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CORPORATION LAW CASES

CASE 1.
G.R. No. L-23145
November 29, 1968
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary administrator-appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.
Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.
FERNANDO, J.:
Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company of New York,
United States of America, of the estate of the deceased Idonah Slade Perkins, who died in New York City on March 27,
1960, to surrender to the ancillary administrator in the Philippines the stock certificates owned by her in a Philippine
corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims of local creditors, the lower court, then presided
by the Honorable Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor: "After considering the
motion of the ancillary administrator, dated February 11, 1964, as well as the opposition filed by the Benguet
Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in connection with the administration and
liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates covering the 33,002 shares of stock
standing in her name in the books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs
said corporation to issue new certificates in lieu thereof, the same to be delivered by said corporation to either the
incumbent ancillary administrator or to the Probate Division of this Court." 1
From such an order, an appeal was taken to this Court not by the domiciliary administrator, the County Trust Company of
New York, but by the Philippine corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The
challenged order represents a response and expresses a policy, to paraphrase Frankfurter, arising out of a specific
problem, addressed to the attainment of specific ends by the use of specific remedies, with full and ample support from
legal doctrines of weight and significance.
The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade Perkins, who
died on March 27, 1960 in New York City, left among others, two stock certificates covering 33,002 shares of appellant,
the certificates being in the possession of the County Trust Company of New York, which as noted, is the domiciliary
administrator of the estate of the deceased.2 Then came this portion of the appellant's brief: "On August 12, 1960,
Prospero Sanidad instituted ancillary administration proceedings in the Court of First Instance of Manila; Lazaro A.
Marquez was appointed ancillary administrator, and on January 22, 1963, he was substituted by the appellee Renato D.
Tayag. A dispute arose between the domiciary administrator in New York and the ancillary administrator in the Philippines
as to which of them was entitled to the possession of the stock certificates in question. On January 27, 1964, the Court of
First Instance of Manila ordered the domiciliary administrator, County Trust Company, to "produce and deposit" them with
the ancillary administrator or with the Clerk of Court. The domiciliary administrator did not comply with the order, and on
February 11, 1964, the ancillary administrator petitioned the court to "issue an order declaring the certificate or certificates
of stocks covering the 33,002 shares issued in the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be
declared [or] considered as lost."3
It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it is concerned as
to "who is entitled to the possession of the stock certificates in question; appellant opposed the petition of the ancillary
administrator because the said stock certificates are in existence, they are today in the possession of the domiciliary
administrator, the County Trust Company, in New York, U.S.A...." 4
It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as lost.
Moreover, it would allege that there was a failure to observe certain requirements of its by-laws before new stock
certificates could be issued. Hence, its appeal.
As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes an emphatic
affirmation of judicial authority sought to be emasculated by the wilful conduct of the domiciliary administrator in refusing
to accord obedience to a court decree. How, then, can this order be stigmatized as illegal?

As is true of many problems confronting the judiciary, such a response was called for by the realities of the situation. What
cannot be ignored is that conduct bordering on wilful defiance, if it had not actually reached it, cannot without undue loss
of judicial prestige, be condoned or tolerated. For the law is not so lacking in flexibility and resourcefulness as to preclude
such a solution, the more so as deeper reflection would make clear its being buttressed by indisputable principles and
supported by the strongest policy considerations.
It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less than that of the
country. Through this challenged order, there is thus dispelled the atmosphere of contingent frustration brought about by
the persistence of the domiciliary administrator to hold on to the stock certificates after it had, as admitted, voluntarily
submitted itself to the jurisdiction of the lower court by entering its appearance through counsel on June 27, 1963, and
filing a petition for relief from a previous order of March 15, 1963.
Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed. For without it,
what it had been decided would be set at naught and nullified. Unless such a blatant disregard by the domiciliary
administrator, with residence abroad, of what was previously ordained by a court order could be thus remedied, it would
have entailed, insofar as this matter was concerned, not a partial but a well-nigh complete paralysis of judicial authority.
1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to gain control
and possession of all assets of the decedent within the jurisdiction of the Philippines. Nor could it. Such a power is
inherent in his duty to settle her estate and satisfy the claims of local creditors. 5 As Justice Tuason speaking for this Court
made clear, it is a "general rule universally recognized" that administration, whether principal or ancillary, certainly
"extends to the assets of a decedent found within the state or country where it was granted," the corollary being "that an
administrator appointed in one state or country has no power over property in another state or country." 6
It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by Justice
Malcolm. Thus: "It is often necessary to have more than one administration of an estate. When a person dies intestate
owning property in the country of his domicile as well as in a foreign country, administration is had in both countries. That
which is granted in the jurisdiction of decedent's last domicile is termed the principal administration, while any other
administration is termed the ancillary administration. The reason for the latter is because a grant of administration does
not ex proprio vigore have any effect beyond the limits of the country in which it is granted. Hence, an administrator
appointed in a foreign state has no authority in the [Philippines]. The ancillary administration is proper, whenever a person
dies, leaving in a country other than that of his last domicile, property to be administered in the nature of assets of the
deceased liable for his individual debts or to be distributed among his heirs." 7
It would follow then that the authority of the probate court to require that ancillary administrator's right to "the stock
certificates covering the 33,002 shares ... standing in her name in the books of [appellant] Benguet Consolidated, Inc...."
be respected is equally beyond question. For appellant is a Philippine corporation owing full allegiance and subject to the
unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as immune from
lawful court orders.
Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue 8 finds application. "In the instant case, the
actual situs of the shares of stock is in the Philippines, the corporation being domiciled [here]." To the force of the above
undeniable proposition, not even appellant is insensible. It does not dispute it. Nor could it successfully do so even if it
were so minded.
2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the challenged
order, how does appellant, Benguet Consolidated, Inc. propose to carry the extremely heavy burden of persuasion of
precisely demonstrating the contrary? It would assign as the basic error allegedly committed by the lower court its
"considering as lost the stock certificates covering 33,002 shares of Benguet belonging to the deceased Idonah Slade
Perkins, ..."9 More specifically, appellant would stress that the "lower court could not "consider as lost" the stock
certificates in question when, as a matter of fact, his Honor the trial Judge knew, and does know, and it is admitted by the
appellee, that the said stock certificates are in existence and are today in the possession of the domiciliary administrator
in New York."10
There may be an element of fiction in the above view of the lower court. That certainly does not suffice to call for the
reversal of the appealed order. Since there is a refusal, persistently adhered to by the domiciliary administrator in New
York, to deliver the shares of stocks of appellant corporation owned by the decedent to the ancillary administrator in the
Philippines, there was nothing unreasonable or arbitrary in considering them as lost and requiring the appellant to issue
new certificates in lieu thereof. Thereby, the task incumbent under the law on the ancillary administrator could be
discharged and his responsibility fulfilled.

Any other view would result in the compliance to a valid judicial order being made to depend on the uncontrolled
discretion of the party or entity, in this case domiciled abroad, which thus far has shown the utmost persistence in refusing
to yield obedience. Certainly, appellant would not be heard to contend in all seriousness that a judicial decree could be
treated as a mere scrap of paper, the court issuing it being powerless to remedy its flagrant disregard.
It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the facts.
To be more blunt, the quality of truth may be lacking in such a conclusion arrived at. It is to be remembered however,
again to borrow from Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends have played
an important part in its development."11
Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance the ends of
justice, [even if] clumsy and at times offensive."12 Some of them have persisted even to the present, that eminent jurist,
noting "the quasi contract, the adopted child, the constructive trust, all of flourishing vitality, to attest the empire of "as if"
today."13 He likewise noted "a class of fictions of another order, the fiction which is a working tool of thought, but which at
times hides itself from view till reflection and analysis have brought it to the light." 14
What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the law. There should
be then on the part of the appellant a further refinement in the catholicity of its condemnation of such judicial technique. If
ever an occasion did call for the employment of a legal fiction to put an end to the anomalous situation of a valid judicial
order being disregarded with apparent impunity, this is it. What is thus most obvious is that this particular alleged error
does not carry persuasion.
3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one of the provisions of
its by-laws which would set forth the procedure to be followed in case of a lost, stolen or destroyed stock certificate; it
would stress that in the event of a contest or the pendency of an action regarding ownership of such certificate or
certificates of stock allegedly lost, stolen or destroyed, the issuance of a new certificate or certificates would await the
"final decision by [a] court regarding the ownership [thereof]." 15
Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is admitted that the foreign
domiciliary administrator did not appeal from the order now in question. Moreover, there is likewise the express admission
of appellant that as far as it is concerned, "it is immaterial ... who is entitled to the possession of the stock certificates ..."
Even if such were not the case, it would be a legal absurdity to impart to such a provision conclusiveness and finality.
Assuming that a contrariety exists between the above by-law and the command of a court decree, the latter is to be
followed.
It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which, however, the judiciary
must yield deference, when appropriately invoked and deemed applicable. It would be most highly unorthodox, however, if
a corporate by-law would be accorded such a high estate in the jural order that a court must not only take note of it but
yield to its alleged controlling force.
The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be set aside for its
inconsistency with one of its by-laws does not impress us. Its obedience to a lawful court order certainly constitutes a valid
defense, assuming that such apprehension of a possible court action against it could possibly materialize. Thus far,
nothing in the circumstances as they have developed gives substance to such a fear. Gossamer possibilities of a future
prejudice to appellant do not suffice to nullify the lawful exercise of judicial authority.
4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with the
basic postulates of corporate theory.
We start with the undeniable premise that, "a corporation is an artificial being created by operation of law...." 16 It owes its
life to the state, its birth being purely dependent on its will. As Berle so aptly stated: "Classically, a corporation was
conceived as an artificial person, owing its existence through creation by a sovereign power." 17As a matter of fact, the
statutory language employed owes much to Chief Justice Marshall, who in the Dartmouth College decision defined a
corporation precisely as "an artificial being, invisible, intangible, and existing only in contemplation of law." 18
The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality a person,
but the law treats it as though it were a person by process of fiction, or by regarding it as an artificial person distinct and
separate from its individual stockholders.... It owes its existence to law. It is an artificial person created by law for certain
specific purposes, the extent of whose existence, powers and liberties is fixed by its charter." 19 Dean Pound's terse

summary, a juristic person, resulting from an association of human beings granted legal personality by the state, puts the
matter neatly.20
There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is the
reality of the group as a social and legal entity, independent of state recognition and concession." 21 A corporation as
known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state
according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than that of
its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not
excluding the judiciary, whenever called upon to do so.
As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in our
jurisdiction, comes more often within the ken of the judiciary than the other two coordinate branches. It institutes the
appropriate court action to enforce its right. Correlatively, it is not immune from judicial control in those instances, where a
duty under the law as ascertained in an appropriate legal proceeding is cast upon it.
To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which
may be conceded but license which cannot be tolerated. It is to argue that it may, when so minded, overrule the state, the
source of its very existence; it is to contend that what any of its governmental organs may lawfully require could be
ignored at will. So extravagant a claim cannot possibly merit approval.
5. One last point. In Viloria v. Administrator of Veterans Affairs, 22 it was shown that in a guardianship proceedings then
pending in a lower court, the United States Veterans Administration filed a motion for the refund of a certain sum of money
paid to the minor under guardianship, alleging that the lower court had previously granted its petition to consider the
deceased father as not entitled to guerilla benefits according to a determination arrived at by its main office in the United
States. The motion was denied. In seeking a reconsideration of such order, the Administrator relied on an American
federal statute making his decisions "final and conclusive on all questions of law or fact" precluding any other American
official to examine the matter anew, "except a judge or judges of the United States court." 23 Reconsideration was denied,
and the Administrator appealed.
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that the appeal should
be rejected. The provisions of the U.S. Code, invoked by the appellant, make the decisions of the U.S. Veterans'
Administrator final and conclusive when made on claims property submitted to him for resolution; but they are not
applicable to the present case, where the Administrator is not acting as a judge but as a litigant. There is a great
difference between actions against the Administrator (which must be filed strictly in accordance with the conditions that
are imposed by the Veterans' Act, including the exclusive review by United States courts), and those actions where the
Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction by filing actions therein. Our
attention has not been called to any law or treaty that would make the findings of the Veterans' Administrator, in actions
where he is a party, conclusive on our courts. That, in effect, would deprive our tribunals of judicial discretion and render
them mere subordinate instrumentalities of the Veterans' Administrator."
It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive, determinations
made by foreign governmental agencies. It is infinitely worse if through the absence of any coercive power by our courts
over juridical persons within our jurisdiction, the force and effectivity of their orders could be made to depend on the whim
or caprice of alien entities. It is difficult to imagine of a situation more offensive to the dignity of the bench or the honor of
the country.
Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet Consolidated seems to be
firmly committed as shown by its failure to accept the validity of the order complained of; it seeks its reversal. Certainly we
must at all pains see to it that it does not succeed. The deplorable consequences attendant on appellant prevailing attest
to the necessity of negative response from us. That is what appellant will get.
That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to conjure extreme
and even oppressive possibilities. That is not decisive. It does not settle the issue. What carries weight and conviction is
the result arrived at, the just solution obtained, grounded in the soundest of legal doctrines and distinguished by its
correspondence with what a sense of realism requires. For through the appealed order, the imperative requirement of
justice according to law is satisfied and national dignity and honor maintained.
WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First Instance, dated May
18, 1964, is affirmed. With costs against oppositor-appelant Benguet Consolidated, Inc.

Footnotes
1

Statement of the Case and Issues Involved, Brief for the Oppositor-Appellant, p. 2.

Ibid, p. 3.

Ibid, pp. 3 to 4.

Ibid, p. 4.

Rule 84, Sec. 3, Rules of Court. Cf. Pavia v. De la Rosa, 8 Phil. 70 (1907); Suiliong and Co. v. Chio Taysan, 12
Phil. 13 (1908); Malahacan v. Ignacio, 19 Phil. 434 (1911); McMicking v. Sy Conbieng, 21 Phil. 211 (1912); In re
Estate of De Dios, 24 Phil. 573 (1913); Santos v. Manarang, 27 Phil. 209 (1914); Jaucian v. Querol, 38 Phil. 707
(1918); Buenaventura v. Ramos, 43 Phil. 704 (1922); Roxas v. Pecson, 82 Phil. 407 (1948); De Borja v. De Boria,
83 Phil. 405 (1949); Barraca v. Zayco, 88 Phil. 774 (1951); Pabilonia v. Santiago, 93 Phil. 516 (1953); Sison v.
Teodoro, 98 Phil. 680 (1956); Ozaeta v. Palanca, 101 Phil. 976 (1957); Natividad Castelvi de Raquiza v. Castelvi,
et al, L-17630, Oct. 31, 1963; Habana v. Imbo, L-15598 & L-15726, March 31, 1964; Gliceria Liwanag v. Hon. Luis
Reyes, L-19159, Sept. 29, 1964; Ignacio v. Elchico, L-18937, May 16, 1967.
6

Leon and Ghezzi v. Manufacturers Life, Inc. Co., 990 Phil. 459 (1951).

Johannes v. Harvey, 43 Phil. 175, 177-178 (1922).

70 Phil. 325 (1940). Cf. Perkins v. Dizon, 69 Phil. 186 (1939).

Brief for Oppositor-Appellant, p. 5. The Assignment of Error reads: "The lower court erred in entering its order of
May 18, 1964, (1) considering as lost the stock certificates covering 33,002 shares of Benguet belonging to the
deceased Idonah Slade Perkins, (2) ordering the said certificates cancelled, and (3) ordering appellant to issue
new certificates in lieu thereof and to deliver them to the ancillary administrator of the estate of the deceased
Idonah Slade Perkins or to the probate division of the lower court."
10

Ibid, pp. 5 to 6.

11

Nashville C. St. Louis Ry v. Browning, 310 US 362 (1940).

12

Cardozo, The Paradoxes of Legal Science, 34 (1928).

13

Ibid, p. 34.

14

Ibid, p. 34. The late Professor Gray in his The Nature and Sources of the Law, distinguished, following Ihering,
historic fictions from dogmatic fictions, the former being devices to allow the addition of new law to old without
changing the form of the old law and the latter being intended to arrange recognized and established doctrines
under the most convenient forms. pp. 30, 36 (1909) Speaking of historic fictions, Gray added: "Such fictions have
had their field of operation largely in the domain of procedure, and have consisted in pretending that a person or
thing was other than which he or it was in truth (or that an event had occurred which had not in fact occurred) for
the purpose of thereby giving an action at law to or against a person who did not really come within the class to or
against which the old section was confined." Ibid, pp. 30-31. See also Pound, The Philosophy of Law, pp. 179,
180, 274 (1922).
15

This is what the particular by-law provides: Section 10. Lost, Stolen or Destroyed Certificates. Any registered
stockholder claiming a certificate or certificates of stock to be lost, stolen or destroyed shall file an affidavit in
triplicate with the Secretary of the Company, or with one of its Transfer Agents, setting forth, if possible, the
circumstances as to how, when and where said certificate or certificates was or were lost, stolen or destroyed, the
number of shares represented by the certificate or by each of the certificates, the serial number or numbers of the
certificate or certificates, and the name of this Company. The registered stockholder shall also submit such other
information and evidence which he may deem necessary.

xxx

xxx

xxx

If a contest is presented to the Company, or if an action is pending in court regarding the ownership of said
certificate or certificates of stock which have been claimed to have been lost, stolen or destroyed, the issuance of
the new certificate or certificates in lieu of that or those claimed to have been lost, stolen or destroyed, shall be
suspended until final decision by the court regarding the ownership of said certificate or certificates. Brief for
Oppositor-Appelant, pp. 8-10.
16

Sec. 2, Act No. 1459 (1906).

17

Berle, The Theory of Enterprise Entity, 47 Co. Law Rev. 343 (1907).

18

Dartmouth College v. Woodward, 4 Wheat, 518 (1819). Cook would trace such a concept to Lord Coke. See 1
Cook on Corporations, p. 2 (1923).
19

Fletcher, Cyclopedia Corporations, pp. 19-20 (1931). Chancellor Kent and Chief Justice Baldwin of Connecticut
were likewise cited to the same effect. At pp. 12-13.
20

4 Pound on Jurisprudence, pp. 207-209 (1959).

21

Friedmann, Legal Theory, pp. 164-168 (1947). See also Holdsworth, English Corporation Law, 31 Yale Law
Journal, 382 (1922).
22

101 Phil. 762 (1957).

23

38 USCA, Sec. 808.

CASE 2.
[G.R. No. 119002. October 19, 2000]
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT OF APPEALS, HENRI
KAHN, PHILIPPINE FOOTBALL FEDERATION, respondents.
DECISION
KAPUNAN, J.:
On June 30 1989, petitioner International Express Travel and Tour Services, Inc., through its managing director,
wrote a letter to the Philippine Football Federation (Federation), through its president private respondent Henri Kahn,
wherein the former offered its services as a travel agency to the latter.[1] The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian
Games in Kuala Lumpur as well as various other trips to the People's Republic of China and Brisbane. The total cost of
the tickets amounted to P449,654.83. For the tickets received, the Federation made two partial payments, both in
September of 1989, in the total amount of P176,467.50. [2]
On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter requesting for
the amount of P265,894.33.[3] On 30 October 1989, the Federation, through the Project Gintong Alay, paid the amount of
P31,603.00.[4]
On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the
outstanding balance of the Federation.[5] Thereafter, no further payments were made despite repeated demands.

This prompted petitioner to file a civil case before the Regional Trial Court of Manila. Petitioner sued Henri Kahn in
his personal capacity and as President of the Federation and impleaded the Federation as an alternative
defendant. Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by the Federation
on the ground that Henri Kahn allegedly guaranteed the said obligation. [6]
Henri Kahn filed his answer with counterclaim. While not denying the allegation that the Federation owed the amount
P207,524.20, representing the unpaid balance for the plane tickets, he averred that the petitioner has no cause of action
against him either in his personal capacity or in his official capacity as president of the Federation. He maintained that he
did not guarantee payment but merely acted as an agent of the Federation which has a separate and distinct juridical
personality.[7]
On the other hand, the Federation failed to file its answer, hence, was declared in default by the trial court. [8]
In due course, the trial court rendered judgment and ruled in favor of the petitioner and declared Henri
Kahn personally liable for the unpaid obligation of the Federation. In arriving at the said ruling, the trial court rationalized:
Defendant Henri Kahn would have been correct in his contentions had it been duly established that defendant Federation
is a corporation. The trouble, however, is that neither the plaintiff nor the defendant Henri Kahn has adduced any evidence
proving the corporate existence of the defendant Federation. In paragraph 2 of its complaint, plaintiff asserted that
"Defendant Philippine Football Federation is a sports association xxx." This has not been denied by defendant Henri Kahn
in his Answer. Being the President of defendant Federation, its corporate existence is within the personal knowledge of
defendant Henri Kahn. He could have easily denied specifically the assertion of the plaintiff that it is a mere sports
association, if it were a domestic corporation. But he did not.
xxx
A voluntary unincorporated association, like defendant Federation has no power to enter into, or to ratify, a contract. The
contract entered into by its officers or agents on behalf of such association is not binding on, or enforceable against it. The
officers or agents are themselves personally liable.
x x x[9]
The dispositive portion of the trial court's decision reads:
WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff the principal sum of P207,524.20,
plus the interest thereon at the legal rate computed from July 5, 1990, the date the complaint was filed, until the principal
obligation is fully liquidated; and another sum of P15,000.00 for attorney's fees.
The complaint of the plaintiff against the Philippine Football Federation and the counterclaims of the defendant Henri Kahn
are hereby dismissed.
With the costs against defendant Henri Kahn.[10]
Only Henri Kahn elevated the above decision to the Court of Appeals. On 21 December 1994, the respondent court
rendered a decision reversing the trial court, the decretal portion of said decision reads:
WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE and another
one is rendered dismissing the complaint against defendant Henri S. Kahn. [11]
In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the Federation. It rationalized that
since petitioner failed to prove that Henri Kahn guaranteed the obligation of the Federation, he should not be held liable
for the same as said entity has a separate and distinct personality from its officers.
Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that the Federation be held liable for
the unpaid obligation. The same was denied by the appellate court in its resolution of 8 February 1995, where it stated
that:
As to the alternative prayer for the Modification of the Decision by expressly declaring in the dispositive portion thereof the
Philippine Football Federation (PFF) as liable for the unpaid obligation, it should be remembered that the trial court
dismissed the complaint against the Philippine Football Federation, and the plaintiff did not appeal from this
decision. Hence, the Philippine Football Federation is not a party to this appeal and consequently, no judgment may be
pronounced by this Court against the PFF without violating the due process clause, let alone the fact that the judgment

dismissing the complaint against it, had already become final by virtue of the plaintiff's failure to appeal therefrom. The
alternative prayer is therefore similarly DENIED.[12]
Petitioner now seeks recourse to this Court and alleges that the respondent court committed the following assigned
errors:[13]
A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD DEALT WITH
THE PHILIPPINE FOOTBALL FEDERATION (PFF) AS A CORPORATE ENTITY AND IN NOT HOLDING
THAT PRIVATE RESPONDENT HENRI KAHN WAS THE ONE WHO REPRESENTED THE PFF AS
HAVING A CORPORATE PERSONALITY.
B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT HENRI
KAHN PERSONALLY LIABLE FOR THE OBLIGATION OF THE UNINCORPORATED PFF, HAVING
NEGOTIATED WITH PETITIONER AND CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF,
MADE A PARTIAL PAYMENT AND ASSURED PETITIONER OF FULLY SETTLING THE OBLIGATION.
C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY LIABLE, THE
HONORABLE COURT OF APPEALS ERRED IN NOT EXPRESSLY DECLARING IN ITS DECISION THAT
THE PFF IS SOLELY LIABLE FOR THE OBLIGATION.
The resolution of the case at bar hinges on the determination of the existence of the Philippine Football Federation
as a juridical person. In the assailed decision, the appellate court recognized the existence of the Federation. In support of
this, the CA cited Republic Act 3135, otherwise known as the Revised Charter of the Philippine Amateur Athletic
Federation, and Presidential Decree No. 604 as the laws from which said Federation derives its existence.
As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical existence of
national sports associations. This may be gleaned from the powers and functions granted to these associations. Section
14 of R.A. 3135 provides:
SEC. 14. Functions, powers and duties of Associations. - The National Sports' Association shall have the following
functions, powers and duties:
1. To adopt a constitution and by-laws for their internal organization and government;
2. To raise funds by donations, benefits, and other means for their purposes.
3. To purchase, sell, lease or otherwise encumber property both real and personal, for the accomplishment of their
purpose;
4. To affiliate with international or regional sports' Associations after due consultation with the executive committee;
xxx
13. To perform such other acts as may be necessary for the proper accomplishment of their purposes and not inconsistent
with this Act.
Section 8 of P.D. 604, grants similar functions to these sports associations:
SEC. 8. Functions, Powers, and Duties of National Sports Association. - The National sports associations shall have the
following functions, powers, and duties:
1. Adopt a Constitution and By-Laws for their internal organization and government which shall be submitted to the
Department and any amendment thereto shall take effect upon approval by the Department: Provided, however, That no
team, school, club, organization, or entity shall be admitted as a voting member of an association unless 60 per cent of
the athletes composing said team, school, club, organization, or entity are Filipino citizens;
2. Raise funds by donations, benefits, and other means for their purpose subject to the approval of the Department;
3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for the accomplishment of their purpose;

4. Conduct local, interport, and international competitions, other than the Olympic and Asian Games, for the promotion of
their sport;
5. Affiliate with international or regional sports associations after due consultation with the Department;
xxx
13. Perform such other functions as may be provided by law.
The above powers and functions granted to national sports associations clearly indicate that these entities may
acquire a juridical personality. The power to purchase, sell, lease and encumber property are acts which may only be
done by persons, whether natural or artificial, with juridical capacity. However, while we agree with the appellate court that
national sports associations may be accorded corporate status, such does not automatically take place by the mere
passage of these laws.
It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent
either in the form of a special law or a general enabling act. We cannot agree with the view of the appellate court and the
private respondent that the Philippine Football Federation came into existence upon the passage of these laws. Nowhere
can it be found in R.A. 3135 or P.D. 604 any provision creating the Philippine Football Federation. These laws merely
recognized the existence of national sports associations and provided the manner by which these entities may acquire
juridical personality. Section 11 of R.A. 3135 provides:
SEC. 11. National Sports' Association; organization and recognition. - A National Association shall be organized for each
individual sports in the Philippines in the manner hereinafter provided to constitute the Philippine Amateur Athletic
Federation. Applications for recognition as a National Sports' Association shall be filed with the executive committee
together with, among others, a copy of the constitution and by-laws and a list of the members of the proposed association,
and a filing fee of ten pesos.
The Executive Committee shall give the recognition applied for if it is satisfied that said association will promote the
purposes of this Act and particularly section three thereof. No application shall be held pending for more than three
months after the filing thereof without any action having been taken thereon by the executive committee. Should the
application be rejected, the reasons for such rejection shall be clearly stated in a written communication to the
applicant. Failure to specify the reasons for the rejection shall not affect the application which shall be considered as
unacted upon: Provided, however, That until the executive committee herein provided shall have been formed,
applications for recognition shall be passed upon by the duly elected members of the present executive committee of the
Philippine Amateur Athletic Federation. The said executive committee shall be dissolved upon the organization of the
executive committee herein provided: Provided, further, That the functioning executive committee is charged with the
responsibility of seeing to it that the National Sports' Associations are formed and organized within six months from and
after the passage of this Act.
Section 7 of P.D. 604, similarly provides:
SEC. 7. National Sports Associations. - Application for accreditation or recognition as a national sports association for
each individual sport in the Philippines shall be filed with the Department together with, among others, a copy of the
Constitution and By-Laws and a list of the members of the proposed association.
The Department shall give the recognition applied for if it is satisfied that the national sports association to be organized
will promote the objectives of this Decree and has substantially complied with the rules and regulations of the
Department: Provided, That the Department may withdraw accreditation or recognition for violation of this Decree and
such rules and regulations formulated by it.
The Department shall supervise the national sports association: Provided, That the latter shall have exclusive technical
control over the development and promotion of the particular sport for which they are organized.
Clearly the above cited provisions require that before an entity may be considered as a national sports association,
such entity must be recognized by the accrediting organization, the Philippine Amateur Athletic Federation under R.A.
3135, and the Department of Youth and Sports Development under P.D. 604. This fact of recognition, however, Henri
Kahn failed to substantiate. In attempting to prove the juridical existence of the Federation, Henri Kahn attached to his
motion for reconsideration before the trial court a copy of the constitution and by-laws of the Philippine Football
Federation. Unfortunately, the same does not prove that said Federation has indeed been recognized and accredited by

either the Philippine Amateur Athletic Federation or the Department of Youth and Sports Development. Accordingly, we
rule that the Philippine Football Federation is not a national sports association within the purview of the aforementioned
laws and does not have corporate existence of its own.
Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the
unincorporated Philippine Football Federation. It is a settled principal in corporation law that any person acting or
purporting to act on behalf of a corporation which has no valid existence assumes such privileges and becomes
personally liable for contract entered into or for other acts performed as such agent. [14] As president of the Federation,
Henri Kahn is presumed to have known about the corporate existence or non-existence of the Federation. We cannot
subscribe to the position taken by the appellate court that even assuming that the Federation was defectively
incorporated, the petitioner cannot deny the corporate existence of the Federation because it had contracted and dealt
with the Federation in such a manner as to recognize and in effect admit its existence. [15] The doctrine of corporation by
estoppel is mistakenly applied by the respondent court to the petitioner. The application of the doctrine applies to a third
party only when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective
incorporation.[16] In the case at bar, the petitioner is not trying to escape liability from the contract but rather is the one
claiming from the contract.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the Regional Trial Court
of Manila, Branch 35, in Civil Case No. 90-53595 is hereby REINSTATED.
SO ORDERED.

