Witness handed to Arcilla the amount of One Thousand (P1,000.00) Pesos and the latter instructed Salazar to get the stocks upstairs. Before Salazar went up, the witness noticed accused Reynaldo Peralta sniffing shabu from an aluminum foil at a corner of Arcilla’s house which was then under construction. When Salazar came back, he handed Arcilla the stuff who handed the same to the witness. It was at this instant (sic) that witness gave the pre-arranged signal to the other members of the group who were at the residence of the Barangay Chairman five (5) to six (6) meters in front of the house of Arcilla to close-in, as the buy-bust operation was consummated. As his companions closed-in, witness drew his gun tucked at the back of his pants and poked it at Arcilla (TSN, pp. 7-9, October 15, 1996). The witness apprehended Arcilla, while SPO1 Charlie Magsanoc and PO3 de Leon arrested Reynaldo Peralta. They handcuffed all three (3) suspects and witness recovered from Arcilla the two (2) P500.00 peso bills (Exhibit ―A‖ for Cases Nos. 96-148019/20) which had the markings of CHD (City Hall Detachment) at the left upper portion and at the lower right portion previously placed by witness (TSN, pp. 10-11, October 15, 1996).

SPO1 Bernardo O. and PO3 Feliciano de Leon, both of the Drug Enforcement Unit of the City Hall Detachment, WPD, [2] corroborated the testimony of SPO1 Samoranos. The case for the petitioners, on the other hand, was synthesized by the CA as follows: Defendants claim that, instead of a buy-bust operation, what took place was a warrantless search, resulting in their arrest. In brief, the defense version is as follows: On March 1, 1996 at about 8:00 o’clock in the evening, policemen from the Manila City Hall Detachment raided the house of accused-appellant Ramon Arcilla without the benefit of a search warrant. The policemen planted prohibited drugs and claimed that the same were confiscated from accused-appellants. Policemen forced accused-appellant Ramon Arcilla to admit ownership of marijuana wrapped with newspaper and when he denied ownership he was tortured. In support of their appeal, the appellants contend that the court a quo erred, first, in admitting as evidence the things allegedly confiscated from them despite their inadmissibility, being products of an illegal search; second, in convicting them of violation of RA 6425 despite the inadmissibility of the corpus delicti; and third, in convicting them not on the basis of the strength of the prosecution’s evidence but rather on the alleged weakness of the [3] evidence for the defense. On February 3, 1997, the trial court rendered a decision convicting the petitioners of the crimes charged. The decretal portion of the decision reads, thus: WHEREFORE, judgment is hereby rendered against all of the accused in these four (4) cases, convicting them of the respective charges filed against them and imposes the penalty in Crim. Case No. 96-148018 sentencing the accused Ramon Arcilla and Jimmy Salazar each to serve a term of imprisonment of two (2) years, four (4) months and one (1) day as minimum to four (4) years and two (2) months as maximum of prision correccional;in Crim. Case No. 96-148019 sentencing the accused Ramon Arcilla and Jimmy Salazar each to a term of imprisonment of eight (8) years and one (1) day as minimum to ten (10) years as maximum of prision mayor; in Crim. Case No. 96-148020 sentencing accused Napolinario Villa a term of imprisonment of two (2) years, four (4) months and one (1) day as minimum to four (4) years and two (2) months as the maximum of prision correccional; in Crim. Case No. 96148021 sentencing accused Reynaldo Peralta the same term of imprisonment as that imposed on Villa.

All the prohibited drugs subject of these cases are confiscated in favor of the government to be transferred to the Dangerous Drugs Board for proper disposal. [4] SO ORDERED. On appeal, the CA affirmed with modification the decision of the trial court. The dispositive portion of the Decision dated August 25, 1998 reads as follows: WHEREFORE, the Court hereby AFFIRMS the conviction of appellants but MODIFIES the penalty imposed on each of them, as follows: 1. In Criminal Case No. 96-148018, appellants RAMON ARCILLA and JIMMY SALAZAR are each sentenced to suffer an indeterminate penalty of SIX (6) MONTHS of arresto mayor as minimum to FOUR (4) YEARS and TWO (2) MONTHS of prision correccional as maximum; 2. In Criminal Case No. 96-148019, appellants RAMON ARCILLA and JIMMY SALAZAR are each sentenced to suffer an indeterminate penalty of FOUR (4) YEARS and TWO (2) MONTHS of prisioncorreccional as minimum to TEN (10) YEARS of prision mayor as maximum; and 3. In Criminal Case No. 96-148021, appellant REYNALDO PERALTA is sentenced to suffer an indeterminate penalty of SIX (6) MONTHS of arresto mayor as minimum to FOUR (4) YEARS and TWO (2) MONTHS of prision correccionalu as maximum. With the above modifications, the decision appealed from is AFFIRMED in all other respects. No pronouncement as to costs. [5] SO ORDERED. The petitioners raise a solitary issue for the Court’s resolution: WHETHER OR NOT PUBLIC RESPONDENT COURT OF APPEALS’ AFFIRMANCE OF THE JOINT DECISION IN CRIMINAL CASES NOS. 96-148018, 96-148019 AND 96[6] 148021 IS PROPER UNDER THE CIRCUMSTANCES. Petitioner Arcilla asserts that the prosecution failed to prove that a buy-bust operation was conducted by the police officers against him. He claimed that he was tortured into admitting his ownership of a prohibited drug wrapped in a [7] newspaper as evidenced by the medical certificate and [8] pictures showing the injuries he sustained. The object evidence adduced by the prosecution against him was ―planted.‖ The police authorities were not armed with a search warrant when they conducted a search and seizure operation in his house. Any evidence seized by the policemen from the house of the petitioner was inadmissible in evidence. The surveillance operation against the petitioners Arcilla and Salazar was triggered by the complaint of the Barangay Chairman of Barangay Nos.

