Stonehill vs.

Diokno
20 SCRA 383 (GR No. L-19550)
June 19, 1967
CJ Concepcion
Constitutional Law; Search warrants; Corporations; Only party affected may
contest legality of seizure effected by search warrants.Officers of certain
corporations, from which documents, papers and things were seized by
means of search warrants, have no cause of action to assail the legality of
the seizures because said corporations have personalities distinct and
separate from those of said officers. The legality of a seizure can be
contested only by the party whose rights have been impaired thereby. The
objection to an unlawful search is purely personal and cannot be availed of
by third parties.
Same; Evidence: When illegally seized evidence is admissible.Officers of
certain corporations cannot validly object to the use in evidence against
them of the documents, papers and things seized from the offices and
premises of the corporations since the right to object to their admission in
evidence belongs exclusively to the corporations, to which the seized effects
belong, and may not be invoked by the corporate officers in proceedings
against them in their individual capacity.
Same; Requisites for issuing search warrants.The Constitution provides
that no warrant shall issue but upon probable cause, to be determined by the
judge, and that the warrant shall particularly describe the things to be
seized.
Same; General search warrants.Search warrants, issued upon applications
stating that the natural and juridical persons therein named had committed a
violation of Central Bank laws, tariff and customs laws, Tax Code and Revised
Penal Code do not satisfy the constitutional requirements because no specific
offense had been alleged in said applications. It was impossible for the
judges, who issued the warrants, to have found the existence of probable
cause, which presupposes the introduction of competent proof that the party
against whom it is sought has performed particular acts or committed
specific omissions in violation of a specific penal provision.
Same; Why general warrants are outlawed.General search warrants are
outlawed because they place the sanctity of the domicile and the privacy of
communication and correspondence at the mercy of the whims, caprice or
passion of peace officers.

Same; Provision of Revised Rules of Court.To prevent the issuance of

general warrants, the Supreme Court amended the Old Rules of Court by
providing in the Revised Rules of Court that "no search warrant shall issue for
more than one specific offense".
Same; Warrants not describing particularly the things to be seized.Search
warrants authorizing the seizure of books of accounts and records "showing
all the business transactions" of certain persons, regardless of whether the
transactions were legal or illegal, contravene the explicit command of the Bill
of Rights that the things to be seized should be particularly described and
defeat its major objective of eliminating general warrants.
Same; Evidence; Abandonment of Moncado ruling; Illegally seized documents
are not admissible in evidence.The Moncado ruling, that illegally seized
documents, papers and things are admissible in evidence, must be
abandoned. The exclusion of such evidence is the only practical means of
enforcing the constitutional injunction against unreasonable searches and
seizures. The non-exclusionary rule is contrary to the letter and spirit of the
prohibition against unreasonable searches and seizures. If there is competent
evidence to establish probable cause of the commission of a given crime by
the party against whom the warrant is intended, then there is no reason why
the applicant should not comply with the constitutional requirements If he
has no such evidence, then it is not possible for the judge to find that there is
a probable cause, and, hence, no justification for the issuance of the warrant.
The only possible explanation for the issuance in that case is the necessity of
fishing for evidence of the commission of a crime. Such a fishing expedition
is indicative of the absence of evidence to establish a probable cause.
CASTRO, J., concurring and dissenting:
Constitutional Law; Search and Seizure; Lack of standard of petitioners
cannot affect illegality of search and seizure. That the petitioners have no
legal standing to ask for the suppression of the papers, things, and effects
seized from places other than their residences, cannot in any manner affect,
alter, or otherwise modify the intrinsic nullity of the search warrants and the
intrinsic illegality of the searches and seizures made thereunder. Whether or
not petitioners possess legal standing, the said warrants are void and remain
void, and the searches and seizures were illegal and remain illegal. No
inference can be drawn from the words of the Constitution that "legal
standing", or the lack of it, is a determinant of the nullity or validity of a
Search warrant or of the lawfulness or illegality of a search or seizure.
Same; Provision on search and seizure is derived from Federal Constitution.
Our constitutional provision on searches and seizures was derived almost
verbatim from the Fourth Amendment to the United States Constitution. In

the many years of judicial construction and interpretation of the said

constitutional provision, our courts have invariably regarded as doctrinal the
pronouncements made on the Fourth Amendment by federal courts,
especially the Federal Supreme Court and the Federal Circuit Courts of
Appeals. The U.S. doctrines and pertinent cases on standing to move for the
suppression or return of documents, papers and effects, which are the fruits
of an unlawful search and seizure, may be summarized as follows: (a)
ownership of documents, papers, and effects gives "standing"; (b) ownership
and/or control or possessionactual or constructiveof premises searched
gives "standing"; and (c) the "aggrieved person" doctrine where the search
warrant and the sworn application for search warrant are "primarily" directed
solely and exclusively 'against the "aggrieved person", gives "standing". An
examination of the search warrants in this case will readily show that,
excepting three, all were directed against the petitioners personally. In some
of them, the petitioners were named personally, followed by the designation,
"The President and/or General Manager" of the particular corporation. The
three warrants excepted named three corporate defendants. But the
"office/house/warehouse/premises" mentioned in the said three warrants
were also the same "office/house/warehouse/premises" declared to be owned
by or under the control of the petitioners in all the other search warrants
directed against the petitioners and/or "the President and/or General
Manager" of the particular corporation. The searches and seizures were to be
made, and were actually made, in the "office/house/warehouse/premises"
owned by or under the control of the petitioners.
Same; Ownership of properties seized entitles petitioners to bring motion to
return and suppress and gives them standing as persons aggrieved by
unlawful search and seizure. Ownership of the properties seized alone
entitles the petitioners to bring a motion to return and suppress, and gives
them standing as persons aggrieved by an unlawful search and seizure
regardless of their location at the time of seizure. Under the constitutional
provision against unlawful searches and seizures, a person places himself or
his property within a constitutionally protected area, be it his home or his
office, his hotel room or his automobile.
Same; Control of premises searched gives "standing". Independent of
ownership or other personal interest in the records and documents seized,
the petitioners have standing to move for return and suppression by virtue of
their proprietary or leasehold interest in many of the premises searched.
These proprietary and leasehold interests have been sufficiently set forth in
their motion for reconsideration and need not be recounted here. It has
never been held that a person with requisite interest in the premises
searched must own the property seized in order to have standing in a motion
to return and suppress. [Stonehill vs. Diokno, 20 SCRA 383(1967)]

Facts:
Upon application of the prosecutors (respondent) several judges
(respondent) issued on different dates a total of 42 search warrants against
petitioners (Stonehill et. al.) and/or corporations of which they were officers
to search the persons of the petitioner and/or premises of their officers
warehouses and/or residences and to seize and take possession of the
personal property which is the subject of the offense, stolen, or embezzled
and proceeds of fruits of the offense, or used or intended to be used or the
means of committing the offense, which is described in the application as
violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue
Code and the Revised Penal Code.
Petitioners filed with the Supreme Court this original action for certiorari,
prohibition and mandamus and injunction and prayed that, pending final
disposition of the case, a writ of preliminary injunction be issued against the
prosecutors, their agents and representatives from using the effect seized or
any copies thereof, in the deportation case and that thereafter, a decision be
rendered quashing the contested search warrants and declaring the same
null and void. For being violative of the constitution and the Rules of court
by: (1) not describing with particularity the documents, books and things to
be seized; (2) money not mentioned in the warrants were seized; (3) the
warrants were issued to fish evidence for deportation cases filed against the
petitioner; (4) the searches and seizures were made in an illegal manner;
and (5) the documents paper and cash money were not delivered to the
issuing courts for disposal in accordance with law.
In their answer, the prosecutors (respondent) alleged; (1) search warrants
are valid and issued in accordance with law; (2) defects of said warrants,
were cured by petitioners consent; and (3) in any event the effects are
admissible regardless of the irregularity.
The Court granted the petition and issued the writ of preliminary injunction.
However by a resolution, the writ was partially lifted dissolving insofar as
paper and things seized from the offices of the corporations.
Issues:
1.) Whether or not the petitioners have the legal standing to assail the
legality of search warrants issued against the corporation of which they were
officers.

2.) Whether or not the search warrants issued partakes the nature of a
general search warrants.
3.) Whether or not the seized articles were admissible as evidence regardless
of the illegality of its seizure.
Held:
I
Officers of certain corporations, from which the documents, papers, things
were seized by means of search warrants, have no cause of action to assail
the legality of the contested warrants and of the seizures made in pursuance
thereof, for the simple reason that said corporations have their respective
personalities, separate and distinct from the personality of herein petitioners,
regardless of the amount of shares of stock or of the interest of each of them
in said corporations, and whatever the offices they hold therein may be.
Indeed, it is well settled that the legality of a seizure can be contested only
by the party whose rights have been impaired thereby, and that the
objection to an unlawful search and seizure is purely personal and cannot be
availed of by third parties.
Officers of certain corporations can not validly object to the use in evidence
against them of the documents, papers and things seized from the offices
and premises of the corporations adverted to above, since the right to object
to the admission of said papers in evidence belongs exclusively to the
corporations, to whom the seized effects belong, and may not be invoked by
the corporate officers in proceedings against them in their individual
capacity.
II
The Constitution provides:
The right of the people to be secure in their persons, houses, papers, and
effects against unreasonable searches and seizures shall not be violated, and
no warrants shall issue but upon probable cause, to be determined by the
judge after examination under oath or affirmation of the complainant and the
witnesses he may produce, and particularly describing the place to be
searched, and the persons or things to be seized.
Two points must be stressed in connection with this constitutional mandate,
namely: (1) that no warrant shall issue but upon probable cause, to be

determined by the judge in the manner set forth in said provision; and (2)
that the warrant shall particularly describe the things to be seized.
Search warrants issued upon applications stating that the natural and
juridical person therein named had committed a "violation of Central Ban
Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal
Code." In other words, no specific offense had been alleged in said
applications. The averments thereof with respect to the offense committed
were abstract. As a consequence, it was impossible for the judges who
issued the warrants to have found the existence of probable cause, for the
same presupposes the introduction of competent proof that the party against
whom it is sought has performed particular acts, or committed specific
omissions, violating a given provision of our criminal laws.
General search warrants are outlawed because the sanctity of the domicile
and the privacy of communication and correspondence at the mercy of the
whims caprice or passion of peace officers.
To prevent the issuance of general warrants this Court deemed it fit to
amend Section 3 of Rule 122 of the former Rules of Court by providing in its
counterpart, under the Revised Rules of Court that "a search warrant shall
not issue but upon probable cause in connection with one specific offense."
Not satisfied with this qualification, the Court added thereto a paragraph,
directing that "no search warrant shall issue for more than one specific
offense."
Seizure of books and records showing all business transaction of petitioners
persons, regardless of whether the transactions were legal or illegal
contravened the explicit command of our Bill of Rights - that the things to be
seized be particularly described - as well as tending to defeat its major
objective the elimination of general warrants.
III
Most common law jurisdiction have already given up the Moncado ruling and
eventually adopted the exclusionary rule, realizing that this is the only
practical means of enforcing the constitutional injunction against
unreasonable searches and seizures. In the language of Judge Learned Hand:
As we understand it, the reason for the exclusion of evidence competent as
such, which has been unlawfully acquired, is that exclusion is the only
practical way of enforcing the constitutional privilege. In earlier times the
action of trespass against the offending official may have been protection

enough; but that is true no longer. Only in case the prosecution which itself
controls the seizing officials, knows that it cannot profit by their wrong will
that wrong be repressed.
The non-exclusionary rule is contrary, not only to the letter, but also, to the
spirit of the constitutional injunction against unreasonable searches and
seizures. To be sure, if the applicant for a search warrant has competent
evidence to establish probable cause of the commission of a given crime by
the party against whom the warrant is intended, then there is no reason why
the applicant should not comply with the requirements of the fundamental
law. Upon the other hand, if he has no such competent evidence, then it is
not possible for the Judge to find that there is probable cause, and, hence, no
justification for the issuance of the warrant. The only possible explanation
(not justification) for its issuance is the necessity of fishing evidence of the
commission of a crime. But, then, this fishing expedition is indicative of the
absence of evidence to establish a probable cause.
The Court held that the doctrine adopted in the Moncado case must be, as it
is hereby, abandoned; that the warrants for the search of three (3)
residences of herein petitioners, as specified in the Resolution of June 29,
1962, are null and void; that the searches and seizures therein made are
illegal; that the writ of preliminary injunction heretofore issued, in connection
with the documents, papers and other effects thus seized in said residences
of herein petitioners is hereby made permanent; that the writs prayed for are
granted, insofar as the documents, papers and other effects so seized in the
aforementioned residences are concerned; that the aforementioned motion
for Reconsideration and Amendment should be, as it is hereby, denied; and
that the petition herein is dismissed and the writs prayed for denied, as
regards the documents, papers and other effects seized in the twenty-nine
(29) places, offices and other premises enumerated in the same Resolution,
without special pronouncement as to costs.

150 SCRA 181 Business Organization Corporation Law A

Corporation Cannot Invoke the Right Against Self-Incrimination

Constitutional Law; Executive Orders Nos. 1 and 2 issued to implement a

constitutional mandate, valid and constitutionalThe impugned executive
orders are avowedly meant to carry out the explicit command of the
Provisional Constitution, ordained by Proclamation No. 3, that the President
in the exercise of legislative power which she was authorized to continue to
wield "(u)ntil a legislature is elected and convened under a new
Constitution""shall give priority to measures to achieve the mandate of the

people," among others to (r)ecover ill-gotten properties amassed by the

leaders and supporters of the previous regime and protect the interest of the
people through orders of sequestration or freezing of assets or accounts."
Same; Same; Executive orders not bill of attainder.Neither will this Court
sustain the theory that the executive orders in question are a bill of
attainder. "A bill of attainder is a legislative act which inflicts punishment
without judicial trial." "Its essence is the substitution of a legislative for a
judicial determination of guilt." 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.
Same; Same; Same; Right against self-incrimination has no application to
juridical persons and the constitutional safeguard against unreasonable
searches and seizures finds no application to the case at bar either.
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 "(r)equire all persons in the Philippines holding * * (alleged "illgotten") assets or properties, whether located in the Philippines or abroad, in
their names as nominees, agents or trustees, to make full disclosure of the
same **." The contention lacks merit. It is elementary that the right against
self-incrimination has no application to juridical persons. "While an individual
may lawfully refuse to answer incriminating questions unless protected by an
immunity statute, it does not follow that a corporation, vested with special
privileges and franchises, may refuse to show its hand when charged with an
abuse of such privileges. * *" 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"* * * *