CASE 3
BennY hung vs BPI finance corporation, GR no. 182398
DECISION
PEREZ, J.:
For our resolution is the instant petition for review by certiorari assailing the Decision[1] dated 31 August 2007 and
Resolution[2] dated 14 April 2008 of the Court of Appeals in CA-G.R. CV No. 84641. The Court of Appeals Decision
affirmed the Order[3] dated 30 November 2004 of the Regional Trial Court (RTC) of Makati City in Civil Case No. 99-2040,
entitled BPI Card Finance Corporation v. B & R Sportswear Distributor, Inc., finding petitioner Benny Hung liable to
respondent BPI Card Finance Corporation (BPI for brevity) for the satisfaction of the RTCs 24 June 2002
Decision[4] against B & R Sportswear Distributor, Inc. The pertinent portion of the Decision states:
xxx
The delivery by the plaintiff to the defendant of P3,480,427.43 pursuant to the Merchant Agreements
was sufficiently proven by the checks, Exhibits B to V-5. Plaintiffs evidence that the amount due to the
defendant was P139,484.38 only was not controverted by the defendant, hence the preponderance of
evidence is in favor of the plaintiff. The lack of controversy on the amount due to the defendant when
considered with the contents of the letter of the defendant, Exhibit TT when it returned to plaintiff
P963,604.03 as partial settlement of overpayments made by BPI Card Corporation to B & R Sportswear,
pending final reconciliation of exact amount of overpayment amply support the finding of the Court that
plaintiff indeed has a right to be paid by the defendant of the amount of P2,516,826.68.
Plaintiff claims interest of 12%. The obligation of the defendant to return did not arose out of a loan or
forbearance of money, hence, applying Eastern Shipping Lines Inc. vs. Court of Appeals, 234 SCRA 78
(1994) the rate due is only 6% computed from October 4, 1999 the date the letter of demand was presumably
received by the defendant.
The foregoing effectively dispose of the defenses raised by the defendant and furnish the reason of the
Court for not giving due course to them.
WHEREFORE, judgment is rendered directing defendant to pay plaintiff P2,516,826.68 with interest at
the rate of 6% from October 4, 1999 until full payment.

The antecedent facts of the case are as follows:


Guess? Footwear and BPI Express Card Corporation entered into two merchant agreements, [5] dated 25 August
1994 and 16 November 1994, whereby Guess? Footwear agreed to honor validly issued BPI Express Credit Cards

presented by cardholders in the purchase of its goods and services. In the first agreement, petitioner Benny Hung signed
as owner and manager of Guess? Footwear. He signed the second agreement as president of Guess? Footwear which he
also referred to as B & R Sportswear Enterprises.
From May 1997 to January 1999, respondent BPI mistakenly credited, through three hundred fifty-two (352)
checks, Three Million Four Hundred Eighty Thousand Four Hundred Twenty-Seven Pesos and 23/100 (P3,480,427.23) to
the account of Guess? Footwear. When informed of the overpayments, [6] petitioner Benny Hung transferred Nine Hundred
Sixty-Three Thousand Six Hundred Four Pesos and 03/100 (P963,604.03) from the bank account of B & R Sportswear
Enterprises to BPIs account as partial payment.[7] The letter dated 31 May 1999 was worded as follows:
Dear Sir/Madame
This is to authorize BPI Ortigas Branch to transfer the amount of P963,604.03 from the account of B & R
Sportswear Enterprises to the account of BPI Card Corporation.
The aforementioned amount shall represent partial settlement of overpayments made by BPI Card
Corporation to B & R Sportswear, pending final reconciliation of exact amount of overpayment. (Emphasis
supplied.)
Thank you for your usual kind cooperation.
Very truly yours,
(Sgd.)
Benny Hung

In a letter dated 27 September 1999, BPI demanded the balance payment amounting to Two Million Five Hundred
Sixteen Thousand Eight Hundred Twenty-Six Pesos and 68/100 (P2,516,826.68), but Guess? Footwear failed to pay.
BPI filed a collection suit before the RTC of Makati City naming as defendant B & R Sportswear Distributor, Inc.
Although the case was against B & R Sportswear Distributor, Inc., it was B & R Footwear Distributors, Inc., that filed an
answer, appeared and participated in the trial.[9]
[8]

On 24 June 2002, the RTC rendered a decision ordering defendant B & R Sportswear Distributor, Inc., to pay the
plaintiff (BPI) P2,516,826.68 with 6% interest from 4 October 1999. The RTC ruled that the overpayment of P3,480,427.43
was proven by checks credited to the account of Guess? Footwear and the P963,604.03 partial payment proved that
defendant ought to pay P2,516,826.68[10] more. During the execution of judgment, it was discovered that B & R
Sportswear Distributor, Inc., is a non-existing entity. Thus, the trial court failed to execute the judgment.
Consequently, respondent filed a Motion [11] to pierce the corporate veil of B & R Footwear Distributors, Inc. to hold
its stockholders and officers, including petitioner Benny Hung, personally liable. In its 30 November 2004 Order, the RTC
ruled that petitioner is liable for the satisfaction of the judgment, since he signed the merchant agreements in his personal
capacity.[12]
The Court of Appeals affirmed the order and dismissed petitioners appeal. It ruled that since B & R Sportswear
Distributor, Inc. is not a corporation, it therefore has no personality separate from petitioner Benny Hung who induced the
respondent BPI and the RTC to believe that it is a corporation. [13]
After his motion for reconsideration was denied, petitioner filed the instant petition anchored on the following
grounds:

I.
PIERCING THE VEIL OF CORPORATE FICTION CANNOT JUSTIFY EXECUTION AGAINST [HIM].
II.

FOR LACK OF SERVICE OF SUMMONS AND A COPY OF THE COMPLAINT UPON [HIM], THE
ASSAILED DECISION OF THE COURT OF APPEALS, AS WELL AS, ITS RESOLUTION DENYING [HIS]
MOTION FOR RECONSIDERATION SHOULD BE DECLARED NULL AND VOID FOR LACK OF
JURISDICTION.[14]
In essence, the basic issue is whether petitioner can be held liable for the satisfaction of the RTCs Decision
against B & R Sportswear Distributor, Inc.? As we answer this question, we shall pass upon the grounds raised by
petitioner.
Petitioner claims that he never represented B & R Sportswear Distributor, Inc., the non-existent corporation sued
by respondent; that it would be unfair to treat his single proprietorship B & R Sportswear Enterprises as B & R Sportswear
Distributor, Inc.; that the confusing similarity in the names should not be taken against him because he established his
single proprietorship long before respondent sued; that he did not defraud respondent; that he even paid respondent in
the course of their mutual transactions; and that without fraud, he cannot be held liable for the obligations of B & R
Footwear Distributors, Inc. or B & R Sportswear Distributor, Inc. by piercing the veil of corporate fiction.
Petitioner also states that the real corporation B & R Footwear Distributors, Inc. or Guess? Footwear
acknowledged itself as the real defendant. It answered the complaint and participated in the trial. According to petitioner,
respondent should have executed the judgment against it as the real contracting party in the merchant
agreements. Execution against him was wrong since he was not served with summons nor was he a party to the
case. Thus, the lower courts did not acquire jurisdiction over him, and their decisions are null and void for lack of due
process.
Respondent counters that petitioners initial silence on the non-existence of B & R Sportswear Distributor, Inc. was
intended to mislead. Still, the evidence showed that petitioner treats B & R Footwear Distributors, Inc. and his single
proprietorship B & R Sportswear Enterprises as one and the same entity. Petitioner ordered the partial payment using the
letterhead of B & R Footwear Distributor, Inc. and yet the fund transferred belongs to his single proprietorship B & R
Sportswear Enterprises. This fact, according to respondent, justifies piercing the corporate veil of B & R Footwear
Distributor, Inc. to hold petitioner personally liable.
Citing Sections 4 and 5, Rule 10 of the Rules of Court, respondent also prays that the name of the inexistent
defendant B & R Sportswear Distributor, Inc. be amended and changed to Benny Hung and/or B & R Footwear
Distributors, Inc.
Moreover, respondent avers that petitioner cannot claim that he was not served with summons because it was
served at his address and the building standing thereon is registered in his name per the tax declaration.
At the outset, we note the cause of respondents predicament in failing to execute the 2002 judgment in its favor:
its own failure to state the correct name of the defendant it sued and seek a correction earlier. Instead of suing Guess?
Footwear and B & R Sportswear Enterprises, the contracting parties in the merchant agreements, BPI named B & R
Sportswear Distributor, Inc. as defendant. BPI likewise failed to sue petitioner Benny Hung who signed the agreements as
owner/manager and president of Guess? Footwear and B & R Sportswear Enterprises. Moreover, when B & R Footwear

Distributors, Inc. appeared as defendant, no corresponding correction was sought. Unfortunately, BPI has buried its
omission by silence and lamented instead petitioners alleged initial silence on the non-existence of B & R Sportswear
Distributor, Inc. Respondent even accused the defendant in its motion to pierce the corporate veil of B & R Footwear
Distributors, Inc. of having employed deceit, bad faith and illegal scheme/maneuver, [15] an accusation no longer pursued
before us.
Our impression that respondent BPI should have named petitioner as a defendant finds validation from (1)
petitioners own admission that B & R Sportswear Enterprises is his sole proprietorship and (2) respondents belated prayer
that defendants name be changed to Benny Hung and/or B & R Footwear Distributors, Inc. on the ground that such relief
is allowed under Sections 4[16] and 5,[17] Rule 10 of the Rules of Court.
Indeed, we can validly make the formal correction on the name of the defendant from B & R Sportswear
Distributor, Inc. to B & R Footwear Distributors, Inc. Such correction only confirms the voluntary correction already made
by B & R Footwear Distributors, Inc. which answered the complaint and claimed that it is the defendant. Section 4, Rule
10 of the Rules of Court also allows a summary correction of this formal defect. Such correction can be made even if the
case is already before us as it can be made at any stage of the action. [18] Respondents belated prayer for correction is
also sufficient since a court can even make the correction motu propio. More importantly, no prejudice is caused to B & R
Footwear Distributors, Inc. considering its participation in the trial. Hence, petitioner has basis for saying that respondent
should have tried to execute the judgment against B & R Footwear Distributors, Inc.
But we cannot agree with petitioner that B & R Footwear Distributors, Inc. or Guess? Footwear is the only real
contracting party. The facts show that B & R Sportswear Enterprises is also a contracting party. Petitioner conveniently
ignores this fact although he himself signed the second agreement indicating that Guess? Footwear is also referred to as
B & R Sportswear Enterprises. Petitioner also tries to soften the significance of his directive to the bank, under the
letterhead of B & R Footwear Distributors, Inc., to transfer the funds belonging to his sole proprietorship B & R Sportswear
Enterprises as partial payment to the overpayments made by respondent to Guess? Footwear. He now claims the partial
payment as his payment to respondent in the course of their mutual transactions.
Clearly, petitioner has represented in his dealings with respondent that Guess? Footwear or B & R Footwear
Distributors, Inc. is also B & R Sportswear Enterprises. For this reason, the more complete correction on the name of
defendant should be from B & R Sportswear Distributor, Inc. to B & R Footwear Distributors, Inc. and Benny
Hung.Petitioner is the proper defendant because his sole proprietorship B & R Sportswear Enterprises has no juridical
personality apart from him.[19] Again, the correction only confirms the voluntary correction already made by B & R
Footwear Distributors, Inc. or Guess? Footwear which is also B & R Sportswear Enterprises. Correction of this formal
defect is also allowed by Section 4, Rule 10 of the Rules of Court.
Relatedly, petitioner cannot complain of non-service of summons upon his person. Suffice it to say that B & R
Footwear Distributors, Inc. or Guess? Footwear which is also B & R Sportswear Enterprises had answered the summons
and the complaint and participated in the trial.
Accordingly, we find petitioner liable to respondent and we affirm, with the foregoing clarification, the finding of the
RTC that he signed the second merchant agreement in his personal capacity.
The correction on the name of the defendant has rendered moot any further discussion on the doctrine of piercing
the veil of corporate fiction. In any event, we have said that whether the separate personality of a corporation should be
pierced hinges on facts pleaded and proved. [20] In seeking to pierce the corporate veil of B & R Footwear Distributors, Inc.,
respondent complained of deceit, bad faith and illegal scheme/maneuver. As stated earlier, respondent has abandoned
such accusation. And respondents proof the SEC certification that B & R Sportswear Distributor, Inc. is not an existing

corporation would surely attest to no other fact but the inexistence of a corporation named B & R Sportswear Distributor,
Inc. as such name only surfaced because of its own error. Hence, we cannot agree with the Court of Appeals that
petitioner has represented a non-existing corporation and induced the respondent and the RTC to believe in his
representation.
On petitioners alleged intention to mislead for his initial silence on the non-existence of the named defendant, we
find more notable respondents own silence on the error it committed. Contrary to the allegation, the real defendant has
even corrected respondents error. While the evidence showed that petitioner has treated B & R Footwear Distributors, Inc.
or Guess? Footwear as B & R Sportswear Enterprises, respondent did not rely on this ground in filing the motion to pierce
the corporate veil of B & R Footwear Distributors, Inc. Respondents main contention therein was petitioners alleged act to
represent a non-existent corporation amounting to deceit, bad faith and illegal scheme/maneuver.
With regard to the imposable rate of legal interest, we find application of the rule laid down by this Court
in Eastern Shipping Lines, Inc. vs. Court of Appeals,[21] to wit:
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until
the demand can be established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.

Since this case before us involves an obligation not arising from a loan or forbearance of money, the applicable
interest rate is 6% per annum. The legal interest rate of 6% shall be computed from 4 October 1999, the date the letter of
demand was presumably received by the defendant. [22] And in accordance with the aforesaid decision, the rate of 12% per
annum shall be charged on the total amount outstanding, from the time the judgment becomes final and executory until its
satisfaction.

WHEREFORE, we DENY the petition for lack of merit, and ORDER B & R Footwear Distributors, Inc. and
petitioner Benny Hung TO PAY respondent BPI Card Finance Corporation: (a) P2,516,823.40, representing the
overpayments, with interest at the rate of 6% per annum from 4 October 1999 until finality of judgment; and (b) additional
interest of 12% per annum from finality of judgment until full payment.
No pronouncement as to costs.

CASE 4
G.R. No. 100866 July 14, 1992

REBECCA BOYER-ROXAS and GUILLERMO ROXAS, petitioners,


vs.
HON. COURT OF APPEALS and HEIRS OF EUGENIA V. ROXAS, INC., respondents.

GUTIERREZ, JR., J.:


This is a petition to review the decision and resolution of the Court of Appeals in CA-G.R. No. 14530 affirming the earlier
decision of the Regional Trial Court of Laguna, Branch 37, at Calamba, in the consolidated RTC Civil Case Nos. 802-84-C
and 803-84-C entitled "Heirs of Eugenia V. Roxas, Inc. v. Rebecca Boyer-Roxas" and Heirs of Eugenia V. Roxas, Inc. v.
Guillermo Roxas," the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the
defendants, by ordering as it is hereby ordered that:
1) In RTC Civil Case No. 802-84-C: Rebecca Boyer-Roxas and all persons claiming under her to:
a) Immediately vacate the residential house near the Balugbugan pool located inside the premises of the
Hidden Valley Springs Resort at Limao, Calauan, Laguna;
b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for her occupancy of the
residential house until the same is vacated;
c) Remove the unfinished building erected on the land of the plaintiff within ninety (90) days from receipt
of this decision;
d) Pay the plaintiff the amount of P100.00 per month from September 10, 1983, until the said unfinished
building is removed from the land of the plaintiff; and
e) Pay the costs.
2) In RTC Civil Case No. 803-84-C: Guillermo Roxas and all persons claiming under him to:
a) Immediately vacate the residential house near the tennis court located within the premises of the
Hidden Valley Springs Resort at Limao, Calauan, Laguna;
b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for his occupancy of the
said residential house until the same is vacated; and
c) Pay the costs. (Rollo, p. 36)
In two (2) separate complaints for recovery of possession filed with the Regional Trial Court of Laguna against petitioners
Rebecca Boyer-Roxas and Guillermo Roxas respectively, respondent corporation, Heirs of Eugenia V. Roxas, Inc., prayed
for the ejectment of the petitioners from buildings inside the Hidden Valley Springs Resort located at Limao, Calauan,
Laguna allegedly owned by the respondent corporation.
In the case of petitioner Rebecca Boyer-Roxas (Civil Case No-802-84-C), the respondent corporation alleged that
Rebecca is in possession of two (2) houses, one of which is still under construction, built at the expense of the respondent
corporation; and that her occupancy on the two (2) houses was only upon the tolerance of the respondent corporation.
In the case of petitioner Guillermo Roxas (Civil Case No. 803-84-C), the respondent corporation alleged that Guillermo
occupies a house which was built at the expense of the former during the time when Guillermo's father, Eriberto Roxas,
was still living and was the general manager of the respondent corporation; that the house was originally intended as a
recreation hall but was converted for the residential use of Guillermo; and that Guillermo's possession over the house and
lot was only upon the tolerance of the respondent corporation.

In both cases, the respondent corporation alleged that the petitioners never paid rentals for the use of the buildings and
the lots and that they ignored the demand letters for them to vacate the buildings.
In their separate answers, the petitioners traversed the allegations in the complaint by stating that they are heirs of
Eugenia V. Roxas and therefore, co-owners of the Hidden Valley Springs Resort; and as co-owners of the property, they
have the right to stay within its premises.
The cases were consolidated and tried jointly.
At the pre-trial, the parties limited the issues as follows:
1) whether plaintiff is entitled to recover the questioned premises;
2) whether plaintiff is entitled to reasonable rental for occupancy of the premises in question;
3) whether the defendant is legally authorized to pierce the veil of corporate fiction and interpose the
same as a defense in an accion publiciana;
4) whether the defendants are truly builders in good faith, entitled to occupy the questioned premises;
5) whether plaintiff is entitled to damages and reasonable compensation for the use of the questioned
premises;
6) whether the defendants are entitled to their counterclaim to recover moral and exemplary damages as
well as attorney's fees in the two cases;
7) whether the presence and occupancy by the defendants on the premises in questioned (sic) hampers,
deters or impairs plaintiff's operation of Hidden Valley Springs Resort; and
8) whether or not a unilateral and sudden withdrawal of plaintiffs tolerance allowing defendants'
occupancy of the premises in questioned (sic) is unjust enrichment. (Original Records, 486)
Upon motion of the plaintiff respondent corporation, Presiding Judge Francisco Ma. Guerrero of Branch 34 issued an
Order dated April 25, 1986 inhibiting himself from further trying the case. The cases were re-raffled to Branch 37 presided
by Judge Odilon Bautista. Judge Bautista continued the hearing of the cases.
For failure of the petitioners (defendants below) and their counsel to attend the October 22, 1986 hearing despite notice,
and upon motion of the respondent corporation, the court issued on the same day, October 22, 1986, an Order
considering the cases submitted for decision. At this stage of the proceedings, the petitioners had not yet presented their
evidence while the respondent corporation had completed the presentation of its evidence.
The evidence of the respondent corporation upon which the lower court based its decision is as follows:
To support the complaints, the plaintiff offered the testimonies of Maria Milagros Roxas and that of Victoria
Roxas Villarta as well as Exhibits "A" to "M-3".
The evidence of the plaintiff established the following: that the plaintiff, Heirs of Eugenia V Roxas,
Incorporated, was incorporated on December 4, 1962 (Exh. "C") with the primary purpose of engaging in
agriculture to develop the properties inherited from Eugenia V. Roxas and that of y Eufrocino Roxas; that
the Articles of Incorporation of the plaintiff, in 1971, was amended to allow it to engage in the resort
business (Exh.
"C-1"); that the incorporators as original members of the board of directors of the plaintiff were all
members of the same family, with Eufrocino Roxas having the biggest share; that accordingly, the plaintiff
put up a resort known as Hidden Valley Springs Resort on a portion of its land located at Bo. Limao,
Calauan, Laguna, and covered by TCT No. 32639 (Exhs. "A" and "A-l"); that improvements were
introduced in the resort by the plaintiff and among them were cottages, houses or buildings, swimming
pools, tennis court, restaurant and open pavilions; that the house near the Balugbugan Pool (Exh. "B-l")
being occupied by Rebecca B. Roxas was originally intended as staff house but later used as the
residence of Eriberto Roxas, deceased husband of the defendant Rebecca Boyer-Roxas and father of

Guillermo Roxas; that this house presently being occupied by Rebecca B. Roxas was built from corporate
funds; that the construction of the unfinished house (Exh. "B-2") was started by the defendant Rebecca
Boyer-Roxas and her husband Eriberto Roxas; that the third building (Exh. "B-3") presently being
occupied by Guillermo Roxas was originally intended as a recreation hall but later converted as a
residential house; that this house was built also from corporate funds; that the said house occupied by
Guillermo Roxas when it was being built had nipa roofing but was later changed to galvanized iron
sheets; that at the beginning, it had no partition downstairs and the second floor was an open space; that
the conversion from a recreation hall to a residential house was with the knowledge of Eufrocino Roxas
and was not objected to by any of the Board of Directors of the plaintiff; that most of the materials used in
converting the building into a residential house came from the materials left by Coppola, a film producer,
who filmed the movie "Apocalypse Now"; that Coppola left the materials as part of his payment for rents
of the rooms that he occupied in the resort; that after the said recreation hall was converted into a
residential house, defendant Guillermo Roxas moved in and occupied the same together with his family
sometime in 1977 or 1978; that during the time Eufrocino Roxas was still alive, Eriberto Roxas was the
general manager of the corporation and there was seldom any board meeting; that Eufrocino Roxas
together with Eriberto Roxas were (sic) the ones who were running the corporation; that during this time,
Eriberto Roxas was the restaurant and wine concessionaire of the resort; that after the death of Eufrocino
Roxas, Eriberto Roxas continued as the general manager until his death in 1980; that after the death of
Eriberto Roxas in 1980, the defendants Rebecca B. Roxas and Guillermo Roxas, committed acts that
impeded the plaintiff's expansion and normal operation of the resort; that the plaintiff could not even use
its own pavilions, kitchen and other facilities because of the acts of the defendants which led to the filing
of criminal cases in court; that cases were even filed before the Ministry of Tourism, Bureau of Domestic
Trade and the Office of the President by the parties herein; that the defendants violated the resolution and
orders of the Ministry of Tourism dated July 28, 1983, August 3, 1983 and November 26, 1984 (Exhs. "G",
"H" and "H-l") which ordered them or the corporation they represent to desist from and to turn over
immediately to the plaintiff the management and operation of the restaurant and wine outlets of the said
resort (Exh. "G-l"); that the defendants also violated the decision of the Bureau of Domestic Trade dated
October 23, 1983 (Exh. "C"); that on August 27, 1983, because of the acts of the defendants, the Board of
Directors of the plaintiff adopted Resolution No. 83-12 series of 1983 (Exh. "F") authorizing the ejectment
of the defendants from the premises occupied by them; that on September 1, 1983, demand letters were
sent to Rebecca Boyer-Roxas and Guillermo Roxas (Exhs. "D" and "D-1") demanding that they vacate
the respective premises they occupy; and that the dispute between the plaintiff and the defendants was
brought before the barangay level and the same was not settled (Exhs. "E" and "E-l"). (Original Records,
pp. 454-456)
The petitioners appealed the decision to the Court of Appeals. However, as stated earlier, the appellate court affirmed the
lower court's decision. The Petitioners' motion for reconsideration was likewise denied.
Hence, this petition.
In a resolution dated February 5, 1992, we gave due course to the petition.
The petitioners now contend:
I Respondent Court erred when it refused to pierce the veil of corporate fiction over private respondent and maintain the
petitioners in their possession and/or occupancy of the subject premises considering that petitioners are owners of aliquot
part of the properties of private respondent. Besides, private respondent itself discarded the mantle of corporate fiction by
acts and/or omissions of its board of directors and/or stockholders.
II The respondent Court erred in not holding that petitioners were in fact denied due process or their day in court brought
about by the gross negligence of their former counsel.
III The respondent Court misapplied the law when it ordered petitioner Rebecca Boyer-Roxas to remove the unfinished
building in RTC Case No. 802-84-C, when the trial court opined that she spent her own funds for the construction thereof.
(CARollo, pp. 17-18)
Were the petitioners denied due process of law in the lower court?
After the cases were re-raffled to the sala of Presiding Judge Odilon Bautista of Branch 37 the following events transpired:

On July 3, 1986, the lower court issued an Order setting the hearing of the cases on July 21, 1986. Petitioner Rebecca V.
Roxas received a copy of the Order on July 15, 1986, while petitioner Guillermo Roxas received his copy on July 18,
1986. Atty. Conrado Manicad, the petitioners' counsel received another copy of the Order on July 11, 1986. (Original
Records, p. 260)
On motion of the respondent corporation's counsel, the lower court issued an Order dated July 15, 1986 cancelling the
July 21, 1986 hearing and resetting the hearing to August 11, 1986. (Original records, 262-263) Three separate copies of
the order were sent and received by the petitioners and their counsel. (Original Records, pp. 268, 269, 271)
A motion to cancel and re-schedule the August 11, 1986 hearing filed by the respondent corporation's counsel was denied
in an Order dated August 8, 1986. Again separate copies of the Order were sent and received by the petitioners and their
counsel. (Original Records, pp. 276-279)
At the hearing held on August 11, 1986, only Atty. Benito P. Fabie, counsel for the respondent corporation appeared.
Neither the petitioners nor their counsel appeared despite notice of hearing. The lower court then issued an Order on the
same date, to wit:
ORDER
When these cases were called for continuation of trial, Atty. Benito P. Fabie appeared before this Court,
however, the defendants and their lawyer despite receipt of the Order setting the case for hearing today
failed to appear. On Motion of Atty. Fabie, further cross examination of witness Victoria Vallarta is hereby
considered as having been waived.
The plaintiff is hereby given twenty (20) days from today within which to submit formal offer of evidence
and defendants are also given ten (10) days from receipt of such formal offer of evidence to file their
objection thereto.
In the meantime, hearing in these cases is set to September 29, 1986 at 10:00 o'clock in the morning.
(Original Records, p. 286)
Copies of the Order were sent and received by the petitioners and their counsel on the following dates Rebecca BoyerRoxas on August 20, 1986, Guillermo Roxas on August 26, 1986, and Atty. Conrado Manicad on September 19, 1986.
(Original Records, pp. 288-290)
On September 1, 1986, the respondent corporation filed its "Formal Offer of Evidence." In an Order dated September 29,
1986, the lower court issued an Order admitting exhibits "A" to "M-3" submitted by the respondent corporation in its
"Formal Offer of Evidence . . . there being no objection . . ." (Original Records, p. 418) Copies of this Order were sent and
received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on October 9, 1986; Guillermo
Roxas on October 9, 1986 and Atty. Conrado Manicad on October 4, 1986 (Original Records, pp. 420, 421, 428).
The scheduled hearing on September 29, 1986 did not push through as the petitioners and their counsel were not present
prompting Atty. Benito Fabie, the respondent corporation's counsel to move that the cases be submitted for decision. The
lower court denied the motion and set the cases for hearing on October 22, 1986. However, in its Order dated September
29, 1986, the court warned that in the event the petitioners and their counsel failed to appear on the next scheduled
hearing, the court shall consider the cases submitted for decision based on the evidence on record. (Original Records, p.
429, 430 and 431)
Separate copies of this Order were sent and received by the petitioners and their counsel on the following dates: Rebecca
Boyer-Roxas on October 9, 1986, Guillermo Roxas on October 9, 1986; and Atty. Conrado Manicad on October 1, 1986.
(Original Records, pp. 429-430)
Despite notice, the petitioners and their counsel again failed to attend the scheduled October 22, 1986 hearing. Atty. Fabie
representing the respondent corporation was present. Hence, in its Order dated October 22, 1986, on motion of Atty.
Fabie and pursuant to the order dated September 29, 1986, the Court considered the cases submitted for decision.
(Original Records, p. 436)

On November 14, 1986, the respondent corporation, filed a "Manifestation", stating that ". . . it is submitting without further
argument its "Opposition to the Motion for Reconsideration" for the consideration of the Honorable Court in resolving
subject incident." (Original Records, p. 442)
On December 16, 1986, the lower court issued an Order, to wit:
ORDER
Considering that the Court up to this date has not received any Motion for Reconsideration filed by the
defendants in the above-entitled cases, the Court cannot act on the Opposition to Motion for
Reconsideration filed by the plaintiff and received by the Court on November 14, 1986. (Original Records,
p. 446)
On January 15, 1987, the lower court rendered the questioned decision in the two (2) cases. (Original Records, pp. 453459)
On January 20, 1987, Atty. Conrado Manicad, the petitioners' counsel filed an Ex-Parte Manifestation and attached
thereto, a motion for reconsideration of the October 22, 1986 Order submitting the cases for decision. He prayed that the
Order be set aside and the cases be re-opened for reception of evidence for the petitioners. He averred that: 1) within the
reglementary period he prepared the motion for reconsideration and among other documents, the draft was sent to his law
office thru his messenger; after signing the final copies, he caused the service of a copy to the respondent corporation's
counsel with the instruction that the copy of the Court be filed; however, there was a miscommunication between his
secretary and messenger in that the secretary mailed the copy for the respondent corporation's counsel and placed the
rest in an envelope for the messenger to file the same in court but the messenger thought that it was the secretary who
would file it; it was only later on when it was discovered that the copy for the Court has not yet been filed and that such
failure to file the motion for reconsideration was due to excusable neglect and/or accident. The motion for reconsideration
contained the following allegations: that on the date set for hearing (October 22, 1986), he was on his way to Calamba to
attend the hearing but his car suffered transmission breakdown; and that despite efforts to repair said transmission, the
car remained inoperative resulting in his absence at the said hearing. (Original Records, pp. 460-469)
On February 3, 1987, Atty. Manicad filed a motion for reconsideration of the January 15, 1987 decision. He explained that
he had to file the motion because the receiving clerk refused to admit the motion for reconsideration attached to the expartemanifestation because there was no proof of service to the other party. Included in the motion for reconsideration
was a notice of hearing of the motion on February 3, 1987. (Original Records, p. 476-A)
On February 4, 1987, the respondent corporation through its counsel filed a Manifestation and Motion manifesting that
they received the copy of the motion for reconsideration only today (February 4, 1987), hence they prayed for the
postponement of the hearing. (Original Records, pp. 478-479)
On the same day, February 4, 1987, the lower court issued an Order setting the hearing on February 13, 1987 on the
ground that it received the motion for reconsideration late. Copies of this Order were sent separately to the petitioners and
their counsel. The records show that Atty. Manicad received his copy on February 11, 1987. As regards the petitioners, the
records reveal that Rebecca Boyer-Roxas did not receive her copy while as regards Guillermo Roxas, somebody signed
for him but did not indicate when the copy was received. (Original Records, pp. 481-483)
At the scheduled February 13, 1987 hearing, the counsels for the parties were present. However, the hearing was reset
for March 6, 1987 in order to allow the respondent corporation to file its opposition to the motion for reconsideration.
(Order dated February 13, 1987, Original Records, p. 486) Copies of the Order were sent and received by the petitioners
and their counsel on the following dates: Rebecca Boyer-Roxas on February 23, 1987; Guillermo Roxas on February 23,
1987 and Atty. Manicad on February 19, 1987. (Original Records, pp. 487, 489-490)
The records are not clear as to whether or not the scheduled hearing on March 6, 1987 was held. Nevertheless, the
records reveal that on March 13, 1987, the lower court issued an Order denying the motion for reconsideration.
The well-settled doctrine is that the client is bound by the mistakes of his lawyer. (Aguila v. Court of First Instance of
Batangas, Branch I, 160 SCRA 352 [1988]; See also Vivero v. Santos, et al., 98 Phil. 500 [1956]; Isaac v. Mendoza, 89
Phil. 279 [1951]; Montes v. Court of First Instance of Tayabas, 48 Phil. 640 [1926]; People v. Manzanilla, 43 Phil. 167
[1922]; United States v. Dungca, 27 Phil. 274 [1914]; and United States v. Umali, 15 Phil. 33 [1910]) This rule, however,
has its exceptions. Thus, in several cases, we ruled that the party is not bound by the actions of his counsel in case the

gross negligence of the counsel resulted in the client's deprivation of his property without due process of law. In the case
of Legarda v. Court of Appeals (195 SCRA 418 [1991]), we said:
In People's Homesite & Housing Corp. v. Tiongco and Escasa (12 SCRA 471 [1964]), this Court ruled as
follows:
Procedural technicality should not be made a bar to the vindication of a legitimate
grievance. When such technicality deserts from being an aid to Justice, the courts are
justified in excepting from its operation a particular case. Where there was something
fishy and suspicious about the actuations of the former counsel of petitioners in the case
at bar, in that he did not give any significance at all to the processes of the court, which
has proven prejudicial to the rights of said clients, under a lame and flimsy explanation
that the court's processes just escaped his attention, it is held that said lawyer deprived
his clients of their day in court, thus entitling said clients to petition for relief from
judgment despite the lapse of the reglementary period for filing said period for filing said
petition.
In Escudero v. Judge Dulay (158 SCRA 69 [1988]), this Court, in holding that the counsel's blunder in
procedure is an exception to the rule that the client is bound by the mistakes of counsel, made the
following disquisition:
Petitioners contend, through their new counsel, that the judgment rendered against them
by the respondent court was null and void, because they were therein deprived of their
day in court and divested of their property without due process of law, through the gross
ignorance, mistake and negligence of their previous counsel. They acknowledge that,
while as a rule, clients are bound by the mistake of their counsel, the rule should not be
applied automatically to their case, as their trial counsel's blunder in procedure and gross
ignorance of existing jurisprudence changed their cause of action and violated their
substantial rights.
We are impressed with petitioner's contentions.
xxx xxx xxx
While this Court is cognizant of the rule that, generally, a client will suffer consequences
of the negligence, mistake or lack of competence of his counsel, in the interest of Justice
and equity, exceptions may be made to such rule, in accordance with the facts and
circumstances of each case. Adherence to the general rule would, in the instant case,
result in the outright deprivation of their property through a technicality.
In its questioned decision dated November 19, 1989 the Court of Appeals found, in no uncertain terms,
the negligence of the then counsel for petitioners when he failed to file the proper motion to dismiss or to
draw a compromise agreement if it was true that they agreed on a settlement of the case; or in simply
filing an answer; and that after having been furnished a copy of the decision by the court he failed to
appeal therefrom or to file a petition for relief from the order declaring petitioners in default. In all these
instances the appellate court found said counsel negligent but his acts were held to bind his client,
petitioners herein, nevertheless.
The Court disagrees and finds that the negligence of counsel in this case appears to be so gross and
inexcusable. This was compounded by the fact, that after petitioner gave said counsel another chance to
make up for his omissions by asking him to file a petition for annulment of the judgment in the appellate
court, again counsel abandoned the case of petitioner in that after he received a copy of the adverse
judgment of the appellate court, he did not do anything to save the situation or inform his client of the
judgment. He allowed the judgment to lapse and become final. Such reckless and gross negligence
should not be allowed to bind the petitioner. Petitioner was thereby effectively deprived of her day in court.
(at pp. 426-427)
The herein petitioners, however, are not similarly situated as the parties mentioned in the abovecited cases. We cannot
rule that they, too, were victims of the gross negligence of their counsel.