899 and 900 of Punta, Sta. Ana, Manila. However, the prosecution failed to present the complainant Barangay Chairman as witness. The booking sheet and arrest report prepared and accomplished by the arresting officers were not signed by the petitioners, which is a cogent circumstance showing that the charges were fabricated by the police officers. The Office of the Solicitor General controverts the petitioners’ contention insisting that: First. Only questions of law or legal issues may be raised in this Court under Rule 45 of the Rules of Court, as amended. Although there are exceptions to the rule, the petitioner failed to sufficiently demonstrate the application of any of the exceptional circumstances; Second. SPO1 Rodolfo Samoranos convincingly testified that petitioner Salazar, acting as a runner or broker of petitioner Arcilla, led him and the confidential informant to the house of the latter to buy P500 worth of shabu and P500 worth of marijuana; Third. SPO1 Samoranos testified how petitioner Peralta sniffed shabu in the house of petitioner Arcilla and how he consummated the sale of shabu and marijuana by petitioner Arcilla to the poseur-buyer; Fourth. Petitioner Arcilla failed to adduce proof that he was forced to admit ownership of the subject drug. At any rate, the ownership of the prohibited and regulated drugs is immaterial in the prosecution of the crime of possession of drugs as defined in Rep. Act No. 6425, as amended; Fifth. The failure of the prosecution to prove traces of burns on the aluminum foil confiscated from petitioner Peralta is inconsequential. Considering its aluminum content, it is not too remote a possibility for aluminum foil not to show markings of burns. Traces of such flickering most often would hardly result in imprints on its surface, which are easily effaced therefrom. At any rate, petitioner Peralta was charged with illegal possession of a regulated drug and related paraphernalia which were already consummated when the petitioner was found in possession of the said articles without the necessary license or prescription. What is primordial is the proof of the illegal drugs and paraphernalia recovered from the petitioner; Sixth. The case for the prosecution was not enfeebled by the failure of the prosecution to present the complaining barangay chairman. His testimony would merely corroborate the testimony of the principal witness of the prosecution and not independently indispensable. The testimony of a single witness which is credible is sufficient to convict the accused;

Seventh. The booking sheet and arrest report prepared by the arresting officers were not the basis for the conviction of the petitioners. Whether or not the petitioners affixed their signatures on the said sheet is irrelevant to resolve the guilt or innocence of the petitioners of the crimes charged. The petition is barren of merit. We agree with the OSG that as ruled by this Court, no questions of facts may be raised in this Court under Rule 45 of the Rules of Court, unless there is clear and convincing proof that the judgment of the CA is based on a misapprehension of facts; or when the CA failed to notice and appreciate certain relevant facts of substance which if properly considered would justify a different conclusion; and when there is a grave abuse of discretion in the appreciation of facts in the light of the evidence on record. Anything less will not suffice to overturn the decision of the CA affirming on appeal the decision of the trial court. It bears stressing that the findings of facts of the trial court, its calibration of the testimonial evidence of the parties and the assessment of the credibility and probative weight of the evidence of the parties and its conclusion anchored on its findings are given high respect if not conclusive effect by this Court, especially if affirmed by the CA because of the unique advantage of the trial court of observing and monitoring the demeanor, conduct and deportment of the witnesses as they regale the court with their testimonies. The exception to this rule is when the trial court ignored, overlooked, misconstrued or misappreciated cogent facts and circumstances of substance which if considered would alter the outcome of the case. We have assiduously assessed the evidence on record and we find no justification to deviate from the findings of facts of the trial court as affirmed by the CA. In this case, the trial court gave credence and full probative weight to the testimony of the principal witness of the prosecution, SPO1 Rodolfo [9] Samoranos, fortified by the physical evidence on record. The bare claim of petitioners Arcilla and Salazar that no surveillance operations had been conducted by the police officers, and their assertion that the police operatives ―planted‖ evidence against them cannot prevail over the positive and straightforward testimony of SPO1 Rodolfo Samoranos and the other police operatives who are presumed to have performed his duties regularly and in accordance with law. There are instances when law enforcers resort to planting evidence to extract information or even to harass civilians; however, the defense of frameup in drug cases requires clear and convincing [10] evidence. The Court views such claim with distrust