'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.
PCGG; Its creation and powers.Executive Order No. 1 stresses the "urgent
need to recover all ill-gotten wealth," and postulates that "vast resources of
the government have been amassed by former President Ferdinand E.
Marcos, his immediate family, relatives, and close associates both here and
abroad." Upon these premises, the Presidential Commission on Good
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 ill-gotten wealth accumulated by former President
Ferdinand E. Marcos, his immediate family, relatives, subordinates and close
associates, whether located in the Philippines or abroad, including the
takeover or sequestration of all business enterprises and entities owned or
controlled by them, during his administration, directly or through nominees,
by taking undue advantage of their public office and/or using their powers,
authority, influence, connections or relationship." In relation to the takeover
or sequestration that it was authorized to undertake in the fulfillment of its
mission, the PCGG was granted "power and authority" to do the following
particular acts, to wit: 1. 'To sequester or place or cause to be placed under
its control or possession any building or office wherein any ill-gotten wealth
or properties may be found, and any records pertaining thereto, in order to
prevent their destruction, concealment or disappearance which would
frustrate or hamper the investigation or otherwise prevent the Commission
from accomplishing its task." 2. "To provisionally take over in the public
interest or to prevent the disposal or dissipation, business enterprises and
properties taken over by the government of the Marcos Administration or by
entities or persons close to former President Marcos, until the transactions
leading to such acquisition by the latter can be disposed of by the
appropriate authorities." 3. 'To enjoin or restrain any actual or threatened
commission of acts by any person or entity that may render moot and
academic, or frustrate or otherwise make ineffectual the efforts of the
Commission to carry out its task under this order." So that it might ascertain
the facts germane to its objectives, it was granted power to conduct
investigations; require submission of evidence by subpoenae ad
testificandum and duces tecum; administer oaths; punish for contempt. It
was given power also to promulgate such rules and regulations as may be
necessary to carry out the purposes of * * (its creation)." Executive Order No.
2 gives additional and more specific data and directions respecting "the

recovery of ill-gotten properties amassed by the leaders and supporters of

the previous regime." It declares that: 1) "* * the Government of the
Philippines is in possession of evidence showing that there are assets and
properties purportedly pertaining to former Ferdinand E. Marcos, and/or his
wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates,
business associates, dummies, agents or nominees which had been or were
acquired by them directly or indirectly, through or as a result of the improper
or illegal use of funds or properties owned by the government of the
Philippines or any of its branches, instrumentalities, enterprises, banks or
financial institutions, or by taking undue advantage of their office, authority,
influence, connections or relationship, resulting in their unjust enrichment
and causing grave damage and prejudice to the Filipino people and the
Republic of the Philippines;" and 2) "* * said assets and properties are in the
form of bank accounts, deposits, trust accounts, shares of stocks, buildings,
shopping centers, condominiums, mansions, residences, estates, and other
kinds of real and personal properties in the Philippines and in various
countries of the world." 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,
dummies, agents, or nominees from transferring, conveying, encumbering,
concealing or dissipating said assets or properties in the Philippines and
abroad, pending the outcome of appropriate proceedings in the Philippines to
determine whether any such assets or properties were acquired by them
through or as a result of improper or illegal use of or the conversion of funds
belonging to the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking
undue advantage of their official position, authority, relationship, connection
or influence to unjustly enrich themselves at the expense and to the grave
damage and prejudice of the Filipino people and the Republic of the
Philippines;" 3) prohibited "any person from transferring, conveying,
encumbering or otherwise depleting or concealing such assets and
properties or from assisting or taking part in their transfer, encumbrance,
concealment or dissipation under pain of such penalties as are prescribed by
law;" and 4) required "all persons in the Philippines holding such assets or
properties, whether located in the Philippines or abroad, in their names as
nominees, agents or trustees, to make full disclosure of the same to the
Commission on Good Government within thirty (30) days from publication of
* (the) Executive Order, * *." A third executive order is relevant: Executive
Order No. 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 findings." All such cases, whether civil or criminal, are to be
filed "with the Sandiganbayan, which shall have exclusive and original

jurisdiction thereof." Executive Order No. 14 also pertinently provides that

"(c)ivil suits for restitution, reparation of damages, or indemnification for
consequential damages, forfeiture proceedings provided for under Republic
Act No. 1379, or any other civil actions under the Civil Code or other existing
laws, in connection with * * (said Executive Orders Numbered 1 and 2) may
be filed separately from and proceed independently of any criminal
proceedings and may be proved by a preponderance of evidence;" and that,
moreover, the "technical rules of procedure and evidence shall not be strictly
applied to * * (said) civil cases.''
Same; Same; PCGG is not and was never intended to act as a judge; General
functions of PCGG.It should also by now be reasonably evident from what
has thus far been said that the PCGG is not, and was never intended to act
as, a judge. Its general function is to conduct investigations in order to
collect evidence establishing instances of "ill-gotten wealth;" issue
sequestration, and such orders as may be warranted by the evidence thus
collected and as may be necessary to preserve and conserve the assets of
which it takes custody and control and prevent their disappearance, loss or
dissipation; and eventually file and prosecute in the proper court of
competent jurisdiction all cases investigated by it as may be warranted by its
findings. It does not try and decide, or hear and determine, or adjudicate
with any character of finality or compulsion, cases involving the essential
issue of whether or not property should be forfeited and transferred to the
State because "ill-gotten" within the meaning of the Constitution and the
executive orders. This function is reserved to the designated court, in this
case, the Sandiganbayan. There can therefore be no serious regard accorded
to the accusation, leveled by BASECO, that the PCGG plays the perfidious
role of prosecutor and judge at the same time.
Same; Same; Same; PCGG is not an owner but a conservator who can
exercise only powers of administration over property sequestered, frozen or
provisionally taken over.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. 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, 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. 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.
Same; Same; Same; Same; Need of provisional measures to collect and
conserve assets pending suits; Provisional remedies prescribed by law.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. To answer this need, the law has prescribed
three (3) provisional remedies. These are: (1) sequestration; (2) freeze
orders; and (3) provisional takeover. Sequestration and freezing are remedies
applicable generally to unearthed instances of "ill-gotten wealth." The
remedy of "provisional takeover" is peculiar to cases where "business
enterprises and properties (were) taken over by the government of the
Marcos Administration or by entities or persons close to former President
Marcos."
Same; Same; Same; Same; Same; Sequestration, Freeze Order and
Provisional Takeover, meaning.By the clear terms of the law, the power of
the PCGG to sequester property claimed to be "illgotten" 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 sameuntil it can be determined,
through appropriate judicial proceedings, whether the property was in truth

"ill-gotten," i.e., acquired through or as a result of improper or illegal use of

or the conversion of funds belonging to the Government or any of its
branches, instrumentalities, enterprises, banks or financial institutions, or by
taking undue advantage of official position, authority, relationship,
connection or influence, resulting in unjust enrichment of the ostensible
owner and grave damage and prejudice to the State. And this, too, is the
sense in which the term is commonly understood in other jurisdictions. A
"freeze order" prohibits the person having possession or control of property
alleged to constitute "ill-gotten wealth" "from transferring, conveying,
encumbering or otherwise depleting or concealing such property, or from
assisting or taking part in its transfer, encumbrance, concealment, or
dissipation." In other words, it commands the possessor to hold the property
and conserve it subject to the orders and disposition of the authority
decreeing such freezing. In this sense, it is akin to a garnishment by which
the possessor or ostensible owner of property is enjoined not to deliver,
transfer, or otherwise dispose of any effects or credits in his possession or
control, and thus becomes in a sense an involuntary depositary thereof, In
providing for the remedy of "provisional takeover," the law acknowledges the
apparent distinction between "ill-gotten" "business enterprises and entities"
(going concerns, businesses in actual operation), generally, as to which the
remedy of sequestration applies, it being necessarily inferred that the
remedy entails no interference, or the least possible interference with the
actual management and operations thereof; and "business enterprises which
were taken over by the government of the Marcos Administration or by
entities or persons close to him," in particular, as to which a "provisional
takeover" is authorized, "in the public interest or to prevent disposal or
dissipation of the enterprises." Such a "provisional takeover" imports
something more than sequestration or freezing, more than the placing of the
business under physical possession and control, albeit without or with the
least possible interference with the management and carrying on of the
business itself. In a "provisional takeover," what is taken into custody is not
only the physical assets of the business enterprise or entity, but the business
operation as well. It is in fine the assumption of control not only over things,
but over operations or on-going activities. But, to repeat, such a "provisional
takeover" is allowed only as regards "business enterprises * * taken over by
the government of the Marcos Administration or by entities or persons close
to former President t Marcos.''
Same; Same; Same; Same; Same; Same; Same; Remedies maybe resorted to
by PCGG only for a particular exigency. The law was not meant to divest title
or right of the owner over the property sequestered, frozen or takenover.lt
may perhaps be well at this point to stress once again the provisional,
contingent character of the remedies just described. Indeed the law plainly
qualifies the remedy of takeover by the adjective, "provisional." These
remedies may be resorted to only for a particular exigency: to prevent in the

public interest the disappearance or dissipation of property or business, and

conserve it pending adjudgment in appropriate proceedings of the primary
issue of whether or not the acquisition of title or other right thereto by the
apparent owner was attended by some vitiating anomaly. None of the
remedies is meant to deprive the owner or possessor of his title or any right
to the property sequestered, frozen or taken over and vest it in the
sequestering agency, the Government or other person. This can be done only
for the causes and by the processes laid down by law. That this is the sense
in which the power to sequester, freeze or provisionally take over is to be
understood and exercised, the language of the executive orders in question
leaves no doubt. Executive Order No. 1 declares that the sequestration of
property the acquisition of which is suspect shall last "until the transactions
leading to such acquisition * * can be disposed of by the appropriate
authorities." Executive Order No. 2 declares that the assets or properties
therein mentioned shall remain frozen "pending the out-come 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.
Same; Same; Same; Same; Same; Same; Same; Same; Same; Duration of
these provisional remedies.There is thus no cause for the apprehension
voiced by 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 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 rela-tion to the recovery of ill-gotten wealth
shall remain operative f or not more than eighteen months after the
ratification of this Constitution. However, in the national interest, as certified
by the President, the Congress may extend said period. "A sequestration or
freeze order shall be issued only upon showing of a prima facie case. The
order and the list of the sequestered or frozen properties shall forthwith be
registered with the proper court. For orders issued before the ratification of
this Constitution, the corresponding judicial action or proceeding shall be
filed within six months from its ratification. For those issued after such
ratification, the judicial action or proceeding shall be commenced within six
months from the issuance thereof. "The sequestration or freeze order is

deemed automatically lifted if no judicial action or proceeding is commenced

as herein provided." As thus described, sequestration, freezing and
provisional takeover are akin to the provisional remedy of preliminary
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 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 possession over it. All these
remediessequestration, freezing, provisional takeover, attachment and
receivershipare provisional, temporary, designed for particular exigencies,
attended by no character of permanency or finality, and always subject to
the control of the issuing court or agency.
Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Same;
Remedies non-judicial and writs may be issued exparte.Parenthetically,
that writs of sequestration or freeze or takeover orders are not issued by a
court is of no moment. The Solicitor General draws attention to the writ of
distraint and levy which since 1936 the Commissioner of Internal Revenue
has been by law authorized to issue against property of a delinquent
taxpayer. 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. Like the remedy of preliminary attachment and receivership,
as well as delivery of personal property in replevin suits, sequestration and
provisional takeover writs may issue ex parte. And as in preliminary
attachment, receivership, and delivery of personalty, no objection of any
significance may be raised to the ex parte issuance of an order of
sequestration, freezing or takeover, given its fundamental character of
temporariness or conditionality; and taking account specially of the
constitutionally expressed "mandate of the people to recover ill-gotten
properties amassed by the leaders and supporters of the previous regime
and protect the interest of the people;" as well as the obvious need to avoid
alerting suspected possessors of "ill-gotten wealth" and thereby cause that
disappearance or loss of property precisely sought to be prevented, and the
fact, just as self-evident, that "any transfer, disposition, concealment or
disappearance of said assets and properties would frustrate, obstruct or
hamper the efforts of the Government" at the just recovery thereof.
Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Same;
Same; Requisites for validity of sequestration, freeze or takeover order.

What is indispensable is that, again as in the case of attachment and

receivership, there exist a prima facie factual foundation, at least, for the
sequestration, freeze or takeover order, and adequate and fair opportunity to
contest it and endeavor to cause its negation or nullification. Both are
assured under the executive orders in question and the rules and regulations
promulgated by the PCGG. Executive Order No. 14 enjoins that there be "due
regard to 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 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 warranted. A similar requirement is now found in
Section 26, Art. XVIII of the 1987 Constitution, which requires that a
"sequestration or freeze order shall be issued only upon showing of a prima
facie case." 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 contendThe
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 "illgotten wealth" were not expressly imposed by some rule or regulation as a
condition to warrant the sequestration or freezing of property contemplated
in the executive orders in question, it would nevertheless be exigible in this
jurisdiction in which the Rule of Law prevails and official acts which are
devoid of rational basis in fact or law, or are whimsical and capricious, are
condemned and struck down.
Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Same;
Same; Same; Remedies and authority of PCGG to issue writs and orders,
constitutionality approved and sanctioned.lf any doubt should still persist
in the face of the foregoing considerations as to the validity and propriety of
sequestration, freeze and takeover orders, it should be dispelled by the fact
that these particular remedies and the authority of the PCGG to issue them

have received constitutional approbation and sanction. As already

mentioned, the Provisional or "Freedom" Constitution recognizes the power
and duty of the President to enact "measures to achieve the mandate of the
people to * * * (r)ecover ill-gotten properties amassed by the leaders and
supporters of the previous regime and protect the interest of the people
through orders of sequestration or freezing of assets or accounts." And as
also already adverted to, Section 26, Article XVIII of the 1987 Constitution
treats of, and ratifies the "authority to issue sequestration or freeze orders
under Proclamation No. 3 dated March 25, 1986." The institution of these
provisional remedies is also premised upon the State's inherent police power,
regarded as "the power of promoting the public welfare by restraining and
regulating the use of liberty and property," and as "the most essential,
insistent and illimitable of powers * * in the promotion of general welfare and
the public interest," and said to be "co-extensive with self-protection and * *
not inaptly termed (also) the 'law of overruling necessity.' " [Bataan Shipyard
& Engineering Co., Inc. vs. Presidential Commission on Good Government,
150 SCRA 181(1987)]
FACTS
When President Corazon Aquino took power, the Presidential Commission on
Good Government (PCGG) was formed in order to recover ill gotten wealth
allegedly acquired by former President Marcos and his cronies. Aquino then
issued two executive orders in 1986 and pursuant thereto, a sequestration
and a takeover order were issued against Bataan Shipyard & engineering
Co., Inc. (BASECO). BASECO was alleged to be in actuality owned and
controlled by the Marcoses through the Romualdez family, and in turn,
through dummy stockholders.
The sequestration order issued in 1986 required, among others, that BASECO
produce corporate records from 1973 to 1986 under pain of contempt of the
PCGG if it fails to do so. BASECO assails this order as it avers, among others,
that it is against BASECOs right against self incrimination and unreasonable
searches and seizures.
ISSUE: Whether or not BASECO is correct.
HELD: No. First of all, PCGG has the right to require the production of such
documents pursuant to the power granted to it. Second, and more
importantly, right against self-incrimination has no application to juridical
persons. There is a reserve right in the legislature to investigate the
contracts of a corporation and find out whether it has exceeded its powers. It
would be a strange anomaly to hold that a state, having chartered a
corporation like BASECO 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.
Neither is the right against unreasonable searches and seizures applicable
here. There were no searches made and no seizure pursuant to any search
was ever made. BASECO was merely ordered to produce the corporate
records.

PNB VS CA 83 SCRA 237 Business Organization Corporation Law

Corporations Liability for Negligence
Sugar quota; Banks and Banking; Chattel Mortgage; Torts; Circumstances
which show that the Philippine National Bank acted unreasonably in raising
the price of the lease of sugar quota allotment from P2.80 to P3.00 per picul.
As observed by the trial court, time is of the essence in the approval of the
lease of sugar quota allotments, since the same must be utilized during the
milling season, because any allotment which is not filled during such milling
season may be reallocated by the Sugar Quota Administration to other
holders of allotments. There was no proof that there was any other person at
that time willing to lease the sugar quota allotment of private respondents
for a price higher than P2.80 per picul. The fact that there were isolated
transactions wherein the consideration for the lease was P3.00 a picul,
according to the trial court, does not necessarily mean that there are always
ready takers for said price. The unreasonableness of the position adopted
by the petitioners Board of Directors is shown by the fact that the difference
between the amount of P2.80 per picul offered by Tuazon and the P3.00 per
picul demanded by the Board amounted only to a total sum of P200.00.
Considering that all the accounts of Rita Gueco Tapnio with the Bank were
secured by chattel mortgage on standing crops, assignment of leasehold
rights and interests on her properties, and surety bonds and that she had
apparently the means to pay her obligation to the Bank, as shown by the
fact that she has been granted several sugar crop loans of the total value of
almost
P80,000.00 for the agricultural years from 1952 to 1956, there was no
reasonable basis for the Board of Directors of petitioner to have rejected the
lease agreement because of a measly sum of P200.00. [Philippine National
Bank vs. Court of Appeals, 83 SCRA 237(1978)]
Same; Same; Same; Same; Assignments; The Philippine National Bank, as
assignee of lease of sugar quota allotment, should show that degree of care,
precaution, and vigilance which circumstances demand in approving or
disapproving a lease of sugar quota, otherwise it will be liable for damages

on account of tort.While petitioner had the ultimate authority of approving

or disapproving the proposed lease since the quota was mortgaged to the
bank, the latter certainly cannot escape its responsibility of observing, for
the protection of the interest of private respondents, that degree of care,
precaution and vigilance which the circumstances justly demand in
approving or disapproving the lease of said sugar quota. The law makes it
imperative that every person must in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith. This petitioner failed to do. Certainly, it
knew that the agricultural year was about to expire, that by its disapproval of
the lease private respondents would be unable to utilize the sugar quota in
question. In failing to observe the reasonable degree of care and vigilance
which the surrounding circumstances reasonably impose, petitioner is
consequently liable for the damages caused on private respondents. Under
Article 21 of the New Civil Code, any person who wilfully causes loss or
injury to another in a manner that is contrary to morals, good customs or
public policy shall compensate the latter for the damage. The afore-cited
provisions on human relations were intended to expand the concept of torts
in this jurisdiction by granting adequate legal remedy for the untold number
of moral wrongs which is impossible for human foresight to specifically
provide in the statutes. [Philippine National Bank vs. Court of Appeals, 83
SCRA 237(1978)]
Torts; Corporation Law; Corporations can be liable in same manner as natural
persons, for tort.A corporation is civilly liable in the same manner as
natural persons for torts, because generally speaking, the rules governing
the liability of a principal or master for a tort committed by an agent or
servant are the same whether the principal or master be a natural person or
a corporation, and whether the servant or agent be a natural or artificial
person. All of the authorities agree that a principal or master is liable for
every tort which he expressly directs or authorizes, and this is just as true of
a corporation as of a natural person. [Philippine National Bank vs. Court of
Appeals, 83 SCRA 237(1978)]

Rita Tapnio owes PNB an amount of P2,000.00. The amount is secured by her
sugar crops about to be harvested including her export quota allocation
worth 1,000 piculs. The said export quota was later dealt by Tapnio to a
certain Jacobo Tuazon at P2.50 per picul or a total of P2,500. Since the
subject of the deal is mortgaged with PNB, the latter has to approve it. The
branch manager of PNB recommended that the price should be at P2.80 per
picul which was the prevailing minimum amount allowable. Tapnio and
Tuazon agreed to the said amount. And so the bank manager recommended
the agreement to the vice president of PNB. The vice president in turn
recommended it to the board of directors of PNB.