The petitioners are to be blamed for the October 22, 1986 order issued by the lower court submitting the cases for
decision. They received notices of the scheduled hearings and yet they did not do anything. More specifically, the parties
received notice of the Order dated September 29, 1986 with the warning that if they fail to attend the October 22, 1986
hearing, the cases would be submitted for decision based on the evidence on record. Earlier, at the scheduled hearing on
September 29, 1986, the counsel for the respondent corporation moved that the cases be submitted for decision for
failure of the petitioners and their counsel to attend despite notice. The lower court denied the motion and gave the
petitioners and their counsel another chance by rescheduling the October 22, 1986 hearing.
Indeed, the petitioners knew all along that their counsel was not attending the scheduled hearings. They did not take steps
to change their counsel or make him attend to their cases until it was too late. On the contrary, they continued to retain the
services of Atty. Manicad knowing fully well his lapses vis-a-vis their cases. They, therefore, cannot raise the alleged gross
negligence of their counsel resulting in their denial of due process to warrant the reversal of the lower court's decision. In
a similar case, Aguila v. Court of First Instance of Batangas, Branch 1 (supra), we ruled:
In the instant case, the petitioner should have noticed the succession of errors committed by his counsel
and taken appropriate steps for his replacement before it was altogether too late. He did not. On the
contrary, he continued to retain his counsel through the series of proceedings that all resulted in the
rejection of his cause, obviously through such counsel's "ineptitude" and, let it be added, the clients'
forbearance. The petitioner's reverses should have cautioned him that his lawyer was mishandling his
case and moved him to seek the help of other counsel, which he did in the end but rather tardily.
Now petitioner wants us to nullify all of the antecedent proceedings and recognize his earlier claims to the
disputed property on the justification that his counsel was grossly inept. Such a reason is hardly plausible
as the petitioner's new counsel should know. Otherwise, all a defeated party would have to do to salvage
his case is claim neglect or mistake on the part of his counsel as a ground for reversing the adverse
judgment. There would be no end to litigation if these were allowed as every shortcoming of counsel
could be the subject of challenge by his client through another counsel who, if he is also found wanting,
would likewise be disowned by the same client through another counsel, and so on ad infinitum. This
would render court proceedings indefinite, tentative and subject to reopening at any time by the mere
subterfuge of replacing counsel. (at pp. 357-358)
We now discuss the merits of the cases.
In the first assignment of error, the petitioners maintain that their possession of the questioned properties must be
respected in view of their ownership of an aliquot portion of all the properties of the respondent corporation being
stockholders thereof. They propose that the veil of corporate fiction be pierced, considering the circumstances under
which the respondent corporation was formed.
Originally, the questioned properties belonged to Eugenia V. Roxas. After her death, the heirs of Eugenia V. Roxas,
among them the petitioners herein, decided to form a corporation Heirs of Eugenia V. Roxas, Incorporated (private
respondent herein) with the inherited properties as capital of the corporation. The corporation was incorporated on
December 4, 1962 with the primary purpose of engaging in agriculture to develop the inherited properties. The Articles of
Incorporation of the respondent corporation were amended in 1971 to allow it to engage in the resort business.
Accordingly, the corporation put up a resort known as Hidden Valley Springs Resort where the questioned properties are
located.
These facts, however, do not justify the position taken by the petitioners.
The respondent is a bona fide corporation. As such, it has a juridical personality of its own separate from the members
composing it. (Western Agro Industrial Corporation v. Court of Appeals, 188 SCRA 709 [1990]; Tan Boon Bee & Co., Inc. v.
Jarencio, 163 SCRA 205 [1988]; Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio
Cano Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 [1965]) There is no dispute that title over the
questioned land where the Hidden Valley Springs Resort is located is registered in the name of the corporation. The
records also show that the staff house being occupied by petitioner Rebecca Boyer-Roxas and the recreation hall which
was later on converted into a residential house occupied by petitioner Guillermo Roxas are owned by the respondent
corporation. Regarding properties owned by a corporation, we stated in the case of Stockholders of F. Guanzon and
Sons, Inc. v. Register of Deeds of Manila, (6 SCRA 373 [1962]):
xxx xxx xxx

. . . Properties registered in the name of the corporation are owned by it as an entity separate and distinct
from its members. While shares of stock constitute personal property, they do not represent property of
the corporation. The corporation has property of its own which consists chiefly of real estate (Nelson v.
Owen, 113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only
typifies an aliquot part of the corporation's property, or the right to share in its proceeds to that extent
when distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala., 398, 56 So.
235), but its holder is not the owner of any part of the capital of the corporation (Bradley v. Bauder, 36
Ohio St., 28). Nor is he entitled to the possession of any definite portion of its property or assets (Gottfried
V. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in
common of the corporate property (Harton v. Johnston, 166 Ala., 317, 51 So. 992). (at pp. 375-376)
The petitioners point out that their occupancy of the staff house which was later used as the residence of Eriberto Roxas,
husband of petitioner Rebecca Boyer-Roxas and the recreation hall which was converted into a residential house were
with the blessings of Eufrocino Roxas, the deceased husband of Eugenia V. Roxas, who was the majority and controlling
stockholder of the corporation. In his lifetime, Eufrocino Roxas together with Eriberto Roxas, the husband of petitioner
Rebecca Boyer-Roxas, and the father of petitioner Guillermo Roxas managed the corporation. The Board of Directors did
not object to such an arrangement. The petitioners argue that . . . the authority thus given by Eufrocino Roxas for the
conversion of the recreation hall into a residential house can no longer be questioned by the stockholders of the private
respondent and/or its board of directors for they impliedly but no leas explicitly delegated such authority to said Eufrocino
Roxas. (Rollo, p. 12)
Again, we must emphasize that the respondent corporation has a distinct personality separate from its members. The
corporation transacts its business only through its officers or agents. (Western Agro Industrial Corporation v. Court of
Appeals,supra). Whatever authority these officers or agents may have is derived from the board of directors or other
governing body unless conferred by the charter of the corporation. An officer's power as an agent of the corporation must
be sought from the statute, charter, the by-laws or in a delegation of authority to such officer, from the acts of the board of
directors, formally expressed or implied from a habit or custom of doing business. (Vicente v. Geraldez, 52 SCRA 210
[1973])
In the present case, the record shows that Eufrocino V. Roxas who then controlled the management of the corporation,
being the majority stockholder, consented to the petitioners' stay within the questioned properties. Specifically, Eufrocino
Roxas gave his consent to the conversion of the recreation hall to a residential house, now occupied by petitioner
Guillermo Roxas. The Board of Directors did not object to the actions of Eufrocino Roxas. The petitioners were allowed to
stay within the questioned properties until August 27, 1983, when the Board of Directors approved a Resolution ejecting
the petitioners, to wit:
R E S O L U T I O N No. 83-12
RESOLVED, That Rebecca B. Roxas and Guillermo Roxas, and all persons claiming under them, be
ejected from their occupancy of the Hidden Valley Springs compound on which their houses have been
constructed and/or are being constructed only on tolerance of the Corporation and without any contract
therefor, in order to give way to the Corporation's expansion and improvement program and obviate
prejudice to the operation of the Hidden Valley Springs Resort by their continued interference.
RESOLVED, Further that the services of Atty. Benito P. Fabie be engaged and that he be authorized as
he is hereby authorized to effect the ejectment, including the filing of the corresponding suits, if necessary
to do so. (Original Records, p. 327)
We find nothing irregular in the adoption of the Resolution by the Board of Directors. The petitioners' stay within the
questioned properties was merely by tolerance of the respondent corporation in deference to the wishes of Eufrocino
Roxas, who during his lifetime, controlled and managed the corporation. Eufrocino Roxas' actions could not have bound
the corporation forever. The petitioners have not cited any provision of the corporation by-laws or any resolution or act of
the Board of Directors which authorized Eufrocino Roxas to allow them to stay within the company premises forever. We
rule that in the absence of any existing contract between the petitioners and the respondent corporation, the corporation
may elect to eject the petitioners at any time it wishes for the benefit and interest of the respondent corporation.
The petitioners' suggestion that the veil of the corporate fiction should be pierced is untenable. The separate personality of
the corporation may be disregarded only when the corporation is used "as a cloak or cover for fraud or illegality, or to work
injustice, or where necessary to achieve equity or when necessary for the protection of the creditors." (Sulong Bayan, Inc.
v. Araneta, Inc., 72 SCRA 347 [1976] cited in Tan Boon Bee & Co., Inc., v. Jarencio, supra and Western Agro Industrial

Corporation v. Court of Appeals, supra) The circumstances in the present cases do not fall under any of the enumerated
categories.
In the third assignment of error, the petitioners insist that as regards the unfinished building, Rebecca Boyer-Roxas is a
builder in good faith.
The construction of the unfinished building started when Eriberto Roxas, husband of Rebecca Boyer-Roxas, was still alive
and was the general manager of the respondent corporation. The couple used their own funds to finance the construction
of the building. The Board of Directors of the corporation, however, did not object to the construction. They allowed the
construction to continue despite the fact that it was within the property of the corporation. Under these circumstances, we
agree with the petitioners that the provision of Article 453 of the Civil Code should have been applied by the lower courts.
Article 453 of the Civil Code provides:
If there was bad faith, not only on the part of the person who built, planted or sown on the land of another
but also on the part of the owner of such land, the rights of one and the other shall be the same as though
both had acted in good faith.
In such a case, the provisions of Article 448 of the Civil Code govern the relationship between petitioner Rebecca-BoyerRoxas and the respondent corporation, to wit:
Art. 448 The owner of the land on which anything has been built, sown or planted in good faith, shall
have the right to appropriate as his own the works, sowing or planting after payment of the indemnity
provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the
land if its value is considerably more than that of the building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not choose to appropriate the buildings or trees after proper
indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court
shall fix the terms thereof.
WHEREFORE, the present petition is partly GRANTED. The questioned decision of the Court of Appeals affirming the
decision of the Regional Trial Court of Laguna, Branch 37, in RTC Civil Case No. 802-84-C is MODIFIED in that
subparagraphs (c) and (d) of Paragraph 1 of the dispositive portion of the decision are deleted. In their stead, the
petitioner Rebecca Boyer-Roxas and the respondent corporation are ordered to follow the provisions of Article 448 of the
Civil Code as regards the questioned unfinished building in RTC Civil Case No. 802-84-C. The questioned decision is
affirmed in all other respects.
SO ORDERED.
Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur.

CASE 5
[G.R. No. 125469. October 27, 1997]
PHILIPPINE STOCK EXCHANGE, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, SECURITIES AND
EXCHANGE COMMISSION and PUERTO AZUL LAND, INC., respondents.
DECISION
TORRES, JR., J.:
The Securities and Exchange Commission is the government agency, under the direct general supervision of the
Office of the President,[1] with the immense task of enforcing the Revised Securities Act, and all other duties assigned to it
by pertinent laws. Among its inumerable functions, and one of the most important, is the supervision of all corporations,
partnerships or associations, who are grantees or primary franchise and/or a license or permit issued by the government
to operate in the Philippines. [2] Just how far this regulatory authority extends, particularly, with regard to the Petitioner
Philippine Stock Exchange, Inc. is the issue in the case at bar.
In this Petition for Review of Certiorari, petitioner assails the resolution of the respondent Court of Appeals, dated
June 27, 1996, which affirmed the decision of the Securities and Exchange Commission ordering the petitioner Philippine
Stock Exchange, Inc. to allow the private respondent Puerto Azul Land, Inc. to be listed in its stock market, thus paving
the way for the public offering of PALIs shares.
The facts of the case are undisputed, and are hereby restated in sum.
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the public in
order to raise funds allegedly to develop its properties and pay its loans with several banking institutions. In January,
1995, PALI was issued a Permit to Sell its shares to the public by the Securities and Exchange Commission (SEC). To
facilitate the trading of its shares among investors, PALI sought to course the trading of its shares through the Philippine
Stock Exchange, Inc. (PSE), for which purpose it filed with the said stock exchange an application to list its shares, with
supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALIs application, recommended to the
PSEs Board of Governors the approval of PALIs listing application.
On February 14, 1996, before it could act upon PALIs application, the Board of Governors of PSE received a letter
from the heirs of Ferdinand E. Marcos, claiming that the late President Marcos was the legal and beneficial owner of
certain properties forming part of the Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its
assets and that the Ternate Development Corporation, which is among the stockholders of PALI, likewise appears to have
been held and continue to be held in trust by one Rebecco Panlilio for then President Marcos and now, effectively for his
estate, and requested PALIs application to be deferred. PALI was requested to comment upon the said letter.
PALIs answer stated that the properties forming part of Puerto Azul Beach Hotel and Resort Complex were not
claimed by PALI as its assets. On the contrary, the resort is actually owned by Fantasia Filipina Resort, Inc. and the
Puerto Azul Country Club, entities distinct from PALI. Furthermore, the Ternate Development Corporation owns only
1.20% of PALI. The Marcoses responded that their claim is not confined to the facilities forming part of the Puerto Azul
Hotel and Resort Complex, thereby implying that they are also asserting legal and beneficial ownership of other properties
titled under the name of PALI.
On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of the Presidential Commission on Good
Government (PCGG) requesting for comments on the letter of the PALI and the Marcoses. On March 4, 1996, the PSE
was informed that the Marcoses received a Temporary Restraining Order on the same date, enjoining the Marcoses from,
among others, further impeding, obstructing, delaying or interfering in any manner by or any means with the
consideration, processing and approval by the PSE of the initial public offering of PALI. The TRO was issued by Judge
Martin S. Villarama, Executive Judge of the RTC of Pasig City in Civil Case No. 65561, pending in Branch 69 thereof.
In its regular meeting held on March 27, 1996, the Board of Governors of the PSE reached its decision to reject
PALIs application, citing the existence of serious claims, issues and circumstances surrounding PALIs ownership over its
assets that adversely affect the suitability of listing PALIs shares in the stock exchange.
On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting Chairman, Perfecto R. Yasay, Jr.,
bringing to the SECs attention the action taken by the PSE in the application of PALI for the listing of its shares with the
PSE, and requesting that the SEC, in the exercise of its supervisory and regulatory powers over stock exchanges under
Section 6(j) of P.D. No. 902-A, review the PSEs action on PALIs listing application and institute such measures as are just
and proper and under the circumstances.

On the same date, or on April 11, 1996, the SEC wrote to the PSE, attaching thereto the letter of PALI and directing
the PSE to file its comments thereto within five days from its receipt and for its authorized representative to appear for an
inquiry on the matter. On April 22, 1996, the PSE submitted a letter to the SEC containing its comments to the April 11,
1996 letter of PALI.
On April 24, 1996, the SEC rendered its Order, reversing the PSEs decision. The dispositive portion of the said order
reads:
WHEREFORE, premises considered, and invoking the Commissioners authority and jurisdiction under Section 3 of the
Revised Securities Act, in conjunction with Section 3, 6(j) and 6(m) of the Presidential Decree No. 902-A, the decision of
the Board of Governors of the Philippine Stock Exchange denying the listing of shares of Puerto Azul Land, Inc., is hereby
set aside, and the PSE is hereby ordered to immediately cause the listing of the PALI shares in the Exchange, without
prejudice to its authority to require PALI to disclose such other material information it deems necessary for the protection
of the investing public.
This Order shall take effect immediately.
SO ORDERED.
PSE filed a motion for reconsideration of the said order on April 29, 1996, which was, however denied by the
Commission in its May 9, 1996 Order which states:
WHEREFORE, premises considered, the Commission finds no compelling reason to consider its order dated April 24,
1996, and in the light of recent developments on the adverse claim against the PALI properties, PSE should require PALI
to submit full disclosure of material facts and information to protect the investing public. In this regard, PALI is hereby
ordered to amend its registration statements filed with the Commission to incorporate the full disclosure of these material
facts and information.
Dissatisfied with this ruling, the PSE filed with the Court of Appeals on May 17, 1996 a Petition for Review (with
application for Writ of Preliminary Injunction and Temporary Restraining Order), assailing the above mentioned orders of
the SEC, submitting the following as errors of the SEC:
I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN ISSUING THE ASSAILED
ORDERS WITHOUT POWER, JURISDICTION, OR AUTHORITY; SEC HAS NO POWER TO ORDER THE
LISTING AND SALE OF SHARES OF PALI WHOSE ASSETS ARE SEQUESTERED AND TO REVIEW AND
SUBSTITUTE DECISIONS OF PSE ON LISTING APPLICATIONS;
II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN FINDING THAT PSE
ACTED IN AN ARBITRARY AND ABUSIVE MANNER IN DISAPPROVING PALIS LISTING APPLICATION;
III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING FURTHER DISPOSITION
OF PROPERTIES IN CUSTODIA LEGIS AND WHICH FORM PART OF NAVAL/MILITARY RESERVATION;
AND
IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED AND ITS
IMPLEMENTATION AND APPLICATION IN THIS CASE VIOLATES THE DUE PROCESS CLAUSE OF
THE CONSTITUTION.
On June 4, 1996, PALI filed its Comment to the Petition for Review and subsequently, a Comment and Motion to
Dismiss. On June 10, 1996, PSE filed its Reply to Comment and Opposition to Motion to Dismiss.
On June 27, 1996, the Court of Appeals promulgated its Resolution dismissing the PSEs Petition for Review. Hence,
this Petition by the PSE.
The appellate court had ruled that the SEC had both jurisdiction and authority to look into the decision of the
petitioner PSE, pursuant to Section 3[3] of the Revised Securities Act in relation to Section 6(j) and 6(m) [4] of P.D. No. 902A, and Section 38(b)[5] of the Revised Securities Act, and for the purpose of ensuring fair administration of the exchange.
Both as a corporation and as a stock exchange, the petitioner is subject to public respondents jurisdiction, regulation and
control. Accepting the argument that the public respondent has the authority merely to supervise or regulate, would
amount to serious consequences, considering that the petitioner is a stock exchange whose business is impressed with
public interest. Abuse is not remote if the public respondent is left without any system of control. If the securities act
vested the public respondent with jurisdiction and control over all corporations; the power to authorize the establishment
of stock exchanges; the right to supervise and regulate the same; and the power to alter and supplement rules of the

exchange in the listing or delisting of securities, then the law certainly granted to the public respondent the plenary
authority over the petitioner; and the power of review necessarily comes within its authority.
All in all, the court held that PALI complied with all the requirements for public listing, affirming the SECs ruling to the
effect that:
x x x the Philippine Stock Exchange has acted in an arbitrary and abusive manner in disapproving the application of PALI
for listing of its shares in the face of the following considerations:
1. PALI has clearly and admittedly complied with the Listing Rules and full disclosure requirements of the Exchange;
2. In applying its clear and reasonable standards on the suitability for listing of shares, PSE has failed to justify why it
acted differently on the application of PALI, as compared to the IPOs of other companies similarly that were allowed listing
in the Exchange;
3. It appears that the claims and issues on the title to PALIs properties were even less serious than the claims against the
assets of the other companies in that, the assertions of the Marcoses that they are owners of the disputed properties were
not substantiated enough to overcome the strength of a title to properties issued under the Torrens System as evidence of
ownership thereof;
4. No action has been filed in any court of competent jurisdiction seeking to nullify PALIs ownership over the disputed
properties, neither has the government instituted recovery proceedings against these properties. Yet the import of PSEs
decision in denying PALIs application is that it would be PALI, not the Marcoses, that must go to court to prove the legality
of its ownership on these properties before its shares can be listed.
In addition, the argument that the PALI properties belong to the Military/Naval Reservation does not inspire
belief. The point is, the PALI properties are now titled. A property losses its public character the moment it is covered by a
title. As a matter of fact, the titles have long been settled by a final judgment; and the final decree having been registered,
they can no longer be re-opened considering that the one year period has already passed. Lastly, the determination of
what standard to apply in allowing PALIs application for listing, whether the discretion method or the system of public
disclosure adhered to by the SEC, should be addressed to the Securities Commission, it being the government agency
that exercises both supervisory and regulatory authority over all corporations.
On August 15, 1996, the PSE, after it was granted an extension, filed an instant Petition for Review on Certiorari,
taking exception to the rulings of the SEC and the Court of Appeals. Respondent PALI filed its Comment to the petition on
October 17, 1996. On the same date, the PCGG filed a Motion for Leave to file a Petition for Intervention. This was
followed up by the PCGGs Petition for Intervention on October 21, 1996. A supplemental Comment was filed by PALI on
October 25, 1997. The Office of the Solicitor General, representing the SEC and the Court of Appeals, likewise filed its
Comment on December 26, 1996. In answer to the PCGGs motion for leave to file petition for intervention, PALI filed its
Comment thereto on January 17, 1997, whereas the PSE filed its own Comment on January 20, 1997.
On February 25, 1996, the PSE filed its Consolidated Reply to the comments of respondent PALI (October 17, 1996)
and the Solicitor General (December 26, 1996). On may 16, 1997, PALI filed its Rejoinder to the said consolidated reply of
PSE.
PSE submits that the Court of Appeals erred in ruling that the SEC had authority to order the PSE to list the shares of
PALI in the stock exchange. Under presidential decree No. 902-A, the powers of the SEC over stock exchanges are more
limited as compared to its authority over ordinary corporations. In connection with this, the powers of the SEC over stock
exchanges under the Revised Securities Act are specifically enumerated, and these do not include the power to reverse
the decisions of the stock exchange. Authorities are in abundance even in the United States, from which the countrys
security policies are patterned, to the effect of giving the Securities Commission less control over stock exchanges, which
in turn are given more lee-way in making the decision whether or not to allow corporations to offer their stock to the public
through the stock exchange. This is in accord with the business judgment rule whereby the SEC and the courts are barred
from intruding into business judgments of corporations, when the same are made in good faith. The said rule precludes
the reversal of the decision of the PSE to deny PALIs listing application, absent a showing a bad faith on the part of the
PSE. Under the listing rule of the PSE, to which PALI had previously agreed to comply, the PSE retains the discretion to
accept or reject applications for listing. Thus, even if an issuer has complied with the PSE listing rules and requirements,
PSE retains the discretion to accept or reject the issuers listing application if the PSE determines that the listing shall not
serve the interests of the investing public.
Moreover, PSE argues that the SEC has no jurisdiction over sequestered corporations, nor with corporations whose
properties are under sequestration. A reading of Republic of the Philippines vs. Sandiganbayan, G.R. No. 105205, 240
SCRA 376, would reveal that the properties of PALI, which were derived from the Ternate Development Corporation (TDC)

and the Monte del Sol Development Corporation (MSDC), are under sequestration by the PCGG, and the subject of
forfeiture proceedings in the Sandiganbayan. This ruling of the Court is the law of the case between the Republic and the
TDC and MSDC. It categorically declares that the assets of these corporations were sequestered by the PCGG on March
10, 1986 and April 4, 1988.
It is, likewise, intimidated that the Court of Appeals sanction that PALIs ownership over its properties can no longer
be questioned, since certificates of title have been issued to PALI and more than one year has since lapsed, is erroneous
and ignores well settled jurisprudence on land titles. That a certificate of title issued under the Torrens System is a
conclusive evidence of ownership is not an absolute rule and admits certain exceptions. It is fundamental that forest lands
or military reservations are non-alienable. Thus, when a title covers a forest reserve or a government reservation, such
title is void.
PSE, likewise, assails the SECs and the Court of Appeals reliance on the alleged policy of full disclosure to uphold
the listing of the PALIs shares with the PSE, in the absence of a clear mandate for the effectivity of such policy. As it is, the
case records reveal the truth that PALI did not comply with the listing rules and disclosure requirements. In fact, PALIs
documents supporting its application contained misrepresentations and misleading statements, and concealed material
information. The matter of sequestration of PALIs properties and the fact that the same form part of military/naval/forest
reservations were not reflected in PALIs application.
It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with the marking of
a corporate entity, its functions as the primary channel through which the vessels of capital trade ply. The PSEs relevance
to the continued operation and filtration of the securities transactions in the country gives it a distinct color of importance
such that government intervention in its affairs becomes justified, if not necessary. Indeed, as the only operational stock
exchange in the country today, the PSE enjoys a monopoly of securities transactions, and as such, it yields an immense
influence upon the countrys economy.
Due to this special nature of stock exchanges, the countrys lawmakers has seen it wise to give special treatment to
the administration and regulation of stock exchanges. [6]
These provisions, read together with the general grant of jurisdiction, and right of supervision and control over all
corporations under Sec. 3 of P.D. 902-A, give the SEC the special mandate to be vigilant in the supervision of the affairs
of stock exchanges so that the interests of the investing public may be fully safeguarded.
Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the SECs challenged control
authority over the petitioner PSE even as it provides that the Commission shall have absolute jurisdiction, supervision,
and control over all corporations, partnerships or associations, who are the grantees of primary franchises and/or a
license or permit issued by the government to operate in the Philippines The SECs regulatory authority over private
corporations encompasses a wide margin of areas, touching nearly all of a corporations concerns. This authority springs
from the fact that a corporation owes its existence to the concession of its corporate franchise from the state.
The SECs power to look into the subject ruling of the PSE, therefore, may be implied from or be considered as
necessary or incidental to the carrying out of the SECs express power to insure fair dealing in securities traded upon a
stock exchange or to ensure the fair administration of such exchange. [7] It is, likewise, observed that the principal function
of the SEC is the supervision and control over corporations, partnerships and associations with the end in view that
investment in these entities may be encouraged and protected, and their activities pursued for the promotion of economic
development.[8]
Thus, it was in the alleged exercise of this authority that the SEC reversed the decision of the PSE to deny the
application for listing in the stock exchange of the private respondent PALI. The SECs action was affirmed by the Court of
Appeals.
We affirm that the SEC is the entity with the primary say as to whether or not securities, including shares of stock of a
corporation, may be traded or not in the stock exchange. This is in line with the SECs mission to ensure proper
compliance with the laws, such as the Revised Securities Act and to regulate the sale and disposition of securities in the
country.[9] As the appellate court explains:
Paramount policy also supports the authority of the public respondent to review petitioners denial of the listing. Being a
stock exchange, the petitioner performs a function that is vital to the national economy, as the business is affected with
public interest. As a matter of fact, it has often been said that the economy moves on the basis of the rise and fall of
stocks being traded. By its economic power, the petitioner certainly can dictate which and how many users are allowed to
sell securities thru the facilities of a stock exchange, if allowed to interpret its own rules liberally as it may
please. Petitioner can either allow or deny the entry to the market of securities. To repeat, the monopoly, unless
accompanied by control, becomes subject to abuse; hence, considering public interest, then it should be subject to
government regulation.