because it can easily be feigned and fabricated. In this case, petitioners Arcilla and Salazar even admitted when they testified that the surveillance and buy-bust operations against them were triggered by the reports of the barangay chairman: Q Can you tell this Court that you are very, very familiar with your barangay chairman? A Yes, sir. Q And you testified earlier that you admit earlier that you are a drug user, is that right? A Yes, sir, I was able to use that before. Q And that fact was known to your barangay chairman because he was very familiar with you? A Yes, sir. Q Do you know that it was the chairman who approached Major Baltazar of the City Hall Detachment about the drug activities of several persons in your place and that includes you? A Yes, sir, I know that. Q So you knew that it was your barangay chairman who denounced you together with Jimmy Salazar, as the very person engaged in drug selling in your place at Punta, Sta. Ana, Manila? [12] A Yes, sir. The testimony of the barangay chairman was merely corroborative of the testimony of SPO1 Rodolfo Samoranos and the physical evidence. Hence, the cases for the prosecution were not enfeebled by the failure of the prosecution to present the barangay chairman as witness. In the matter of sale or possession of the illicit drugs and paraphernalia, the ownership of the same is inconsequential. Mere possession of the illicit drugs and paraphernalia are crimes per seand the burden of proof is upon the accused to prove that they have permits or clearance to possess the prohibited drugs and [13] paraphernalia. It is sufficient that the illicit drugs were [14] found in the possession of the accused. In this case, it is incredible that SPO1 Rodolfo Samoranos would go to the extent of maltreating petitioner Arcilla into admitting his ownership of the illicit drugs and paraphernalia when he knew all along that such an admission by the petitioner would be inconsequential. We are not impervious of the medical certificate issued by the Ospital ng Maynila when Dr. Gray Orino examined petitioner Arcilla on March 2, 1996 that he had a 3-cm. [15] laceration on his frontal-temporal area and the picture of the petitioner showing injuries on the parietal [16] area. However, the petitioner failed to present the doctor to testify on the medical certificate and the photographer

[11]

who took his picture. Besides, if as claimed by the petitioner, he was maltreated by SPO1 Rodolfo Samoranos to compel him to admit ownership of the illicit drug, he should have filed criminal and administrative charges against the policeman for his injuries. The petitioner could have filed the said charges after posting a bail bond and after he was released from jail. Petitioner Arcilla failed to do so. The barefaced fact that the petitioners did not affix their signatures on the booking sheet and arrest reports prepared by the arresting officer is not evidence of their innocence of the crimes charged. The booking sheet and arrest reports submitted by the arresting officer are not elements of the crimes charged, nor are they indispensable to prove the said charges. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. The Decision of the Court Appeals is AFFIRMED. Costs against the petitioners. SO ORDERED. Puno, (Chairman), Quisumbing, AustriaMartinez, and Tinga, JJ., concur. EN BANC [G.R. Nos. 84132-33 : December 10, 1990.] 192 SCRA 257 NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC., Petitioners, vs. PHILIPPINE VETERANS BANK, THE EX-OFFICIO SHERIFF and GODOFREDO QUILING, in his capacity as Deputy Sheriff of Calamba, Laguna, Respondents. DECISION CRUZ, J.: This case involves the constitutionality of a presidential decree which, like all other issuances of President Marcos during his regime, was at that time regarded as sacrosanct. It is only now, in a freer atmosphere, that his acts are being tested by the touchstone of the fundamental law that even then was supposed to limit presidential action.: rd The particular enactment in question is Pres. Decree No. 1717, which ordered the rehabilitation of the Agrix Group of Companies to be administered mainly by the National Development Company. The law outlined the procedure for filing claims against the Agrix companies and created a Claims Committee to process these claims. Especially relevant to this case, and noted at the outset, is Sec. 4(1) thereof providing that "all mortgages and other liens