However, the Board of Directors wanted to raise the price to P3.00 per picul.
This Tuazon does not want hence he backed out from the agreement. This
resulted to Tapnio not being able to realize profit and at the same time
rendered her unable to pay her P2,000.00 crop loan which would have been
covered by her agreement with Tuazon.
Eventually, Tapnio was sued by her other creditors and Tapnio filed a third
party complaint against PNB where she alleged that her failure to pay her
debts was because of PNBs negligence and unreasonableness.
ISSUE: Whether or not Tapnio is correct.
HELD: Yes. In this type of transaction, time is of the essence considering that
Tapnios sugar quota for said year needs to be utilized ASAP otherwise her
allotment may be assigned to someone else, and if she cant use it, she
wont be able to export her crops. It is unreasonable for PNBs board of
directors to disallow the agreement between Tapnio and Tuazon because of
the mere difference of 0.20 in the agreed price rate. What makes it more
unreasonable is the fact that the P2.80 was recommended both by the bank
manager and PNBs VP yet it was disapproved by the board. Further, the
P2.80 per picul rate is the minimum allowable rate pursuant to prevailing
market trends that time. This unreasonable stand reflects PNBs lack of the
reasonable degree of care and vigilance in attending to the matter. PNB is
therefore negligent.
A corporation is civilly liable in the same manner as natural persons for torts,
because generally speaking, the rules governing the liability of a principal or
master for a tort committed by an agent or servant are the same whether
the principal or master be a natural person or a corporation, and whether the
servant or agent be a natural or artificial person. All of the authorities agree
that a principal or master is liable for every tort which it expressly directs or
authorizes, and this is just as true of a corporation as of a natural person, a
corporation is liable, therefore, whenever a tortious act is committed by an
officer or agent under express direction or authority from the stockholders or
members acting as a body, or, generally, from the directors as the governing
body.

EN BANC
G.R. No. L-35262

March 15, 1930

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant,

vs.
TAN BOON KONG, defendant-appellee.
Attorney-General Jaranilla for appellant.
Alejandro de Aboitiz Pinaga for appellee.
OSTRAND, J.:
This is an appeal from an order of the Judge of the Twenty-third Judicial
District sustaining to demurrer to an information charging the defendant Tan
Boon Kong with the violation of section 1458 of Act No. 2711 as amended.
The information reads as follows:
That on and during the four quarters of the year 1924, in the municipality of
Iloilo, Province of Iloilo, Philippine Islands, the said accused, as corporation
organized under the laws of the Philippine Islands and engaged in the
purchase and the sale of sugar, "bayon," coprax, and other native products
and as such object to the payment of internal-revenue taxes upon its sales,
did then and there voluntarily, illegally, and criminally declare in 1924 for the
purpose of taxation only the sum of P2,352,761.94, when in truth and in fact,
and the accused well knew that the total gross sales of said corporation
during that year amounted to P2543,303.44, thereby failing to declare for
the purpose of taxation the amount of P190,541.50, and voluntarily and
illegally not paying the Government as internal-revenue percentage taxes
the sum of P2,960.12, corresponding to 1 per cent of said undeclared
sales.
The question to be decided is whether the information sets forth facts
rendering the defendant, as manager of the corporation liable criminally
under section 2723 of Act No. 2711 for violation of section 1458 of the same
act for the benefit of said corporation. Section 1458 and 2723 read as
follows:
SEC. 1458. Payment of percentage taxes Quarterly reports of earnings.
The percentage taxes on business shall be payable at the end of each
calendar quarter in the amount lawfully due on the business transacted
during each quarter; and it shall be on the duty of every person conducting a
business subject to such tax, within the same period as is allowed for the
payment of the quarterly installments of the fixed taxes without penalty, to
make a true and complete return of the amount of the receipts or earnings of
his business during the preceeding quarter and pay the tax due thereon. . . .
(Act No. 2711.)

SEC. 2723. Failure to make true return of receipts and sales. Any person
who, being required by law to make a return of the amount of his receipts,
sales, or business, shall fail or neglect to make such return within the time
required, shall be punished by a fine not exceeding two thousand pesos or by
imprisonment for a term not exceeding one year, or both.
And any such person who shall make a false or fraudulent return shall be
punished by a fine not exceeding ten thousand pesos or by imprisonment for
a term not exceeding two years, or both. (Act No. 2711.)
Apparently, the court below based the appealed ruling on the ground that
the offense charged must be regarded as committed by the corporation and
not by its officials or agents. This view is in direct conflict with the great
weight of authority. a corporation can act only through its officers and agent
s, and where the business itself involves a violation of the law, the correct
rule is that all who participate in it are liable (Grall and Ostrand's Case, 103
Va., 855, and authorities there cited.)
In case of State vs. Burnam (17 Wash., 199), the court went so far as to hold
that the manager of a diary corporation was criminally liable for the violation
of a statute by the corporation through he was not present when the offense
was committed.
In the present case the information or complaint alleges that he defendant
was the manager of a corporation which was engaged in business as a
merchant, and as such manager, he made a false return, for purposes of
taxation, of the total amount of sale made by said false return constitutes a
violation of law, the defendant, as the author of the illegal act, must
necessarily answer for its consequences, provided that the allegation are
proven.
The ruling of the court below sustaining the demurrer to the complaint is
therefore reversed, and the case will be returned to said court for further
proceedings not inconsistent with our view as hereinafter stated. Without
costs. So ordered.
Johnson, Malcolm, Villamor, Johns, Romualdez and Villa-Real, JJ., concur.

Mambulao Lumber Co. vs. Philippine National Bank, 22 SCRA

359(1968)

Interest; Compounded; When shall it be reckoned.In computing the interest

on any obligation, promissory note or other instrument or contract,
compound interest shall not be reckoned, except by agreement, or in default
thereof, whenever the debt is judicially claimed. Interest due shal l ea rn le
interest only from the time it is judicially demanded. Interest due and unpaid
shall not earn interest. The parties may, by stipulation, capitalize the interest
due and unpaid, which as added principal shall earn new interest.
Auctions; Claims for expenses thereto.Fees enumerated by the Rules of
Court (Rule 141, New Rules of Court) are demandable only by a sheriff
serving processes of the court in connection with judicia l foreclosu re of
mortga ges u nder 68 and not in cases of extra-judicial foreclosure of
mortgagees under Act 3135. The law applicable is section 4 of Act 3135
which provides that the officer conducting the sale is entitled to collect a fee
of P5.00 for each day of actual work performed in addition to his expenses in
connection with the foreclosure sale.
Stipulations; Mortgage contract; How it should be construed.The ambiguity
in the stipulation by reason of the faulty sentence construction should not be
made to defeat the otherwise clear intention of the parties in the agreement.
Attorney's fees; Rule of quantum meruit.This Court has invariably fixed
counsel fees on a quantum meruit basis whenever the fees stipulated appear
excessive, unconscionable, or unreasonable, because a lawyer is primarily a
court officer charged with the duty of assisting the court in administering
impartial justice between the parties. The fees should be subject to judicial
control. Sound public policy demands that courts disregard stipulations for
counsel fees, whenever they appear to be a source of speculative profit at
the expense of the debtor or mortgagor.
Same; Circumstances to consider.In determining the compensation of an
attorney, the following circumstances should be considered: the amount and
character of the services rendered; the responsibility imposed; the amount of
money or the value of the property affected by the controversy, or involved
in the employment; the skill and experience called for in the performance of
the service; the professional standing of the attorney; the results secured;
and whether or not the fee is contingent or absolute, it being a recognized
rule that an attorney may properly charge a much larger fee when it is to be
contingent than when it is not.
Mortgages; Extent of authority of mortgagee to sell property mortgaged.
The law grants power and authority to the mortgagee to sell the mortgaged
property at a public place in the municipality where the mortgagor resides,
or where the property is situated. The sale of a mortgaged chattel may be
made in a place other than that where it is found, provided that the owner
thereof consents or that there is an agreement to this effect between the
mortgagor and the mortgagee. But when the parties agreed to have the
property mortgaged sold at the residence of the mortgagor; the mortgagee
can not retain that power and authority to select from among the places
provided for in the law and place designated in their agreement.

Damages; Moral damages; Award of damage to juridical persons.An

artificial person cannot experience physical sufferingS; mental anguish,
fright, serious anxiety, wounded feelings, moral -shock or social humiliation
which are the basis of moral damage. A corporation may have a good
reputation which, if besmirched, may also be a ground for the award of moral
damages. [Mambulao Lumber Co. vs. Philippine National Bank, 22 SCRA
359(1968)]

G.R. No. L-22973

January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiff-appellant,

vs.
PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial
Sheriff of Camarines Norte, defendants-appellees.
Ernesto P. Vilar and Arthur Tordesillas for plaintiff-appellant.
Tomas Besa and Jose B. Galang for defendants-appellees.
ANGELES, J.:
An appeal from a decision, dated April 2, 1964, of the Court of First Instance
of Manila in Civil Case No. 52089, entitled "Mambulao Lumber Company,
plaintiff, versus Philippine National Bank and Anacleto Heraldo, defendants",
dismissing the complaint against both defendants and sentencing the
plaintiff to pay to defendant Philippine National Bank (PNB for short) the sum
of P3,582.52 with interest thereon at the rate of 6% per annum from
December 22, 1961 until fully paid, and the costs of suit.
In seeking the reversal of the decision, the plaintiff advances several
propositions in its brief which may be restated as follows:
1. That its total indebtedness to the PNB as of November 21, 1961, was only
P56,485.87 and not P58,213.51 as concluded by the court a quo; hence, the
proceeds of the foreclosure sale of its real property alone in the amount of
P56,908.00 on that date, added to the sum of P738.59 it remitted to the PNB
thereafter was more than sufficient to liquidate its obligation, thereby
rendering the subsequent foreclosure sale of its chattels unlawful;
2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees
and the additional sum of P298.54 as expenses of the foreclosure sale;

3. That the subsequent foreclosure sale of its chattels is null and void, not
only because it had already settled its indebtedness to the PNB at the time
the sale was effected, but also for the reason that the said sale was not
conducted in accordance with the provisions of the Chattel Mortgage Law
and the venue agreed upon by the parties in the mortgage contract;
4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for
its value; and
5. That for the acts of the PNB in proceeding with the sale of the chattels, in
utter disregard of plaintiff's vigorous opposition thereto, and in taking
possession thereof after the sale thru force, intimidation, coercion, and by
detaining its "man-in-charge" of said properties, the PNB is liable to plaintiff
for damages and attorney's fees.
The antecedent facts of the case, as found by the trial court, are as follows:
On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with
the Naga Branch of defendant PNB and the former offered real estate,
machinery, logging and transportation equipments as collaterals. The
application, however, was approved for a loan of P100,000 only. To secure
the payment of the loan, the plaintiff mortgaged to defendant PNB a parcel
of land, together with the buildings and improvements existing thereon,
situated in the poblacion of Jose Panganiban (formerly Mambulao), province
of Camarines Norte, and covered by Transfer Certificate of Title No. 381 of
the land records of said province, as well as various sawmill equipment,
rolling unit and other fixed assets of the plaintiff, all situated in its compound
in the aforementioned municipality.
On August 2, 1956, the PNB released from the approved loan the sum of
P27,500, for which the plaintiff signed a promissory note wherein it promised
to pay to the PNB the said sum in five equal yearly installments at the rate of
P6,528.40 beginning July 31, 1957, and every year thereafter, the last of
which would be on July 31, 1961.
On October 19, 1956, the PNB made another release of P15,500 as part of
the approved loan granted to the plaintiff and so on the said date, the latter
executed another promissory note wherein it agreed to pay to the former the
said sum in five equal yearly installments at the rate of P3,679.64 beginning
July 31, 1957, and ending on July 31, 1961.
The plaintiff failed to pay the amortization on the amounts released to and
received by it. Repeated demands were made upon the plaintiff to pay its

obligation but it failed or otherwise refused to do so. Upon inspection and

verification made by employees of the PNB, it was found that the plaintiff
had already stopped operation about the end of 1957 or early part of 1958.
On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of
Camarines Norte requesting him to take possession of the parcel of land,
together with the improvements existing thereon, covered by Transfer
Certificate of Title No. 381 of the land records of Camarines Norte, and to sell
it at public auction in accordance with the provisions of Act No. 3135, as
amended, for the satisfaction of the unpaid obligation of the plaintiff, which
as of September 22, 1961, amounted to P57,646.59, excluding attorney's
fees. In compliance with the request, on October 16, 1961, the Provincial
Sheriff of Camarines Norte issued the corresponding notice of extra-judicial
sale and sent a copy thereof to the plaintiff. According to the notice, the
mortgaged property would be sold at public auction at 10:00 a.m. on
November 21, 1961, at the ground floor of the Court House in Daet,
Camarines Norte.
On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of
Camarines Norte requesting him to take possession of the chattels
mortgaged to it by the plaintiff and sell them at public auction also on
November 21, 1961, for the satisfaction of the sum of P57,646.59, plus 6%
annual interest therefore from September 23, 1961, attorney's fees
equivalent to 10% of the amount due and the costs and expenses of the sale.
On the same day, the PNB sent notice to the plaintiff that the former was
foreclosing extrajudicially the chattels mortgaged by the latter and that the
auction sale thereof would be held on November 21, 1961, between 9:00 and
12:00 a.m., in Mambulao, Camarines Norte, where the mortgaged chattels
were situated.
On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took
possession of the chattels mortgaged by the plaintiff and made an inventory
thereof in the presence of a PC Sergeant and a policeman of the municipality
of Jose Panganiban. On November 9, 1961, the said Deputy Sheriff issued the
corresponding notice of public auction sale of the mortgaged chattels to be
held on November 21, 1961, at 10:00 a.m., at the plaintiff's compound
situated in the municipality of Jose Panganiban, Province of Camarines Norte.
On November 19, 1961, the plaintiff sent separate letters, posted as
registered air mail matter, one to the Naga Branch of the PNB and another to
the Provincial Sheriff of Camarines Norte, protesting against the foreclosure
of the real estate and chattel mortgages on the grounds that they could not
be effected unless a Court's order was issued against it (plaintiff) for said
purpose and that the foreclosure proceedings, according to the terms of the