The role of the SEC in our national economy cannot be minimized. The legislature, through the Revised Securities
Act, Presidential Decree No. 902-A, and other pertinent laws, has entrusted to it the serious responsibility of enforcing all
laws affecting corporations and other forms of associations not otherwise vested in some other government office. [10]
This is not to say, however, that the PSEs management prerogatives are under the absolute control of the SEC. The
PSE is, after all, a corporation authorized by its corporate franchise to engage in its proposed and duly approved
business. One of the PSEs main concerns, as such, is still the generation of profit for its stockholders. Moreover, the PSE
has all the rights pertaining to corporations, including the right to sue and be sued, to hold property in its own name, to
enter (or not to enter) into contracts with third persons, and to perform all other legal acts within its allocated express or
implied powers.
A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a
distinct legal personality. In organizing itself as a collective body, it waives no constitutional immunities and perquisites
appropriate to such body.[11] As to its corporate and management decisions, therefore, the state will generally not interfere
with the same. Questions of policy and of management are left to the honest decision of the officers and directors of a
corporation, and the courts are without authority to substitute their judgment for the judgment of the board of
directors. The board is the business manager of the corporation, and so long as it acts in good faith, its orders are not
reviewable by the courts.[12]
Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSEs
decision in matters of application for listing in the market, the SEC may exercise such power only if the PSEs judgment is
attended by bad faith. In board of Liquidators vs. Kalaw,[13] it was held that bad faith does not simply connote bad
judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a
breach of a known duty through some motive or interest of ill will, partaking of the nature of fraud.
In reaching its decision to deny the application for listing of PALI, the PSE considered important facts, which in the
general scheme, brings to serious question the qualification of PALI to sell its shares to the public through the stock
exchange. During the time for receiving objections to the application, the PSE heard from the representative of the late
President Ferdinand E. Marcos and his family who claim the properties of the private respondent to be part of the Marcos
estate. In time, the PCGG confirmed this claim. In fact, an order of sequestration has been issued covering the properties
of PALI, and suit for reconveyance to the state has been filed in the Sandiganbayan Court. How the properties were
effectively transferred, despite the sequestration order, from the TDC and MSDC to Rebecco Panlilio, and to the private
respondent PALI, in only a short span of time, are not yet explained to the Court, but it is clear that such circumstances
give rise to serious doubt as to the integrity of PALI as a stock issuer. The petitioner was in the right when it refused
application of PALI, for a contrary ruling was not to the best interest of the general public. The purpose of the Revised
Securities Act, after all, is to give adequate and effective protection to the investing public against fraudulent
representations, or false promises, and the imposition of worthless ventures. [14]
It is to be observed that the U.S. Securities Act emphasized its avowed protection to acts detrimental to legitimate
business, thus:
The Securities Act, often referred to as the truth in securities Act, was designed not only to provide investors with
adequate information upon which to base their decisions to buy and sell securities, but also to protect legitimate business
seeking to obtain capital through honest presentation against competition form crooked promoters and to prevent fraud in
the sale of securities. (Tenth Annual Report, U.S. Securities and Exchange Commission, p. 14).
As has been pointed out, the effects of such an act are chiefly (1) prevention of excesses and fraudulent transactions,
merely by requirement of that details be revealed; (2) placing the market during the early stages of the offering of a
security a body of information, which operating indirectly through investment services and expert investors, will tend to
produce a more accurate appraisal of a security. x x x. Thus, the Commission may refuse to permit a registration
statement to become effective if it appears on its face to be incomplete or inaccurate in any material respect, and
empower the Commission to issue a stop order suspending the effectiveness of any registration statement which is found
to include any untrue statement of a material fact or to omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. (Idem).
Also, as the primary market for securities, the PSE has established its name and goodwill, and it has the right to
protect such goodwill by maintaining a reasonable standard of propriety in the entities who choose to transact through its
facilities. It was reasonable for PSE, therefore, to exercise its judgment in the manner it deems appropriate for its
business identity, as long as no rights are trampled upon, and public welfare is safeguarded.
In this connection, it is proper to observe that the concept of government absolutism in a thing of the past, and should
remain so.

The observation that the title of PALI over its properties is absolute and can no longer be assailed is of no
moment. At this juncture, there is the claim that the properties were owned by the TDC and MSDC and were transferred in
violation of sequestration orders, to Rebecco Panlilio and later on to PALI, besides the claim of the Marcoses that such
properties belong to Marcos estate, and were held only in trust by Rebecco Panlilio. It is also alleged by the petitioner that
these properties belong to naval and forest reserves, and therefore beyond private dominion. If any of these claims is
established to be true, the certificates of title over the subject properties now held by PALI may be disregarded, as it is an
established rule that a registration of a certificate of title does not confer ownership over the properties described therein
to the person named as owner. The inscription in the registry, to be effective, must be made in good faith. The defense of
indefeasibility of a Torrens Title does not extend to a transferee who takes the certificate of title with notice of a flaw.
In any case, for the purpose of determining whether PSE acted correctly in refusing the application of PALI, the true
ownership of the properties of PALI need not be determined as an absolute fact. What is material is that the uncertainty of
the properties ownership and alienability exists, and this puts to question the qualification of PALIs public offering. In sum,
the Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion of approving the application for
listing in the PSE of the private respondent PALI, since this is a matter addressed to the sound discretion of the PSE, a
corporate entity, whose business judgments are respected in the absence of bad faith.
The question as to what policy is, or should be relied upon in approving the registration and sale of securities in the
SEC is not for the Court to determine, but is left to the sound discretion of the Securities and Exchange Commission. In
mandating the SEC to administer the Revised Securities Act, and in performing its other functions under pertinent laws,
the Revised Securities Act, under Section 3 thereof, gives the SEC the power to promulgate such rules and regulations as
it may consider appropriate in the public interest for the enforcement of the said laws. The second paragraph of Section 4
of the said law, on the other hand, provides that no security, unless exempt by law, shall be issued, endorsed, sold,
transferred or in any other manner conveyed to the public, unless registered in accordance with the rules and regulations
that shall be promulgated in the public interest and for the protection of investors by the Commission. Presidential Decree
No. 902-A, on the other hand, provides that the SEC, as regulatory agency, has supervision and control over all
corporations and over the securities market as a whole, and as such, is given ample authority in determining appropriate
policies. Pursuant to this regulatory authority, the SEC has manifested that it has adopted the policy of full material
disclosure where all companies, listed or applying for listing, are required to divulge truthfully and accurately, all material
information about themselves and the securities they sell, for the protection of the investing public, and under pain of
administrative, criminal and civil sanctions. In connection with this, a fact is deemed material if it tends to induce or
otherwise effect the sale or purchase of its securities. [15] While the employment of this policy is recognized and sanctioned
by laws, nonetheless, the Revised Securities Act sets substantial and procedural standards which a proposed issuer of
securities must satisfy.[16] Pertinently, Section 9 of the Revised Securities Act sets forth the possible Grounds for the
Rejection of the registration of a security:
- - The Commission may reject a registration statement and refuse to issue a permit to sell the securities included in such
registration statement if it finds that - (1) The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue
statement of a material fact or omits to state a material facts required to be stated therein or necessary to make the
statements therein not misleading; or
(2) The issuer or registrant - (i) is not solvent or not is sound financial condition;
(ii) has violated or has not complied with the provisions of this Act, or the rules promulgated pursuant thereto, or any order
of the Commission;
(iii) has failed to comply with any of the applicable requirements and conditions that the Commission may, in the public
interest and for the protection of investors, impose before the security can be registered;
(iv) had been engaged or is engaged or is about to engaged in fraudulent transactions;
(v) is in any was dishonest of is not of good repute; or
(vi) does not conduct its business in accordance with law or is engaged in a business that is illegal or contrary or
government rules and regulations.
(3) The enterprise or the business of the issuer is not shown to be sound or to be based on sound business principles;

(4) An officer, member of the board of directors, or principal stockholder of the issuer is disqualified to such officer, director
or principal stockholder; or
(5) The issuer or registrant has not shown to the satisfaction of the Commission that the sale of its security would not work
to the prejudice to the public interest or as a fraud upon the purchaser or investors. (Emphasis Ours)
A reading of the foregoing grounds reveals the intention of the lawmakers to make the registration and issuance of
securities dependent, to a certain extent, on the merits of the securities themselves, and of the issuer, to be determined by
the Securities and Exchange Commission. This measure was meant to protect the interest of the investing public against
fraudulent and worthless securities, and the SEC is mandated by law to safeguard these interests, following the policies
and rules therefore provided. The absolute reliance on the full disclosure method in the registration of securities is,
therefore, untenable. At it is, the Court finds that the private respondent PALI, on at least two points (nos. 1 and 5) has
failed to support the propriety of the issue of its shares with unfailing clarity, thereby lending support to the conclusion that
the PSE acted correctly in refusing the listing of PALI in its stock exchange. This does not discount the effectivity of
whatever method the SEC, in the exercise of its vested authority, chooses in setting the standard for public offerings of
corporations wishing to do so.However, the SEC must recognize and implement the mandate of the law, particularly the
Revised Securities Act, the provisions of which cannot be amended or supplanted my mere administrative issuance.
In resum, the Court finds that the PSE has acted with justified circumspection, discounting, therefore, any imputation
of arbitrariness and whimsical animation on its part. Its action in refusing to allow the listing of PALI in the stock exchange
is justified by the law and by the circumstances attendant to this case.
ACCORDINGLY, in view of the foregoing considerations, the Court hereby GRANTS the Petition for Review
on Certiorari. The decisions of the Court of Appeals and the Securities and Exchage Commission dated July 27, 1996 and
April 24, 1996, respectively, are hereby REVERSED and SET ASIDE, and a new Judgment is hereby ENTERED,
affirming the decision of the Philippine Stock Exchange to deny the application for listing of the private respondent Puerto
Azul Land, Inc.
SO ORDERED.
Regalado (Chairman) and Puno, JJ., concur.
Mendoza, J., in the result.

[1]

Section 1, Presidential Decree no. 902-A.

[2]

Section 3, Ibid.

[3]

Sec. 3. Administrative Agency.-- This act shall be administered by the (Securities and Exchange) Commission which
shall continue to have the organization, powers, and functions provided by Presidential Decree Numbered 902-A, 1653,
1758, and 1799 and Executive Order No. 708. The Commission shall, except as otherwise expressly provided, have the
power to promulgate such rules and regulations as it may consider appropriate in the public interest for the enforcement of
the provisions hereof.
[4]

Sec. 6. In order to effectively exercise such jurisdiction, the (Securities and Exchange) Commission shall possess the
following powers:
xxx
(j) To authorize the establishment and operation of stock exchanges, commodity exchanges and such other similar
organizations and to supervise and regulate the same; including the authority to determine their number, size and
location, in the light of national or regional requirements for such activities with the view to promote, conserve or
rationalize investment;
xxx
(m) To exercise such other powers as may be provided by law as well as those which may be implied from, or which are
necessary or incidental to the carrying out of, the express powers granted to the Commission or to achieve the objectives
and purposes of this Decree.
[5]

Sec. 38. Powers with respect to exchanges and securities.(a) xxx

(b) The Commission is further authorized, if after making appropriate request in writing to a securities exchange that such
exchange effect on its own behalf specified changes in the rules and practices and, after appropriate notice and
opportunity for hearing, it determines that such exchange has not made the changes so requested, and that such changes
are necessary or appropriate for the protection of investors or to insure fair dealing in securities traded upon such

exchange, by rules or regulations or by order, to alter or supplement the rules of such exchange (insofar as necessary or
appropriate to effect such changes) in respect of such matters as -(1) Safeguards in respect of the financial responsibility of members and adequate provision against the evasion of
financial responsibility through the use of corporate forms or special partnerships;
(2) The limitation or prohibition of the registration or trading in any security within a specified period after the issuance or
primary distribution thereof;
(3) The listing or striking from listing of any security;
(4) Hours of trading;
(5) The manner, method, and place of soliciting business;
(6) Fictitious accounts;
(7) The time and method of making settlements, payments, and deliveries, and of closing accounts;
(8) The reporting of transactions on the exchange upon tickets maintained by or with the consent of the exchange,
including the method of reporting short sales, stopped sales, sales of securities of issuers in default, bankruptcy or
receivership, and sales involving other special circumstances;
(9) The fixing of reasonable rates of commission, interests, listing, and other charges;
(10) Minimum units of trading;
(11) Odd-lot purchases and sales; and
(12) Minimum deposits on margin accounts.
[6]

See SEC. 6(j), P.D. 902-A; Sec. 8, Revised Securities Act.

[7]

Section 6(m), Presidential Decree No. 902-A.

[8]

Abad vs. CFI of Pangasinan, Branch VIII, et. al., G.R. Nos. 58507-08, February 26, 1992, 206 SCRA 567.

[9]

Securities and Exchange Commission vs. Court of Appeals, G.R. Nos. 106425 & 106431-32, July 21, 1995, 246 SCRA
738.
[10]

Pineda vs. Lantin, No. L-15350, November 30, 1962, 6 SCRA 757.

[11]

Bache & Co. (Phil.), Inc. vs. Hon. Judge Ruiz, et. al., No. L-32409, February 27, 1971, 37 SCRA 823.

[12]

Sales vs. Securities and Exchange Commission, G.R. No. 54330, January 13, 1989, 169 SCRA 109.

[13]

No. L-18805, August 14, 1967, 20 SCRA 987.

[14]

Makati Stock Exchage, Inc. vs. Securities and Exchange Commission, No. L-23004, June 30, 1964, 14 SCRA 620.

[15]

See SEC Rules Requiring Disclosure of Material Facts by Corporations Whose Securities are Listed in Any Stock
Exchange or Registered/Licensed under the Revised Securities Act. (Approved by the SEC Chairman on February 8,
1973, and published in the Bulletin Today of February 19, 1973).
[16]

See Sections 4, 8, 9, 10, and 11, Revised Securities Act.

CASE 6

[G.R. No. 116123. March 13, 1997]

SERGIO F. NAGUIAT, doing business under the name and style SERGIO F. NAGUIAT ENT., INC., & CLARK FIELD
TAXI, INC., petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION), NATIONAL
ORGANIZATION OF WORKINGMEN and its members, LEONARDO T. GALANG,et al., respondents.
DECISION
PANGANIBAN, J.:
Are private respondent-employees of petitioner Clark Field Taxi, Inc., who were separated from service due to the
closure of Clark Air Base, entitled to separation pay and, if so, in what amount? Are officers of corporations ipso
facto liable jointly and severally with the companies they represent for the payment of separation pay?
These questions are answered by the Court in resolving this petition for certiorari under Rule 65 of the Rules of Court
assailing the Resolutions of the National Labor Relations Commission (Third Division) [1] promulgated on February 28,
1994,[2] and May 31, 1994.[3] The February 28, 1994 Resolution affirmed with modifications the decision [4] of Labor Arbiter
Ariel C. Santos in NLRC Case No. RAB-III-12-2477-91. The second Resolution denied the motion for reconsideration of
herein petitioners.
The NLRC modified the decision of the labor arbiter by granting separation pay to herein individual respondents in
the increased amount of US$120.00 for every year of service or its peso equivalent, and holding Sergio F. Naguiat
Enterprises, Inc., Sergio F. Naguiat and Antolin T. Naguiat, jointly and severally liable with Clark Field Taxi, Inc. ("CFTI").

The Facts
The following facts are derived from the records of the case:
Petitioner CFTI held a concessionaire's contract with the Army Air Force Exchange Services ("AAFES") for the operation
of taxi services within Clark Air Base. Sergio F. Naguiat was CFTI's president, while Antolin T. Naguiat was its vicepresident. Like Sergio F. Naguiat Enterprises, Incorporated ("Naguiat Enterprises"), a trading firm, it was a family-owned
corporation.
Individual respondents were previously employed by CFTI as taxicab drivers. During their employment, they were
required to pay a daily "boundary fee" in the amount of US$26.50 for those working from 1:00 a.m. to 12:00 noon, and
US$27.00 for those working from 12:00 noon to 12:00 midnight. All incidental expenses for the maintenance of the
vehicles they were driving were accounted against them, including gasoline expenses.
The drivers worked at least three to four times a week, depending on the availability of taxicabs. They earned not less
than US$15.00 daily. In excess of that amount, however, they were required to make cash deposits to the company, which
they could later withdraw every fifteen days.
Due to the phase-out of the US military bases in the Philippines, from which Clark Air Base was not spared, the AAFES
was dissolved, and the services of individual respondents were officially terminated on November 26, 1991.
The AAFES Taxi Drivers Association ("drivers' union"), through its local president, Eduardo Castillo, and CFTI held
negotiations as regards separation benefits that should be awarded in favor of the drivers.They arrived at an agreement
that the separated drivers will be given P500.00 for every year of service as severance pay. Most of the drivers accepted
said amount in December 1991 and January 1992.However, individual respondents herein refused to accept theirs.
Instead, after disaffiliating themselves from the drivers' union, individual respondents, through the National Organization of
Workingmen ("NOWM"), a labor organization which they subsequently joined, filed a complaint [5] against "Sergio F.
Naguiat doing business under the name and style Sergio F. Naguiat Enterprises, Inc., Army-Air Force Exchange Services

(AAFES) with Mark Hooper as Area Service Manager, Pacific Region, and AAFES Taxi Drivers Association with Eduardo
Castillo as President," for payment of separation pay due to termination/phase-out. Said complaint was later amended[6] to
include additional taxi drivers who were similarly situated as complainants, and CFTI with Antolin T. Naguiat as vice
president and general manager, as party respondent.
In their complaint, herein private respondents alleged that they were regular employees of Naguiat Enterprises,
although their individual applications for employment were approved by CFTI. They claimed to have been assigned to
Naguiat Enterprises after having been hired by CFTI, and that the former thence managed, controlled and supervised
their employment.They averred further that they were entitled to separation pay based on their latest daily earnings of
US$15.00 for working sixteen (16) days a month.
In their position paper submitted to the labor arbiter, herein petitioners claimed that the cessation of business of CFTI
on November 26, 1991, was due to "great financial losses and lost business opportunity" resulting from the phase-out of
Clark Air Base brought about by the Mt. Pinatubo eruption and the expiration of the RP-US military bases
agreement. They admitted that CFTI had agreed with the drivers' union, through its President Eduardo Castillo who
claimed to have had blanket authority to negotiate with CFTI in behalf of union members, to grant its taxi driver-employees
separation pay equivalent to P500.00 for every year of service.
The labor arbiter, finding the individual complainants to be regular workers of CFTI, ordered the latter to pay
them P1,200.00 for every year of service "for humanitarian consideration," setting aside the earlier agreement between
CFTI and the drivers' union of P500.00 for every year of service. The labor arbiter rejected the allegation of CFTI that it
was forced to close business due to "great financial losses and lost business opportunity" since, at the time it ceased
operations, CFTI was profitably earning and the cessation of its business was due to the untimely closure of Clark Air
Base. In not awarding separation pay in accordance with the Labor Code, the labor-arbiter explained:
"To allow respondents exemption from its (sic) obligation to pay separation pay would be inhuman to
complainants but to impose a monetary obligation to an employer whose profitable business was abruptly shot
(sic) down by force majeure would be unfair and unjust to say the least." [7]
and thus, simply awarded an amount for "humanitarian consideration."
Herein individual private respondents appealed to the NLRC. In its Resolution, the NLRC modified the decision of the
labor arbiter by granting separation pay to the private respondents. The concluding paragraphs of the NLRC Resolution
read:
"The contention of complainant is partly correct. One-half month salary should be US$120.00 but this amount
can not be paid to the complainant in U.S. Dollar which is not the legal tender in the Philippines. Paras, in
commenting on Art. 1249 of the New Civil Code, defines legal tender as 'that which a debtor may compel a
creditor to accept in payment of the debt. The complainants who are the creditors in this instance can be
compelled to accept the Philippine peso which is the legal tender, in which case, the table of conversion
(exchange rate) at the time of payment or satisfaction of the judgment should be used. However, since the
choice is left to the debtor, (respondents) they may choose to pay in US dollar.' (Phoenix Assurance Co. vs.
Macondray & Co. Inc., L-25048, May 13, 1975)
In discharging the above obligations, Sergio F. Naguiat Enterprises, which is headed by Sergio F. Naguiat and
Antolin Naguiat, father and son at the same time the President and Vice-President and General Manager,
respectively, should be joined as indispensable party whose liability is joint and several. (Sec. 7, Rule 3, Rules
of Court)"[8]
As mentioned earlier, the motion for reconsideration of herein petitioners was denied by the NLRC. Hence, this
petition with prayer for issuance of a temporary restraining order. Upon posting by the petitioners of a surety bond, a
temporary restraining order[9] was issued by this Court enjoining execution of the assailed Resolutions.

Issues
The petitioners raise the following issues before this Court for resolution:
"I. Whether or not public respondent NLRC (3rd Div.) committed grave abuse of discretion amounting to
lack of jurisdiction in issuing the appealed resolution;
II. Whether or not Messrs. Teofilo Rafols and Romeo N. Lopez could validly represent herein private
respondents; and,
III. Whether or not the resolution issued by public respondent is contrary to law." [10]

Petitioners also submit two additional issues by way of a supplement [11] to their petition, to Wit: that Petitioners Sergio
F. Naguiat and Antolin Naguiat were denied due process; and that petitioners were not furnished copies of private
respondents' appeal to the NLRC. As to the procedural lapse of insufficient copies of the appeal, the proper forum before
which petitioners should have raised it is the NLRC. They, however, failed to question this in their motion for
reconsideration. As a consequence, they are deemed to have waived the same and voluntarily submitted themselves to
the jurisdiction of the appellate body.
Anent the first issue raised in their original petition, petitioners contend that NLRC committed grave abuse of
discretion amounting to lack or excess of jurisdiction in unilaterally increasing the amount of severance pay granted by the
labor arbiter. They claim that this was not supported by substantial evidence since it was based simply on the self-serving
allegation of respondents that their monthly take-home pay was not lower than $240.00.
On the second issue, petitioners aver that NOWM cannot make legal representations in behalf of individual
respondents who should, instead, be bound by the decision of the union (AAFES Taxi Drivers Association) of which they
were members.
As to the third issue, petitioners incessantly insist that Sergio F. Naguiat Enterprises, Inc. is a separate and distinct
juridical entity which cannot be held jointly and severally liable for the obligations of CFTI. And similarly, Sergio F. Naguiat
and Antolin Naguiat were merely officers and stockholders of CFTI and, thus, could not be held personally accountable for
corporate debts.
Lastly, Sergio and Antolin Naguiat assail the Resolution of NLRC holding them solidarily liable despite not having
been impleaded as parties to the complaint.
Individual respondents filed a comment separate from that of NOWM. In sum, both aver that petitioners had the
opportunity but failed to refute, the taxi drivers' claim of having an average monthly earning of $240.00; that individual
respondents became members of NOWM after disaffiliating themselves from the AAFES Taxi Drivers Association which,
through the manipulations of its President Eduardo Castillo, unconscionably compromised their separation pay; and that
Naguiat Enterprises, being their indirect employer, is solidarily liable under the law for violation of the Labor Code, in this
case, for nonpayment of their separation pay.
The Solicitor General unqualifiedly supports the allegations of private respondents. In addition, he submits that the
separate personalities of respondent corporations and their officers should be disregarded and considered one and the
same as these were used to perpetrate injustice to their employees.

The Court's Ruling


As will be discussed below, the petition is partially meritorious.

First Issue: Amount of Separation Pay


Firmly, we reiterate the rule that in a petition for certiorari filed pursuant to Rule 65 of the Rules of Court, which is the
only way a labor case may reach the Supreme Court, the petitioner/s must clearly show that the NLRC acted without or in
excess of jurisdiction or with grave abuse of discretion.[12]
Long-standing and well-settled in Philippine jurisprudence is the judicial dictum that findings of fact of administrative
agencies and quasi-judicial bodies, which have acquired expertise because their jurisdiction is confined to specific
matters, are generally accorded not only great respect but even finality; and are binding upon this Court unless there is a
showing of grave abuse of discretion, or where it is clearly shown that they were arrived at arbitrarily or in disregard of the
evidence on record.[13]
Nevertheless, this Court carefully perused the records of the instant case if only to determine whether public
respondent committed grave abuse of discretion, amounting to lack of jurisdiction, in granting the clamor of private
respondents that their separation pay should be based on the amount of $240.00, allegedly their minimum monthly
earnings as taxi drivers of petitioners.
In their amended complaint before the Regional Arbitration Branch in San Fernando, Pampanga, herein private
respondents set forth in detail the work schedule and financial arrangement they had with their employer. Therefrom they
inferred that their monthly take-home pay amounted to not less than $240.00. Herein petitioners did not bother to refute
nor offer any evidence to controvert said allegations. Remaining undisputed, the labor arbiter adopted such facts in his
decision. Petitioners did not even appeal from the decision of the labor arbiter nor manifest any error in his findings and

conclusions. Thus, petitioners are in estoppel for not having questioned such facts when they had all opportunity to do so.
Private respondents, like petitioners, are bound by the factual findings of Respondent Commission.
Petitioners also claim that the closure of their taxi business was due to great financial losses brought about by the
eruption of Mt. Pinatubo which made the roads practically impassable to their taxicabs. Likewise well-settled is the rule
that business losses or financial reverses, in order to sustain retrenchment of personnel or closure of business and
warrant exemption from payment of separation pay, must be proved with clear and satisfactory evidence. [14] The records,
however, are devoid of such evidence.
The labor arbiter; as affirmed by NLRC, correctly found that petitioners stopped their taxi business within Clark Air
Base because of the phase-out of U.S. military presence thereat. It was not due to any great financial loss because
petitioners' taxi business was earning profitably at the time of its closure.
With respect to the amount of separation pay that should be granted, Article 283 of the Labor Code provides:
"x x x In case of retrenchment to prevent losses and in cases of closures or cessation of operations of
establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall
be equivalent to one (1) month pay or at least one-half () month pay for every year of service, whichever is
higher. A fraction of at least six (6) months shall be considered one (1 ) whole year."
Considering the above, we find that NLRC did not commit grave abuse of discretion in ruling that individual
respondents were entitled to separation pay[15] in the amount $120.00 (one-half of $240.00 monthly pay) or its peso
equivalent for every year of service.
Second Issue: NOWM's Personality to
Represent Individual Respondents-Employees
On the question of NOWM's authority to represent private respondents, we hold petitioners in estoppel for not having
seasonably raised this issue before the labor arbiter or the NLRC.NOWM was already a party-litigant as the organization
representing the taxi driver-complainants before the labor arbiter. But petitioners who were party-respondents in said
complaint did not assail the juridical personality of NOWM and the validity of its representations in behalf of the
complaining taxi drivers before the quasi-judicial bodies. Therefore, they are now estopped from raising such question
before this Court. In any event, petitioners acknowledged before this Court that the taxi drivers allegedly represented by
NOWM, are themselves parties in this case.[16]

Third Issue: Liability of PetitionerCorporations and Their Respective Officers


The resolution of this issue involves another factual finding that Naguiat Enterprises actually managed, supervised
and controlled employment terms of the taxi drivers, making it their indirect employer. As adverted to earlier, factual
findings of quasi-judicial bodies are binding upon the court in the absence of a showing of grave abuse of discretion.
Unfortunately, the NLRC did not discuss or give any explanation for holding Naguiat Enterprises and its officers jointly
and severally liable in discharging CFTI's liability for payment of separation pay. We again remind those concerned that
decisions, however concisely written, must distinctly and clearly set forth the facts and law upon which they are based.
[17]
This rule applies as well to dispositions by quasi-judicial and administrative bodies.

Naguiat Enterprises Not Liable

[18]

In impleading Naguiat Enterprises as solidarily liable for the obligations of CFTI, respondents rely on Articles 106,
107[19] and 109[20] of the Labor Code.

Based on factual submissions of the parties, the labor arbiter, however, found that individual respondents were
regular employees of CFTI who received wages on a boundary or commission basis.
We find no reason to make a contrary finding. Labor-only contracting exists where: (1) the person supplying workers
to an employer does not have substantial capital or investment in the form of tools, equipment, machinery, and work
premises, among others; and (2) the workers recruited and placed by such person are performing activities which are
directly related to the principal business of the employer.[21] Independent contractors, meanwhile, are those who exercise

independent employment, contracting to do a piece of work according to their own methods without being subject to
control of their employer except as to the result of their work. [22]
From the evidence proffered by both parties, there is no substantial basis to hold that Naguiat Enterprises is an
indirect employer of individual respondents much less a labor only contractor. On the contrary, petitioners submitted
documents such as the drivers' applications for employment with CFTI, [23] and social security remittances[24] and
payroll[25] of Naguiat Enterprises showing that none of the individual respondents were its employees. Moreover, in the
contract[26] between CFTI and AAFES, the former, as concessionaire, agreed to purchase from AAFES for a certain
amount within a specified period a fleet of vehicles to be "ke(pt) on the road" by CFTI, pursuant to their concessionaire's
contract. This indicates that CFTI became the owner of the taxicabs which became the principal investment and asset of
the company.
Private respondents failed to substantiate their claim that Naguiat Enterprises managed, supervised and controlled
their employment. It appears that they were confused on the personalities of Sergio F. Naguiat as an individual who was
the president of CFTI, and Sergio F. Naguiat Enterprises, Inc., as a separate corporate entity with a separate
business. They presumed that Sergio F. Naguiat, who was at the same time a stockholder and director [27] of Sergio F.
Naguiat Enterprises, Inc., was managing and controlling the taxi business on behalf of the latter. A closer scrutiny and
analysis of the records, however, evince the truth of the matter: that Sergio F. Naguiat, in supervising the-taxi drivers and
determining their employment terms, was rather carrying out his responsibilities as president of CFTI. Hence, Naguiat
Enterprises as a separate corporation does not appear to be involved at all in the taxi business.
To illustrate further, we refer to the testimony of a driver-claimant on cross examination.
"Atty. Suarez
Is it not true that you applied not with Sergio F. Naguiat but with Clark Field Taxi?
Witness
I applied for (sic) Sergio F. Naguiat
Atty. Suarez
Sergio F. Naguiat as an individual or the corporation?
Witness
'Sergio F. Naguiat na tao.'
Atty. Suarez
Who is Sergio F. Naguiat?
Witness
He is the one managing the Sergio F. Naguiat Enterprises and he is the one whom we believe as our
employer.
Atty. Suarez
What is exactly the position of Sergio F. Naguiat with the Sergio F. Naguiat Enterprises?
Witness
He is the owner, sir.
Atty. Suarez
How about with Clark Field Taxi Incorporated what is the position of Mr. Naguiat?
Witness
What I know is that he is a concessionaire.
xxx xxx xxx
Atty. Suarez
But do you also know that Sergio F. Naguiat is the President of Clark Field Taxi, Incorporated?
Witness
Yes. sir.