presently attaching to any of the assets of the dissolved corporations are hereby extinguished." Earlier, the Agrix Marketing, Inc. (AGRIX) had executed in favor of private respondent Philippine Veterans Bank a real estate mortgage dated July 7, 1978, over three (3) parcels of land situated in Los Baños, Laguna. During the existence of the mortgage, AGRIX went bankrupt. It was for the expressed purpose of salvaging this and the other Agrix companies that the aforementioned decree was issued by President Marcos. Pursuant thereto, the private respondent filed a claim with the AGRIX Claims Committee for the payment of its loan credit. In the meantime, the New Agrix, Inc. and the National Development Company, petitioners herein, invoking Sec. 4 (1) of the decree, filed a petition with the Regional Trial Court of Calamba, Laguna, for the cancellation of the mortgage lien in favor of the private respondent. For its part, the private respondent took steps to extrajudicially foreclose the mortgage, prompting the petitioners to file a second case with the same court to stop the foreclosure. The two cases were consolidated. After the submission by the parties of their respective pleadings, the trial court rendered the impugned decision. Judge Francisco Ma. Guerrero annulled not only the challenged provision, viz., Sec. 4 (1), but the entire Pres. Decree No. 1717 on the grounds that: (1) the presidential exercise of legislative power was a violation of the principle of separation of powers; (2) the law impaired the obligation of contracts; and (3) the decree violated the equal protection clause. The motion for reconsideration of this decision having been denied, the present petition was filed.: rd The petition was originally assigned to the Third Division of this Court but because of the constitutional questions involved it was transferred to the Court en banc. On August 30, 1988, the Court granted the petitioner's prayer for a temporary restraining order and instructed the respondents to cease and desist from conducting a public auction sale of the lands in question. After the Solicitor General and the private respondent had filed their comments and the petitioners their reply, the Court gave due course to the petition and ordered the parties to file simultaneous memoranda. Upon compliance by the parties, the case was deemed submitted. The petitioners contend that the private respondent is now estopped from contesting the validity of the decree. In support of this contention, it cites the recent case of Mendoza v. Agrix Marketing, Inc., 1 where the constitutionality of Pres. Decree No. 1717 was also raised

but not resolved. The Court, after noting that the petitioners had already filed their claims with the AGRIX Claims Committee created by the decree, had simply dismissed the petition on the ground of estoppel. The petitioners stress that in the case at bar the private respondent also invoked the provisions of Pres. Decree No. 1717 by filing a claim with the AGRIX Claims Committee. Failing to get results, it sought to foreclose the real estate mortgage executed by AGRIX in its favor, which had been extinguished by the decree. It was only when the petitioners challenged the foreclosure on the basis of Sec. 4 (1) of the decree, that the private respondent attacked the validity of the provision. At that stage, however, consistent with Mendoza, the private respondent was already estopped from questioning the constitutionality of the decree. The Court does not agree that the principle of estoppel is applicable. It is not denied that the private respondent did file a claim with the AGRIX Claims Committee pursuant to this decree. It must be noted, however, that this was done in 1980, when President Marcos was the absolute ruler of this country and his decrees were the absolute law. Any judicial challenge to them would have been futile, not to say foolhardy. The private respondent, no less than the rest of the nation, was aware of that reality and knew it had no choice under the circumstances but to conform.: nad It is true that there were a few venturesome souls who dared to question the dictator's decisions before the courts of justice then. The record will show, however, that not a single act or issuance of President Marcos was ever declared unconstitutional, not even by the highest court, as long as he was in power. To rule now that the private respondent is estopped for having abided with the decree instead of boldly assailing it is to close our eyes to a cynical fact of life during that repressive time. This case must be distinguished from Mendoza, where the petitioners, after filing their claims with the AGRIX Claims Committee, received in settlement thereof shares of stock valued at P40,000.00 without protest or reservation. The herein private respondent has not been paid a single centavo on its claim, which was kept pending for more than seven years for alleged lack of supporting papers. Significantly, the validity of that claim was not questioned by the petitioner when it sought to restrain the extrajudicial foreclosure of the mortgage by the private respondent. The petitioner limited itself to the argument that the private respondent was estopped from questioning the decree because of its earlier compliance with its provisions.