mortgage contracts, should be made in Manila. In said letter to the Naga

Branch of the PNB, it was intimated that if the public auction sale would be
suspended and the plaintiff would be given an extension of ninety (90) days,
its obligation would be settled satisfactorily because an important
negotiation was then going on for the sale of its "whole interest" for an
amount more than sufficient to liquidate said obligation.
The letter of the plaintiff to the Naga Branch of the PNB was construed by the
latter as a request for extension of the foreclosure sale of the mortgaged
chattels and so it advised the Sheriff of Camarines Norte to defer it to
December 21, 1961, at the same time and place. A copy of said advice was
sent to the plaintiff for its information and guidance.
The foreclosure sale of the parcel of land, together with the buildings and
improvements thereon, covered by Transfer Certificate of Title No. 381, was,
however, held on November 21, 1961, and the said property was sold to the
PNB for the sum of P56,908.00, subject to the right of the plaintiff to redeem
the same within a period of one year. On the same date, Deputy Provincial
Sheriff Heraldo executed a certificate of sale in favor of the PNB and a copy
thereof was sent to the plaintiff.
In a letter dated December 14, 1961 (but apparently posted several days
later), the plaintiff sent a bank draft for P738.59 to the Naga Branch of the
PNB, allegedly in full settlement of the balance of the obligation of the
plaintiff after the application thereto of the sum of P56,908.00 representing
the proceeds of the foreclosure sale of parcel of land described in Transfer
Certificate of Title No. 381. In the said letter, the plaintiff reiterated its
request that the foreclosure sale of the mortgaged chattels be discontinued
on the grounds that the mortgaged indebtedness had been fully paid and
that it could not be legally effected at a place other than the City of Manila.
In a letter dated December 16, 1961, the plaintiff advised the Provincial
Sheriff of Camarines Norte that it had fully paid its obligation to the PNB, and
enclosed therewith a copy of its letter to the latter dated December 14,
1961.
On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to
the plaintiff acknowledging the remittance of P738.59 with the advice,
however, that as of that date the balance of the account of the plaintiff was
P9,161.76, to which should be added the expenses of guarding the
mortgaged chattels at the rate of P4.00 a day beginning December 19, 1961.
It was further explained in said letter that the sum of P57,646.59, which was
stated in the request for the foreclosure of the real estate mortgage, did not
include the 10% attorney's fees and expenses of the sale. Accordingly, the

plaintiff was advised that the foreclosure sale scheduled on the 21st of said
month would be stopped if a remittance of P9,161.76, plus interest thereon
and guarding fees, would be made.
On December 21, 1961, the foreclosure sale of the mortgaged chattels was
held at 10:00 a.m. and they were awarded to the PNB for the sum of P4,200
and the corresponding bill of sale was issued in its favor by Deputy Provincial
Sheriff Heraldo.
In a letter dated December 26, 1961, the Manager of the Naga Branch of the
PNB advised the plaintiff giving it priority to repurchase the chattels acquired
by the former at public auction. This offer was reiterated in a letter dated
January 3, 1962, of the Attorney of the Naga Branch of the PNB to the
plaintiff, with the suggestion that it exercise its right of redemption and that
it apply for the condonation of the attorney's fees. The plaintiff did not follow
the advice but on the contrary it made known of its intention to file
appropriate action or actions for the protection of its interests.
On May 24, 1962, several employees of the PNB arrived in the compound of
the plaintiff in Jose Panganiban, Camarines Norte, and they informed Luis
Salgado, Chief Security Guard of the premises, that the properties therein
had been auctioned and bought by the PNB, which in turn sold them to
Mariano Bundok. Upon being advised that the purchaser would take delivery
of the things he bought, Salgado was at first reluctant to allow any piece of
property to be taken out of the compound of the plaintiff. The employees of
the PNB explained that should Salgado refuse, he would be exposing himself
to a litigation wherein he could be held liable to pay big sum of money by
way of damages. Apprehensive of the risk that he would take, Salgado
immediately sent a wire to the President of the plaintiff in Manila, asking
advice as to what he should do. In the meantime, Mariano Bundok was able
to take out from the plaintiff's compound two truckloads of equipment.
In the afternoon of the same day, Salgado received a telegram from
plaintiff's President directing him not to deliver the "chattels" without court
order, with the information that the company was then filing an action for
damages against the PNB. On the following day, May 25, 1962, two trucks
and men of Mariano Bundok arrived but Salgado did not permit them to take
out any equipment from inside the compound of the plaintiff. Thru the
intervention, however, of the local police and PC soldiers, the trucks of
Mariano Bundok were able finally to haul the properties originally mortgaged
by the plaintiff to the PNB, which were bought by it at the foreclosure sale
and subsequently sold to Mariano Bundok.

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

Asset Privatization Trust vs. Court of Appeals, 300 SCRA 579(1998)

Actions; Arbitration; Judgments; Dismissal of Actions; Words and Phrases; The
term dismiss has a precise definition in lawto dispose of an action, suit,
or motion without trial on the issues involved, conclude, discontinue,
terminate, quash.The use of the term dismissed is not a mere semantic
imperfection. The dispositive portion of the Order of the trial court dated
October 14, 1992 stated in no uncertain terms: 4. The Complaint is hereby
DISMISSED. The term dismiss has a precise definition in law. To dispose of
an action, suit, or motion without trial on the issues involved. Conclude,
discontinue, terminate, quash.

Same; Same; Same; Same; A court makes a fatal mistake if it dismisses a

case instead of merely suspending it to await the outcome of arbitration
proceedings.Admittedly, the correct procedure was for the parties to go
back to the court where the case was pending to have the award confirmed
by said court. However, Branch 62 made the fatal mistake of issuing a final
order dismissing the case. While Branch 62 should have merely suspended
the case and not dismissed it, neither of the parties questioned said
dismissal. Thus, both parties as well as said court are bound by such error. It
is erroneous then to argue, as private respondents do, that petitioner APT
was charged with the knowledge that the case was merely stayed until
arbitration finished, as again, the order of Branch 62 in very clear terms
stated that the complaint was dismissed. By its own action, Branch 62 had
lost jurisdiction over the case. It could not have validly reacquired jurisdiction
over the said case on mere motion of one of the parties. The Rules of Court is
specific on how a new case may be initiated and such is not done by mere
motion in a particular branch of the RTC. Consequently, as there was no
pending action to speak of, the petition to confirm the arbitral award
should have been filed as a new case and raffled accordingly to one of the
branches of the Regional Trial Court.

Same; Same; Courts; Jurisdiction; As a rule, neither waiver nor estoppel shall
apply to confer jurisdiction upon a court barring highly meritorious and
exceptional circumstances.The rule is that Where the court itself clearly
has no jurisdiction over the subject matter or the nature of the action, the
invocation of this defense may be done at any time. It is neither for the
courts nor for the parties to violate or disregard that rule, let alone to confer
that jurisdiction, this matter being legislative in character. As a rule then,
neither waiver nor estoppel shall apply to confer jurisdiction upon a court
barring highly meritorious and exceptional circumstances. One such
exception was enunciated in Tijam vs. Sibonghanoy, where it was held that
after voluntarily submitting a cause and encountering an adverse decision
on the merits, it is too late for the loser to question the jurisdiction or power
of the court.
Same; Same; Same; Same; A partys prayer for the setting aside of the
arbitral award is not inconsistent with its disavowal of the courts jurisdiction
where, from the outset, it has consistently held that the court has no
jurisdiction to confirm the arbitral award.Petitioners situation is different
because from the outset, it has consistently held the position that the RTC,
Branch 62 had no jurisdiction to confirm the arbitral award; consequently, it
cannot be said that it was estopped from questioning the RTCs jurisdiction.
Petitioners prayer for the setting aside of the arbitral award was not
inconsistent with its disavowal of the courts jurisdiction.
Same; Same; Same; Same; Certiorari; A party aggrieved by an arbitral award
is not precluded from resorting to the extraordinary remedy of certiorari
under Rule 65 where the court to which the award was submitted for
confirmation has acted without jurisdiction, or with grave abuse of discretion.
The aforequoted provision, however, does not preclude a party aggrieved
by the arbitral award from resorting to the extraordinary remedy of certiorari
under Rule 65 of the Rules of Court where, as in this case, the Regional Trial
Court to which the award was submitted for confirmation has acted without
jurisdiction, or with grave abuse of discretion and there is no appeal, nor any
plain, speedy remedy in the course of law.
Same; Same; Same; Judicial review of an arbitration is more limited than
judicial review of a trial.As a rule, the award of an arbitrator cannot be set
aside for mere errors of judgment either as to the law or as to the facts.
Courts are without power to amend or overrule merely because of
disagreement with matters of law or facts determined by the arbitrators.
They will not review the findings of law and fact contained in an award, and
will not undertake to substitute their judgment for that of the arbitrators,
since any other rule would make an award the commencement, not the end,
of litigation. Errors of law and fact, or an erroneous decision of matters
submitted to the judgment of the arbitrators, are insufficient to invalidate an

award fairly and honestly made. Judicial review of an arbitration is, thus,
more limited than judicial review of a trial.
Same; Same; Same; The arbitrators cannot resolve issues beyond the scope
of the submission agreement.Nonetheless, the arbitrators award is not
absolute and without exceptions. The arbitrators cannot resolve issues
beyond the scope of the submission agreement. The parties to such an
agreement are bound by the arbitra-tors award only to the extent and in the
manner prescribed by the contract and only if the award is rendered in
conformity thereto. Thus, Sections 24 and 25 of the Arbitration Law provide
grounds for vacating, rescinding or modifying an arbitration award. Where
the conditions described in Articles 2038, 2039, and 2040 of the Civil Code
applicable to compromises and arbitration are attendant, the arbitration
award may also be annulled.
Same; Same; Same; While a court is precluded from overturning an award for
errors in the determination of factual issues, nevertheless, if an examination
of the record reveals no support whatever for the arbitrators determination,
their award must be vacated.It should be stressed that while a court is
precluded from overturning an award for errors in the determination of
factual issues, nevertheless, if an examination of the record reveals no
support whatever for the arbitrators determinations, their award must be
vacated. In the same manner, an award must be vacated if it was made in
manifest disregard of the law.
Mortgages; Damages; Where the foreclosure is not a wrongful act of the
mortgagee, it could not be the basis of any award of damages.The point
need not be belabored that PNB and DBP had the legitimate right to
foreclose the mortgages of MMIC whose obligations were past due. The
foreclosure was not a wrongful act of the banks and, therefore, could not be
the basis of any award of damages. There was no financial restructuring
agreement to speak of that could have constituted an impediment to the
exercise of the banks right to foreclose.
Same; Presumptions; It is a disputable presumption that official duty has
been regularly performed and ordinary course of business has been followed.
Private respondents thesis that the foreclo-sure proceedings were null and
void because of lack of publication in the newspaper is nothing more than a
mere unsubstantiated allegation not borne out by the evidence. In any case,
a disputable presumption exists in favor of petitioner that official duty has
been regularly performed and ordinary course of business has been followed.
Corporation Law; Agency; A corporation exercises its powers, including the
power to enter into contracts, through its board of directors, and while it may

appoint agents to enter into a contract in its behalf, the agent should not
exceed their authority.As a rule, a corporation exercises its powers,
including the power to enter into contracts, through its board of directors.
While a corporation may appoint agents to enter into a contract in its behalf,
the agent should not exceed his authority. In the case at bar, there was no
showing that the representatives of PNB and DBP in MMIC even had the
requisite authority to enter into a debt-for-equity swap. And if they had such
authority, there was no showing that the banks, through their board of
directors, had ratified the FRP.
Damages; A corporation whose credit reputation is not exactly something to
be considered sound and wholesome cannot be entitled to a big amount of
moral damages; Moral damages include besmirched reputation which a
corporation may possibly suffer.Further, how could the MMIC be entitled to
a big amount of moral damages when its credit reputation was not exactly
something to be considered sound and wholesome. Under Article 2217 of the
Civil Code, moral damages include besmirched reputation which a
corporation may possibly suffer. A corporation whose overdue and unpaid
debts to the Government alone reached a tremendous amount of P22 Billion
Pesos cannot certainly have a solid business reputation to brag about.
Actions; Arbitration; An award of damages to one who is not a party before
the Arbitration Committee is a complete nullity.Civil Case No. 9900 filed
before the RTC being a derivative suit, MMIC should have been impleaded as
a party. It was not joined as a party plaintiff or party defendant at any stage
of the proceedings. As it is, the award of damages to MMIC, which was not a
party before the Arbitration Committee, is a complete nullity.
Same; Corporation Law; Derivative Suits; Parties; In a derivative suit, the
corporation is the real party in interest while the stockholder filing suit for
the corporations behalf is only a nominal partythe corporation should be
included as a party in the suit.Settled is the doctrine that in a derivative
suit, the corporation is the real party in interest while the stockholder filing
suit for the corporations behalf is only a nominal party. The corporation
should be included as a party in the suit. An individual stockholder is
permitted to institute a derivative suit on behalf of the corporation wherein
he holds stock in order to protect or vindicate corporate rights, whenever the
officials of the corporation refuse to sue, or are the ones to be sued or hold
the control of the corporation. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as the real party in
interest. x x x.
Same; Same; If an award is due a corporation from a party who has equity in
such corporation, the same should be given sans deduction in view of the
doctrine that a corporation has a personality separate and distinct from its
individual stockholders or members.If at all an award was due MMIC, which

it was not, the same should have been given sans deduction, regardless of
whether or not the party liable had equity in the corporation, in view of the
doctrine that a corporation has a personality separate and distinct from its
individual stockholders or members. DBPs alleged equity, even if it were
indeed 87%, did not give it ownership over any corporate property, including
the monetary award, its right over said corporate property being a mere
expectancy or inchoate right. Notably, the stipulation even had the effect of
prejudicing the other creditors of MMIC.
Same; Same; Derivative Suits; Damages; It is perplexing how the Arbitration
Committee can in one breath rule that the case before it is a derivative suit
and at the same time award moral damages to an individual stockholder.It
is perplexing how the Arbitration Committee can in one breath rule that the
case before it is a derivative suit, in which the aggrieved party or the real
party in interest is supposedly the MMIC, and at the same time award moral
damages to an individual stockholder.
Same; Judgments; Res Judicata; Damages; Where a partys cause of action
for the seizure of the assets belonging to a corporation, of which he is the
majority stockholder, was ventilated in a complaint he previously filed, from
which he obtained actual damages, he is barred by res judicata from filing a
similar case in another court to ask for moral damages which he failed to get
from the earlier case.Cabarrus cause of action for the seizure of the assets
belonging to IEI, of which he is the majority stockholder, having been
ventilated in a complaint he previously filed with the RTC, from which he
obtained actual damages, he was barred by res judicata from filing a similar
case in another court, this time asking for moral damages which he failed to
get from the earlier case. Worse, private respondents violated the rule
against non-forum shopping.
ROMERO, J., Dissenting Opinion:
Actions; Arbitration; If the tested mechanism of arbitration can simply be
ignored by an aggrieved partyone who voluntarily and actively participated
in the arbitration proceedings from the very beginningit will destroy the
very essence of mutuality inherent in consensual contracts.Petitioner
violated several covenants by asking the court a quo to vacate the
arbitration award. First, in paragraph 10 of the Compromise and Arbitration
Agreement, it agreed to abide by the arbitration committees decision which
shall be final and executory upon its issuance upon the parties to the
arbitration and their assigns and successors-in-interest. Next, the decision
that the arbitrators did render on November 24, 1993 specifically declared
the same to be final and executory. Finally, in the courts confirmation
order of November 28, 1994, the finality of the award was reiterated by the

court. Arbitration, as an alternative mode of settlement, is gaining adherents

in legal and judicial circles here and abroad. If its tested mechanism can
simply be ignored by an aggrieved party, one who, it must be stressed,
voluntarily and actively participated in the arbitration proceedings from the
very beginning, it will destroy the very essence of mutuality inherent in
consensual contracts.
Same; Same; Republic Act 876; Words and Phrases; The term certiorari in
Section 29 of R.A. No. 876 refers to an ordinary appeal under Rule 45, not the
special civil action of certiorari under Rule 65.The term certiorari in the
aforequoted provision refers to an ordinary appeal under Rule 45, not the
special action of certiorari under Rule 65. It is an appeal, as Section 29
proclaims. The proper forum for this action is, under the old and the new
rules of procedure, the Supreme Court. Thus, Section 2(c) of Rule 41 of the
1997 Rules of Civil Procedure states that, In all cases where only questions
of law are raised or involved, the appeal shall be to the Supreme Court by
petition for review on certiorari in accordance with Rule 45. Moreover,
Section 29 limits the appeal to questions of law, another indication that it
is referring to an appeal by certiorari under Rule 45 which, indeed, is the
customary manner of reviewing such issues. On the other hand, the
extraordinary remedy of certiorari under Rule 65 may be availed of by a
party where there is no appeal, nor any plain, speedy, and adequate
remedy in the course of law, and under circumstances where a tribunal,
board or officer exercising judicial functions, has acted without or in excess
of its or his jurisdiction, or with grave abuse of discretion.
PARDO, J., Separate Concurring Opinion:
Judgments; Upon attainment of finality of a dismissal through the lapse of
the reglementary period, the Court loses jurisdiction and control over it and
can no longer make any disposition in respect thereof inconsistent with such
dismissal.Upon the finality of such order of dismissal, the case could no
longer be revived by mere motion. The trial court had lost its authority over
the case. We cite as squarely applicable the decision where this Court
emphatically said But after the dismissal has become final through the lapse
of the fifteen-day reglementary period, the only way by which the action may
be resuscitated or revived, is by the institution of a subsequent action
through the filing of another complaint and the payment of the fees
prescribed by law. This is so because upon attainment of finality of a
dismissal through the lapse of said reglementary period, the Court loses
jurisdiction and control over it and can no longer make any disposition in
respect thereof inconsistent with such dismissal. It is true that the
confirmation of an arbitral award is within the jurisdiction over the subject
matter of a regional trial court. Such jurisdiction must be invoked by proper

motion as a special proceedings with notice to the parties filed in the proper
court with the clerk of court (and upon payment of the prescribed fees).