Atty. Suarez
How about Mr. Antolin Naguiat what is his role in the taxi services, the operation of the Clark Field Taxi,
Incorporated?
Witness
He is the vice president."[28]
And, although the witness insisted that Naguiat Enterprises was his employer, he could not deny that he received his
salary from the office of CFTI inside the base.[29]
Another driver-claimant admitted, upon the prodding of counsel for the corporations, that Naguiat Enterprises was in
the trading business while CFTI was in taxi services. [30]
In addition, the Constitution[31] of CFTI-AAFES Taxi Drivers Association which, admittedly, was the union of individual
respondents while still working at Clark Air Base, states that members thereof are the employees of CFTI and "(f)or
collective bargaining purposes, the definite employer is the Clark Field Taxi Inc."
From the foregoing, the ineludible conclusion is that CFTI was the actual and direct employer of individual
respondents, and that Naguiat Enterprises was neither their indirect employer nor labor-only contractor. It was not
involved at all in the taxi business.

CFTI president solidarily liable


Petitioner-corporations would likewise want to avoid the solidary liability of their officers. To bolster their position,
Sergio F. Naguiat and Antolin T. Naguiat specifically aver that they were denied due process since they were not parties to
the complaint below.[32] In the broader interest of justice, we, however, hold that Sergio F. Naguiat, in his capacity as
president of CFTI, cannot be exonerated from joint and several liability in the payment of separation pay to individual
respondents.
A.C. Ransom Labor Union-CCLU vs. NLRC[33] is the case in point. A.C. Ransom Corporation was a family
corporation, the stockholders of which were members of the Hernandez family. In 1973, it filed an application for clearance
to close or cease operations, which was duly granted by the Ministry of Labor and Employment, without prejudice to the
right of employees to seek redress of grievance, if any. Backwages of 22 employees, who engaged in a strike prior to the
closure, were subsequently computed at P164,984.00. Up to September 1976, the union filed about ten (10) motions for
execution against the corporation, but none could be implemented, presumably for failure to find leviable assets of said
corporation. In its last motion for execution, the union asked that officers and agents of the company be held personally
liable for payment of the backwages. This was granted by the labor arbiter. In the corporation's appeal to the NLRC, one
of the issues raised was: "Is the judgment against a corporation to reinstate its dismissed employees with backwages,
enforceable against its officer and agents, in their individual, private and personal capacities, who were not parties in the
case where the judgment was rendered?" The NLRC answered in the negative, on the ground that officers of a
corporation are not liable personally for official acts unless they exceeded the scope of their authority.
On certiorari, this Court reversed the NLRC and upheld the labor arbiter. In imposing joint and several liability upon
the company president, the Court, speaking through Mme. Justice Ameurfina Melencio-Herrera, ratiocinated this wise:
"(b) How can the foregoing (Articles 265 and 273 of the Labor Code) provisions be implemented when the
employer is a corporation? The answer is found in Article 212(c) of the Labor Code which provides:
'(c) 'Employer' includes any person acting in the interest of an employer, directly or indirectly. The term shall not include
any labor organization or any of its officers or agents except when acting as employer.'
The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial
person, it must have an officer who can be presumed to be the employer, being the 'person acting in the interest
of (the) employer' RANSOM. The corporation, only in the technical sense, is the employer.
The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for
nonpayment of back wages. That is the policy of the law. x x x
(c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of back
wages. x x x

(d) The record does not clearly identify 'the officer or officers' of RANSOM directly responsible for failure to pay the back
wages of the 22 strikers. In the absence of definite proof in that regard, we believe it should be presumed that the
responsible officer is the President of the corporation who can be deemed the chief operation officer thereof. Thus, in RA
602, criminal responsibility is with the 'Manager or in his default, the person acting as such.' In RANSOM, the President
appears to be the Manager." (Underscoring supplied.)
Sergio F. Naguiat, admittedly, was the president of CFTI who actively managed the business. Thus, applying the
ruling in A. C. Ransom, he falls within the meaning of an "employer" as contemplated by the Labor Code, who may be
held jointly and severally liable for the obligations of the corporation to its dismissed employees.
Moreover, petitioners also conceded that both CFTI and Naguiat Enterprises were "close family
corporations"[34] owned by the Naguiat family. Section 100, paragraph 5, (under Title XII on Close Corporations) of the
Corporation Code, states:
"(5) To the extent that the stockholders are actively engage(d) in the management or operation of the business
and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to each other and
among themselves. Said stockholders shall be personally liable for corporate torts unless the corporation has
obtained reasonably adequate liability insurance." (underscoring supplied)
Nothing in the records show whether CFTI obtained "reasonably adequate liability insurance;" thus, what remains is to
determine whether there was corporate tort.
Our jurisprudence is wanting as to the definite scope of "corporate tort." Essentially, "tort" consists in the violation of a
right given or the omission of a duty imposed by law. [35] Simply stated, tort is a breach of a legal duty. [36] Article 283 of the
Labor Code mandates the employer to grant separation pay to employees in case of closure or cessation of operations of
establishment or undertaking not due to serious business losses or financial reverses, which is the condition obtaining at
bar. CFTI failed to comply with this law-imposed duty or obligation.Consequently, its stockholder who was actively
engaged in the management or operation of the business should be held personally liable.
Furthermore, in MAM Realty Development vs. NLRC,[37] the Court recognized that a director or officer may still be
held solidarily liable with a corporation by specific provision of law.Thus:
"x x x A corporation, being a juridical entity, may act only through its directors, officers and employees.
Obligations incurred by them, acting as such corporate agents, are not theirs but the direct accountabilities of
the corporation they represent. True, solidary liabilities may at times be incurred but only when exceptional
circumstances warrant such as, generally, in the following cases: Scl-aw
xxx xxx xxx
4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action."
(footnotes omitted)
As pointed out earlier, the fifth paragraph of Section 100 of the Corporation Code specifically imposes personal
liability upon the stockholder actively managing or operating the business and affairs of the close corporation.
In fact, in posting the surety bond required by this Court for the issuance of a temporary restraining order enjoining
the execution of the assailed NLRC Resolutions, only Sergio F. Naguiat, in his individual and personal capacity, principally
bound himself to comply with the obligation thereunder, i.e., "to guarantee the payment to private respondents of any
damages which they may incur by reason of the issuance of a temporary restraining order sought, if it should be finally
adjudged that said principals were not entitled thereto." [38]
The Court here finds no application to the rule that a corporate officer cannot be held solidarily liable with a
corporation in the absence of evidence that he had acted in bad faith or with malice. [39] In the present case, Sergio Naguiat
is held solidarily liable for corporate tort because he had actively engaged in the management and operation of CFTI, a
close corporation.

Antolin Naguiat not personally liable


Antolin T. Naguiat was the vice president of the CFTI. Although he carried the title of "general manager" as well, it
had not been shown that he had acted in such capacity. Furthermore, no evidence on the extent of his participation in the
management or operation of the business was proffered. In this light, he cannot be held solidarily liable for the obligations
of CFTI and Sergio Naguiat to the private respondents.

Fourth Issue: No Denial of Due Process


Lastly, in petitioners' Supplement to their original petition, they assail the NLRC Resolution holding Sergio F. Naguiat
and Antolin T. Naguiat jointly and severally liable with petitioner-corporations in the payment of separation pay, averring
denial of due process since the individual Naguiats were not impleaded as parties to the complaint.
We advert to the case of A.C. Ransom once more. The officers of the corporation were not parties to the case when
the judgment in favor of the employees was rendered. The corporate officers raised this issue when the labor arbiter
granted the motion of the employees to enforce the judgment against them. In spite of this, the Court held the corporation
president solidarily liable with the corporation.
Furthermore, Sergio and Antolin Naguiat voluntarily submitted themselves to the jurisdiction of the labor arbiter when
they, in their individual capacities, filed a position paper [40]together with CFTI, before the arbiter. They cannot now claim to
have been denied due process since they availed of the opportunity to present their positions.
WHEREFORE, the foregoing premises considered, the petition is PARTLY GRANTED. The assailed February 28,
1994 Resolution of the NLRC is hereby MODIFIED as follows:
(1) Petitioner Clark Field Taxi, Incorporated, and Sergio F. Naguiat, president and co-owner thereof, are ORDERED to
pay, jointly and severally, the individual respondents their separation pay computed at US$120.00 for every year of
service, or its peso equivalent at the time of payment or satisfaction of the judgment;
(2) Petitioner Sergio F. Naguiat Enterprises, Incorporated, and Antolin T. Naguiat are ABSOLVED from liability in the
payment of separation pay to individual respondents.
SO ORDERED.
Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.

[1]

Composed of Comm. Ireneo B. Bernardo, ponente, with Comms. Lourdes C. Javier (presiding commissioner) and
Joaquin A. Tanodra, concurring.

[2]

Rollo, pp. 69-73.

[3]

Ibid., p. 82.

[4]

Promulgated on June 4, 1993; rollo, pp. 48-56.

[5]

Ibid., pp. 14-18.

[6]

Ibid., pp. 14-18.

[7]

Rollo, p. 56.

[8]

Rollo, pp. 72-73.

[9]

Rollo, pp. 131-132.

[10]

Ibid., p. 6.

[11]

Ibid., pp. 97-102.

[12]

Bordeos, et al. vs. NLRC, et al., G.R. Nos. 115314-23, September 26, 1996.

[13]

Maya Farms Employees Organization vs. NLRC, 239 SCRA 508, December 28, 1994.

[14]

See Revidad vs. NLRC, 245 SCRA 356, June 27, 1995; St. Gothard Disco Pub vs. NLRC, 218 SCRA 321, 334,
February 1, 1993.

[15]

Mobil Employees Association vs. NLRC, 183 SCRA 737, March 28, 1990; See Catatista vs. NLRC, 247 SCRA 46,
1995; Shoppers Gain Supermart vs. NLRC G.R. No. 110731, July 26, 1996.

[16]

Petition for Certiorari, p. 2; rollo, p. 3.

[17]

Del Mundo vs. Court of Appeals, 240 SCRA 348, January 20, 1995; Estoya vs. Abraham-Singson, 237 SCRA 1,
September 26, 1994.

[18]

"Art. 106. Contractor or subcontractor. -- Whenever an employer enters into a contract with another person for the
performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in
accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent
of the work performed under the contract, in the same manner and extent that he is liable to employees directly
employed by him.
The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights
of workers established under this Code. In so prohibiting or restricting, he may make appropriate distinctions
between labor-only contracting and job contracting as well as differentiations within these types of contracting and
determine who among the parties involved shall be considered as the employer for the purposes of this Code, to
prevent any violation or circumvention of any provision of this Code.
There is 'labor-only' contracting where the person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited
and placed by such persons are performing activities which are directly related to the principal business of such
employer. In such cases, the person or intermediary shall be considered as merely an agent of the employer who
shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him."
[19]

"Art. 107. Indirect employer. -- The provisions of the immediately preceding Article shall likewise apply to any person,
partnership, association or corporation which, not being an employer, contracts with an independent contractor for
the performance of any work, task, job or project."

[20]

"Art. 109. Solidary liability. -- The provisions of existing laws to the contrary notwithstanding, every employer or indirect
employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this
Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as
direct employers."

CASE 8

G. R. No. 164317

February 6, 2006

ALFREDO CHING, Petitioner,


vs.
THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-VILLAVERT, JUDGE EDGARDO
SUDIAM of the Regional Trial Court, Manila, Branch 52; RIZAL COMMERCIAL BANKING CORP. and THE
PEOPLE OF THE PHILIPPINES, Respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is a petition for review on certiorari of the Decision 1 of the Court of Appeals (CA) in CA-G.R. SP No.
57169 dismissing the petition for certiorari, prohibition and mandamus filed by petitioner Alfredo Ching, and its
Resolution2 dated June 28, 2004 denying the motion for reconsideration thereof.
Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in September to
October 1980, PBMI, through petitioner, applied with the Rizal Commercial Banking Corporation (respondent bank)
for the issuance of commercial letters of credit to finance its importation of assorted goods. 3
Respondent bank approved the application, and irrevocable letters of credit were issued in favor of petitioner. The
goods were purchased and delivered in trust to PBMI. Petitioner signed 13 trust receipts 4 as surety, acknowledging
delivery of the following goods:
T/R Nos.

Date Granted

Maturity Date

Principal

1845

12-05-80

03-05-81

P1,596,470.05

1853

12-08-80

03-06-81

P198,150.67

3,000 pcs. (15 bundles)


Calorized Lance Pipes

1824

11-28-80

02-26-81

P707,879.71

One Lot High Fired Refractory


Tundish Bricks

1798

11-21-80

02-19-81

P835,526.25

5 cases spare parts for CCM

1808

11-21-80

02-19-81

P370,332.52

200 pcs. ingot moulds

2042

01-30-81

04-30-81

P469,669.29

High Fired Refractory Nozzle


Bricks

1801

11-21-80

02-19-81

P2,001,715.17

1857

12-09-80

03-09-81

1895

12-17-80

03-17-81

P67,652.04

Spare parts for


Spectrophotometer

1911

12-22-80

03-20-81

P91,497.85

50 pcs. Ingot moulds

2041

01-30-81

04-30-81

P91,456.97

50 pcs. Ingot moulds

2099

02-10-81

05-11-81

P66,162.26

8 pcs. Kubota Rolls for rolling

P197,843.61

Description of Goods
79.9425 M/T "SDK" Brand
Synthetic Graphite Electrode

Synthetic Graphite Electrode


[with] tapered pitch filed nipples
3,000 pcs. (15 bundles
calorized lance pipes [)]

mills
2100

02-10-81

05-12-81

P210,748.00

Spare parts for Lacolaboratory


Equipment5

Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sell but not by way
of conditional sale, pledge or otherwise; and in case such goods were sold, to turn over the proceeds thereof as
soon as received, to apply against the relative acceptances and payment of other indebtedness to respondent bank.
In case the goods remained unsold within the specified period, the goods were to be returned to respondent bank
without any need of demand. Thus, said "goods, manufactured products or proceeds thereof, whether in the form of
money or bills, receivables, or accounts separate and capable of identification" were respondent banks property.
When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their value
amounting to P6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for estafa 6 against
petitioner in the Office of the City Prosecutor of Manila.
After the requisite preliminary investigation, the City Prosecutor found probable cause estafa under Article 315,
paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree (P.D.) No. 115, otherwise known as the
Trust Receipts Law. Thirteen (13) Informations were filed against the petitioner before the Regional Trial Court
(RTC) of Manila. The cases were docketed as Criminal Cases No. 86-42169 to 86-42181, raffled to Branch 31 of
said court.
Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The appeal was dismissed
in a Resolution7 dated March 17, 1987, and petitioner moved for its reconsideration. On December 23, 1987, the
Minister of Justice granted the motion, thus reversing the previous resolution finding probable cause against
petitioner.8 The City Prosecutor was ordered to move for the withdrawal of the Informations.
This time, respondent bank filed a motion for reconsideration, which, however, was denied on February 24,
1988.9 The RTC, for its part, granted the Motion to Quash the Informations filed by petitioner on the ground that the
material allegations therein did not amount to estafa. 10
In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoez, 11 holding that the penal
provision of P.D. No. 115 encompasses any act violative of an obligation covered by the trust receipt; it is not limited
to transactions involving goods which are to be sold (retailed), reshipped, stored or processed as a component of a
product ultimately sold. The Court also ruled that "the non-payment of the amount covered by a trust receipt is an
act violative of the obligation of the entrustee to pay." 12
On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against petitioner before the Office
of the City Prosecutor of Manila. The case was docketed as I.S. No. 95B-07614.
Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there was no probable
cause to charge petitioner with violating P.D. No. 115, as petitioners liability was only civil, not criminal, having
signed the trust receipts as surety.13 Respondent bank appealed the resolution to the Department of Justice (DOJ)
via petition for review, alleging that the City Prosecutor erred in ruling:
1. That there is no evidence to show that respondent participated in the misappropriation of the goods
subject of the trust receipts;
2. That the respondent is a mere surety of the trust receipts; and
3. That the liability of the respondent is only civil in nature. 14
On July 13, 1999, the Secretary of Justice issued Resolution No. 250 15 granting the petition and reversing the
assailed resolution of the City Prosecutor. According to the Justice Secretary, the petitioner, as Senior VicePresident of PBMI, executed the 13 trust receipts and as such, was the one responsible for the offense. Thus, the
execution of said receipts is enough to indict the petitioner as the official responsible for violation of P.D. No. 115.

The Justice Secretary also declared that petitioner could not contend that P.D. No. 115 covers only goods ultimately
destined for sale, as this issue had already been settled in Allied Banking Corporation v. Ordoez, 16where the Court
ruled that P.D. No. 115 is "not limited to transactions in goods which are to be sold (retailed), reshipped, stored or
processed as a component of a product ultimately sold but covers failure to turn over the proceeds of the sale of
entrusted goods, or to return said goods if unsold or not otherwise disposed of in accordance with the terms of the
trust receipts."
The Justice Secretary further stated that the respondent bound himself under the terms of the trust receipts not only
as a corporate official of PBMI but also as its surety; hence, he could be proceeded against in two (2) ways: first, as
surety as determined by the Supreme Court in its decision in Rizal Commercial Banking Corporation v. Court of
Appeals;17 and second, as the corporate official responsible for the offense under P.D. No. 115, via criminal
prosecution. Moreover, P.D. No. 115 explicitly allows the prosecution of corporate officers "without prejudice to the
civil liabilities arising from the criminal offense." Thus, according to the Justice Secretary, following Rizal Commercial
Banking Corporation, the civil liability imposed is clearly separate and distinct from the criminal liability of the
accused under P.D. No. 115.
Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13 Informations against
petitioner for violation of P.D. No. 115 before the RTC of Manila. The cases were docketed as Criminal Cases No.
99-178596 to 99-178608 and consolidated for trial before Branch 52 of said court. Petitioner filed a motion for
reconsideration, which the Secretary of Justice denied in a Resolution 18 dated January 17, 2000.
Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing the resolutions of the
Secretary of Justice on the following grounds:
1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE ACTING
OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS PROSECUTION DESPITE
THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED TO PROVE HIS PARTICIPATION IN THE
ALLEGED TRANSACTIONS.
2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE ABUSE OF
DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY CONTINUED PROSECUTION OF
THE PETITIONER DESPITE THE LENGTH OF TIME INCURRED IN THE TERMINATION OF THE
PRELIMINARY INVESTIGATION THAT SHOULD JUSTIFY THE DISMISSAL OF THE INSTANT CASE.
3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY PROSECUTOR ACTED IN
GRAVE ABUSE OF DISCRETION AMOUNTING TO AN EXCESS OF JURISDICTION WHEN THEY
CONTINUED THE PROSECUTION OF THE PETITIONER DESPITE LACK OF SUFFICIENT BASIS. 19
In his petition, petitioner incorporated a certification stating that "as far as this Petition is concerned, no action or
proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency. It is
finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending before
the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it hereby
undertakes to notify this Honorable Court within five (5) days from such notice." 20
In its Comment on the petition, the Office of the Solicitor General alleged that A.
THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER ALFREDO
CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED AND THAT THE ACTS OF
PETITIONER FALL WITHIN THE AMBIT OF VIOLATION OF P.D. [No.] 115 IN RELATION TO ARTICLE 315,
PAR. 1(B) OF THE REVISED PENAL CODE.
B.
THERE IS NO MERIT IN PETITIONERS CONTENTION THAT EXCESSIVE DELAY HAS MARRED THE
CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE CASE, JUSTIFYING ITS DISMISSAL.

C.
THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION AND MANDAMUS IS NOT
THE PROPER MODE OF REVIEW FROM THE RESOLUTION OF THE DEPARTMENT OF JUSTICE. THE
PRESENT PETITION MUST THEREFORE BE DISMISSED.21
On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and on procedural grounds.
On the procedural issue, it ruled that (a) the certification of non-forum shopping executed by petitioner and
incorporated in the petition was defective for failure to comply with the first two of the three-fold undertakings
prescribed in Rule 7, Section 5 of the Revised Rules of Civil Procedure; and (b) the petition for certiorari, prohibition
and mandamus was not the proper remedy of the petitioner.
On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of Justice were correctly
issued for the following reasons: (a) petitioner, being the Senior Vice-President of PBMI and the signatory to the
trust receipts, is criminally liable for violation of P.D. No. 115; (b) the issue raised by the petitioner, on whether he
violated P.D. No. 115 by his actuations, had already been resolved and laid to rest in Allied Bank Corporation v.
Ordoez;22 and (c) petitioner was estopped from raising the
City Prosecutors delay in the final disposition of the preliminary investigation because he failed to do so in the DOJ.
Thus, petitioner filed the instant petition, alleging that:
I
THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE GROUND THAT THE
CERTIFICATION OF NON-FORUM SHOPPING INCORPORATED THEREIN WAS DEFECTIVE.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS COMMITTED BY THE SECRETARY OF
JUSTICE IN COMING OUT WITH THE ASSAILED RESOLUTIONS.23
The Court will delve into and resolve the issues seriatim.
The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He claims that the rules of
procedure should be used to promote, not frustrate, substantial justice. He insists that the Rules of Court should be
construed liberally especially when, as in this case, his substantial rights are adversely affected; hence, the
deficiency in his certification of non-forum shopping should not result in the dismissal of his petition.
The Office of the Solicitor General (OSG) takes the opposite view, and asserts that indubitably, the certificate of nonforum shopping incorporated in the petition before the CA is defective because it failed to disclose essential facts
about pending actions concerning similar issues and parties. It asserts that petitioners failure to comply with the
Rules of Court is fatal to his petition. The OSG cited Section 2, Rule 42, as well as the ruling of this Court in Melo v.
Court of Appeals.24
We agree with the ruling of the CA that the certification of non-forum shopping petitioner incorporated in his petition
before the appellate court is defective. The certification reads:
It is further certified that as far as this Petition is concerned, no action or proceeding in the Supreme Court, the Court
of Appeals or different divisions thereof, or any tribunal or agency.
It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending
before the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it
hereby undertakes to notify this Honorable Court within five (5) days from such notice. 25

Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition should be accompanied
by a sworn certification of non-forum shopping, as provided in the third paragraph of Section 3, Rule 46 of said
Rules. The latter provision reads in part:
SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. The petition shall contain the
full names and actual addresses of all the petitioners and respondents, a concise statement of the matters involved,
the factual background of the case and the grounds relied upon for the relief prayed for.
xxx
The petitioner shall also submit together with the petition a sworn certification that he has not theretofore
commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or different
divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, he must state the
status of the same; and if he should thereafter learn that a similar action or proceeding has been filed or is pending
before the Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or agency, he
undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within five (5) days
therefrom. xxx
Compliance with the certification against forum shopping is separate from and independent of the avoidance of
forum shopping itself. The requirement is mandatory. The failure of the petitioner to comply with the foregoing
requirement shall be sufficient ground for the dismissal of the petition without prejudice, unless otherwise provided. 26
Indubitably, the first paragraph of petitioners certification is incomplete and unintelligible. Petitioner failed to certify
that he "had not heretofore commenced any other action involving the same issues in the Supreme Court, the Court
of Appeals or the different divisions thereof or any other tribunal or agency" as required by paragraph 4, Section 3,
Rule 46 of the Revised Rules of Court.
We agree with petitioners contention that the certification is designed to promote and facilitate the orderly
administration of justice, and therefore, should not be interpreted with absolute literalness. In his works on the
Revised Rules of Civil Procedure, former Supreme Court Justice Florenz Regalado states that, with respect to the
contents of the certification which the pleader may prepare, the rule of substantial compliance may be availed
of.27 However, there must be a special circumstance or compelling reason which makes the strict application of the
requirement clearly unjustified. The instant petition has not alleged any such extraneous circumstance. Moreover, as
worded, the certification cannot even be regarded as substantial compliance with the procedural requirement. Thus,
the CA was not informed whether, aside from the petition before it, petitioner had commenced any other action
involving the same issues in other tribunals.
On the merits of the petition, the CA ruled that the petitioner failed to establish that the Secretary of Justice
committed grave abuse of discretion in finding probable cause against the petitioner for violation of estafa under
Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D. No. 115. Thus, the appellate court
ratiocinated:
Be that as it may, even on the merits, the arguments advanced in support of the petition are not persuasive enough
to justify the desired conclusion that respondent Secretary of Justice gravely abused its discretion in coming out with
his assailed Resolutions. Petitioner posits that, except for his being the Senior Vice-President of the PBMI, there is
no iota of evidence that he was a participes crimines in violating the trust receipts sued upon; and that his liability, if
at all, is purely civil because he signed the said trust receipts merely as a xxx surety and not as the entrustee. These
assertions are, however, too dull that they cannot even just dent the findings of the respondent Secretary, viz:
"x x x it is apropos to quote section 13 of PD 115 which states in part, viz:
xxx If the violation or offense is committed by a corporation, partnership, association or other judicial entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or
persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense.
"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the thirteen (13)
trust receipts. As such, the law points to him as the official responsible for the offense. Since a corporation cannot

be proceeded against criminally because it cannot commit crime in which personal violence or malicious intent is
required, criminal action is limited to the corporate agents guilty of an act amounting to a crime and never against
the corporation itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus,
the execution by respondent of said receipts is enough to indict him as the official responsible for violation of PD
115.
"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which are ultimately destined
for sale and not goods, like those imported by PBM, for use in manufacture. This issue has already been settled in
the Allied Banking Corporation case, supra, where he was also a party, when the Supreme Court ruled that PD 115
is not limited to transactions in goods which are to be sold (retailed), reshipped, stored or processed as a
component or a product ultimately sold but covers failure to turn over the proceeds of the sale of entrusted goods,
or to return said goods if unsold or disposed of in accordance with the terms of the trust receipts.
"In regard to the other assigned errors, we note that the respondent bound himself under the terms of the trust
receipts not only as a corporate official of PBM but also as its surety. It is evident that these are two (2) capacities
which do not exclude the other. Logically, he can be proceeded against in two (2) ways: first, as surety as
determined by the Supreme Court in its decision in RCBC vs. Court of Appeals, 178 SCRA 739; and, secondly, as
the corporate official responsible for the offense under PD 115, the present case is an appropriate remedy under our
penal law.
"Moreover, PD 115 explicitly allows the prosecution of corporate officers without prejudice to the civil liabilities
arising from the criminal offense thus, the civil liability imposed on respondent in RCBC vs. Court of Appeals case is
clearly separate and distinct from his criminal liability under PD 115." 28
Petitioner asserts that the appellate courts ruling is erroneous because (a) the transaction between PBMI and
respondent bank is not a trust receipt transaction; (b) he entered into the transaction and was sued in his capacity
as PBMI Senior Vice-President; (c) he never received the goods as an entrustee for PBMI, hence, could not have
committed any dishonesty or abused the confidence of respondent bank; and (d) PBMI acquired the goods and
used the same in operating its machineries and equipment and not for resale.
The OSG, for its part, submits a contrary view, to wit:
34. Petitioner further claims that he is not a person responsible for the offense allegedly because "[b]eing charged
as the Senior Vice-President of Philippine Blooming Mills (PBM), petitioner cannot be held criminally liable as the
transactions sued upon were clearly entered into in his capacity as an officer of the corporation" and that [h]e never
received the goods as an entrustee for PBM as he never had or took possession of the goods nor did he commit
dishonesty nor "abuse of confidence in transacting with RCBC." Such argument is bereft of merit.
35. Petitioners being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him from any
liability. Petitioners responsibility as the corporate official of PBM who received the goods in trust is premised on
Section 13 of P.D. No. 115, which provides:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of
Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised Penal Code. If the violation or offense is committed by a corporation,
partnership, association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the
directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to
the civil liabilities arising from the criminal offense. (Emphasis supplied)
36. Petitioner having participated in the negotiations for the trust receipts and having received the goods for PBM, it
was inevitable that the petitioner is the proper corporate officer to be proceeded against by virtue of the PBMs
violation of P.D. No. 115.29
The ruling of the CA is correct.

In Mendoza-Arce v. Office of the Ombudsman (Visayas),30 this Court held that the acts of a quasi-judicial officer may
be assailed by the aggrieved party via a petition for certiorari and enjoined (a) when necessary to afford adequate
protection to the constitutional rights of the accused; (b) when necessary for the orderly administration of justice; (c)
when the acts of the officer are without or in excess of authority; (d) where the charges are manifestly false and
motivated by the lust for vengeance; and (e) when there is clearly no prima facie case against the accused. 31 The
Court also declared that, if the officer conducting a preliminary investigation (in that case, the Office of the
Ombudsman) acts without or in excess of his authority and resolves to file an Information despite the absence of
probable cause, such act may be nullified by a writ of certiorari. 32
Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure, 33 the Information shall be prepared by
the Investigating Prosecutor against the respondent only if he or she finds probable cause to hold such respondent
for trial. The Investigating Prosecutor acts without or in excess of his authority under the Rule if the Information is
filed against the respondent despite absence of evidence showing probable cause therefor. 34 If the Secretary of
Justice reverses the Resolution of the Investigating Prosecutor who found no probable cause to hold the respondent
for trial, and orders such prosecutor to file the Information despite the absence of probable cause, the Secretary of
Justice acts contrary to law, without authority and/or in excess of authority. Such resolution may likewise be nullified
in a petition for certiorari under Rule 65 of the Revised Rules of Civil Procedure. 35
A preliminary investigation, designed to secure the respondent against hasty, malicious and oppressive prosecution,
is an inquiry to determine whether (a) a crime has been committed; and (b) whether there is probable cause to
believe that the accused is guilty thereof. It is a means of discovering the person or persons who may be reasonably
charged with a crime. Probable cause need not be based on clear and convincing evidence of guilt, as the
investigating officer acts upon probable cause of reasonable belief. Probable cause implies probability of guilt and
requires more than bare suspicion but less than evidence which would justify a conviction. A finding of probable
cause needs only to rest on evidence showing that more likely than not, a crime has been committed by the
suspect.36
However, while probable cause should be determined in a summary manner, there is a need to examine the
evidence with care to prevent material damage to a potential accuseds constitutional right to liberty and the
guarantees of freedom and fair play 37 and to protect the State from the burden of unnecessary expenses in
prosecuting alleged offenses and holding trials arising from false, fraudulent or groundless charges. 38
In this case, petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in issuing
the assailed resolutions. Indeed, he acted in accord with law and the evidence.
Section 4 of P.D. No. 115 defines a trust receipt transaction, thus:
Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree,
is any transaction by and between a person referred to in this Decree as the entruster, and another person referred
to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over
certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the
latters execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee
binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or
otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the
proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods,
documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms
and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following:
1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or
process the goods with the purpose of ultimate sale; Provided, That, in the case of goods delivered under
trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain
its title over the goods whether in its original or processed form until the entrustee has complied fully with his
obligation under the trust receipt; or (c) to load, unload, ship or otherwise deal with them in a manner
preliminary or necessary to their sale; or
2. In the case of instruments a) to sell or procure their sale or exchange; or b) to deliver them to a principal;
or c) to effect the consummation of some transactions involving delivery to a depository or register; or d) to
effect their presentation, collection or renewal.