Independently of these observations, there is the consideration that an affront to the Constitution cannot be allowed to continue existing simply because of procedural inhibitions that exalt form over substance. The Court is especially disturbed by Section 4(1) of the decree, quoted above, extinguishing all mortgages and other liens attaching to the assets of AGRIX. It also notes, with equal concern, the restriction in Subsection (ii) thereof that all "unsecured obligations shall not bear interest" and in Subsection (iii) that "all accrued interests, penalties or charges as of date hereof pertaining to the obligations, whether secured or unsecured, shall not be recognized." These provisions must be read with the Bill of Rights, where it is clearly provided in Section 1 that "no person shall be deprived of life, liberty or property without due course of law nor shall any person be denied the equal protection of the law" and in Section 10 that "no law impairing the obligation of contracts shall be passed." In defending the decree, the petitioners argue that property rights, like all rights, are subject to regulation under the police power for the promotion of the common welfare. The contention is that this inherent power of the state may be exercised at any time for this purpose so long as the taking of the property right, even if based on contract, is done with due process of law. This argument is an over-simplification of the problem before us. The police power is not a panacea for all constitutional maladies. Neither does its mere invocation conjure an instant and automatic justification for every act of the government depriving a person of his life, liberty or property. A legislative act based on the police power requires the concurrence of a lawful subject and a lawful method. In more familiar words, a) the interests of the public generally, as distinguished from those of a particular class, should justify the interference of the state; and b) the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. 2 Applying these criteria to the case at bar, the Court finds first of all that the interests of the public are not sufficiently involved to warrant the interference of the government with the private contracts of AGRIX. The decree speaks vaguely of the "public, particularly the small investors," who would be prejudiced if the corporation were not to be assisted. However, the record does not state how many there are of such investors, and who they are, and why they are being preferred to the private respondent and other creditors of AGRIX with vested property rights.:-cralaw

The public interest supposedly involved is not identified or explained. It has not been shown that by the creation of the New Agrix, Inc. and the extinction of the property rights of the creditors of AGRIX, the interests of the public as a whole, as distinguished from those of a particular class, would be promoted or protected. The indispensable link to the welfare of the greater number has not been established. On the contrary, it would appear that the decree was issued only to favor a special group of investors who, for reasons not given, have been preferred to the legitimate creditors of AGRIX. Assuming there is a valid public interest involved, the Court still finds that the means employed to rehabilitate AGRIX fall far short of the requirement that they shall not be unduly oppressive. The oppressiveness is patent on the face of the decree. The right to property in all mortgages, liens, interests, penalties and charges owing to the creditors of AGRIX is arbitrarily destroyed. No consideration is paid for the extinction of the mortgage rights. The accrued interests and other charges are simply rejected by the decree. The right to property is dissolved by legislative fiat without regard to the private interest violated and, worse, in favor of another private interest. A mortgage lien is a property right derived from contract and so comes under the protection of the Bill of Rights. So do interests on loans, as well as penalties and charges, which are also vested rights once they accrue. Private property cannot simply be taken by law from one person and given to another without compensation and any known public purpose. This is plain arbitrariness and is not permitted under the Constitution. And not only is there arbitrary taking, there is discrimination as well. In extinguishing the mortgage and other liens, the decree lumps the secured creditors with the unsecured creditors and places them on the same level in the prosecution of their respective claims. In this respect, all of them are considered unsecured creditors. The only concession given to the secured creditors is that their loans are allowed to earn interest from the date of the decree, but that still does not justify the cancellation of the interests earned before that date. Such interests, whether due to the secured or the unsecured creditors, are all extinguished by the decree. Even assuming such cancellation to be valid, we still cannot see why all kinds of creditors, regardless of security, are treated alike. Under the equal protection clause, all persons or things similarly situated must be treated alike, both in the privileges conferred and the obligations imposed. Conversely, all persons or things differently situated should

be treated differently. In the case at bar, persons differently situated are similarly treated, in disregard of the principle that there should be equality only among equals.- nad One may also well wonder why AGRIX was singled out for government help, among other corporations where the stockholders or investors were also swindled. It is not clear why other companies entitled to similar concern were not similarly treated. And surely, the stockholders of the private respondent, whose mortgage lien had been cancelled and legitimate claims to accrued interests rejected, were no less deserving of protection, which they did not get. The decree operated, to use the words of a celebrated case, 3 "with an evil eye and an uneven hand." On top of all this, New Agrix, Inc. was created by special decree notwithstanding the provision of Article XIV, Section 4 of the 1973 Constitution, then in force, that: SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the formation, organization, or regulation of private corporations, unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof. 4 The new corporation is neither owned nor controlled by the government. The National Development Corporation was merely required to extend a loan of not more than P10,000,000.00 to New Agrix, Inc. Pending payment thereof, NDC would undertake the management of the corporation, but with the obligation of making periodic reports to the Agrix board of directors. After payment of the loan, the said board can then appoint its own management. The stocks of the new corporation are to be issued to the old investors and stockholders of AGRIX upon proof of their claims against the abolished corporation. They shall then be the owners of the new corporation. New Agrix, Inc. is entirely private and so should have been organized under the Corporation Law in accordance with the above-cited constitutional provision. The Court also feels that the decree impairs the obligation of the contract between AGRIX and the private respondent without justification. While it is true that the police power is superior to the impairment clause, the principle will apply only where the contract is so related to the public welfare that it will be considered congenitally susceptible to change by the legislature in the interest of the greater number. 5 Most present-day contracts are of that nature. But as already observed, the contracts of loan and mortgage executed by AGRIX are purely private transactions and have not been shown to be affected with public interest. There was therefore no warrant to amend their provisions