Facts
The antecedent facts of the case
The development, exploration and utilization of the mineral deposits in the
Surigao Mineral Reservation have been authorized by Republic Act No. 1828,
as amended by Republic Acts No. 2077 and 4167, by virtue of which laws, a
Memorandum of Agreement was drawn on July 3, 1968, whereby the
Republic of the Philippines thru the Surigao Mineral Reservation Board,
granted MMIC the exclusive right to explore, develop and exploit nickel,
cobalt and other minerals in the Surigao mineral reservation.[1] MMIC is a
domestic corporation engaged in mining with respondents Jesus S. Cabarrus,
Sr. as President and among its original stockholders.
The Philippine Government undertook to support the financing of MMIC by
purchase of MMIC debenture and extension of guarantees. Further, the
Philippine Government obtained a firm, commitment from the DBP and/or
other government financing institutions to subscribed in MMIC and issue
guarantee/s for foreign loans or deferred payment arrangements secured
from the US Eximbank, Asian Development Bank, Kobe Steel, of amount not
exceeding US$100 Million.[2]
DBP approved guarantees in favor of MMIC and subsequent requests for
guarantees were based on the unutilized portion of the Government
commitment. Thereafter, the Government extended ACCOMMODATIONS to
MMIC in various amounts.
On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust
Agreement[3] whereby MMIC, as mortgagor, agreed to constitute a mortgage
in favor of PNB and DBP as mortgagees, over all MMICs assets, subject of real
estate and chattel mortgage executed by the mortgagor, and additional
assets described and identified, including assets of whatever kind, nature or
description, which the mortgagor may acquire whether in substitution of, in
replenishment, or in addition thereto.
Article IV of the Mortgage Trust Agreement provides for Events of Default,
which expressly includes the event that the MORTGAGOR shall fail to pay any
amount secured by this Mortgage Trust Agreement when due.[4]

Article V of the Mortgage Trust Agreement prescribes in detail, and in

addition to the enumerated events of defaults, circumstances by which the
mortgagor may be declared in default, the procedure therefor, waiver of
period to foreclose, authority of Trustee before, during and after foreclosure,
including taking possession of the mortgaged properties.[5]
In various request for advances/remittances of loans of huge amounts, Deeds
of Undertakings, Promissory Notes, Loans Documents, Deeds of Real Estate
Mortgages, MMIC invariably committed to pay either on demand or under
certain terms the loans and ACCOMMODATIONS secured from or guaranteed
by both DBP and PNB.
By 1984, DBP and PNBs financial exposure both in loans and in equity in
MMIC had reached tremendous proportions, and MMIC was having a difficult
time meeting its financial obligations. MMIC had an outstanding loan with
DBP in the amount of P13,792,607,565.92 as of August 31, 1984 and in the
amount of P8,789,028,249.38 as of July 15, 1984 or a total Government
exposure of Twenty Two Billion Six Hundred Sixty-Eight Million Five Hundred
Thirty-Seven
Thousand
Seven
Hundred
Seventy
and
05/100
(P22,668,537,770.05), Philippine Currency.[6] Thus, a financial restructuring
plan (FRP) designed to reduce MMIC' interest expense through debt
conversion to equity was drafted by the Sycip Gorres Velayo accounting firm.
[7] On April 30, 1984, the FRP was approved by the Board of Directors of the
MMIC.[8] However, the proposed FRP had never been formally adopted,
approved or ratified by either PNB or DBP.[9]
In August and September 1984, as the various loans and advances made by
DBP and PNB to MMIC had become overdue and since any restructuring
program relative to the loans was no longer feasible, and in compliance with
the directive of Presidential Decree No. 385, DBP and PNB as mortgagees of
MMIC assets, decided to exercise their right to extrajudicially foreclose the
mortgages in accordance with the Mortgage Trust Agreement.[10]
The foreclosed assets were sold to PNB as the lone bidder and were assigned
to three newly formed corporations, namely, Nonoc Mining Corporation,
Maricalum Mining and Industrial Corporation, and Island Cement Corporation.
In 1986, these assets were transferred to the Asset Privatization Trust (APT).
[11]
On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other
stockholders of MMIC, filed a derivative suit against DBP and PNB before the
RTC of Makati, Branch 62, for Annulment of Foreclosures, Specific
Performance and Damages.[12] The suit, docketed as Civil Case No. 9900,
prayed that the court: (1) annul the foreclosure, restore the foreclosed assets

to MMIC, and require the banks to account for their use and operation in the
interim; (2) direct the banks to honor and perform their commitments under
the alleged FRP; and (3) pay moral and exemplary damages, attorneys fees,
litigation expenses and costs.
In the course of the trial, private respondents and petitioner APT, as
successor of the DBP and PNBs interest in MMIC, mutually agreed to submit
the case to arbitration by entering into a Compromise and Arbitration
Agreement, stipulating, inter alia:
NOW, THEREFORE, for and in consideration of the foregoing premises and
the mutual covenants contain herein, the parties agreed as follows:
1. Withdrawal and Compromise. The parties have agreed to withdraw their
respective claims from the Trial Court and to resolve their dispute through
arbitration by praying to the Trial Court to issue a Compromise Judgment
based on this Compromise and Arbitration Agreement.
In withdrawing their dispute form the court and in choosing to resolve it
through arbitration, the parties have agreed that:
(a) their respective money claims shall be reduced to purely money claims;
and
(b) as successor and assignee of the PNB and DBP interest in MMIC and the
MMIC accounts, APT shall likewise succeed to the rights and obligations of
PNB and DBP in respect of the controversy subject of Civil Case No. 9900 to
be transferred to arbitration and any arbitral award/order against either PNB
and/or DBP shall be the responsibility of, be discharged by and be
enforceable against APT, the partied having agreed to drop PNB and DBP
from the arbitration.
2. Submission. The parties hereby agree that (a) the controversy in Civil Case
No. 9900 shall be submitted instead to arbitration under RA 876 and (b) the
reliefs prayed for in Civil Case No. 9900 shall, with the approval of the Trial
Court of this Compromise and Arbitration Agreement, be transferred and
reduced to pure pecuniary/money claims with the parties waiving and
foregoing all other forms of reliefs which they prayed for or should have
payed for in Civil Case No. 9900.[13]
The Compromise and Arbitration Agreement limited the issues to the
following:

5. Issues. The issues to be submitted for the Committees resolution shall be:
(a) Whether PLAINTIFFS have the capacity or the personality to institute this
derivative suit in behalf of the MMIC or its directors; (b) Whether or not the
actions leading to, and including, the PNB-DBP foreclosure of the MMIC
assets were proper, valid and in good faith.[14]
This agreement was presented for approval to the trial court. On October 14,
1992, the Makati RTC, Branch 62, issued an order, to wit:
WHEREFORE, this Court orders:
1. Substituting PNB and DBP with the Asset Privatization Trust as party
defendant.
2. Approving the Compromise and Arbitration Agreement dated October 6,
1992, attached as Annex C of the Omnibus Motion.
3. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in
this case into pure money claims; and
4. The Complaint is hereby DISMISSED.[15]
The Arbitration Committee was composed of retired Supreme Court Justice
Abraham Sarmiento as Chairman, Atty. Jose C. Sison and former Court of
Appeals Justice Magdangal Elma as Members. On November 24, 1993, after
conducting several hearings, the Arbitration Committee rendered a majority
decision in favor of MMIC, the pertinent portions of which read as follows:
Since, as this Committee finds, there is no foreclosure at all was not legally
and validly done, the Committee holds and so declares that the loans of PNB
and DBP to MMIC, for the payment and recovery of which the void
foreclosure sales were undertaken, continue to remain outstanding and
unpaid. Defendant APT as the successor-in-interest of PNB and DBP to the
said loans is therefore entitled and retains the right, to collect the same from
MMIC pursuant to and based on the loan documents signed by MMIC, subject
to the legal and valid defenses that the latter may duly and seasonably
interpose. Such loans shall, however, be reduced by the amount which APT
may have realized from the sale of the seized assets of MMIC which by
agreement should no longer be returned even if the foreclosure were found
to be null and void.
The documentary evidence submitted and adopted by both parties (Exhibits
3, 3-B; Exhibits 100; and also Exhibit ZZZ) as their exhibits would show that

the total outstanding obligation due to DBP and PNB as of the date of
foreclosure is P22,668,537,770.05, more or less.
Therefore, defendant APT can, and is still entitled to, collect the outstanding
obligations of MMIC to PNB and DBP amounting to P22,668.537,770.05, more
or less, with interest thereon as stipulated in the loan documents from the
date of foreclosure up to the time they are fully paid less the proportionate
liability of DBP as owner of 87% of the total capitalization of MMIC under the
FRP. Simply put, DBP shall share in the award of damages to, and in
obligations of MMIC in proportion to its 87% equity in the total capital stock
of MMIC.
x x x.
As this Committee holds that the FRP is valid, DBPs equity in MMIC is raised
to 87%. So pursuant to the above provision of the Compromise and
Arbitration Agreement, the 87% equity of DBP is hereby deducted from the
actual damages of P19,486,118,654.00 resulting in the net actual damages
of P2,531,635,425.02 plus interest.
DISPOSITION
WHEREFORE, premises considered, judgment is hereby rendered:
1. Ordering the defendant to pay to the Marinduque Mining and Industrial
Corporation, except the DBP, the sum of P2,531,635,425.02 with interest
thereon at the legal rate of six per cent (6%) per annum reckoned from
August 3, 9, and 24, 1984, pari passu, as and for actual damages. Payment
of these actual damages shall be offset by APT from the outstanding and
unpaid loans of the MMIC with DBP and PNB, which have not been converted
into equity. Should there be any balance due to the MMIC after the offsetting,
the same shall be satisfied from the funds representing the purchase price of
the sale of the shares of Island Cement Corporation in the amount of
P503,000,000.00 held under escrow pursuant to the Escrow Agreement
dated April 22, 1988 or to such subsequent escrow agreement that would
supercede [sic] it pursuant to paragraph (9) of the Compromise and
Arbitration Agreement;
2. Ordering the defendant to pay to the Marinduque Mining and Industrial
Corporation, except the DBP, the sum of P13,000,000.00 as and for moral
and exemplary damages. Payment of these moral and exemplary damages
shall be offset by APT from the outstanding and unpaid loans of MMIC with
DBP and PNB, which have not been converted into equity. Should there be

any balance due to MMIC after the offsetting, the same shall be satisfied
from the funds representing the purchase price of the sale of the shares of
Island Cement Corporation in the of P503,000,000.00 held under escrow
pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede [sic] it pursuant to
paragraph (9) of the Compromise and Arbitration Agreement;
3. Ordering the defendant to pay to the plaintiff, Jesus Cabarrus, Sr., the sum
of P10,000,000.00, to be satisfied likewise from the funds held under escrow
pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede it, pursuant to
paragraph (9) of the Compromise and Arbitration Agreement, as and for
moral damages; and
4. Ordering the defendant to pay arbitration costs.
This Decision is FINAL and EXECUTORY.
IT IS SO ORDERED.[16]
Motions for reconsiderations were filed by both parties, but the same were
denied.
On October 17, 1994, private respondents filed in the same Civil Case No.
9900 an Application/Motion for Confirmation of Arbitration Award. Petitioner
countered with an Opposition and Motion to Vacate Judgment raising the
following grounds:
1. The plaintiffs Application/Motion is improperly filed with this branch of the
Court, considering that the said motion is neither a part nor the continuation
of the proceedings in Civil Case No. 9900 which was dismissed upon motion
of the parties. In fact, the defendants in the said Civil Case No. 9900 were
the Development Bank of the Philippines and the Philippine National Bank
(PNB);
2. Under Section 22 of Rep. Act 876, an arbitration under a contract or
submission shall be deemed a special proceedings and a party to the
controversy which was arbitrated may apply to the court having jurisdiction,
(not necessarily with this Honorable Court) for an order confirming the
award;
3. The issues submitted for arbitration have been limited to two: (1) propriety
of the plaintiffs filing the derivative suit and (2) the regularity of the

foreclosure proceedings. The arbitration award sought to be confirmed herein

far exceeded the issues submitted and even granted moral damages to one
of the herein plaintiffs;
4. Under Section 24 of Rep. Act 876, the Court must make an order vacating
the award where the arbitrators exceeded their powers, or so imperfectly
executed them, that a mutual final and definite award upon the subject
matter submitted to them was not made.[17]
Private respondents filed a REPLY AND OPPOSITION dated November 10,
1984, arguing that a dismissal of Civil case No. 9900 was merely a qualified
dismissal to pave the way for the submission of the controversy to
arbitration, and operated simply as a mere suspension of the proceedings.
They denied that the Arbitration Committee had exceeded its powers.
In an Order dated November 28, 1994, the trial court confirmed the award of
the Arbitration Committee. The dispositive portion of said order reads:
WHEREFORE, premises considered, and in the light of the parties [sic]
Compromise and Arbitration Agreement dated October 6, 1992, the Decision
of the Arbitration Committee promulgated on November 24, 1993, as
affirmed in a Resolution dated July 26, 1994, and finally settled and clarified
in the Separate Opinion dated September 2, 1994 of Committee Member
Elma, and the pertinent provisions of RA 876,also known as the Arbitration
Law, this Court GRANTS PLAINTIFFS APPLICATION AND THUS CONFIRMS THE
ARBITRATION AWARD, AND JUDGMENT IS HEREBY RENDERED:
(a) Ordering the defendant APT to the Marinduque Mining and Industrial
Corporation (MMIC, except the DBP, the sum of P3,811,757,425.00, as and
for actual damages, which shall be partially satisfied from the funds held
under escrow in the amount of P503,000,000.00 pursuant to the Escrow
Agreement dated April 22, 1988. The Balance of the award, after the escrow
funds are fully applied, shall be executed against the APT;
(b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of
P13,000,000.00 as and moral and exemplary damages;
(c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of
P10,000,000.00 as and for moral damages; and
(d) Ordering the defendant to pay the herein plaintiffs/applicants/movants
the sum of P1,705,410.22 as arbitration costs.