The sale of goods, documents or instruments by a person in the business of selling goods, documents or
instruments for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such
goods, documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as
security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the
purview and coverage of this Decree.
An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt
transaction, and any successor in interest of such person for the purpose of payment specified in the trust receipt
agreement.39 The entrustee is obliged to: (1) hold the goods, documents or instruments in trust for the entruster and
shall dispose of them strictly in accordance with the terms and conditions of the trust receipt; (2) receive the
proceeds in trust for the entruster and turn over the same to the entruster to the extent of the amount owing to the
entruster or as appears on the trust receipt; (3) insure the goods for their total value against loss from fire, theft,
pilferage or other casualties; (4) keep said goods or proceeds thereof whether in money or whatever form, separate
and capable of identification as property of the entruster; (5) return the goods, documents or instruments in the
event of non-sale or upon demand of the entruster; and (6) observe all other terms and conditions of the trust
receipt not contrary to the provisions of the decree. 40
The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under
a trust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt, or
to the return of the goods, documents or instruments in case of non-sale, and to the enforcement of all other rights
conferred on him in the trust receipt; provided, such are not contrary to the provisions of the document. 41
In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt transactions
envisaged in P.D. No. 115. Respondent bank imported the goods and entrusted the same to PBMI under the trust
receipts signed by petitioner, as entrustee, with the bank as entruster. The agreement was as follows:
And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK as its property with
liberty to sell the same within ____days from the date of the execution of this Trust Receipt and for the Banks
account, but without authority to make any other disposition whatsoever of the said goods or any part thereof (or the
proceeds) either by way of conditional sale, pledge or otherwise.
I/we agree to keep the said goods insured to their full value against loss from fire, theft, pilferage or other casualties
as directed by the BANK, the sum insured to be payable in case of loss to the BANK, with the understanding that
the BANK is, not to be chargeable with the storage premium or insurance or any other expenses incurred on said
goods.
In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to the BANK, to apply
against the relative acceptances (as described above) and for the payment of any other indebtedness of mine/ours
to the BANK. In case of non-sale within the period specified herein, I/we agree to return the goods under this Trust
Receipt to the BANK without any need of demand.
I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the form of money or
bills, receivables, or accounts separate and capable of identification as property of the BANK. 42
It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of public policy, the
failure of person to turn over the proceeds of the sale of the goods covered by a trust receipt or to return said goods,
if not sold, is a public nuisance to be abated by the imposition of penal sanctions. 43
The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions involving goods procured
as a component of a product ultimately sold has been resolved in the affirmative in Allied Banking Corporation v.
Ordoez.44 The law applies to goods used by the entrustee in the operation of its machineries and equipment. The
non-payment of the amount covered by the trust receipts or the non-return of the goods covered by the receipts, if
not sold or otherwise not disposed of, violate the entrustees obligation to pay the amount or to return the goods to
the entruster.
In Colinares v. Court of Appeals, 45 the Court declared that there are two possible situations in a trust receipt
transaction. The first is covered by the provision which refers to money received under the obligation involving the

duty to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision which
refers to merchandise received under the obligation to return it (devolvera) to the owner.46 Thus, failure of the
entrustee to turn over the proceeds of the sale of the goods covered by the trust receipts to the entruster or to return
said goods if they were not disposed of in accordance with the terms of the trust receipt is a crime under P.D. No.
115, without need of proving intent to defraud. The law punishes dishonesty and abuse of confidence in the handling
of money or goods to the prejudice of the entruster, regardless of whether the latter is the owner or not. A mere
failure to deliver the proceeds of the sale of the goods, if not sold, constitutes a criminal offense that causes
prejudice, not only to another, but more to the public interest. 47
The Court rules that although petitioner signed the trust receipts merely as Senior Vice-President of PBMI and had
no physical possession of the goods, he cannot avoid prosecution for violation of P.D. No. 115.
The penalty clause of the law, Section 13 of P.D. No. 115 reads:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of
Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised Penal Code. If the violation or offense is committed by a corporation,
partnership, association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the
directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to
the civil liabilities arising from the criminal offense.
1wphi1

The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b), Article 315
of the Revised Penal Code, or estafa with abuse of confidence. It may be committed by a corporation or other
juridical entity or by natural persons. However, the penalty for the crime is imprisonment for the periods provided in
said Article 315, which reads:
ARTICLE 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned
hereinbelow shall be punished by:
1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the
amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds
the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one
year for each additional 10,000 pesos; but the total penalty which may be imposed shall not exceed twenty
years. In such cases, and in connection with the accessory penalties which may be imposed and for the
purpose of the other provisions of this Code, the penalty shall be termed prision mayor or reclusion
temporal, as the case may be;
2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of the fraud is
over 6,000 pesos but does not exceed 12,000 pesos;
3rd. The penalty of arresto mayor in its maximum period to prision correccional in its minimum period, if such
amount is over 200 pesos but does not exceed 6,000 pesos; and
4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200 pesos, provided
that in the four cases mentioned, the fraud be committed by any of the following means; xxx
Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or other
officers or persons responsible for the offense, without prejudice to the civil liabilities of such corporation and/or
board of directors, officers, or other officials or employees responsible for the offense. The rationale is that such
officers or employees are vested with the authority and responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are held criminally accountable; thus, they have a responsible
share in the violations of the law.48

If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other officers
thereof responsible for the offense shall be charged and penalized for the crime, precisely because of the nature of
the crime and the penalty therefor. A corporation cannot be arrested and imprisoned; hence, cannot be penalized for
a crime punishable by imprisonment.49 However, a corporation may be charged and prosecuted for a crime if the
imposable penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a corporation may
be prosecuted and, if found guilty, may be fined. 50
A crime is the doing of that which the penal code forbids to be done, or omitting to do what it commands. A
necessary part of the definition of every crime is the designation of the author of the crime upon whom the penalty is
to be inflicted. When a criminal statute designates an act of a corporation or a crime and prescribes punishment
therefor, it creates a criminal offense which, otherwise, would not exist and such can be committed only by the
corporation. But when a penal statute does not expressly apply to corporations, it does not create an offense for
which a corporation may be punished. On the other hand, if the State, by statute, defines a crime that may be
committed by a corporation but prescribes the penalty therefor to be suffered by the officers, directors, or employees
of such corporation or other persons responsible for the offense, only such individuals will suffer such
penalty.51 Corporate officers or employees, through whose act, default or omission the corporation commits a crime,
are themselves individually guilty of the crime.52
The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies to those
corporate agents who themselves commit the crime and to those, who, by virtue of their managerial positions or
other similar relation to the corporation, could be deemed responsible for its commission, if by virtue of their
relationship to the corporation, they had the power to prevent the act. 53 Moreover, all parties active in promoting a
crime, whether agents or not, are principals. 54 Whether such officers or employees are benefited by their delictual
acts is not a touchstone of their criminal liability. Benefit is not an operative fact.
In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the separate
corporate personality of PBMI. In the words of Chief Justice Earl Warren, a corporate officer cannot protect himself
behind a corporation where he is the actual, present and efficient actor.55
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioner.
SO ORDERED.

CASE 9

[G.R. No. 119858. April 29, 2003]

EDWARD C. ONG, petitioner, vs. THE COURT OF APPEALS AND THE PEOPLE OF THE
PHILIPPINES, respondents.
DECISION
CARPIO, J.:

The Case
Petitioner Edward C. Ong (petitioner) filed this petition for review on certiorari[1] to nullify the Decision[2] dated 27
October 1994 of the Court of Appeals in CA-G.R. C.R. No. 14031, and its Resolution [3] dated 18 April 1995, denying
petitioners motion for reconsideration. The assailed Decision affirmed in toto petitioners conviction[4] by the Regional Trial
Court of Manila, Branch 35,[5] on two counts of estafa for violation of the Trust Receipts Law,[6] as follows:
WHEREFORE, judgment is rendered: (1) pronouncing accused EDWARD C. ONG guilty beyond reasonable doubt on two
counts, as principal on both counts, of ESTAFA defined under No. 1 (b) of Article 315 of the Revised Penal Code in
relation to Section 13 of Presidential Decree No. 115, and penalized under the 1st paragraph of the same Article 315, and
sentenced said accused in each count to TEN (10) YEARS of prision mayor, as minimum, to TWENTY (20) YEARS
of reclusion temporal, as maximum;
(2) ACQUITTING accused BENITO ONG of the crime charged against him, his guilt thereof not having been established
by the People beyond reasonable doubt;
(3) Ordering accused Edward C. Ong to pay private complainant Solid Bank Corporation the aggregate sum
of P2,976,576.37 as reparation for the damages said accused caused to the private complainant, plus the interest thereon
at the legal rate and the penalty of 1% per month, both interest and penalty computed from July 15, 1991, until the
principal obligation is fully paid;
(4) Ordering Benito Ong to pay, jointly and severally with Edward C. Ong, the private complainant the legal interest and
the penalty of 1% per month due and accruing on the unpaid amount ofP1,449,395.71, still owing to the private offended
under the trust receipt Exhibit C, computed from July 15, 1991, until the said unpaid obligation is fully paid;
(5) Ordering accused Edward C. Ong to pay the costs of these two actions.
SO ORDERED.[7]

The Charge
Assistant City Prosecutor Dina P. Teves of the City of Manila charged petitioner and Benito Ong with two counts
of estafa under separate Informations dated 11 October 1991.
In Criminal Case No. 92-101989, the Information indicts petitioner and Benito Ong of the crime of estafa committed
as follows:
That on or about July 23, 1990, in the City of Manila, Philippines, the said accused, representing ARMAGRI International
Corporation, conspiring and confederating together did then and there willfully, unlawfully and feloniously defraud the
SOLIDBANK Corporation represented by its Accountant, DEMETRIO LAZARO, a corporation duly organized and existing
under the laws of the Philippines located at Juan Luna Street, Binondo, this City, in the following manner, to wit: the said
accused received in trust from said SOLIDBANK Corporation the following, to wit:
10,000 bags of urea
valued at P2,050,000.00 specified in a Trust Receipt Agreement and covered by a Letter of Credit No. DOM GD 90-009 in
favor of the Fertiphil Corporation; under the express obligation on the part of the said accused to account for said goods to
Solidbank Corporation and/or remit the proceeds of the sale thereof within the period specified in the Agreement or return
the goods, if unsold immediately or upon demand; but said accused, once in possession of said goods, far from complying

with the aforesaid obligation failed and refused and still fails and refuses to do so despite repeated demands made upon
him to that effect and with intent to defraud, willfully, unlawfully and feloniously misapplied, misappropriated and converted
the same or the value thereof to his own personal use and benefit, to the damage and prejudice of the said Solidbank
Corporation in the aforesaid amount of P2,050,000.00 Philippine Currency.
Contrary to law.
In Criminal Case No. 92-101990, the Information likewise charges petitioner of the crime of estafa committed as
follows:
That on or about July 6, 1990, in the City of Manila, Philippines, the said accused, representing ARMAGRI International
Corporation, did then and there willfully, unlawfully and feloniously defraud the SOLIDBANK Corporation represented by
its Accountant, DEMETRIO LAZARO, a corporation duly organized and existing under the laws of the Philippines located
at Juan Luna Street, Binondo, this City, in the following manner, to wit: the said accused received in trust from said
SOLIDBANK Corporation the following goods, to wit:
125 pcs. Rear diff. assy RNZO 49
50 pcs. Front & Rear diff assy. Isuzu Elof
85 units 1-Beam assy. Isuzu Spz
all valued at P2,532,500.00 specified in a Trust Receipt Agreement and covered by a Domestic Letter of Credit No. DOM
GD 90-006 in favor of the Metropole Industrial Sales with address at P.O. Box AC 219, Quezon City; under the express
obligation on the part of the said accused to account for said goods to Solidbank Corporation and/or remit the proceeds of
the sale thereof within the period specified in the Agreement or return the goods, if unsold immediately or upon demand;
but said accused, once in possession of said goods, far from complying with the aforesaid obligation failed and refused
and still fails and refuses to do so despite repeated demands made upon him to that effect and with intent to defraud,
willfully, unlawfully and feloniously misapplied, misappropriated and converted the same or the value thereof to his own
personal use and benefit, to the damage and prejudice of the said Solidbank Corporation in the aforesaid amount
of P2,532,500.00 Philippine Currency.
Contrary to law.

Arraignment and Plea


With the assistance of counsel, petitioner and Benito Ong both pleaded not guilty when arraigned. Thereafter, trial
ensued.

Version of the Prosecution


The prosecutions evidence disclosed that on 22 June 1990, petitioner, representing ARMAGRI International
Corporation[8] (ARMAGRI), applied for a letter of credit for P2,532,500.00 with SOLIDBANK Corporation (Bank) to finance
the purchase of differential assemblies from Metropole Industrial Sales. On 6 July 1990, petitioner, representing
ARMAGRI, executed a trust receipt[9] acknowledging receipt from the Bank of the goods valued at P2,532,500.00.
On 12 July 1990, petitioner and Benito Ong, representing ARMAGRI, applied for another letter of credit
for P2,050,000.00 to finance the purchase of merchandise from Fertiphil Corporation. The Bank approved the application,
opened the letter of credit and paid to Fertiphil Corporation the amount of P2,050,000.00. On 23 July 1990, petitioner,
signing for ARMAGRI, executed another trust receipt[10] in favor of the Bank acknowledging receipt of the merchandise.
Both trust receipts contained the same stipulations. Under the trust receipts, ARMAGRI undertook to account for the
goods held in trust for the Bank, or if the goods are sold, to turn over the proceeds to the Bank. ARMAGRI also undertook
the obligation to keep the proceeds in the form of money, bills or receivables as the separate property of the Bank or to
return the goods upon demand by the Bank, if not sold. In addition, petitioner executed the following additional
undertaking stamped on the dorsal portion of both trust receipts:

I/We jointly and severally agreed to any increase or decrease in the interest rate which may occur after July 1, 1981, when
the Central Bank floated the interest rates, and to pay additionally the penalty of 1% per month until the amount/s or
installment/s due and unpaid under the trust receipt on the reverse side hereof is/are fully paid. [11]
Petitioner signed alone the foregoing additional undertaking in the Trust Receipt for P2,253,500.00, while both petitioner
and Benito Ong signed the additional undertaking in the Trust Receipt for P2,050,000.00.
When the trust receipts became due and demandable, ARMAGRI failed to pay or deliver the goods to the Bank
despite several demand letters.[12] Consequently, as of 31 May 1991, the unpaid account under the first trust receipt
amounted to P1,527,180.66,[13] while the unpaid account under the second trust receipt amounted to P1,449,395.71.[14]

Version of the Defense


After the prosecution rested its case, petitioner and Benito Ong, through counsel, manifested in open court that they
were waiving their right to present evidence. The trial court then considered the case submitted for decision. [15]

The Ruling of the Court of Appeals


Petitioner appealed his conviction to the Court of Appeals. On 27 October 1994, the Court of Appeals affirmed the
trial courts decision in toto. Petitioner filed a motion for reconsideration but the same was denied by the Court of Appeals
in the Resolution dated 18 April 1995.
The Court of Appeals held that although petitioner is neither a director nor an officer of ARMAGRI, he certainly comes
within the term employees or other x x x persons therein responsible for the offense in Section 13 of the Trust Receipts
Law. The Court of Appeals explained as follows:
It is not disputed that appellant transacted with the Solid Bank on behalf of ARMAGRI. This is because the Corporation
cannot by itself transact business or sign documents it being an artificial person. It has to accomplish these through its
agents. A corporation has a personality distinct and separate from those acting on its behalf. In the fulfillment of its
purpose, the corporation by necessity has to employ persons to act on its behalf.
Being a mere artificial person, the law (Section 13, P.D. 115) recognizes the impossibility of imposing the penalty of
imprisonment on the corporation itself. For this reason, it is the officers or employees or other persons whom the law holds
responsible.[16]
The Court of Appeals ruled that what made petitioner liable was his failure to account to the entruster Bank what he
undertook to perform under the trust receipts. The Court of Appeals held that ARMAGRI, which petitioner represented,
could not itself negotiate the execution of the trust receipts, go to the Bank to receive, return or account for the entrusted
goods. Based on the representations of petitioner, the Bank accepted the trust receipts and, consequently, expected
petitioner to return or account for the goods entrusted. [17]
The Court of Appeals also ruled that the prosecution need not prove that petitioner is occupying a position in
ARMAGRI in the nature of an officer or similar position to hold him the person(s) therein responsible for the offense. The
Court of Appeals held that petitioners admission that his participation was merely incidental still makes him fall within the
purview of the law as one of the corporations employees or other officials or persons therein responsible for the offense.
Incidental or not, petitioner was then acting on behalf of ARMAGRI, carrying out the corporations decision when he signed
the trust receipts.
The Court of Appeals further ruled that the prosecution need not prove that petitioner personally received and
misappropriated the goods subject of the trust receipts. Evidence of misappropriation is not required under the Trust
Receipts Law. To establish the crime of estafa, it is sufficient to show failure by the entrustee to turn over the goods or the
proceeds of the sale of the goods covered by a trust receipt. Moreover, the bank is not obliged to determine if the goods
came into the actual possession of the entrustee. Trust receipts are issued to facilitate the purchase of merchandise. To
obligate the bank to examine the fact of actual possession by the entrustee of the goods subject of every trust receipt will
greatly impede commercial transactions.
Hence, this petition.

The Issues
Petitioner seeks to reverse his conviction by contending that the Court of Appeals erred:
1. IN RULING THAT, BY THE MERE CIRCUMSTANCE THAT PETITIONER ACTED AS AGENT AND SIGNED FOR THE
ENTRUSTEE CORPORATION, PETITIONER WAS NECESSARILY THE ONE RESPONSIBLE FOR THE OFFENSE;
AND
2. IN CONVICTING PETITIONER UNDER SPECIFICATIONS NOT ALLEGED IN THE INFORMATION.

The Ruling of the Court


The Court sustains the conviction of petitioner.

First Assigned Error: Petitioner comes within


the purview of Section 13 of the Trust Receipts Law.
Petitioner contends that the Court of Appeals erred in finding him liable for the default of ARMAGRI, arguing that in
signing the trust receipts, he merely acted as an agent of ARMAGRI. Petitioner asserts that nowhere in the trust receipts
did he assume personal responsibility for the undertakings of ARMAGRI which was the entrustee.
Petitioners arguments fail to persuade us.
The pivotal issue for resolution is whether petitioner comes within the purview of Section 13 of the Trust Receipts
Law which provides:
x x x. If the violation is committed by a corporation, partnership, association or other juridical entities, the penalty provided
for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible
for the offense, without prejudice to the civil liabilities arising from the offense. (Emphasis supplied)
We hold that petitioner is a person responsible for violation of the Trust Receipts Law.
The relevant penal provision of the Trust Receipts Law reads:
SEC. 13. Penalty Clause. The failure of the entrustee to turn over the proceeds of the sale of the goods, documents or
instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt
or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the
trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three Hundred and Fifteen,
Paragraph One (b), of Act Numbered Three Thousand Eight Hundred and Fifteen, as amended, otherwise known as the
Revised Penal Code. If the violation or offense is committed by a corporation, partnership, association or other juridical
entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials
or persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense.
(Emphasis supplied)
The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over the proceeds of the sale of the
goods, or (2) return the goods covered by the trust receipts if the goods are not sold. [18] The mere failure to account or
return gives rise to the crime which is malum prohibitum.[19] There is no requirement to prove intent to defraud. [20]
The Trust Receipts Law recognizes the impossibility of imposing the penalty of imprisonment on a corporation.
Hence, if the entrustee is a corporation, the law makes the officers or employees or other persons responsible for the
offense liable to suffer the penalty of imprisonment. The reason is obvious: corporations, partnerships, associations and
other juridical entities cannot be put to jail. Hence, the criminal liability falls on the human agent responsible for the
violation of the Trust Receipts Law.
In the instant case, the Bank was the entruster while ARMAGRI was the entrustee. Being the entrustee, ARMAGRI
was the one responsible to account for the goods or its proceeds in case of sale. However, the criminal liability for
violation of the Trust Receipts Law falls on the human agent responsible for the violation. Petitioner, who admits being the

agent of ARMAGRI, is the person responsible for the offense for two reasons. First, petitioner is the signatory to the trust
receipts, the loan applications and the letters of credit. Second, despite being the signatory to the trust receipts and the
other documents, petitioner did not explain or show why he is not responsible for the failure to turn over the proceeds of
the sale or account for the goods covered by the trust receipts.
The Bank released the goods to ARMAGRI upon execution of the trust receipts and as part of the loan transactions
of ARMAGRI. The Bank had a right to demand from ARMAGRI payment or at least a return of the goods. ARMAGRI failed
to pay or return the goods despite repeated demands by the Bank.
It is a well-settled doctrine long before the enactment of the Trust Receipts Law, that the failure to account, upon
demand, for funds or property held in trust is evidence of conversion or misappropriation. [21] Under the law, mere failure by
the entrustee to account for the goods received in trust constitutes estafa. The Trust Receipts Law punishes dishonesty
and abuse of confidence in the handling of money or goods to the prejudice of public order. [22] The mere failure to deliver
the proceeds of the sale or the goods if not sold constitutes a criminal offense that causes prejudice not only to the
creditor, but also to the public interest. [23] Evidently, the Bank suffered prejudice for neither money nor the goods were
turned over to the Bank.
The Trust Receipts Law expressly makes the corporations officers or employees or other persons therein responsible
for the offense liable to suffer the penalty of imprisonment. In the instant case, petitioner signed the two trust receipts on
behalf of ARMAGRI[24] as the latter could only act through its agents. When petitioner signed the trust receipts, he
acknowledged receipt of the goods covered by the trust receipts. In addition, petitioner was fully aware of the terms and
conditions stated in the trust receipts, including the obligation to turn over the proceeds of the sale or return the goods to
the Bank, to wit:
Received, upon the TRUST hereinafter mentioned from SOLIDBANK CORPORATION (hereafter referred to as the
BANK), the following goods and merchandise, the property of said BANK specified in the bill of lading as follows: x x x and
in consideration thereof, I/we hereby agree to hold said goods in Trust for the said BANK and as its property with
liberty to sell the same for its account but without authority to make any other disposition whatsoever of the said goods or
any part thereof (or the proceeds thereof) either by way of conditional sale, pledge, or otherwise.
In case of sale I/we agree to hand the proceeds as soon as received to the BANK to apply against the relative
acceptance (as described above) and for the payment of any other indebtedness of mine/ours to SOLIDBANK
CORPORATION.
x x x.
I/we agree to keep said goods, manufactured products, or proceeds thereof, whether in the form of money or bills,
receivables, or accounts, separate and capable of identification as the property of the BANK.
I/we further agree to return the goods, documents, or instruments in the event of their non-sale, upon demand or
within _______ days, at the option of the BANK.
x x x. (Emphasis supplied)[25]
True, petitioner acted on behalf of ARMAGRI. However, it is a well-settled rule that the law of agency governing civil
cases has no application in criminal cases. When a person participates in the commission of a crime, he cannot escape
punishment on the ground that he simply acted as an agent of another party. [26] In the instant case, the Bank accepted the
trust receipts signed by petitioner based on petitioners representations. It is the fact of being the signatory to the two trust
receipts, and thus a direct participant to the crime, which makes petitioner a person responsible for the offense.
Petitioner could have raised the defense that he had nothing to do with the failure to account for the proceeds or to
return the goods. Petitioner could have shown that he had severed his relationship with ARMAGRI prior to the loss of the
proceeds or the disappearance of the goods. Petitioner, however, waived his right to present any evidence, and thus failed
to show that he is not responsible for the violation of the Trust Receipts Law.
There is no dispute that on 6 July 1990 and on 23 July 1990, petitioner signed the two trust receipts [27] on behalf of
ARMAGRI. Petitioner, acting on behalf of ARMAGRI, expressly acknowledged receipt of the goods in trust for the Bank.
ARMAGRI failed to comply with its undertakings under the trust receipts. On the other hand, petitioner failed to explain
and communicate to the Bank what happened to the goods despite repeated demands from the Bank. As of 13 May 1991,
the unpaid account under the first and second trust receipts amounted to P1,527,180.60 and P1,449,395.71, respectively.
[28]

Second Assigned Error: Petitioners conviction under


the allegations in the two Informations for Estafa.
Petitioner argues that he cannot be convicted on a new set of facts not alleged in the Informations. Petitioner claims
that the trial courts decision found that it was ARMAGRI that transacted with the Bank, acting through petitioner as its
agent. Petitioner asserts that this contradicts the specific allegation in the Informations that it was petitioner who was
constituted as the entrustee and was thus obligated to account for the goods or its proceeds if sold. Petitioner maintains
that this absolves him from criminal liability.
We find no merit in petitioners arguments.
Contrary to petitioners assertions, the Informations explicitly allege that petitioner, representing ARMAGRI, defrauded
the Bank by failing to remit the proceeds of the sale or to return the goods despite demands by the Bank, to the latters
prejudice. As an essential element of estafa with abuse of confidence, it is sufficient that the Informations specifically
allege that the entrustee received the goods. The Informations expressly state that ARMAGRI, represented by petitioner,
received the goods in trust for the Bank under the express obligation to remit the proceeds of the sale or to return the
goods upon demand by the Bank. There is no need to allege in the Informations in what capacity petitioner participated to
hold him responsible for the offense. Under the Trust Receipts Law, it is sufficient to allege and establish the failure of
ARMAGRI, whom petitioner represented, to remit the proceeds or to return the goods to the Bank.
When petitioner signed the trust receipts, he claimed he was representing ARMAGRI. The corporation obviously acts
only through its human agents and it is the conduct of such agents which the law must deter. [29] The existence of the
corporate entity does not shield from prosecution the agent who knowingly and intentionally commits a crime at the
instance of a corporation.[30]

Penalty for the crime of Estafa.


The penalty for the crime of estafa is prescribed in Article 315 of the Revised Penal Code, as follows:
1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the amount of the
fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds the latter sum, the penalty
provided in this paragraph shall be imposed in its maximum period, adding one year for each additional 10,000 pesos; but
the total penalty which may be imposed should not exceed twenty years. x x x.
In the instant case, the amount of the fraud in Criminal Case No. 92-101989 is P1,527,180.66. In Criminal Case No.
92-101990, the amount of the fraud is P1,449,395.71. Since the amounts of the fraud in each estafa exceeds P22,000.00,
the penalty of prision correccional maximum to prision mayor minimum should be imposed in its maximum period as
prescribed in Article 315 of the Revised Penal Code. The maximum indeterminate sentence should be taken from this
maximum period which has a duration of 6 years, 8 months and 21 days to 8 years. One year is then added for each
additional P10,000.00, but the total penalty should not exceed 20 years. Thus, the maximum penalty for each count
of estafa in this case should be 20 years.
Under the Indeterminate Sentence Law, the minimum indeterminate sentence can be anywhere within the range of
the penalty next lower in degree to the penalty prescribed by the Code for the offense. The minimum range of the penalty
is determined without first considering any modifying circumstance attendant to the commission of the crime and without
reference to the periods into which it may be subdivided. [31] The modifying circumstances are considered only in the
imposition of the maximum term of the indeterminate sentence. [32] Since the penalty prescribed in Article 315 is prision
correccional maximum to prision mayor minimum, the penalty next lower in degree would be prision correccional minimum
to medium. Thus, the minimum term of the indeterminate penalty should be anywhere within 6 months and 1 day to 4
years and 2 months.[33]
Accordingly, the Court finds a need to modify in part the penalties imposed by the trial court. The minimum penalty for
each count of estafa should be reduced to four (4) years and two (2) months of prision correccional.
As for the civil liability arising from the criminal offense, the question is whether as the signatory for ARMAGRI,
petitioner is personally liable pursuant to the provision of Section 13 of the Trust Receipts Law.
In Prudential Bank v. Intermediate Appellate Court,[34] the Court discussed the imposition of civil liability for
violation of the Trust Receipts Law in this wise:

It is clear that if the violation or offense is committed by a corporation, partnership, association or other juridical
entities, the penalty shall be imposed upon the directors, officers, employees or other officials or persons responsible for
the offense. The penalty referred to is imprisonment, the duration of which would depend on the amount of the fraud as
provided for in Article 315 of the Revised Penal Code. The reason for this is obvious: corporation, partnership, association
or other juridical entities cannot be put in jail. However, it is these entities which are made liable for the civil liabilities
arising from the criminal offense. This is the import of the clause without prejudice to the civil liabilities arising from the
criminal offense. (Emphasis supplied)
In Prudential Bank, the Court ruled that the person signing the trust receipt for the corporation is not solidarily liable with
the entrustee-corporation for the civil liability arising from the criminal offense. He may, however, be personally liable if he
bound himself to pay the debt of the corporation under a separate contract of surety or guaranty.
In the instant case, petitioner did not sign in his personal capacity the solidary guarantee clause [35] found on the
dorsal portion of the trust receipts. Petitioner placed his signature after the typewritten words ARMCO INDUSTRIAL
CORPORATION found at the end of the solidary guarantee clause. Evidently, petitioner did not undertake to
guaranty personally the payment of the principal and interest of ARMAGRIs debt under the two trust receipts.
In contrast, petitioner signed the stamped additional undertaking without any indication he was signing for ARMAGRI.
Petitioner merely placed his signature after the additional undertaking. Clearly, what petitioner signed in his personal
capacity was the stamped additional undertaking to pay a monthly penalty of 1% of the total obligation in case of
ARMAGRIs default.
In the additional undertaking, petitioner bound himself to pay jointly and severally a monthly penalty of 1% in case of
ARMAGRIs default.[36] Thus, petitioner is liable to the Bank for the stipulated monthly penalty of 1% on the outstanding
amount of each trust receipt. The penalty shall be computed from 15 July 1991, when petitioner received the demand
letter,[37] until the debt is fully paid.
WHEREFORE, the assailed Decision is AFFIRMED with MODIFICATION. In Criminal Case No. 92-101989 and in
Criminal Case No. 92-101990, for each count of estafa, petitioner EDWARD C. ONG is sentenced to an indeterminate
penalty of imprisonment from four (4) years and two (2) months of prision correccional as MINIMUM, to twenty (20) years
of reclusion temporal as MAXIMUM. Petitioner is ordered to pay SOLIDBANK CORPORATION the stipulated penalty of
1% per month on the outstanding balance of the two trust receipts to be computed from 15 July 1991 until the debt is fully
paid.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Azcuna, JJ., concur.