and deprive the private respondent of its vested property rights. It is worth noting that only recently in the case of the Development Bank of the Philippines v. NLRC, 6 we sustained the preference in payment of a mortgage creditor as against the argument that the claims of laborers should take precedence over all other claims, including those of the government. In arriving at this ruling, the Court recognized the mortgage lien as a property right protected by the due process and contract clauses notwithstanding the argument that the amendment in Section 110 of the Labor Code was a proper exercise of the police power.: nad The Court reaffirms and applies that ruling in the case at bar. Our finding, in sum, is that Pres. Decree No. 1717 is an invalid exercise of the police power, not being in conformity with the traditional requirements of a lawful subject and a lawful method. The extinction of the mortgage and other liens and of the interest and other charges pertaining to the legitimate creditors of AGRIX constitutes taking without due process of law, and this is compounded by the reduction of the secured creditors to the category of unsecured creditors in violation of the equal protection clause. Moreover, the new corporation, being neither owned nor controlled by the Government, should have been created only by general and not special law. And insofar as the decree also interferes with purely private agreements without any demonstrated connection with the public interest, there is likewise an impairment of the obligation of the contract. With the above pronouncements, we feel there is no more need to rule on the authority of President Marcos to promulgate Pres. Decree No. 1717 under Amendment No. 6 of the 1973 Constitution. Even if he had such authority, the decree must fall just the same because of its violation of the Bill of Rights. WHEREFORE, the petition is DISMISSED. Pres. Decree No. 1717 is declared UNCONSTITUTIONAL. The temporary restraining order dated August 30, 1988, is LIFTED. Costs against the petitioners.- nad SO ORDERED. Republic of the Philippines SUPREME COURT Manila EN BANC DECISION December 2, 1924

G.R. No. L-22619 NATIONAL COAL COMPANY, plaintiff-appellee, vs. THE COLLECTOR OF INTERNAL REVENUE, defendantappellant. Attorney-General Villa-Real for appellant. Perfecto J. Salas Rodriguez for appellee. Johnson, J.: This action was brought in the Court of First Instance of the City of Manila on the 17th day of July, 1923, for the purpose of recovering the sum of P12,044.68, alleged to have been paid under protest by the plaintiff company to the defendant, as specific tax on 24,089.3 tons of coal. Said company is a corporation created by Act No. 2705 of the Philippine Legislature for the purpose of developing the coal industry in the Philippine Islands and is actually engaged in coal mining on reserved lands belonging to the Government. It claimed exemption from taxes under the provision of sections 14 and 15 of Act No. 2719, and prayed for a judgment ordering the defendant to refund to the plaintiff said sum of P12,044.68, with legal interest from the date of the presentation of the complaint, and costs against the defendant. The defendant answered denying generally and specifically all the material allegations of the complaint, except the legal existence and personality of the plaintiff. As a special defense, the defendant alleged (a) that the sum of P12,044.68 was paid by the plaintiff without protests, and (b) that said sum was due and owing from the plaintiff to the Government of the Philippine Islands under the provisions of section 1496 of the Administrative Code and prayed that the complaint be dismissed, with costs against the plaintiff. Upon the issue thus presented, the case was brought on for trial. After a consideration of the evidence adduced by both parties, the Honorable Pedro Conception, judge, held that the words ―lands owned by any person, etc.,‖ in section 15 of Act No. 2719 should be understood to mean ―lands held in lease or usufruct,‖ in harmony with the other provision of said Act; that the coal lands possessed by the plaintiff, belonging to the Government, fell within the provisions of section 15 of Act No. 2719; and that a tax of P0.04 per ton of 1,016 kilos on each ton of coal extracted therefrom, as provided in said section, was the only tax which should be collected from the plaintiff; and sentenced the defendant to refund to the plaintiff the sum of P11,081.11 which is the difference between the amount collected under section 1496 of the Administrative Code and the amount which should have been collected under