In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8

paragraph 2 of the Compromise and Arbitration Agreement, and the final
edict of the Arbitration Committees decision, and with this Courts
Confirmation, the issuance of the Arbitration Committees Award shall
henceforth be final and executory.
SO ORDERED.[18]
On December 27, 1994, petitioner filed its motion for reconsideration of the
Order dated November 28, 1994. Private respondents, in turn, submitted
their reply and opposition thereto.
On January 18, 1995, the trial court handed down its order denying APTs
motion for reconsideration for lack of merit and for having been filed out of
time. The trial court declared that considering that the defendant APT
through counsel, officially and actually received a copy of the Order of this
Court dated November 28, 1994 on December 6, 1994, the Motion for
Reconsideration thereof filed by the defendant APT on December 27, 1994,
or after the lapse of 21 days, was clearly filed beyond the 15-day
reglementary period prescribed or provided for by law for the filing of an
appeal from final orders, resolutions, awards, judgments or decisions of any
court in all cases, and by necessary implication for the filling of a motion for
reconsideration thereof.
On February 7, 1995, petitioner received private respondents motion for
Execution and Appointment of Custodian of Proceeds of Execution dated
February 6, 1995.
Petitioner thereafter filed with the Court of Appeals a special civil action for
certiorari with temporary restraining order and/or preliminary injunction
dated February 13, 1996 to annul and declare as void the Orders of the RTCMakati dated November 28, 1994 and January 18, 1995 for having been
issued without or in excess of jurisdiction and/or with grave abuse of
discretion.[19] As ground therefor, petitioner alleged that:
I
THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION MUCH
LESS, HAS THE COURT AUTHORITY, TO CONFIRM THE ARBITRAL AWARD
CONSIDERING THAT THE ORIGINAL CASE, CIVIL CASE NO. 9900, HAD
PREVIOUSLY BEEN DISMISSED.
II

THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AND

ACTED WITHOUT OR IN EXCESS OF JURISDICTION, IN ISSUING THE
QUESTIONED ORDERS CONFIRMING THE ARBITRAL AWARD AND DENYING
THE MOTION FOR RECONSIDERATION OF ORDER OF AWARD.
III
THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND ACTED
WITHOUT OR IN EXCESS OF AND WITHOUT JURISDICTION IN RECKONING THE
COUNTING OF THE PERIOD TO FILE MOTION FOR RECONSIDERATION, NOT
FROM THE DATE OF SERVICE OF THE COURTS COPY CONFIRMING THE
AWARD, BUT FROM RECEIPT OF A XEROX COPY OF WHAT PRESUMABLY IS THE
OPPOSING COUNSELS COPY THEREOF.[20]
On July 12, 1995, the Court of Appeals, through its fifth Division denied due
course and dismissed the petition for certiorari.
Hence, the instant petition for review on certiorari imputing to the Court of
Appeals the following errors.
ASSIGNMENT OF ERRORS
I
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI
REGIONAL TRIAL COURT, BRANCH 62 WHICH HAS PREVIOULSY DISMISSED
CIVIL CASE NO. 9900 HAD LOST JURISDICTION TO CONFIRM THE ARBITRAL
AWARD UNDER THE SAME CIVIL CASE AND IN NOT RULING THAT THE
APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN FILED AS A NEW CASE
TO BE RAFFLED OFF AMONG THE DIFFERENT BRANCHES OF THE RTC.
II
THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT PETITIONER WAS
ESTOPPED FROM QUESTIONING THE ARBITRATION AWARD, WHEN
PETITIONER QUESTIONED THE JURISDICTION OF THE RTC-MAKATI, BRANCH
62 AND AT THE SAME TIME MOVED TO VACATE THE ARBITRAL AWARD.
III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT

TRIAL COURT SHOULD HAVE EITHER DISMISSED/DENIED PRIVATE
RESPONDENTS MOTION/PETITION FOR CONFIRMATION OF ARBITRATION
AWARD AND/OR SHOULD HAVE CONSIDERED THE MERITS OF THE MOTION
TO VACATE ARBITRAL AWARD.
IV
THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APTS PETITION
FOR CERTIORARI AS AN APPEAL TAKEN FROM THE ORDER CONFIRMING THE
AWARD
V
THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE OF
WHEN TO RECKON THE COUNTING OF THE PERIOD TO FILE A MOTION FOR
RECONSIDERATION.[21]
The petition is impressed with merit.
I
The RTC of Makati, Branch 62, did not have jurisdiction to confirm the arbitral
award
The use of the term dismissed is not a mere semantic imperfection. The
dispositive portion of the Order of the trial court dated October 14, 1992
stated in no uncertain terms:
4. The Complaint is hereby DISMISSED.[22]
The term dismiss has a precise definition in law. To dispose of an action suit,
or motion without trial on the issues involved. Conclude, discontinue,
terminate, quash.[23]
Admittedly the correct procedure was for the parties to go back to the court
where the case was pending to have the award confirmed by said court.
However, Branch 62 made the fatal mistake of issuing a final order
dismissing the case. While Branch 62 should have merely suspended the
case and not dismissed it,[24] neither of the parties questioned said
dismissal. Thus, both parties as well as said court are bound by such error.

It is erroneous then to argue, as private respondents do, that petitioner APT

was charged with the knowledge that the case was merely stayed until
arbitration finished, as again, the order of Branch 62 in very clear terms
stated that the complaint was dismissed. By its own action, Branch 62 had
lost jurisdiction over the vase. It could not have validly reacquired jurisdiction
over the said case on mere motion of one of the parties. The Rules of Court is
specific on how a new case may be initiated and such is not done by mere
motion in a particular branch of the RTC. Consequently, as there was no
pending action to speak of, the petition to confirm the arbitral award should
have been filed as a new case and raffled accordingly to one of the branches
of the Regional Trial Court.
II
Petitioner was not estopped from questioning the jurisdiction of Branch 62 of
the RTC of Makati.
The Court of Appeals ruled that APT was already estopped to question the
jurisdiction of the RTC to confirm the arbitral award because it sought
affirmative relief in said court by asking that the arbitral award be vacated.
The rule is that Where the court itself clearly has no jurisdiction over the
subject matter or the nature of the action, the invocation of this defense may
de done at any time. It is neither for the courts nor for the parties to violate
or disregard that rule, let alone to confer that jurisdiction, this matter being
legislative in character.[25] As a rule the, neither waiver nor estoppel shall
apply to confer jurisdiction upon a court barring highly meritorious and
exceptional circumstances.[26] One such exception was enunciated in Tijam
vs. Sibonghanoy,[27] where it was held that after voluntarily submitting a
cause and encountering an adverse decision on the merits, it is too late for
the loser to question the jurisdiction or power of the court."
Petitioners situation is different because from the outset, it has consistently
held the position that the RTC, Branch 62 had no jurisdiction to confirm the
arbitral award; consequently, it cannot be said that it was estopped from
questioning the RTCs jurisdiction. Petitioners prayer for the setting aside of
the arbitral award was not inconsistent with its disavowal of the courts
jurisdiction.
III
Appeal of petitioner to the Court of Appeals thru certiorari under Rule 65 was
proper.

The Court of Appeals in dismissing APTs petition for certiorari upheld the trial
courts denial of APTs motion for reconsideration of the trial courts order
confirming the arbitral award, on the ground that said motion was filed
beyond the 15-day reglementary period; consequently, the petition for
certiorari could not be resorted to as substitute to the lost right of appeal.
We do not agree.
Section 29 of Republic Act No. 876,[28] provides that:
x x x An appeal may be taken from an order made in a proceeding under this
Act, or from a judgment entered upon an award through certiorari
proceedings, but such appeals shall be limited to question of law. x x x.
The aforequoted provision, however, does not preclude a party aggrieved by
the arbitral award from RESORTING to the extraordinary remedy of certiorari
under Rule 65 of the Rules of Court where, as in this case, the Regional Trial
Court to which the award was submitted for confirmation has acted without
jurisdiction, or with grave abuse of discretion and there is no appeal, nor any
plain, speedy remedy in the course of law.
Thus, Section 1 of Rule 65 provides:
SEC 1. Petition for Certiorari: - When any tribunal, board or officer exercising
judicial functions, has acted without or in excess of its or his jurisdiction, or
with grave abuse of discretion and there is no appeal, nor any plain, speedy,
and adequate remedy in the ordinary course of law, a person aggrieved
thereby may file a verified petition in the proper court alleging the facts with
certainty and praying that judgment be rendered annulling or modifying the
proceedings, as the law requires, of such tribunal, board or officer.
In the instant case, the respondent court erred in dismissing the special civil
action for certiorari, it being from the pleadings and the evidence that the
trial court lacked jurisdiction and/or committed grave abuse of discretion in
taking cognizance of private respondent motion to confirm the arbitral award
and, worse, in confirming said award which is grossly and patently not in
accord with the arbitration agreement, as will be hereinafter demonstrated.
IV
The nature and limits of the Arbitrators powers.

As a rule, the award of an arbitrator cannot be set aside for mere errors of
judgment either as to the law or as to the facts.[29] Courts are without
power to amend or overrule merely because of disagreement with matters of
law or facts determined by the arbitrators.[30] They will not review the
findings of law and fact contained in an award, and will not undertake to
substitute their judgment for that of the arbitrators, since any other rule
would make an award the commencement, not the end, of litigation.[31]
Errors of law and fact, or an erroneous decision of matters submitted to the
judgment of the arbitrators, are insufficient to invalidate an award fairly and
honestly made.[32] Judicial review of an arbitration is, thus, more limited
than judicial review of a trial.[33]
Nonetheless, the arbitrators awards is not absolute and without exceptions.
The arbitrators cannot resolve issues beyond the scope of the submission
agreement.[34] The parties to such an agreement are bound by the
arbitrators award only to the extent and in the manner prescribed by the
contract and only if the award is rendered in conformity thereto.[35] Thus,
Sections 24 and 25 of the Arbitration Law provide grounds for vacating,
rescinding or modifying an arbitration award. Where the conditions described
in Articles 2038,[36] 2039[37] and 2040[38] of the Civil Code applicable to
compromises and arbitration are attendant, the arbitration award may also
be annulled.
In Chung Fu Industries (Phils.) vs. Court of Appeals,[39] we held:
x x x. It is stated explicitly under Art. 2044 of the Civil Code that the finality
of the arbitrators awards is not absolute and without exceptions. Where the
conditions described in Articles 2038, 2039, and 2040 applicable to both
compromises and arbitration are obtaining, the arbitrators' award may be
annulled or rescinded. Additionally, under Sections 24 and 25, of the
Arbitration Law, there are grounds for vacating, modifying or rescinding an
arbitrators award. Thus, if and when the factual circumstances referred to in
the above-cited provisions are present, judicial review of the award is
properly warranted.
Accordingly, Section 20 of R.A. 876 provides:
SEC. 20. Form and contents of award. The award must be made in writing
and signed and acknowledged by a majority of the arbitrators, if more than
one; and by the sole arbitrator, if there is only one. Each party shall be
furnished with a copy of the award. The arbitrators in their award may grant
any remedy or relief which they deem just and equitable and within the

scope of the agreement of the parties, which shall include, but not be limited
to, the specific performance of a contract.
xxx
The arbitrators shall have the power to decide only those matters which have
been submitted to them. The terms of the award shall be confined to such
disputes. (Underscoring ours).
xxx.
Section 24 of the same law enumerating the grounds for vacating an award
states:
SEC. 24. Grounds for vacating award. In any one of the following cases, the
court must make an order vacating the award upon the petition of any party
to the controversy when such party proves affirmatively that in the
arbitration proceedings:
(a) The award was procured by corruption, fraud, or other undue means; or
(b) That there was evident partiality or corruption in arbitrators or any of
them; or
(c) That the arbitrators were guilty of misconduct in refusing to postpone the
hearing upon sufficient cause shown, or in refusing to hear evidence
pertinent and material to the controversy; that one or more of the arbitrators
was disqualified to act as such under section nine hereof, and willfully
refrained from disclosing such disqualifications or any other misbehavior by
which the rights of any party have been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly executed
them, that a mutual, final and definite award upon the subject matter
submitted to them was not made. (Underscoring ours).
xxx.
Section 25 which enumerates the grounds for modifying the award provides:
SEC. 25. Grounds for modifying or correcting award In anyone of the
following cases, the court must make an order modifying or correcting the

award, upon the application of any party to the controversy which was
arbitrated:
(a) Where there was an evident miscalculation of figures, or an evident
mistake in the description of any person, thing or property referred to in the
award; or
(b) Where the arbitrators have awarded upon a matter not submitted to
them, not affecting the merits of the decision upon the matter submitted; or
(c) Where the award is imperfect in a matter of form not affecting the merits
of the controversy, and if it had been a commissioners report, the defect
could have been amended or disregarded by the court.
x x x.
Finally, it should be stressed that while a court is precluded from overturning
an award for errors in determination of factual issues, nevertheless, if an
examination of the record reveals no support whatever for the arbitrators
determinations, their award must be vacated.[40] In the same manner, an
award must be vacated if it was made in manifest disregard of the law.[41]
Against the backdrop of the foregoing provisions and principles, we find that
the arbitrators came out with an award in excess of their powers and
palpably devoid of factual and legal basis.
V
There was no financial structuring program; foreclosure of mortgage was
fully justified.
The point need not be belabored that PNB and DBP had the legitimate right
to foreclose of the mortgages of MMIC whose obligations were past due. The
foreclosure was not a wrongful act of the banks and, therefore, could not be
the basis of any award of damages. There was no financial restructuring
agreement to speak of that could have constituted an impediment to the
exercise of the banks right to foreclose.
As correctly stated by Mr. Jose C. Sison, a member of the Arbitration
Committee who wrote a separate opinion:

1. The various loans and advances made by DBP and PNB to MMIC have
become overdue and remain unpaid. The fact that a FRP was drawn up is
enough to establish that MMIC has not been complying with the terms of the
loan agreement. Restructuring simply connotes that the obligations are past
due that is why it is restructurable;
2. When MMIC thru its board and the stockholders agreed and adopted the
FRP, it only means that MMIC had been informed or notified that its
obligations were past due and that foreclosure is forthcoming;
3. At that stage, MMIC also knew that PNB-DBP had the option of either
approving the FRP or proceeding with the foreclosure. Cabarrus, who filed
this case supposedly in behalf of MMIC should have insisted on the FRP. Yet
Cabarrus himself opposed the FRP;
4. So when PNB-DBP proceeded with the foreclosure, it was done without bad
faith but with honest and sincere belief that foreclosure was the only
alternative; a decision further explained by Dr. Placido Mapa who testified
that foreclosure was, in the judgment of PNB, the best move to save MMIC
itself.
Q : Now in this portion of Exh. L which was marked as Exh. L-1, and we
adopted as Exh. 37-A for the respondent, may I know from you, Dr. Mapa
what you meant by that the decision to foreclose was neither precipitate nor
arbitrary?
A : Well, it is not a whimsical decision but rather decision arrived at after
weighty considerations of the information that we have received, and
listening to the prospects which reported to us that we had assumed would
be the premises of the financial rehabilitation plan was not materialized nor
expected to materialized.
Q : And this statement that it was premised upon the known fact that means,
it was referring to the decision to foreclose, was premised upon the known
fact that the rehabilitation plan earlier approved by the stockholders was no
longer feasible, just what is meant by no longer feasible?
A : Because the revenue that they were counting on to make the
rehabilitation plan possible, was not anymore expected to be forthcoming
because it will result in a short fall compared to the prices that were actually
taking place in the market.