[1]

Under Rule 45 of the Rules of Court.

[2]

Penned by Associate Justice Antonio M. Martinez with Associate Justices Fermin A. Martin, Jr. and Conrado M.
Vasquez, Jr. concurring, Rollo, pp. 19-29.

[3]

Rollo, p. 31.

[4]

In Criminal Case Nos. 92-101989 & 92-101990, entitled People v. Benito Ong & Edward C. Ong.

[5]

Penned by Judge Ramon Makasiar, CA Records, pp.10-16.

[6]

Section 13 of PD No. 115, the Trust Receipts Law.

[7]

CA Records, p. 16.

[8]

Formerly ARMCO Industrial Corporation, Rollo, p. 21, CA Decision, p. 3.

[9]

Exhibit B, Records, p. 103.

[10]

Exhibit C, ibid., p. 104.

[11]

Exhibits B-3 & B-4, Records, p. 103; Exhibits C-3 & C-4, Records, p. 104.

[12]

Exhibits D, H & I, ibid., pp. 105 & 108-A.

[13]

Exhibit E, ibid., p. 106.

[14]

Exhibit F, ibid., p. 107.

[15]

Records, p. 116.

[16]

Rollo, pp. 24-25.

[17]

Ibid., p. 25.

[18]

Metropolitan Bank and Trust Company v. Tonda, G.R. No. 134436, 16 August 2000, 338 SCRA 254.

[19]

People v. Nitafan, G.R. Nos. 81559-60, 6 April 1992, 207 SCRA 726.

[20]

Colinares v. Court of Appeals, G.R. No. 90828, 5 September 2000, 339 SCRA 609.

[21]

Hayco v. CA, Nos. L-55775-86, 26 August 1995, 138 SCRA 227; Dayawon v. Badilla, A.M. No. MTJ- 00-1309, 6
September 2000, 339 SCRA 702.

[22]

Supra, see note 18.

[23]

Supra, see note 20.

[24]

Exhibits B-1 & C-2, Records, pp. 103 & 104.

[25]

Exhibits B & C, Records, pp. 103 & 104.

[26]

People v. Chowdury, G.R. Nos. 129577-80, 15 February 2000, 325 SCRA 572.

[27]

Supra, see notes 9 & 10.

[28]

Supra, see notes 13 & 14.

[29]

Supra, see note 26.

[30]

Supra, see note 26.

[31]

People v. Gabres, 335 Phil. 242 (1997).

[32]

Ibid.

[33]

People v. Bautista, 311 Phil. 227 (1995); Dela Cruz v. CA, 333 Phil. 126 (1996); People v. Ortiz-Miyake, 344 Phil. 598
(1997); People v. Saley, 353 Phil. 897 (1998).

[34]

G.R. No. 74886, 8 December 1992, 216 SCRA 257.

[35]

This clause states: In consideration of SOLIDBANK CORPORATION complying with the foregoing, we jointly and
severally agree and undertake to pay on demand to SOLIDBANK CORPORATION, all sums of money which the
said SOLIDBANK CORPORATION may call upon us to pay arising out of or pertaining to, and/or in any event
connected with the default of and/or non-fulfillment in any respect of the undertaking of the aforesaid: x x x.

[36]

Supra, see note 11.

[37]

Supra, see note 12.

CASE 10

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

ABS-CBN BROADCASTING CORPORATION, petitioners, vs. HONORABLE COURT OF APPEALS, REPUBLIC


BROADCASTING CORP., VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO, respondents.

DECISION
DAVIDE, JR., C.J.:
In this petition for review on certiorari, petitioners ABS-CBN Broadcasting Corp. (hereinafter ABS-CBN) seeks to
reverse and set aside the decision[1] of 31 October 1996 and the resolution[2] of 10 March 1997 of the Court of Appeals in
CA-G.R. CV No. 44125. The former affirmed with modification the decision [3] of 28 April 1993 of the Regional Trial Court
(RTC) of Quezon City, Branch 80, in Civil Case No. Q-12309. The latter denied the motion to reconsider the decision of 31
October 1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. A) whereby Viva gave ABS-CBN an exclusive
right to exhibit some Viva films. Sometime in December 1991, in accordance with paragraph 2.4 [sic] of said agreement
stating that1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast under such terms as
may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN from the
actual offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of three (3)
film packages (36 title) from which ABS-CBN may exercise its right of first refusal under the afore-said agreement (Exhs. 1
par. 2, 2, 2-A and 2-B Viva). ABS-CBN, however through Mrs. Concio, can tick off only ten (10) titles (from the list) we can
purchase (Exh. 3 Viva) and therefore did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs.
Concio are not the subject of the case at bar except the film Maging Sino Ka Man.
For further enlightenment, this rejection letter dated January 06, 1992 (Exh 3 Viva) is hereby quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to express my difficulty in recommending the
purchase of the three film packages you are offering ABS-CBN.
From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I hope you will
understand my position. Most of the action pictures in the list do not have big action stars in the cast. They are not for
primetime. In line with this I wish to mention that I have not scheduled for telecast several action pictures in our very first
contract because of the cheap production value of these movies as well as the lack of big action stars. As a film producer,
I am sure you understand what I am trying to say as Viva produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in out non-primetime
slots. We have to cover the amount that was paid for these movies because as you very well know that non-primetime
advertising rates are very low. These are the unaired titles in the first contract.
1. Kontra Persa [sic]
2. Raider Platoon
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been rejected because of the ruling of MTRCB to have
them aired at 9:00 p.m. due to their very adult themes.

As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva movies produced
last year, I have quite an attractive offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms. Concio, with a list consisting of 52 original
movie titles (i.e., not yet aired on television) including the 14 titles subject of the present case, as well as 104 re-runs
(previously aired on television) from which ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to
sell to ABS-CBN airing rights over this package of 52 originals and 52 re-runs for P60,000,000.00 of
which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots (Exh. 4 to 4-C Viva; 9 Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager, Eugenio Lopez III, met at the Tamarind Grill
Restaurant in Quezon City to discuss the package proposal of VIVA. What transpired in that lunch meeting is the subject
of conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-CBN was granted
exclusive film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly put this agreement as to
the price and number of films in a napkin and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78,
June 8, 1992).On the other hand. Del Rosario denied having made any agreement with Lopez regarding the 14 Viva films;
denied the existence of a napkin in which Lopez wrote something; and insisted that what he and Lopez discussed at the
lunch meeting was Vivas film package offer of 104 films (52 originals and 52 re-runs) for a total price of P60 million. Mr.
Lopez promising [sic]to make a counter proposal which came in the form of a proposal contract Annex C of the complaint
(Exh. 1 Viva; Exh C ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the terms
and conditions of Vivas offer to sell the 104 films, after the rejection of the same package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary , a handwritten note from Ms. Concio, (Exh. 5
Viva), which reads: Heres the draft of the contract. I hope you find everything in order, to which was attached a draft
exhibition agreement (Exh. C ABS-CBN; Exh. 9 Viva p. 3) a counter-proposal covering 53 films, 52 of which came from
the list sent by defendant Del Rosario and one film was added by Ms. Concio, for a consideration of P35 million. Exhibit C
provides that ABS-CBN is granted film rights to 53 films and contains a right of first refusal to 1992 Viva Films. The said
counter proposal was however rejected by Vivas Board of Directors [in the] evening of the same day, April 7, 1992, as
Viva would not sell anything less than the package of 104 films for P60 million pesos (Exh. 9 Viva), and such rejection was
relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings defendant Del Rosario
and Vivas President Teresita Cruz, in consideration of P60 million, signed a letter of agreement dated April 24, 1992,
granting RBS the exclusive right to air 104 Viva-produced and/or acquired films (Exh. 7-A - RBS; Exh. 4 RBS) including
the fourteen (14) films subject of the present case. [4]
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of
preliminary injunction and/or temporary restraining order against private respondents Republic Broadcasting
Corporation[5] (hereafter RBS), Viva Production (hereafter VIVA), and Vicente del Rosario. The complaint was docketed as
Civil Case No. Q-92-12309.
On 28 May 1992, the RTC issued a temporary restraining order [6] enjoining private respondents from proceeding with
the airing, broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the film Maging
Sino Ka Man, which was scheduled to be shown on private respondent RBS channel 7 at seven oclock in the evening of
said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an order [7] directing the issuance of a writ of
preliminary injunction upon ABS-CBNs posting of a P35 million bond. ABS-CBN moved for the reduction of the bond,
[8]
while private respondents moved for reconsideration of the order and offered to put up a counterbond. [9]
In the meantime, private respondents filed separate answer with counterclaim. [10] RBS also set up a cross-claim
against VIVA.
On 3 August 1992, the RTC issued an order[11] dissolving the writ of preliminary injunction upon the posting by RBS of
a P30 million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However,

it reduced petitioners injunction bond to P15 million as a condition precedent for the reinstatement of the writ of
preliminary injunction should private respondents be unable to post a counterbond.
At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the court, agreed to explore the possibility of an
amicable settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30
million counterbond in the event that no settlement would be reached.
As the parties failed to enter into an amicable settlement, RBS posted on 1 October 1992 a counterbond, which the
RTC approved in its Order of 15 October 1992.[13]
On 19 October 1992, ABS-CBN filed a motion for reconsideration [14] of the 3 August and 15 October 1992 Orders,
which RBS opposed.[15]
On 29 October, the RTC conducted a pre-trial.[16]
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition [17] challenging
the RTCs Order of 3 August and 15 October 1992 and praying for the issuance of a writ of preliminary injunction to enjoin
the RTC from enforcing said orders. The case was docketed as CA-G.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining order [18] to enjoin the airing, broadcasting,
and televising of any or all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a decision [19] dismissing the petition in CA-G.R. SP No.
29300 for being premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January
1993, which was docketed s G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-92-12309. Thereafter, on 28 April
1993, it rendered a decision[20] in favor of RBS and VIVA and against ABS-CBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is rendered in favor of defendants and
against the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00 the amount of premium paid by RBS to the surety which issued defendants RBSs bond
to lift the injunction;
b) P191,843.00 for the amount of print advertisement for Maging Sino Ka Man in various newspapers;
c) Attorneys fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable attorneys
fees.
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement
between Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was
disapproved during the meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-CBNs demand that VIVA
signed the 1992 Film Exhibition Agreement.Furthermore, the right of first refusal under the 1990 Film Exhibition
Agreement had previously been exercised per Ms. Concios letter to Del Rosario ticking off ten titles acceptable to them,
which would have made the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied [21] ABS-CBNs petition for review in G.R. No. 108363, as no reversible error was
committed by the Court of Appeals in its challenged decision and the case had become moot and academic in view of the
dismissal of the main action by the court a quo in its decision of 28 April 1993.
Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected
contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private
respondents VIVA and Del Rosario also appealed seeking moral and exemplary damages and additional attorneys fees.

In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABS-CBN
and VIVA had not been perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, its agent,
might have agreed with Lopez III. The appellate court did not even believe ABS-CBNs evidence that Lopez III actually
wrote down such an agreement on a napkin, as the same was never produced in court. It likewise rejected ABS-CBNs
insistence on its right of first refusal and ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered into between
Appellant ABS-CBN and appellant VIVA under Exhibit A in 1990 and that parag. 1.4 thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV telecast under such terms
as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN within a
period of fifteen (15) days from the actual offer in writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subjected to such terms as may
be agreed upon by the parties thereto, and that the said right shall be exercised by ABS-CBN within fifteen (15) days from
the actual offer in writing.
Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did not fix the price of the film right to the twenty-four
(24) films, nor did it specify the terms thereof. The same are still left to be agreed upon by the parties.
In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick off ten (10) films, and
the draft contract Exhibit C accepted only fourteen (14) films, while parag. 1.4 of Exhibit A speaks of the next twenty-four
(24) films.
The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B; Records, pp. 86-88; Decision, p. 11, Records, p.
1150), when the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President of ABS-CBN, Mrs.
Charo Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right
of refusal by rejecting the offer of VIVA. As aptly observed by the trial court, with the said letter of Mrs. Concio of January
6, 1992, ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen (15) day period from February 27,
1992 (Exhibit 4 to 4-C) when another list was sent to ABS-CBN after the letter of Mrs. Concio, still the fifteen (15) day
period within which ABS-CBN shall exercise its right of first refusal has already expired. [22]
Accordingly, respondent court sustained the award factual damages consisting in the cost of print advertisements
and the premium payments for the counterbond, there being adequate proof of the pecuniary loss which RBS has suffered
as a result of the filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found
reasonable basis therefor, holding that RBSs reputation was debased by the filing of the complaint in Civil Case No. Q-9212309 and by the non-showing of the film Maging Sino Ka Man. Respondent court also held that exemplary damages
were correctly imposed by way of example or correction for the public good in view of the filing of the complaint despite
petitioners knowledge that the contract with VIVA had not been perfected. It also upheld the award of attorneys fees,
reasoning that with ABS-CBNs act of instituting Civil Case No. Q-92-12309, RBS was unnecessarily forced to litigate. The
appellate court, however, reduced the awards of moral damages to P 2 million, exemplary damages to P2 million, and
attorneys fees to P500,000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosarios appeal because it was RBS and not
VIVA which was actually prejudiced when the complaint was filed by ABS-CBN.
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the Court
of Appeals gravely erred in
I
RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE
RESPONDENT VIVA NOTWITHSTANDING PREPONFERANCE OF EVIDENCE ADDUCED BY
PETITIONER TO THE CONTRARY.
II
IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.
III
IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.
IV

IN AWARDING ATORNEYS FEES OF RBS.


ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film
Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopezs
testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of the second
list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper napkin. It also asserts
that the contract has already been effective, as the elements thereof, namely, consent, object, and consideration were
established. It then concludes that the Court of Appeals pronouncements were not supported by law and jurisprudence, as
per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of Appeals, [23] which cited Toyota Shaw, Inc.
v. Court of Appeals;[24] Ang Yu Asuncion v. Court of Appeals,[25] and Villonco Realty Company v. Bormaheco, Inc.[26]
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium on the
counterbond of its own volition in order to negate the injunction issued by the trial court after the parties had ventilated
their respective positions during the hearings for the purpose. The filing of the counterbond was an option available to
RBS, but it can hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS had another
available option, i.e., move for the dissolution of the injunction; or if it was determined to put up a counterbond, it could
have presented a cash bond. Furthermore under Article 2203 of the Civil Code, the party suffering loss injury is also
required to exercise the diligence of a good father of a family to minimize the damages resulting from the act or
omission. As regards the cost of print advertisements, RBS had not convincingly established that this was a loss
attributable to the non-showing of Maging Sino Ka Man; on the contrary, it was brought out during trial that with or without
the case or injunction, RBS would have spent such an amount to generate interest in the film.
ABS-CBN further contends that there was no other clear basis for the awards of moral and exemplary damages. The
controversy involving ABS-CBN and RBS did not in any way originate from business transaction between them. The
claims for such damages did not arise from any contractual dealings or from specific acts committed by ABS-CBN against
RBS that may be characterized as wanton, fraudulent, or reckless; they arose by virtue only of the filing of the
complaint. An award of moral and exemplary damages is not warranted where the record is bereft of any proof that a
party acted maliciously or in bad faith in filing an action. [27] In any case, free resort to courts for redress of wrongs is a
matter of public policy. The law recognizes the right of every one to sue for that which he honestly believes to be his right
without fear of standing trial for damages where by lack of sufficient evidence, legal technicalities, or a different
interpretation of the laws on the matter, the case would lose ground. [28] One who, makes use of his own legal right does no
injury.[29] If damage results from filing of the complaint, it is damnum absque injuria.[30] Besides, moral damages are
generally not awarded in favor of a juridical person, unless it enjoys a good reputation that was debased by the offending
party resulting in social humiliation.[31]
As regards the award of attorneys fees, ABS-CBN maintains that the same had no factual, legal, or equitable
justification. In sustaining the trial courts award, the Court of Appeals acted in clear disregard of the doctrine laid down
in Buan v. Camaganacan[32] that the text of the decision should state the reason why attorneys fees are being awarded;
otherwise, the award should be disallowed. Besides, no bad faith has been imputed on, much less proved as having been
committed by, ABS-CBN. It has been held that where no sufficient showing of bad faith would be reflected in a partys
persistence in a case other than an erroneous conviction of the righteousness of his cause, attorneys fees shall not be
recovered as cost.[33]
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent meeting of
minds between them regarding the object and consideration of the alleged contract.It affirms that ABS-CBNs claim of a
right of first refusal was correctly rejected by the trial court. RBS insists the premium it had paid for the counterbond
constituted a pecuniary loss upon which it may recover. It was obliged to put up the counterbond due to the injunction
procured by ABS-CBN. Since the trial court found that ABS-CBN had no cause of action or valid claim against RBS and,
therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN the premium paid on the
counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive, as the loss would be
equivalent to the cost of money RBS would forego in case the P30 million came from its funds or was borrowed from
banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film Maging
Sino Ka Man because the print advertisements were out to announce the showing on a particular day and hour on
Channel 7, i.e., in its entirety at one time, not as series to be shown on a periodic basis. Hence, the print advertisements
were good and relevant for the particular date of showing, and since the film could not be shown on that particular date
and hour because of the injunction, the expenses for the advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions purely
for the purpose of harassing and prejudicing RBS. Pursuant then to Articles 19 and 21 of the Civil Code, ABS-CBN must
be held liable for such damages. Citing Tolentino,[34] damages may be awarded in cases of abuse of rights even if the
done is not illicit, and there is abuse of rights where a plaintiff institutes an action purely for the purpose of harassing or
prejudicing the defendant.

In support of its stand that a juridical entity can recover moral and exemplary damages, private respondent RBS cited
People v. Manero,[35] where it was stated that such entity may recover moral and exemplary damages if it has a good
reputation that is debased resulting in social humiliation. It then ratiocinates; thus:
There can be no doubt that RBS reputation has been debased by ABS-CBNs acts in this case. When RBS was not able to
fulfill its commitment to the viewing public to show the film Maging Sino Ka Man on the scheduled dates and times (and on
two occasions that RBS advertised), it suffered serious embarrassment and social humiliation. When the showing was
cancelled, irate viewers called up RBS offices and subjected RBS to verbal abuse (Announce kayo ng announce, hindi
ninyo naman ilalabas, nanloloko yata kayo) (Exh. 3-RBS, par.3). This alone was not something RBS brought upon itself. It
was exactly what ABS-CBN had planted to happen.
The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the amount of the
award.
The first is that the humiliation suffered by RBS, is national in extent. RBS operations as a broadcasting company is [sic]
nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watch television. It is not an exaggeration to
state, and it is a matter of judicial notice that almost every other person in the country watches television. The humiliation
suffered by RBS is multiplied by the number of televiewers who had anticipated the showing of the film, Maging Sino Ka
Man on May 28 and November 3, 1992 but did not see it owing to the cancellation. Added to this are the advertisers who
had placed commercial spots for the telecast and to whom RBS had a commitment in consideration of the placement to
show the film in the dates and times specified.
The second is that it is a competitor that caused RBS suffer the humiliation. The humiliation and injury are far greater in
degree when caused by an entity whose ultimate business objective is to lure customers (viewers in this case) away from
the competition.[36]
For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of
Appeals do not support ABS-CBNs claim that there was a perfected contract. Such factual findings can no longer be
disturbed in this petition for review under Rule 45, as only questions of law can be raised, not questions of fact. On the
issue of damages and attorneys fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN,
and (2) whether RBS is entitled to damages and attorneys fees. It may be noted that that award of attorneys fees
of P212,000 in favor of VIVA is not assigned as another error.
I
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons whereby
one binds himself to give something or render some service to another [37] for a consideration. There is no contract unless
the following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of the
contract; and (3) cause of the obligation, which is established. [38] A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the
moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the
contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. [39]
Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is concurrence
between the offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is
produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not
qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the
proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the
original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such
acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls
the offer.[40]
When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the
package of films, said package of 104 VIVA films was VIVAs offer to ABS-CBN to enter into a new Film Exhibition
Agreement. But ABS-CBN, sent through Ms. Concio, counter-proposal in the form a draft contract proposing exhibition of
53 films for a consideration of P35 million. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez

during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVAs offer, for it
was met by a counter-offer which substantially varied the terms of the offer.
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of Appeals [41] and Villonco Realty Company v.
Bormaheco, Inc.,[42] is misplaced. In these cases, it was held that an acceptance may contain a request for certain
changes in the terms of the offer and yet be a binding acceptance as long as it is clear that the meaning of the acceptance
is positively and unequivocally to accept the offer, whether such request is granted or not. This ruling was, however,
reversed in the resolution of 29 March 1996, [43] which ruled that the acceptance of an offer must be unqualified and
absolute, i.e., it must be identical in all respects with that of the offer so as to produce consent or meetings of the minds.
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material
but merely clarificatory of what had previously been agreed upon. It cited the statement in Stuart v. Franklin Life Insurance
Co.[44] that a vendors change in a phrase of the offer to purchase, which change does not essentially change the terms of
the offer, does not amount to a rejection of the offer and the tender of a counter-offer. [45] However, when any of the
elements of the contract is modified upon acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer hence, they underwent period of
bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract. VIVA through its Board of
Directors, rejected such counter-offer. Even if it be conceded arguendo that Del Rosario had accepted the counter-offer,
the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific authority to do so.
Under the Corporation Code,[46] unless otherwise provided by said Code, corporate powers, such as the power to
enter into contracts, are exercised by the Board of Directors. However, the Board may delegate such powers to either an
executive committee or officials or contracted managers. The delegation, except for the executive committee, must be for
specific purposes.[47] Delegation to officers makes the latter agents of the corporation; accordingly, the general rules of
agency as to the binding effects of their acts would apply. [48] For such officers to be deemed fully clothed by the
corporation to exercise a power of the Board, the latter must specially authorize them to do so. that Del Rosario did not
have the authority to accept ABS-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. The following findings of the trial court are instructive:
A number of considerations militate against ABS-CBNs claim that a contract was perfected at that lunch meeting on April
02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the number of films,
which he wrote on a napkin. However, Exhibit C contains numerous provisions which were not discussed at the Tamarind
Grill, if Lopez testimony was to be believed nor could they have been physically written on a napkin. There was even
doubt as to whether it was a paper napkin or cloth napkin. In short what were written in Exhibit C were not discussed, and
therefore could not have been agreed upon, by the parties. How then could this court compel the parties to sign Exhibit C
when the provisions thereof were not previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14 films. The
complaint in fact prays for delivery of 14 films. But Exhibit C mentions 53 films as its subject matter. Which is which? If
Exhibit C reflected the true intent of the parties, then ABS-CBNs claim for 14 films in its complaint is false or if what it
alleged in the complaint is true, then Exhibit C did not reflect what was agreed upon by the parties. This underscores the
fact that there was no meeting of the minds as to the subject matter of the contract, so as to preclude perfection
thereof. For settled is the rule that there can be no contract where there is no object certain which is its subject matter
(Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. D) States:
We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14) films, and we
agreed to pay Viva the amount of P16,050,000.00 as well as grant Viva commercial slots worth P19,950,000.00. We had
already earmarked this P16,050,000.00.
which gives a total consideration of P36 million (P19,951,000.00 plus P16,050,000.00 equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q What was written in this napkin?

A The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7 Viva movies
because the price was broken down accordingly. The none [sic] Viva and the seven other Viva movies and the
sharing between the cash portion and the concerned spot portion in the total amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBNs claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit C to Mr. Del Rosario with a handwritten
note, describing said Exhibit C as a draft. (Exh. 5 Viva; tsn pp. 23-24, June 08, 1992). The said draft has a well defined
meaning.
Since Exhibit C is only a draft, or a tentative, provisional or preparatory writing prepared for discussion, the terms and
conditions thereof could not have been previously agreed upon by ABS-CBN and Viva.Exhibit C could not therefore legally
bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the terms and conditions embodied in Exhibit C
were prepared by ABS-CBNs lawyers and there was no discussion on said terms and conditions.
As the parties had not yet discussed the proposed terms and conditions in Exhibit C, and there was no evidence
whatsoever that Viva agreed to the terms and conditions thereof, said document cannot be a binding contract. The fact
that Viva refused to sign Exhibit C reveals only two [sic] well that it did not agree on its terms and conditions, and this
court has no authority to compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill was only
provisional, in the sense that it was subject to approval by the Board of Directors of Viva. He testified:
Q Now, Mr. Witness, and after that Tamarinf meeting the second meeting wherein you claimed that you have the
meeting of the minds between you and Mr. Vic del Rosario, what happened?
A Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the Board of
Directors.
Q And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?
A Yes, sir.
Q So, he was going to forward that to the board of Directors for approval?
A Yes, sir (Tsn, pp. 42-43, June 8, 1992)
Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority to bind Viva to a
contract with ABS-CBN until and unless its Board of Directors approved it. The complaint, in fact, alleges that Mr. Del
Rosario is the Executive Producer of defendant Viva which is a corporation. (par. 2, complaint). As a mere agent of Viva,
Del Rosario could not bind Viva unless what he did is ratified by its Directors. (Vicente vs.Geraldez, 52 SCRA 210; Arnold
vs. Willets and Paterson, 44 Phil. 634). As a mere agent, recognized as such by plaintiff, Del Rosario could not be held
liable jointly and severally with Viva and his inclusion as party defendant has no legal basis. (Salonga vs. Warner Barnes
[sic],COLTA, 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed to have
been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is as it
should be because corporate power to enter into a contract is lodged in the Board of Directors. (Sec. 23, Corporation
Code). Without such board approval by the Viva board, whatever agreement Lopez and Del Rosario arrived at could not
ripen into a valid binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA 763). The evidence adduced
shows that the Board of Directors of Viva rejected Exhibit C and insisted that the film package for 104 films be maintained
(Exh. 7-1 Cica).[49]
The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990
Film Exhibition Agreement and that the meeting between Lopez and Del Rosario was a continuation of said previous
contract is untenable. As observed by the trial court, ABS-CBNs right of first refusal had already been exercised when Ms.
Concio wrote to Viva ticking off ten films.Thus:

[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an entirely different
package. Ms. Concio herself admitted on cross-examination to having used or exercised the right of first refusal. She
stated that the list was not acceptable and was indeed not accepted by ABS-CBN, (Tsn, June 8, 1992, pp. 810). Even Mr. Lopez himself admitted that the right of first refusal may have been already exercised by Ms. Concio
(as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and understand [sic] that ABS-CBN has lost
its right of first refusal when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11). [50]
II
However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title
XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by
stipulation, one is entitled to compensation for actual damages only for such pecuniary loss suffered by him as he has
duly proved.[51] The indemnification shall comprehend not only the value of the loss suffered, but also that of the profits
that the obligee failed to obtain. [52] In contracts and quasi-contracts the damages which may be awarded are dependent on
whether the obligor acted with good faith or otherwise. In case of good faith, the damages recoverable are those which
are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could
have reasonably foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad faith, malice,
or wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the non-performance of
the obligation.[53] In crimes and quasi-delicts, the defendants shall be liable for all damages which are the natural and
probable consequences of the act or omission complained of, whether or not such damages have been foreseen or could
have reasonably been foreseen by the defendant.[54]
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or
permanent personal injury, or for injury to the plaintiffs business standing or commercial credit. [55]
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from
the fact of filing of the complaint despite ABS-CBNs alleged knowledge of lack of cause of action. Thus paragraph 12 of
RBSs Answer with Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action against RBS. As a result
thereof, RBS suffered actual damages in the amount of P6,621,195.32.[56]
Needless to state the award of actual damages cannot be comprehended under the above law on actual damages. RBS
could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows:
ART. 19. Every person must, in the exercise of hid rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.
ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to another shall indemnify the latter for
the same.
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or
public policy shall compensate the latter for the damage.
It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the
defendant may suffer by reason of the writ are recoverable from the injunctive bond. [57] In this case, ABS-CBN had not yet
filed the required bond; as a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to
challenge the order on the matter. Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN
cannot be held responsible for the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for Maging Sino Ka Man for lack of sufficient legal
basis. The RTC issued a temporary restraining order and later, a writ of preliminary injunction on the basis of its
determination that there existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve the injunction
on the ground of lack of legal and factual basis, but because of the plea of RBS that it be allowed to put up a counterbond.
As regards 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. [58]
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. [59] They are not to be awarded every time a party wins a suit. The power
of the court t award attorneys fees under Article 2208 demands factual, legal, and equitable justification. [60] Even when a
claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still 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.[61]

As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof
defines what are included in moral damages, while Article 2219 enumerates the cases where they may be
recovered. Article 2220 provides that moral damages may be recovered in breaches of contract where the defendant
acted fraudulently or in bad faith. RBSs claim for moral damages could possibly fall only under item (10) of Article 2219,
thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.
Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and
not to impose a penalty on the wrongdoer.[62] The award is not meant to enrich the complainant at the expense of the
defendant, but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate the moral
suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante,
and should be proportionate to the suffering inflicted. [63] Trial courts must then guard against the award of exorbitant
damages; they should exercise balanced restrained and measured objectivity to avoid suspicion that it was due to
passion, prejudice, or corruption or the part of the trial court. [64]
The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and
having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience
physical suffering and mental anguish, which can be experienced only by one having a nervous system. [65] The statement
in People v. Manero[66] and Mambulao Lumber Co. v. PNB[67] that a corporation may recover moral damages if it has a
good reputation that is debased, resulting in social humiliation is an obiter dictum. On this score alone the award for
damages must be set aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII, Book IV of the Civil Code. These are
imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory
damages.[68] They are recoverable in criminal cases as part of the civil liability when the crime was committed with one or
more aggravating circumstances;[69] in quasi-delicts, if the defendant acted with gross negligence; [70] and in contracts and
quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. [71]
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or 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 provisions of law which do not especially provide for their own sanction; while Article 21 deals with acts contra
bonus mores, and has the following elements: (1) there is an act which is legal, (2) but which is contrary to morals, good
custom, public order, or public policy, and (3) and it is done with intent to injure. [72]
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral obliquity. [73]Such must be substantiated by
evidence.[74]
There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the
merits of its cause after it had undergone serious negotiations culminating in its formal submission of a draft
contract. Settled is the rule that the adverse result of an action does not per se make the action wrongful and subject the
actor to damages, for the law could not have meant impose a penalty on the right to litigate. If damages result from a
persons exercise of a right, it is damnum absque injuria.[75]
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No.
44125 is hereby REVERSED except as to unappealed award of attorneys fees in favor of VIVA Productions, Inc.
No pronouncement as to costs.
SO ORDERED.
Melo, Kapunan, Martinez, and Pardo, JJ., concur.