the provisions of said section 15 of Act No. 2719. From that sentence the defendant appealed, and now makes the following assignments of error: I. The court below erred in holding that section 15 of Act No. 2719 does not refer to coal lands owned by persons and corporations. II. The court below erred in holding that the plaintiff was not subject to the tax prescribed in section 1496 of the Administrative Code. The question confronting us in this appeal is whether the plaintiff is subject to the taxes under section 15 of Act No. 2719, or to the specific taxes under section 1496 of the Administrative Code. The plaintiff corporation was created on the 10th day of March, 1917, by Act No. 2705, for the purpose of developing the coal industry in the Philippine Island, in harmony with the general plan of the Government to encourage the development of the natural resources of the country, and to provided facilities therefor. By said Act, the company was granted the general powers of a corporation ―and such other powers as may be necessary to enable it to prosecute the business of developing coal deposits in the Philippine Island and of mining, extracting, transporting and selling the coal contained in said deposits.‖ (Sec. 2, Act No. 2705.) By the same law (Act No. 2705) the Government of the Philippine Islands is made the majority stockholder, evidently in order to insure proper government supervision and control, and thus to place the Government in a position to render all possible encouragement, assistance and help in the prosecution and furtherance of the company’s business. On May 14, 1917, two months after the passage of Act No. 2705, creating the National Coal Company, the Philippine Legislature passed Act No. 2719 ―to provide for the leasing and development of coal lands in the Philippine Islands.‖ On October 18, 1917, upon petition of the National Coal Company, the Governor-General, by Proclamation No. 39, withdrew ―from settlement, entry, sale or other disposition, all coal-bearing public lands within the Province of Zamboanga, Department of Mindanao and Sulu, and the Island of Polillo, Province of Tayabas.‖ Almost immediately after the issuance of said proclamation the National Coal Company took possession of the coal lands within the said reservation, with an area of about 400 hectares, without any further formality, contract or lease. Of the 30,000 shares of stock issued by the company, the Government of the Philippine Islands is the owner of 29,809 shares, that is, of 99 1/3 per centum of the whole capital stock.

If we understand the theory of the plaintiff-appellee, it is, that it claims to be the owner of the land from which it has mined the coal in question and is therefore subject to the provisions of section 15 of Act No. 2719 and not to the provisions of the section 1496 of the Administrative Code. That contention of the plaintiff leads us to an examination of the evidence upon the question of the ownership of the land from which the coal in question was mined. Was the plaintiff the owner of the land from which the coal in question was mined? If the evidence shows the affirmative, then the judgment should be affirmed. If the evidence shows that the land does not belong to the plaintiff, then the judgment should be reversed, unless the plaintiff’s rights fall under section 3 of said Act. The only witness presented by the plaintiff upon the question of the ownership of the land in question was Mr. Dalmacio Costas, who stated that he was a member of the board of directors of the plaintiff corporation; that the plaintiff corporation took possession of the land in question by virtue of the proclamation of the Governor-General, known as Proclamation No. 39 of the year 1917; that no document had been issued in favor of the plaintiff corporation; that said corporation had received no permission from the Secretary of Agriculture and Natural Resources; that it took possession of said lands covering an area of about 400 hectares, from which the coal in question was mined, solely, by virtue of said proclamation (Exhibit B, No. 39). Said proclamation (Exhibit B) was issued by Francis Burton Harrison, then Governor-General, on the 18th day of October, 1917, and provided: ―Pursuant to the provision of section 71 of Act No. 926, I hereby withdraw from settlement, entry, sale, or other disposition, all coal-bearing public lands within the Province of Zamboanga, Department of Mindanao and Sulu, and the Island of Polillo, Province of Tayabas.‖ It will be noted that said proclamation only provided that all coal-bearing public lands within said province and island should be withdrawn from settlement, entry, sale, or other disposition. There is nothing in said proclamation which authorizes the plaintiff or any other person to enter upon said reversations and to mine coal, and no provision of law has been called to our attention, by virtue of which the plaintiff was entitled to enter upon any of the lands so reserved by said proclamation without first obtaining permission therefor. The plaintiff is a private corporation. The mere fact that the Government happens to the majority stockholder does not make it a public corporation. Act No. 2705, as amended by Act No. 2822, makes it subject to all of the provisions of the

Corporation Law, in so far as they are not inconsistent with said Act (No. 2705). No provisions of Act No. 2705 are found to be inconsistent with the provisions of the Corporation Law. As a private corporation, it has no greater rights, powers or privileges than any other corporation which might be organized for the same purpose under the Corporation Law, and certainly it was not the intention of the Legislature to give it a preference or right or privilege over other legitimate private corporations in the mining of coal. While it is true that said proclamation No. 39 withdrew ―from settlement, entry, sale, or other disposition of coalbearing public lands within the Province of Zamboanga . . . and the Island of Polillo,‖ it made no provision for the occupation and operation by the plaintiff, to the exclusion of other persons or corporations who might, under proper permission, enter upon the operate coal mines. On the 14th day of May, 1917, and before the issuance of said proclamation, the Legislature of the Philippine Island in ―an Act for the leasing and development of coal lands in the Philippine Islands‖ (Act No. 2719), made liberal provision. Section 1 of said Act provides: ―Coal-bearing lands of the public domain in the Philippine Island shall not be disposed of in any manner except as provided in this Act,‖ thereby giving a clear indication that no ―coal-bearing lands of the public domain‖ had been disposed of by virtue of said proclamation. Neither is there any provision in Act No. 2705 creating the National Coal Company, nor in the amendments thereof found in Act No. 2822, which authorizes the National Coal Company to enter upon any of the reserved coal lands without first having obtained permission from the Secretary of Agriculture and Natural Resources. The following propositions are fully sustained by the facts and the law: (1) The National Coal Company is an ordinary private corporation organized under Act No. 2705, and has no greater powers nor privileges than the ordinary private corporation, except those mentioned, perhaps, in section 10 of Act No. 2719, and they do not change the situation here. (2) It mined on public lands between the month of July, 1920, and the months of March, 1922, 24,089.3 tons of coal. (3) Upon demand of the Collector of Internal Revenue it paid a tax of P0.50 a ton, as taxes under the provisions of article 1946 of the Administrative Code on the 15th day of December, 1922. (4) It is admitted that it is neither the owner nor the lessee of the lands upon which said coal was mined.