Q : And I supposed that was you were referring to when you stated that the
production targets and assumed prices of MMICs products, among other
projections, used in the financial reorganization program that will make it
viable were not met nor expected to be met?
A : Yes.
xxx
Which brings me to my last point in this separate opinion. Was PNB and DBP
absolutely unjustified in foreclosing the mortgages?
In this connection, it can readily be seen and it cannot quite be denied that
MMIC accounts in PNB-DBP were past due. The drawing up of the FRP is the
best proof of this. When MMIC adopted a restructuring program for its loan, it
only meant that these loans were already due and unpaid. If these loans
were restructurable because they were already due and unpaid, they are
likewise forecloseable. The option is with the PNB-DBP on what steps to take.
The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost
the option to foreclose. Neither does it mean that the FRP is legally binding
and implementable. It must be pointed that said FRP will, in effect,
supersede the existing and past due loans of MMIC with PNB-DBP. It will
become the new loan agreement between the lenders and the borrowers. As
in all other contracts, there must therefore be a meeting of minds of the
parties; the PNB and DBP must have to validly adopt and ratify such FRP
before they can be bound by it; before it can be implemented. In this case,
not an iota of proof has been presented by the PLAINTIFFS showing that PNB
and DBP ratified and adopted the FRP. PLAINTIFFS simply relied on a legal
doctrine of promissory estoppel to support its allegation in this regard.[42]
Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated
by P.D. No. 385, which took effect on January 31, 1974. The decree requires
government financial institutions to foreclose collaterals for loans where the
arrearages amount to 20% of the total outstanding obligations. The pertinent
provisions of said decree read as follows:
SEC. 1. It shall be mandatory for government financial institutions, after the
lapse of sixty (60) days from the issuance of this Decree to foreclose the
collaterals and/or securities for any loan, credit, accommodations, and/or
guarantees granted by them whenever the arrearages on such account,
including accrued interest and other charges, amount to at least twenty
percent (20%) of the total outstanding obligations, including interest and

other charges, as appearing in the books of account and/or related records of

the financial institutions concerned. This shall be without prejudice to the
exercise by the government financial institutions of such rights and/or
remedies available to them under their respective contracts with their
debtor, including the right to foreclosure on loans, credits, accommodations
and/or guarantees on which the arrearages are less than twenty percent
(20%).
SEC. 2. No restraining order, temporary or permanent injunction shall be
issued by the court against any government financial institution in any action
taken by such institution in compliance with the mandatory foreclosure
provided in Section 1 hereof, whether such restraining order, temporary or
permanent injunction is sought by the borrower(s) or any third party or
parties, except after due hearing in which it is established by the borrower
and admitted by the government financial institution concerned that twenty
percent (20%) of the outstanding arrearages has been paid after the filing of
foreclosure proceedings. (Underscoring supplied.)
Private respondents thesis that the foreclosure proceedings were null and
void because of lack of publication in the newspaper is nothing more than a
mere unsubstantiated allegation not borne out by the evidence. In any case,
a disputable presumption exists in favor of petitioner that official duty has
been regularly performed and ordinary course of business has been followed.
[43]
VI
Not only was the foreclosure rightfully exercised by the PNB and DBP, but
also, from the facts of the case, the arbitrators in making the award went
beyond the arbitration agreement.
In their complaint filed before the trial court, private respondent Cabarrus, et
al. prayed for judgment in their favor:
1. Declaring the foreclosure effected by the defendants DBP and PNB on the
assets of MMIC null and void and directing said defendants to restore the
foreclosed assets to the possession of MMIC, to render an accounting of their
use and/or operation of said assets and to indemnify MMIC for the loss
occasioned by its dispossession or the deterioration thereof;
2. Directing the defendants DBP and PNB to honor and perform their
commitments under the financial reorganization plan which was approved at
the annual stockholders meeting of MMIC on 30 April 1984;

3. Condemning the defendants DBP and PNB, jointly and severally to pay the
plaintiffs actual damages consisting of the loss of value of their investment
amounting to not less than P80,000,000.00, the damnum emerges and
lucrum cessans in such amount as may be establish during the trial, moral
damages in such amount as this Honorable Court may deem just and
equitable in the premises, exemplary damages in such amount as this
Honorable Court may consider appropriate for the purpose of setting an
example for the public good, attorneys fees and litigation expenses in such
amounts as may be proven during the trial, and the costs legally taxable in
this litigation.
Further, Plaintiffs pray for such other reliefs as may be just and equitable in
the premises.[44]
Upon submission for arbitration, the Compromise and Arbitration Agreement
of the parties clearly and explicitly defined and limited the issues to the
following:
(a) whether PLAINTIFFS have the capacity or the personality to institute this
derivative suit in behalf of the MMIC or its directors;
(b) whether or not the actions leading to, and including, the PNB-DBP
foreclosure of the MMIC assets were proper, valid and in good faith.[45]
Item No. 8 of the Agreement provides for the period by which the Committee
was to render its decision, as well as the nature thereof:
8. Decision. The committee shall issue a decision on the controversy not later
than six (6) months from the date of its constitution.
In the event the committee finds that PLAINTIFFS have the personality to file
this suit and extra-judicial foreclosure of the MMIC assets wrongful, it shall
make an award in favor of the PLAINTIFFS (excluding DBP), in an amount as
may be established or warranted by the evidence which shall be payable in
Philippine Pesos at the time of the award. Such award shall be paid by the
APT or its successor-in-interest within sixty (60) days from the date of the
award in accordance with the provisions of par. 9 hereunder. x x x. The
PLAINTIFFS remedies under this Section shall be in addition to other
remedies that may be available to the PLAINTIFFS, all such remedies being
cumulative and not exclusive of each other.

On the other hand, in case the arbitration committee finds that PLAINTIFFS
have no capacity to sue and/or that the extra-judicial foreclosure is valid and
legal, it shall also make an award in favor of APT based on the counterclaims
of DBP and PNB in an amount as may be established or warranted by the
evidence. This decision of the arbitration committee in favor of APT shall
likewise finally settle all issues regarding the foreclosure of the MMIC assets
so that the funds held in escrow mentioned in par. 9 hereunder will thus be
released in full in favor of APT.[46]
The clear and explicit terms of the submission notwithstanding, the
Arbitration Committee clearly exceeded its powers or so imperfectly
executed them: (a) in ruling on and declaring valid the FRP; (b) in awarding
damages to MMIC which was not a party to the derivative suit; and (c) in
awarding moral damages to Jesus S. Cabarrus, Sr.
The arbiters overstepped their powers by declaring as valid proposed
Financial Restructuring Program.
The Arbitration Committee went beyond its mandate and thus acted in
excess of its powers when it ruled on the validity of, and gave effect to, the
proposed FRP.
In submitting the case to arbitration, the parties had mutually agreed to limit
the issue to the validity of the foreclosure and to transform the reliefs prayed
for therein into pure money claims.
There is absolutely no evidence that the DBP and PNB agreed, expressly or
impliedly, to the proposed FRP. It cannot be overemphasized that a FRP, as a
contract, requires the consent of the parties thereto.[47] The contract must
bind both contracting parties.[48] Private respondents even by their own
admission recognized that the FRP had yet not been carried out and that the
loans of MMIC had not yet been converted into equity.[49]
However, the arbitration Committee not only declared the FRP valid and
effective, but also converted the loans of MMIC into equity raising the equity
of DBP to 87%.[50]
The Arbitration Committee ruled that there was a commitment to carry out
the FRP[51] on the ground of promissory estoppel.
Similarly, the principle of promissory estoppel applies in the present case
considering as we observed, the fact that the government (that is Alfredo
Velayo) was the FRPs proponent. Although the plaintiffs are agreed that the

government executed no formal agreement, the fact remains that the DBP
itself which made representations that the FRP constituted a way out for
MMIC. The Committee believes that although the DBP did not formally agree
(assuming that the board and stockholders approvals were not formal
enough), it is bound nonetheless if only for its conspicuous representations.
Although the DBP sat in the board in a dual capacity-as holder of 36% of
MMICs equity (at that time) and as MMICs creditor-the DBP can not validly
renege on its commitments simply because at the same time, it held interest
against the MMIC.
The fact, of course, is that as APT itself asserted, the FRP was being carried
out although apparently, it would supposedly fall short of its targets.
Assuming that the FRP would fail to meet its targets, the DBP-and so this
Committee holds-can not, in any event, brook any denial that it was bound to
begin with, and the fact is that adequate or not (the FRP), the government is
still bound by virtue of its acts.
The FRP, of course, did not itself promise a resounding success, although it
raised DBPs equity in MMIC to 87%. It is not excuse, however, for the
government to deny its commitments.[52]
Atty. Sison, however, did not agree and correctly observed that:
But the doctrine of promissory estoppel can hardly find application here. The
nearest that there can be said of any estoppel being present in this case is
the fact that the board of MMIC was, at the time the FRP was adopted,
mostly composed of PNB and DBP representatives. But those
representatives, singly or collectively, are not themselves PNB or DBP. They
are individuals with personalities separate and distinct from the banks they
represent. PNB and DBP have different boards with different members who
may have different decisions. It is unfair to impose upon them the decision of
the board of another company and thus pin them down on the equitable
principle of estoppel. Estoppel is a principle based on equity and it is
certainly not equitable to apply it in this particular situation. Otherwise the
rights of entirely separate, distinct and autonomous legal entities like PNB
and DBP with thousands of stockholders will be suppressed and rendered
nugatory.[53]
As a rule, a corporation exercises its powers, including the power to enter
into contracts, through its board of directors. While a corporation may
appoint agents to enter into a contract in its behalf, the agent, should not
exceed his authority.[54] In the case at bar, there was no showing that the
representatives of PNB and DBP in MMIC even had the requisite authority to

enter into a debt-for-equity swap. And if they had such authority, there was
no showing that the banks, through their board of directors, had ratified the
FRP.
Further, how could the MMIC be entitled to a big amount of moral damages
when its credit reputation was not exactly something to be considered sound
and wholesome. Under Article 2217 of the Civil Code, moral damages include
besmirched reputation which a corporation may possibly suffer. A corporation
whose overdue and unpaid debts to the Government alone reached a
tremendous amount of P22 Billion Pesos cannot certainly have a solid
business reputation to brag about. As Atty. Sison in his separate opinion
persuasively put it:
Besides, it is not yet a well settled jurisprudence that corporations are
entitled to moral damages. While the Supreme Court may have awarded
moral damages to a corporation for besmirched reputation in Mambulao vs.
PNB 22 SCRA 359, such ruling cannot find application in this case. It must be
pointed out that when the supposed wrongful act of foreclosure was done,
MMICs credit reputation was no longer a desirable one. The company then
was already suffering from serious financial crisis which definitely projects an
image not compatible with good and wholesome reputation. So it could not
be said that there was a reputation besmirches by the act of foreclosure.[55]
The arbiters exceeded their authority in awarding damages to MMIC, which is
not impleaded as a party to the derivative suit.
Civil Code No. 9900 filed before the RTC being a derivative suit, MMIC should
have been impleaded as a party. It was not joined as a party plaintiff or party
defendant at any stage of the proceedings. As it is, the award of damages to
MMIC, which was not a party before the Arbitration Committee, is a complete
nullity.
Settled is the doctrine that in a derivative suit, the corporation is the real
party in interest while the stockholder filing suit for the corporations behalf is
only nominal party. The corporation should be included as a party in the suit.
An individual stockholder is permitted to institute a derivative suit on behalf
of the corporation wherein he holds stock in order to protect or vindicate
corporate rights, whenever the officials of the corporation refuse to sue, or
are the ones to be sued or hold the control of the corporation. In such
actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. x x x.[56]

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

becausex x x. Not only is the corporation an indispensible party, but it is also the
present rule that it must be served with process. The reason given is that the
judgment must be made binding upon the corporation and in order that the
corporation may get the benefit of the suit and may not bring a subsequent
suit against the same defendants for the same cause of action. In other
words the corporations must be joined as party because it is its cause of
action that is being litigated and because judgment must be a res ajudicata
against it.[57]
The reasons given for not allowing direct individual suit are:
(1) x x x the universally recognized doctrine that a stockholder in a
corporation has no title legal or equitable to the corporate property; that
both of these are in the corporation itself for the benefit of the stockholders.
In other words, to allow shareholders to sue separately would conflict with
the separate corporate entity principle;
(2) x x x that the prior rights of the creditors may be prejudiced. Thus, our
Supreme Court held in the case of Evangelista v. Santos, that the
stockholders may not directly claim those damages for themselves for that
would result in the appropriation by, and the distribution among them of part
of the corporate assets before the dissolution of the corporation and the
liquidation of its debts and liabilities, something which cannot be legally
done in view of section 16 of the Corporation Law xxx;
(3) the filing of such suits would conflict with the duty of the management to
sue for the protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in a ascertaining the effect of partial recovery
by an individual on the damages recoverable by the corporation for the same
act.[58]
If at all an award was due MMIC, which it was not, the same should have
been given sans deduction, regardless of whether or not the party liable had
equity in the corporation, in view of the doctrine that a corporation has a
personality separate and distinct from its individual stockholders or
members. DBPs alleged equity, even if it were indeed 87%, did not give it
ownership over any corporate property, including the monetary award, its

right over said corporate property being a mere expectancy or inchoate

right.[59]Notably, the stipulation even had the effect of prejudicing the other
creditors of MMIC.
The arbiters, likewise, exceeded their authority in awarding moral damages
to Jesus Cabarrus, Sr.
It is perplexing how the Arbitration Committee can in one breath rule that the
case before it is a derivative suit, in which the aggrieved party or the real
party in interest is supposedly the MMIC, and at the same time award moral
damages to an individual stockholder, to wit:
WHEREFORE, premises considered, judgment is hereby rendered:
xxx.
3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the
sum of P10,000,000.00, to be satisfied likewise from the funds held under
escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supersede it, pursuant to
paragraph (9), Compromise and Arbitration Agreement, as and for moral
damages; x x x[60]
The majority decision of the Arbitration Committee sought to justify its award
of moral damages to Jesus S. Cabarrus, Sr. by pointing to the fact that among
the assets seized by the government were assets belonging to Industrial
Enterprise Inc. (IEI), of which Cabarrus is the majority stockholder. It then
acknowledge that Cabarrus had already recovered said assets in the RTC, but
that he won no more than actual damages. While the Committee cannot
possibly speak for the RTC, there is no doubt that Jesus S. Cabarrus, Sr.,
suffered moral damages on account of that specific foreclosure, damages the
Committee believes and so holds, he Jesus S. Cabarrus, Sr., may be awarded
in this proceeding.[61]
Cabarrus cause of action for the seizure of the assets belonging to IEI, of
which he is the majority stockholder, having been ventilated in a complaint
he previously filed with the RTC, from which he obtained actual damages, he
was barred res judicata from filing a similar case in another court, this time
asking for moral damages which he failed to get from the earlier case.[62]
Worse, private respondents violated the rule against non-forum shopping.
It is a basic postulate that s corporation has a personality separate and
distinct from its stockholders.[63] The properties foreclosed belonged to

MMIC, not to its stockholders. Hence, if wrong was committed in the

foreclosure, it was done against the corporation. Another reason is that Jesus
S. Cabarrus, Sr. cannot directly claim those damages for himself that would
result in the appropriation by, and the distribution to, him part of the
corporations assets before the dissolution of the corporation and the
liquidation of its debts and liabilities. The Arbitration Committee, therefore,
passed upon matters not submitted to it. Moreover, said cause of action had
already been decided in a separate case. It is thus quite patent that the
arbitration committee exceeded the authority granted to it by the parties
Compromise and Arbitration Agreement by awarding moral damages to Jesus
S. Cabarrus, Sr.
Atty. Sison, in his separate opinion, likewise expressed befuddlement to the
award of moral damages to Jesus S. Cabarrus, Sr.:
It is clear and it cannot be disputed therefore that based on these stipulated
issues, the parties themselves have agreed that the basic ingredient of the
causes of action in this case is the wrong committed on the corporation
(MMIC) for the alleged illegal foreclosure of its assets. By agreeing to this
stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit that the cause of
action pertains only to the corporation (MMIC) and that they are filing this for
and in behalf of MMIC.
Perforce this has to be so because it is the basic rule in Corporation Law that
the shareholders have no title, legal or equitable to the property which is
owned by the corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83).
In Ganzon & Sons vs. Register of Deeds, 6 SCRA 373, the rule has been
reiterated that a stockholder is not the co-owner of corporate property. Since
the property or assets foreclosed belongs [sic] to MMIC, the wrong
committed, if any, is done against the corporation. There is therefore no
direct injury or direct violation of the rights of Cabarrus et al. There is no
way, legal or equitable, by which Cabarrus et al. could recover damages in
their personal capacities even assuming or just because the foreclosure is
improper or invalid. The Compromise and Arbitration Agreement itself and
the elementary principles of Corporation Law say so. Therefore, I am
constrained to dissent from the award of moral damages to Cabarrus.[64]
From the foregoing discussions, it is evident that, not only did the arbitration
committee exceed its powers or so imperfectly execute them, but also, its
findings and conclusions are palpably devoid of any factual basis and in
manifest disregard of the law.
We do not find it necessary to remand this case to the RTC for appropriate
action. The pleadings and memoranda filed with this Court, as well as in the