(5) The proclamation of Francis Burton Harrison, GovernorGeneral, of the 18th day of October, 1917, by authority of section 1 of Act No. 926, withdrawing from settlement, entry, sale, or other dispositon all coal-bearing public lands within the Province of Zamboanga and the Island of Polillo, was not a reservation for the benefit of the National Coal Company, but for any person or corporation of the Philippine Islands or of the United States. (6) That the National Coal Company entered upon said land and mined said coal, so far as the record shows, without any lease or other authority from either the Secretary of Agriculture and Natural Resources or any person having the power to grant a leave or authority. From all of the foregoing facts we find that the issue is well defined between the plaintiff and the defendant. The plaintiff contends that it was liable only to pay the internal revenue and other fees and taxes provided for under section 15 of Act No. 2719; while the defendant contends, under the facts of record, the plaintiff is obliged to pay the internal revenue duty provided for in section 1496 of the Administrative Code. That being the issue, an examination of the provisions of Act No. 2719 becomes necessary. An examination of said Act (No. 2719) discloses the following facts important for consideration here: First. All ―coal-bearing lands of the public domain in the Philippine Islands shall not be disposed of in any manner except as provided in this Act.‖ Second. Provisions for leasing by the Secretary of Agriculture and Natural Resources of ―unreserved, unappropriated coal-bearing public lands,‖ and the obligation to the Government which shall be imposed by said Secretary upon the lessee. Third. The internal revenue duty and tax which must be paid upon coal-bearing lands owned by any person, firm, association or corporation. To repeat, it will be noted, first, that Act No. 2719 provides an internal revenue duty and tax upon unreserved, unappropriated coal-bearing public lands which may be leased by the Secretary of Agriculture and Natural Resources; and, second, that said Act (No. 2719) provides an internal revenue duty and tax imposed upon any person, firm, association or corporation, who may be the owner of ―coal-bearing lands.‖ A reading of said Act clearly shows that the tax imposed thereby is imposed upon two classes of persons only – lessees and owners. The lower court had some trouble in determining what was the correct interpretation of section 15 of said Act, by reason of what he believed to be some difference in the interpretation of the language used in Spanish and English. While there is some ground for confusion in the use of the

language in Spanish and English, we are persuaded, considering all the provisions of said Act, that said section 15 has reference only to persons, firms, associations or corporations which had already, prior to the existence of said Act, become the owners of coal lands. Section 15 cannot certainty refer to ―holders or lessees of coal lands’ for the reason that practically all of the other provisions of said Act has reference to lessees or holders. If section 15 means that the persons, firms, associations, or corporation mentioned therein are holders or lessees of coal lands only, it is difficult to understand why the internal revenue duty and tax in said section was made different from the obligations mentioned in section 3 of said Act, imposed upon lessees or holders. From all of the foregoing, it seems to be made plain that the plaintiff is neither a lessee nor an owner of coal-bearing lands, and is, therefore, not subject to any other provisions of Act No. 2719. But, is the plaintiff subject to the provisions of section 1496 of the Administrative Code? Section 1496 of the Administrative Code provides that ―on all coal and coke there shall be collected, per metric ton, fifty centavos.‖ Said section (1496) is a part of article, 6 which provides for specific taxes. Said article provides for a specific internal revenue tax upon all things manufactured or produced in the Philippine Islands for domestic sale or consumption, and upon things imported from the United States or foreign countries. It having been demonstrated that the plaintiff has produced coal in the Philippine Islands and is not a lessee or owner of the land from which the coal was produced, we are clearly of the opinion, and so hold, that it is subject to pay the internal revenue tax under the provisions of section 1496 of the Administrative Code, and is not subject to the payment of the internal revenue tax under section 15 of Act No. 2719, nor to any other provisions of said Act. Therefore, the judgment appealed from is hereby revoked, and the defendant is hereby relieved from all responsibility under the complaint. And, without any finding as to costs, it is so ordered.

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