Court of Appeals, raised and extensively discussed the issues on the merits.
Such being the case, there is sufficient basis for us to resolve the controversy
between the parties anchored on the records and the pleadings before us.
[65]
WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as
well as the Orders of the Regional Trial Court of Makati, Branch 62, dated
November 28, 1994 and January 19, 1995, is hereby REVERSED and SET
ASIDE, and the decision of the Arbitration Committee is hereby VACATED.
SO ORDERED
ABS-CBN Broadcasting Corporation vs. Court of Appeals, 301 SCRA
572(1999)
Civil Law; Contracts; A contract is a meeting of minds between two persons
whereby one binds himself to give something or to render some service to
another for a consideration.The first issue should be resolved against ABSCBN. A contract is a meeting of minds between two persons whereby one
binds himself to give something or to render some service to another for a
consideration. There is no contract unless the following requisites concur: (1)
consent of the contracting parties; (2) object certain which is the subject of
the contract; and (3) cause of the obligation, which is established. A contract
undergoes three stages: (a) preparation, conception, or generation, which is
the period of negotiation and bargaining, ending at the moment of
agreement of the parties; (b) perfection or birth of the contract, which is the
moment when the parties come to agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the
terms agreed upon in the contract.
Same; Same; Contracts that are consensual in nature are perfected upon
mere meeting of the minds. Once there is concurrence between the offer and
the acceptance upon the subject matter, consideration, and terms of
payment a contract is produced.Contracts that are consensual in nature
are perfected upon mere meeting of the minds. Once there is concurrence
between the offer and the acceptance upon the subject matter,
consideration, and terms of payment a contract is produced. The offer must
be certain. To convert the offer into a contract, the acceptance must be
absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional, and without variance of any sort from the
proposal. A qualified acceptance, or one that involves a new proposal,
constitutes a counter-offer and is a rejection of the original offer.
Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to generate

consent because any modification or variation from the terms of the offer
annuls the offer.
Same; Same; Acceptance of an Offer; Words and Phrases; The acceptance of
an offer must be unqualified and absolute, i.e., it must be identical in all
respects with that of the offer so as to produce consent or meeting of the
minds.ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of
Appeals and Villonco Realty Company v. Bormaheco, Inc., is misplaced. In
these cases, it was held that an acceptance may contain a request for
certain changes in the terms of the offer and yet be a binding acceptance as
long as it is clear that the meaning of the acceptance is positively and
unequivocally to accept the offer, whether such request is granted or not.
This ruling was, however, reversed in the resolution of 29 March 1996, which
ruled that the acceptance of an offer must be unqualified and absolute, i.e.,
it must be identical in all respects with that of the offer so as to produce
consent or meeting of the minds.
Commercial Law; Corporation Code; Board of Directors; Under the
Corporation Code, unless otherwise provided by said Code, corporate
powers, such as the power to enter into contracts, are exercised by the
Board of Directors. However, the Board may delegate such powers to either
an executive committee or officials or contracted managers. Under the
Corporation Code, unless otherwise provided by said Code, corporate
powers, such as the power to enter into contracts, are exercised by the
Board of Directors. However, the Board may delegate such powers to either
an executive committee or officials or contracted managers. The delegation,
except for the executive committee, must be for specific purposes.
Delegation to officers makes the latter agents of the corporation;
accordingly, the general rules of agency as to the binding effects of their acts
would apply. For such officers to be deemed fully clothed by the corporation
to exercise a power of the Board, the latter must specially authorize them to
do so. That Del Rosario did not have the authority to accept ABS-CBNs
counter-offer was best evidenced by his submission of the draft contract to
VIVAs Board of Directors for the latters approval. In any event, there was
between Del Rosario and Lopez III no meeting of minds.
Civil Law; Contracts; Damages; Except as provided by law or by stipulation,
one is entitled to compensation for actual damages [ABS-CBN Broadcasting
Corporation vs. Court of Appeals, 301 SCRA 572(1999)]
only for such pecuniary loss suffered by him as he has duly proved. We find
for ABS-CBN on the issue of damages. We shall first take up actual damages.
Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or
compensatory damages. Except as provided by law or by stipulation, one is
entitled to compensation for actual damages only for such pecuniary loss
suffered by him as he has duly proved. The indemnification shall
comprehend not only the value of the loss suffered, but also that of the
profits that the obligee failed to obtain. In contracts and quasi-contracts the

damages which may be awarded are dependent on whether the obligor

acted with good faith or otherwise. In case of good faith, the damages
recoverable are those which are the natural and probable consequences of
the breach of the obligation and which the parties have foreseen or could
have reasonably foreseen at the time of the constitution of the obligation. If
the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall
be responsible for all damages which may be reasonably attributed to the
non-performance of the obligation. In crimes and quasi-delicts, the defendant
shall be liable for all damages which are the natural and probable
consequences of the act or omission complained of, whether or not such
damages have been foreseen or could have reasonably been foreseen by the
defendant.
Same; Same; Same; Actual damages may likewise be recovered for loss or
impairment of earning capacity in cases of temporary or permanent personal
injury, or for injury to the plaintiffs business standing or commercial credit.
Actual damages may likewise be recovered for loss or impairment of earning
capacity in cases of temporary or permanent personal injury, or for injury to
the plaintiffs business standing or commercial credit. The claim of RBS for
actual damages did not arise from contract, quasi-contract, delict, or
quasidelict. It arose from the fact of filing of the complaint despite ABS-CBNs
alleged knowledge of lack of cause of action.
Same; Same; Same; In cases where a writ of preliminary injunction is issued,
the damages which the defendant may suffer by reason of the writ are
recoverable from the injunctive bond.It may further be observed that in
cases where a writ of preliminary injunction is issued, the damages which the
defendant may suffer by reason of the writ are recoverable from the
injunctive bond. In this case, ABS-CBN had not yet filed the required bond; as
a matter of fact, it asked for reduction of the bond and even went to the
Court of Ap- [ABS-CBN Broadcasting Corporation vs. Court of Appeals, 301
SCRA 572(1999)]
peals to challenge the order on the matter. Clearly then, it was not necessary
for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for
the premium RBS paid for the counterbond.
Same; Same; Same; The general rule is that attorneys fees cannot be
recovered as part of damages because of the policy that no premium should
be placed on the right to litigate.As regards attorneys fees, the law is clear
that in the absence of stipulation, attorneys fees may be recovered as actual
or compensatory damages under any of the circumstances provided for in
Article 2208 of the Civil Code. The general rule is that attorneys fees cannot
be recovered as part of damages because of the policy that no premium
should be placed on the right to litigate. They are not to be awarded every
time a party wins a suit. The power of the court to award attorneys fees
under Article 2208 demands factual, legal, and equitable justification. Even
when a claimant is compelled to litigate with third persons or to incur

expenses to protect his rights, still attorneys fees may not be awarded
where no sufficient showing of bad faith could be reflected in a partys
persistence in a case other than an erroneous conviction of the
righteousness of his cause.
Same; Same; Same; Moral damages are in the category of an award
designed to compensate the claimant for actual injury suffered and not to
impose a penalty on the wrongdoer.Moral damages are in the category of
an award designed to compensate the claimant for actual injury suffered and
not to impose a penalty on the wrongdoer. The award is not meant to enrich
the complainant at the expense of the defendant, but to enable the injured
party to obtain means, diversion, or amusements that will serve to obviate
the moral suffering he has undergone. It is aimed at the restoration, within
the limits of the possible, of the spiritual status quo ante, and should be
proportionate to the suffering inflicted. Trial courts must then guard against
the award of exorbitant damages; they should exercise balanced restrained
and measured objectivity to avoid suspicion that it was due to passion,
prejudice, or corruption on the part of the trial court.
Same; Same; Same; The award of moral damages cannot be granted in favor
of a corporation because, being an artificial person and having existence
only in legal contemplation, it has no feelings, no emotions, no senses. It
cannot, therefore, experience physical suffering and mental anguish, which
can be experienced only by one
[ABS-CBN Broadcasting Corporation vs. Court of Appeals, 301 SCRA
572(1999)]
having a nervous system.The award of moral damages cannot be granted
in favor of a corporation because, being an artificial person and having
existence only in legal contemplation, it has no feelings, no emotions, no
senses. It cannot, therefore, experience physical suffering and mental
anguish, which can be experienced only by one having a nervous system.
The statement in People v. Manero and Mambulao Lumber Co. v. PNB that a
corporation may recover moral damages if it has a good reputation that is
debased, resulting in social humiliation is an obiter dictum. On this score
alone the award for damages must be set aside, since RBS is a corporation.
Same; Same; Same; The basic law on exemplary damages is Section 5,
Chapter 3, Title XVIII, Book IV of the Civil Code.The basic law on exemplary
damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These
are imposed by way of example or correction for the public good, in addition
to moral, temperate, liquidated, or compensatory damages. They are
recoverable in criminal cases as part of the civil liability when the crime was
committed with one or more aggravating circumstances; in quasi-delicts, if
the defendant acted with gross negligence; and in contracts and
quasicontracts, if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.

Same; Same; Same; Bad Faith; Malice or bad faith is at the core of Articles
19, 20, and 21. Malice or bad faith implies a conscious and intentional design
to do a wrongful act for a dishonest purpose or moral obliquity. Such must be
substantiated by evidence.It may be reiterated that the claim of RBS
against ABS-CBN is not based on contract, quasi-contract, delict, or quasidelict. Hence, the claims for moral and exemplary damages can only be
based on Articles 19, 20, and 21 of the Civil Code. The elements of abuse of
right under Article 19 are the following: (1) the existence of a legal right or
duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for all
other provisions of law which do not especially provide for their own
sanction; while Article 21 deals with acts contra bonus mores, and has the
following elements: (1) there is an act which is legal, (2) but which is
contrary to morals, good custom, public order, or public policy, and (3) and it
is done with intent to injure. Verily then, malice or bad faith is at the core of
Articles 19, 20, and 21. Malice or bad faith implies a conscious and
intentional design to do [ABS-CBN Broadcasting Corporation vs. Court of
Appeals, 301 SCRA 572(1999)]
a wrongful act for a dishonest purpose or moral obliquity. Such must be
substantiated by evidence.
Same; Same; Same; The adverse result of an action does not per se make
the action wrongful and subject the actor to damages, for the law could not
have meant to impose a penalty on the right to litigate. If damages result
from a persons exercise of a right, it is damnum absque injuria.There is no
adequate proof that ABS-CBN was inspired by malice or bad faith. It was
honestly convinced of the merits of its cause after it had undergone serious
negotiations culminating in its formal submission of a draft contract. Settled
is the rule that the adverse result of an action does not per se make the
action wrongful and subject the actor to damages, for the law could not have
meant to impose a penalty on the right to litigate. If damages result from a
persons exercise of a right, it is damnum absque injuria. [ABS-CBN
Broadcasting Corporation vs. Court of Appeals, 301 SCRA 572(1999)]

G.R. No. 128690 January 21, 1999

Lessons Applicable: Who may recover (Torts and Damages)
Laws Applicable: Articles 19, 20, and 21 of the Civil Code
FACTS:

Viva, through Del Rosario, offered ABS-CBN through its vice-president Charo
Santos-Concio, a list of 3 film packages or 36 titles from which ABS-CBN may
exercise its right of first refusal
Mrs. Concio informed Vic through a letter that they can only purchase 10
titles to be schedules on non-primetime slots because they were very adult
themes which the ruling of the MTRCB advises to be aired at 9:00 p.m
February 27, 1992: Del Rosario approached ABS-CBN's Ms. Concio with a list
consisting of 52 original movie titles as well as 104 re-runs proposing to sell
to ABS-CBN airing rights for P60M (P30M cash and P30M worth of television
spots)
April 2, 1992: Del Rosario and ABS-CBN general manager, Eugenio Lopez III
met wherein Del Rosario allegedly agreed to grant rights for 14 films for
P30M
April 06, 1992: Del Rosario and Mr. Graciano Gozon of RBS Senior vicepresident for Finance discussed the terms and conditions of Viva's offer to
sell the 104 films, after the rejection of the same package by ABS-CBN
April 07, 1992: Ms. Concio sent the proposal draft of 53 films for P35M which
Viva's Board rejected since they will not accept anything less than P60M
April 29, 1992: Viva granted RBS exclusive grants for P60M
RTC: Issued TRO against RBS in showing 14 films as filed by ABS-CBN.
RBS also set up a cross-claim against VIVA
RTC: ordered ABS-CBN to pay RBS P107,727 premium paid by RBS to the
surety which issued their bond to lift the injunction, P191,843.00 for the
amount of print advertisement for "Maging Sino Ka Man" in various
newspapers, P1M attorney's fees, P5M moral damages, P5M exemplary
damages and costs. Cross-claim to VIVA was dismissed.
ABS-CBN appealed. VIVA and Del Rosario also appealed seeking moral and
exemplary damages and additional attorney's fees.
CA: reduced the awards of moral damages to P2M, exemplary damages to
P2M and attorney's fees to P500,000. Denied VIVA and Del Rosario's appeal
because it was RBS and not VIVA which was actually prejudiced when the
complaint was filed by ABS-CBN
ISSUE:
1. W/N RBS is entitled to damages. -YES
2. W/N VIVA is entitled to damages. - NO
HELD: REVERSED except as to unappealed award of attorney's fees in favor
of VIVA Productions, Inc.
1. YES.

One is entitled to compensation for actual damages only for such pecuniary
loss suffered by him as he has duly proved. The indemnification shall
comprehend not only the value of the loss suffered, but also that of the
profits that the obligee failed to obtain. In contracts and quasi-contracts the
damages which may be awarded are dependent on whether the obligor
acted with good faith or otherwise, It case of good faith, the damages
recoverable are those which are the natural and probable consequences of
the breach of the obligation and which the parties have foreseen or could
have reasonably foreseen at the time of the constitution of the obligation. If
the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall
be responsible for all damages which may be reasonably attributed to the
non-performance of the obligation. In crimes and quasi-delicts, the defendant
shall be liable for all damages which are the natural and probable
consequences of the act or omission complained of, whether or not such
damages has been foreseen or could have reasonably been foreseen by the
defendant.
Actual damages may likewise be recovered for loss or
impairment of earning capacity in cases of temporary or permanent personal
injury, or for injury to the plaintiff's business standing or commercial credit.
The claim of RBS for actual damages did not arise from contract, quasicontract, delict, or quasi-delict. It arose from the fact of filing of the
complaint despite ABS-CBN's alleged knowledge of lack of cause of action.
Needless to state the award of actual damages cannot be comprehended
under the above law on actual damages. RBS could only probably take
refuge under Articles 19, 20, and 21 of the Civil Code.
In this case, ABS-CBN had not yet filed the required bond; as a matter of fact,
it asked for reduction of the bond and even went to the Court of Appeals to
challenge the order on the matter, Clearly then, it was not necessary for RBS
to file a counterbond. Hence, ABS-CBN cannot be held responsible for the
premium RBS paid for the counterbond
Neither could ABS-CBN be liable for the print advertisements for "Maging
Sino Ka Man" for lack of sufficient legal basis.
Article 2217 thereof defines what are included in moral damages, while
Article 2219 enumerates the cases where they may be recovered, Article
2220 provides that moral damages may be recovered in breaches of contract
where the defendant acted fraudulently or in bad faith. RBS's claim for moral
damages could possibly fall only under item (10) of Article 2219
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34,
and 35.
The award of moral damages cannot be granted in favor of a corporation
because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses, It cannot,
therefore, experience physical suffering and mental anguish, which call be
experienced only by one having a nervous system. A corporation may
recover moral damages if it "has a good reputation that is debased, resulting

in social humiliation" is an obiter dictum. On this score alone the award for
damages must be set aside, since RBS is a corporation.
exemplary damages are imposed by way of example or correction for the
public good, in addition to moral, temperate, liquidated or compensatory
damages. They are recoverable in criminal cases as part of the civil liability
when the crime was committed with one or more aggravating circumstances
in quasi-contracts, if the defendant acted with gross negligence and in
contracts and quasi-contracts, if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner
It may be reiterated that the claim of RBS against ABS-CBN is not based on
contract, quasi-contract, delict, or quasi-delict, Hence, the claims for moral
and exemplary damages can only be based on Articles 19, 20, and 21 of the
Civil Code.
There is no adequate proof that ABS-CBN was inspired by malice or bad faith.
If damages result from a person's exercise of a right, it is damnum absque
injuria.