[1]

Per Adefuin-De la Cruz, J., with Lantin and Tamayo-Jaguros, JJ., concurring; Rollo, 49-60.

[2]

Rollo, 62

[3]

Per Judge Efren N. Ambrosio; Rollo, 134-161.

[4]

RTC Decision, Rollo, 146-149.

[5]

This should be Republic Broadcasting System, now GMA Network Inc., upon approval by the Securities and Exchange
Commission of the change in corporate name on 20 February 1996.
[6]

Vol 1. Original Rrecord (OR), Civil Case No. Q-92-12309, 27-28. Hereafter, OR shall refer to the record of this case.

[7]

Vol. 1, OR, 170-173.

[8]

Vol. 1, OR, 217-220.

[9]

Id., 184-216.

[10]

Id., 177-183 (VIVA and Del Rosario); 222-228 (RBS).

[11]

Id., 331-332.

[12]

Id., 369.

[13]

Id., 397.

[14]

Id., 398-402, 403-404.

[15]

Id., 406-409.

[16]

Id., 453-454.

[17]

Vol. 2, OR, 465-484.

[18]

Id.,464.

[19]

Id., 913-928.

[20]

Id., 1140-1166; Rollo, 134-161.

[21]

Vol. 2, OR, 2030-2035.

[22]

Rollo, 55.

[23]

250 SCRA 523 [1995].

[24]

244 SCRA 320 [1995].

[25]

238 SCRA 602 [1994].

[26]

65 SCRA 352 [1975].

[27]

Citing Francel Realty Corp. v. Court of Appeals, 252 SCRA 127, 134 [1996].

[28]

Citing Tan. v. Court of Appeals, 131 SCRA 197, 404 [1984].

[29]

Citing Auyong Hian v. Court of Tax Appeals, 59 SCRA 110, 134[1974].

[30]

Citing Ilocos Norte Electric Company v. Court of Appeals, 179 SCRA 5 [1989].

[31]

Citing People v. Manero, 218 SCRA 85, 96-97 [1993]; citing Simex International (Manila) Inc. v. Court of Appeals, 183
SCRA 360 [1990].
[32]

16 SCRA 321 [1966].

[33]

See Gonzales v. National Housing Corp. 94 SCRA 786 [1979]; Servicewide Specialist, Inc. v. Court of Appeals, 256
SCRA 649 [1996].
[34]

I ARTURO M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES
63, 66 (1983 ed.).
[35]

Supra note 31.

[36]

Rollo, 191.

[37]

Art. 1305, Civil Code.

[38]

Art. 1318, Civil Code.

[39]

Toyota Shaw, Inc. v. Court of Appeals, Supra note 24, at 329.

[40]

See IV ARTURO M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE
PHILIPPINES 450 (6th ed., 1996).
[41]

Supra note 23.

[42]

Supra note 26.

[43]

255 SCRA 626, 639 [1996].

[44]

165 Fed. 2nd 965, citing Sec. 79 Wilhston on Contracts.

[45]

Villonco Realty Company v. Bormaheco, Inc. Supra note 25, at 365-366.

[46]

B.P. Blg. 68, Sec. 23.

[47]

JOSE C. Vitug, PANDECT OF COMMERCIAL LAW AND JURISPRUDENCE 356 (Revised ed. 1990).

[48]

I JOSE C. CAMPOS, Jr., and MARIA CLARA LOPEZ-CAMPOS, THE CORPORATION CODE 384-385(1990 ed.).

[49]

RTC Decision, Rollo, 153-156.

[50]

Id., 158.

[51]

Article 2199, Civil Code.

[52]

Article 2200, id.,

[53]

Article 2201, id.

[54]

Article 2202, id.

[55]

Article 2205, id.

[56]

Vol. 1, OR, 225.

[57]

Section 4 in relation to Section 8, Rule 58, 1997 Rules of Civil Procedure.

[58]

It reads as follows:

ART. 2208. In the absence of stipulation, attorneys fees and expense of litigation, other than judicial costs, cannot be
recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendants act or omission has compelled the plaintiff to litigate with third person or to incur expense to
protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) in case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy
the plaintiffs plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmens compensation and employers liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorneys fees and expenses of litigation should be
recovered.
In all cases, the attorneys fees and expenses of litigation must be reasonable.

[59]

Firestone Tire & Rubber Company of the Philippines v. Ines Chaves & Co. Ltd., 18 SCRA 356, 358 [1966]; Philippine
Air Lines v. Miano, 242 SCRA 235, 240 [1995].
[60]

Scott Consultants & Resource Development Corporation, Inc. v. Court of Appeals, 242 SCRA 393, 406 [1995].

[61]

Gonzales v. National Housing Corp., 94 SCRA 786, 792 [1979]; Servicewide Specialist, Inc. v. Court of
Appeals, supra note 33, at 655.
[62]

Pagsuyuin v. Intermediate Appellate Court, 193 SCRA 547, 555 [1991].

[63]

Visayan Sawmil Company v. Court of Appeals, 219 SCRA 378, 392 [1993]. Citing R & B Security. Insurance Co.,
Inc. v. Intermediate Appellate Court, 129 SCRA 736 [1984]; De la Serna v. Court of Appeals, 233 SCRA 325, 329-330
[1994].
[64]

People v. Wenceslao, 212 SCRA 560, 569 [1992], citing Filinvest Credit Corp. v. Intermediate Appellate Court, 166
SCRA 155 [1988].
[65]

Prime White Cement Corp. v. Intermediate Appellate Court, 220 SCRA 103, 113-114 [1993]; LBC Express Inc. v. Court
of Appeals, 236 SCRA 602 [1994]; Acme Shoe, Rubber and Plastic Corp. v. Court of Appeals, 260 SCRA 714, 722 [1996].
[66]

Supra note 31.

[67]

130 Phil. 366 [1968].

[68]

Article 2229, Civil Code.

[69]

Article 2230, Id.

[70]

Article 2231, Id.

[71]

Article 2232, Id

[72]

Albenson Enterprises Corp. v. Court of Appeals, 217 SCRA 16, 25 [1993].

[73]

Far East Bank and Trust Company, v. Court of Appeals, 241 SCRA 671, 675 [1995].

[74]

Philippine Air Lines v. Miano, supra note 59.

[75]

Tierra International Construction Corp. v. NLRC, 211 SCRA 73, 81 [1992], citing Saba v. Court of Appeals, 189 SCRA
50, 55 [1990].

CASE 11

[G.R. No. 141994. January 17, 2005]

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

DECISION
CARPIO, J.:
The Case
This petition for review[1] assails the 4 January 1999 Decision [2] and 26 January 2000 Resolution of the Court of
Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 1992 Decision [3] of
the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held Filipinas
Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and ordered them
to solidarily pay Ago Medical and Educational Center-Bicol Christian College of Medicine moral damages, attorneys fees
and costs of suit.
The Antecedents
Expos is a radio documentary [4] program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun Alegre (Alegre).
Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. (FBNI). Expos is
heard over Legazpi City, the Albay municipalities and other Bicol areas. [6]
[5]

In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students,
teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC) and its
administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago (Ago), as Dean of AMECs College
of Medicine, filed a complaint for damages [7] against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of
the allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them to
pass all subjects because if they fail in any subject they will repeat their year level, taking up all subjects
including those they have passed already. Several students had approached me stating that they had consulted with
the DECS which told them that there is no such regulation. If [there] is no such regulation why is AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS.
xxx
Third: Students are required to take and pay for the subject even if the subject does not have an instructor - such
greed for money on the part of AMECs administration. Take the subject Anatomy: students would pay for the subject
upon enrolment because it is offered by the school. However there would be no instructor for such subject. Students
would be informed that course would be moved to a later date because the school is still searching for the appropriate
instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past few
years since its inception because of funds support from foreign foundations. If you will take a look at the AMEC premises
youll find out that the names of the buildings there are foreign soundings. There is a McDonald Hall. Why not Jose Rizal or
Bonifacio Hall? That is a very concrete and undeniable evidence that the support of foreign foundations for AMEC is
substantial, isnt it? With the report which is the basis of the expose in DZRC today, it would be very easy for detractors
and enemies of the Ago family to stop the flow of support of foreign foundations who assist the medical school on the
basis of the latters purpose. But if the purpose of the institution (AMEC) is to deceive students at cross purpose with its
reason for being it is possible for these foreign foundations to lift or suspend their donations temporarily. [8]
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of
Mass Communication in their effort to minimize expenses in terms of salary are absorbing or continues to accept
rejects. For example how many teachers in AMEC are former teachers of Aquinas University but were removed because

of immorality? Does it mean that the present administration of AMEC have the total definite moral foundation from catholic
administrator of Aquinas University. I will prove to you my friends, that AMEC is a dumping ground, garbage, not
merely of moral and physical misfits. Probably they only qualify in terms of intellect. The Dean of Student Affairs of
AMEC is Justita Lola, as the family name implies. She is too old to work, being an old woman. Is the AMEC administration
exploiting the very [e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just patiently making
use of Dean Justita Lola were if she is very old. As in atmospheric situation zero visibility the plane cannot land, meaning
she is very old, low pay follows. By the way, Dean Justita Lola is also the chairman of the committee on scholarship in
AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this
mean? Immoral and physically misfits as teachers.
May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are
too old. As an aviation, your case is zero visibility. Dont insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason is
practical cost saving in salaries, because an old person is not fastidious, so long as she has money to buy the ingredient
of beetle juice. The elderly can get by thats why she (Lola) was taken in as Dean.
xxx
xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by
evil. When they become members of society outside of campus will be liabilities rather than assets. What do you
expect from a doctor who while studying at AMEC is so much burdened with unreasonable imposition? What do you
expect from a student who aside from peculiar problems because not all students are rich in their struggle to improve their
social status are even more burdened with false regulations. xxx [9] (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI, Rima
and Alegre transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation. AMEC and
Ago included FBNI as defendant for allegedly failing to exercise due diligence in the selection and supervision of its
employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer [10] alleging that the broadcasts
against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public duty
to report the goings-on in AMEC, [which is] an institution imbued with public interest.
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, collaborating
counsel of Atty. Lozares, filed a Motion to Dismiss [11] on FBNIs behalf. The trial court denied the motion to dismiss.
Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the selection and supervision of
Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an application; (2) be
interviewed; and (3) undergo an apprenticeship and training program after passing the interview. FBNI likewise claimed
that it always reminds its broadcasters to observe truth, fairness and objectivity in their broadcasts and to refrain from
using libelous and indecent language. Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga
Brodkaster sa Pilipinas (KBP) accreditation test and to secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision [12] finding FBNI and Alegre liable for libel except Rima. The
trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters claim that their utterances
were the result of straight reporting because it had no factual basis. The broadcasters did not even verify their reports
before airing them to show good faith. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise
diligence in the selection and supervision of its employees.
In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed with
Alegres expos. The trial court found Rimas statement within the bounds of freedom of speech, expression, and of the
press. The dispositive portion of the decision reads:
WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by
the controversial utterances, which are not found by this court to be really very serious and damaging, and there
being no showing that indeed the enrollment of plaintiff school dropped, defendants Hermogenes Jun Alegre, Jr.

and Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly and severally ordered to pay
plaintiff Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the amount
of P300,000.00 moral damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of suit.
SO ORDERED. [13] (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision
to the Court of Appeals. The Court of Appeals affirmed the trial courts judgment with modification. The appellate court
made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos claim for damages and attorneys fees
because the broadcasts were directed against AMEC, and not against her. The dispositive portion of the Court of Appeals
decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel Rima
is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.[14]
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000
Resolution.
Hence, FBNI filed this petition.[15]
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and that FBNI,
Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found Rima and Alegres claim
that they were actuated by their moral and social duty to inform the public of the students gripes as insufficient to justify
the utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that the
broadcasts were made with reckless disregard as to whether they were true or false. The appellate court pointed out that
FBNI, Rima and Alegre failed to present in court any of the students who allegedly complained against AMEC. Rima and
Alegre merely gave a single name when asked to identify the students. According to the Court of Appeals, these
circumstances cast doubt on the veracity of the broadcasters claim that they were impelled by their moral and social duty
to inform the public about the students gripes.
The Court of Appeals found Rima also liable for libel since he remarked that (1) AMEC-BCCM is a dumping ground
for morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize expenses on
its employees salaries; and (3) AMEC burdened the students with unreasonable imposition and false regulations. [16]
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its employees
for allowing Rima and Alegre to make the radio broadcasts without the proper KBP accreditation. The Court of Appeals
denied Agos claim for damages and attorneys fees because the libelous remarks were directed against AMEC, and not
against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages,
attorneys fees and costs of suit.
Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES,
ATTORNEYS FEES AND COSTS OF SUIT.

The Courts Ruling


We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against AMEC.
While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint reveals that AMECs
cause of action is based on Articles 30 and 33 of the Civil Code. Article 30 [18] authorizes a separate civil action to recover
civil liability arising from a criminal offense. On the other hand, Article 33 [19] particularly provides that the injured party may
bring a separate civil action for damages in cases of defamation, fraud, and physical injuries. AMEC also invokes Article
19[20] of the Civil Code to justify its claim for damages. AMEC cites Articles 2176 [21] and 2180[22] of the Civil Code to hold
FBNI solidarily liable with Rima and Alegre.
[17]

I.
Whether the broadcasts are libelous
A libel[23] is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or
omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical
person, or to blacken the memory of one who is dead. [24]
There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending
to cause it dishonor, discredit and contempt. Rima and Alegres remarks such as greed for money on the part of AMECs
administrators; AMEC is a dumping ground, garbage of xxx moral and physical misfits; and AMEC students who graduate
will be liabilities rather than assets of the society are libelous per se. Taken as a whole, the broadcasts suggest that AMEC
is a money-making institution where physically and morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly
impelled by their civic duty to air the students gripes. FBNI alleges that there is no evidence that ill will or spite motivated
Rima and Alegre in making the broadcasts. FBNI further points out that Rima and Alegre exerted efforts to obtain AMECs
side and gave Ago the opportunity to defend AMEC and its administrators. FBNI concludes that since there is no malice,
there is no libel.
FBNIs contentions are untenable.
Every defamatory imputation is presumed malicious. [25] Rima and Alegre failed to show adequately their good
intention and justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public affairs
program, Rima and Alegre should have presented the public issues free from inaccurate and misleading information.
[26]
Hearing the students alleged complaints a month before the expos, [27] they had sufficient time to verify their sources
and information. However, Rima and Alegre hardly made a thorough investigation of the students alleged gripes. Neither
did they inquire about nor confirm the purported irregularities in AMEC from the Department of Education, Culture and
Sports. Alegre testified that he merely went to AMEC to verify his report from an alleged AMEC official who refused to
disclose any information. Alegre simply relied on the words of the students because they were many and not because
there is proof that what they are saying is true. [28] This plainly shows Rima and Alegres reckless disregard of whether their
report was true or not.
Contrary to FBNIs claim, the broadcasts were not the result of straight reporting. Significantly, some courts in the
United States apply the privilege of neutral reportage in libel cases involving matters of public interest or public figures.
Under this privilege, a republisher who accurately and disinterestedly reports certain defamatory statements made against
public figures is shielded from liability, regardless of the republishers subjective awareness of the truth or falsity of the
accusation.[29] Rima and Alegre cannot invoke the privilege of neutral reportage because unfounded comments abound in
the broadcasts. Moreover, there is no existing controversy involving AMEC when the broadcasts were made. The privilege
of neutral reportage applies where the defamed person is a public figure who is involved in an existing controversy, and a
party to that controversy makes the defamatory statement. [30]
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of Appeals,
FBNI contends that the broadcasts fall within the coverage of qualifiedly privileged communications for being
commentaries on matters of public interest. Such being the case, AMEC should prove malice in fact or actual malice.
Since AMEC allegedly failed to prove actual malice, there is no libel.
[31]

FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine of fair comment, thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or
slander. The doctrine of fair comment means that while in general every discreditable imputation publicly made is deemed

false, because every man is presumed innocent until his guilt is judicially proved, and every false imputation is deemed
malicious, nevertheless, when the discreditable imputation is directed against a public person in his public capacity, it is
not necessarily actionable. In order that such discreditable imputation to a public official may be actionable, it must
either be a false allegation of fact or a comment based on a false supposition. If the comment is an expression of
opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might
reasonably be inferred from the facts.[32] (Emphasis supplied)
True, AMEC is a private learning institution whose business of educating students is genuinely imbued with public
interest. The welfare of the youth in general and AMECs students in particular is a matter which the public has the right to
know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts dealt with matters of public interest.
However, unlike inBorjal, the questioned broadcasts are not based on established facts. The record supports the
following findings of the trial court:
xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff, yet,
defendants have not presented in court, nor even gave name of a single student who made the complaint to them, much
less present written complaint or petition to that effect. To accept this defense of defendants is too dangerous because it
could easily give license to the media to malign people and establishments based on flimsy excuses that there were
reports to them although they could not satisfactorily establish it. Such laxity would encourage careless and irresponsible
broadcasting which is inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not
verify and analyze the truth of the reports before they aired it, in order to prove that they are in good faith.
Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet, plaintiff
produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before the controversial
broadcast, accreditation to offer Physical Therapy course had already been given the plaintiff, which certificate is signed
by no less than the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants
could have easily known this were they careful enough to verify. And yet, defendants were very categorical and sounded
too positive when they made the erroneous report that plaintiff had no permit to offer Physical Therapy courses which they
were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not to
be true also. The truth is there is no Mcdonald Foundation existing. Although a big building of plaintiff school was given the
name Mcdonald building, that was only in order to honor the first missionary in Bicol of plaintiffs religion, as explained by
Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single centavo appears to be received by plaintiff
school from the aforementioned McDonald Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in
one subject, they are made to repeat all the other subject[s], even those they have already passed, nor their claim that the
school charges laboratory fees even if there are no laboratories in the school. No evidence was presented to prove the
bases for these claims, at least in order to give semblance of good faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out Dean
Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was
found to be 75 years old. xxx Even older people prove to be effective teachers like Supreme Court Justices who are still
very much in demand as law professors in their late years. Counsel for defendants is past 75 but is found by this court to
be still very sharp and effective. So is plaintiffs counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile.
The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere conclusion. Being
from the place himself, this court is aware that majority of the medical graduates of plaintiffs pass the board examination
easily and become prosperous and responsible professionals.[33]
Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion
happens to be mistaken, as long as it might reasonably be inferred from the facts. [34] However, the comments of Rima and
Alegre were not backed up by facts. Therefore, the broadcasts are not privileged and remain libelous per se.
The broadcasts also violate the Radio Code [35] of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. (Radio Code).
Item I(B) of the Radio Code provides:

B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES


1. x x x
4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and
misleading information. x x x Furthermore, the station shall strive to present balanced discussion of
issues. x x x.
xxx
7. The station shall be responsible at all times in the supervision of public affairs, public issues and commentary
programs so that they conform to the provisions and standards of this code.
8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest,
general welfare and good order in the presentation of public affairs and public issues. [36](Emphasis supplied)
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct
governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct imposed by the
radio broadcast industry on its own members. The Radio Code is a public warranty by the radio broadcast industry that
radio broadcast practitioners are subject to a code by which their conduct are measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their
profession, just like other professionals. A professional code of conduct provides the standards for determining whether a
person has acted justly, honestly and with good faith in the exercise of his rights and performance of his duties as required
by Article 19[37] of the Civil Code. A professional code of conduct also provides the standards for determining whether a
person who willfully causes loss or injury to another has acted in a manner contrary to morals or good customs under
Article 21[38] of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a corporation. [39]
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. [40] The Court
of Appeals cites Mambulao Lumber Co. v. PNB, et al.[41] to justify the award of moral damages. However, the Courts
statement inMambulao that a corporation may have a good reputation which, if besmirched, may also be a ground for the
award of moral damages is an obiter dictum.[42]
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 [43] of the Civil Code. This provision
expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article
2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a
corporation can validly complain for libel or any other form of defamation and claim for moral damages. [44]
Moreover, where the broadcast is libelous per se, the law implies damages.[45] In such a case, evidence of an honest
mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. [46] Neither in such a
case is the plaintiff required to introduce evidence of actual damages as a condition precedent to the recovery of some
damages.[47] In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the
broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its reputation. Therefore,
we reduce the award of moral damages from P300,000 to P150,000.

III.
Whether the award of attorneys fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys fees.
FBNI adds that the instant case does not fall under the enumeration in Article 2208 [48] of the Civil Code.

The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys fees.
AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover, both the trial and appellate courts failed
to explicitly state in their respective decisions the rationale for the award of attorneys fees. [49] In Inter-Asia Investment
Industries, Inc. v. Court of Appeals,[50] we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and
counsels fees are not to be awarded every time a party wins a suit. The power of the court to award attorneys fees
under Article 2208 of the Civil Code demands factual, legal and equitable justification, without which the award is
a conclusion without a premise, its basis being improperly left to speculation and conjecture. In all events, the
court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the legal reason for the
award of attorneys fees.[51](Emphasis supplied)
While it mentioned about the award of attorneys fees by stating that it lies within the discretion of the court and
depends upon the circumstances of each case, the Court of Appeals failed to point out any circumstance to justify the
award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre
for moral damages, attorneys fees
and costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys fees
because it exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI
maintains that its broadcasters, including Rima and Alegre, undergo a very regimented process before they are allowed to
go on air. Those who apply for broadcaster are subjected to interviews, examinations and an apprenticeship program.
FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster. FBNI
points out that the minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove that FBNI did
not exercise the diligence of a good father of a family in selecting and supervising them. Rimas accreditation lapsed due
to his non-payment of the KBP annual fees while Alegres accreditation card was delayed allegedly for reasons attributable
to the KBP Manila Office. FBNI claims that membership in the KBP is merely voluntary and not required by any law or
government regulation.
FBNIs arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they
commit.[52] Joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance,
cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit. [53] Thus,
AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from
the libelous broadcasts. As stated by the Court of Appeals, recovery for defamatory statements published by radio or
television may be had from the owner of the station, a licensee, the operator of the station, or a person who procures,
or participates in, the making of the defamatory statements. [54] An employer and employee are solidarily liable for a
defamatory statement by the employee within the course and scope of his or her employment, at least when the employer
authorizes or ratifies the defamation. [55] In this case, Rima and Alegre were clearly performing their official duties as hosts
of FBNIs radio program Expos when they aired the broadcasts. FBNI neither alleged nor proved that Rima and Alegre
went beyond the scope of their work at that time. There was likewise no showing that FBNI did not authorize and ratify the
defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in
the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely showed that it exercised
diligence in the selection of its broadcasters without introducing any evidence to prove that it observed the same
diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised diligence in supervising its
broadcasters. FBNIs alleged constant reminder to its broadcasters to observe truth, fairness and objectivity and to refrain
from using libelous and indecent language is not enough to prove due diligence in the supervision of its broadcasters.
Adequate training of the broadcasters on the industrys code of conduct, sufficient information on libel laws, and
continuous evaluation of the broadcasters performance are but a few of the many ways of showing diligence in the
supervision of broadcasters.
FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in mind
their qualifications. However, no clear and convincing evidence shows that Rima and Alegre underwent FBNIs regimented
process of application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP accreditation,

[56]

which is one of FBNIs requirements before it hires a broadcaster. Significantly, membership in the KBP, while voluntary,
indicates the broadcasters strong commitment to observe the broadcast industrys rules and regulations. Clearly, these
circumstances show FBNIs lack of diligence in selecting and supervising Rima and Alegre. Hence, FBNI is solidarily liable
to pay damages together with Rima and Alegre.
WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26
January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral
damages is reduced from P300,000 to P150,000 and the award of attorneys fees is deleted. Costs against petitioner.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.

[1]

Under Rule 45 of the 1997 Rules of Civil Procedure.

[2]

Penned by Associate Justice Oswaldo D. Agcaoili, with Associate Justices Corona Ibay-Somera and Mariano M. Umali
concurring.

[3]

Penned by Judge Antonio A. Arcangel.

[4]

As AMEC and Ago alleged in their Memorandum in the trial court. Records, p. 243.

[5]

Alegre substituted Larry (Plaridel) Brocales who was absent then.

[6]

Records, p. 2.

[7]

Docketed as Civil Case No. 8236.

[8]

Exhibit A-2, Exhibits Folder, pp. 21-22.

[9]

Exhibit A-3, Exhibits Folder, pp. 23-25.

[10]

Records, pp. 28-30.

[11]

Ibid., pp. 147-155.

[12]

Rollo, pp. 52-68.

[13]

Ibid., pp. 67-68.

[14]

Ibid., p. 48.

[15]

Rima and Alegre did not join the instant petition.

[16]

Rollo, p. 45.

[17]

In Lopez, etc., et al. v. CA, et al., 145 Phil. 219 (1970), the Court stated the following:
It was held in Lu Chu Sing v. Lu Tiong Gui, that the repeal of the old Libel Law (Act No. 277) did not abolish
the civil action for libel. A libel was defined in that Act as a malicious defamation, expressed either in writing,
printing, or by signs or pictures, or the like, ***, tending to blacken the memory of one who is dead or to impeach
the honesty, virtue, or reputation, or publish the alleged or natural defects of one who is alive, and thereby expose
him to public hatred, contempt, or ridicule. There was an express provision in such legislation for a tort or quasidelict action arising from libel. There is reinforcement to such a view in the new Civil Code providing for the
recovery of moral damages for libel, slander or any other form of defamation. (Emphasis supplied)

[18]

Art. 30. When a separate civil action is brought to demand civil liability arising from a criminal offense, and no criminal
proceedings are instituted during the pendency of the civil case, a preponderance of evidence shall likewise be
sufficient to prove the act complained of.

[19]

Art. 33. In cases of defamation, fraud, and physical injuries, a civil action for damages, entirely separate and distinct
from the criminal action, may be brought by the injured party. Such civil action shall proceed independently of the
criminal prosecution, and shall require only a preponderance of evidence.

[20]

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.

[21]

Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for
the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of this Chapter.

[22]

Art. 2180. The obligation imposed by article 2176 is demandable not only for ones own acts or omissions, but also for
those of persons for whom one is responsible.
xxx
The owners and managers of an establishment or enterprise are likewise responsible for damages
caused by their employees in the service of the branches in which the latter are employed or on the occasion of
their functions.
Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged in any business or industry.
xxx

[23]

Should be difamacin as stated in Lu Chu Sing and Lu Tian Chiong v. Lu Tiong Gui, 76 Phil. 669 (1946).

[24]

Article 353 of the Revised Penal Code.

[25]

Article 354 of the Revised Penal Code provides:

Art. 354. Requirement of publicity. Every defamatory imputation is presumed to be malicious, even if it be true, if no good
intention and justifiable motive for making it is shown, except in the following cases:
1. A private communication made by any person to another in the performance of any legal, moral or social duty; and
2. A fair and true report, made in good faith, without any comments or remarks, of any judicial, legislative or other
official proceedings which are not of confidential nature, or of any statement, report or speech delivered in said
proceedings, or of any other act performed by public officers in the exercise of their functions.
[26]

Radio Code of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink., Exhibit 4.

[27]

TSN, 22 April 1991, pp. 15, 18-19. Rima, however, testified that he and Alegre made the exposs after three or four days
from the time the students approached them. (TSN, 26 September 1992, pp. 47-48).

[28]

TSN, 22 April 1991, p. 18.

[29]

50 Am Jur. 2d, Libel and Slander 313.

[30]

Ibid.

[31]

361 Phil. 1 (1999).

[32]

Ibid.

[33]

Rollo, pp. 65-67.

[34]

Borjal v. Court of Appeals, supra note 31.

[35]

1989 Revised Edition, Exhibit 4.

[36]

Ibid.

[37]

Supra note 20.

[38]

Article 21 of the Civil Code provides: 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.

[39]

Rollo, p. 28.

[40]

People v. Manero, Jr., G.R. Nos. 86883-85, 29 January 1993, 218 SCRA 85.

[41]

130 Phil. 366 (1968). See also People v. Manero, Jr., G.R. Nos. 86883-85, 29 January 1993, 218 SCRA 85.

[42]

ABS-CBN Broadcasting Corp. v. CA, 361 Phil. 499 (1999).

[43]

Article 2219(7) of the Civil Code provides: Moral damages may be recovered in the following and analogous cases: x x
x (7) Libel, slander or any other form of defamation; x x x.

[44]

See Yap, et al. v. Carreon, 121 Phil. 883 (1965), where the appellants included Philippine Harvardian College which
was an educational institution.

[45]

See Phee v. La Vanguardia, 45 Phil. 211 (1923). See also Jimenez v. Reyes, 27 Phil. 52 (1914).

[46]

Phee v. La Vanguardia, 45 Phil. 211 (1923).

[47]

Ibid. Article 2216 of the Civil Code also provides that No proof of pecuniary loss is necessary in order that moral, xxx
damages may be adjudicated. The assessment of such damages, except liquidated ones, is left to the discretion
of the court, according to the circumstances of each case.

[48]

Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial costs, cannot be
recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses
to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and
demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmens compensation and employers liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorneys fees and expenses of litigation
should be recovered.

In all cases, the attorneys fees and expenses of litigation must be reasonable.
[49]

Koa v. Court of Appeals, G.R. No. 84847, 5 March 1993, 219 SCRA 541 citing Central Azucarera de Bais v. Court of
Appeals, G.R. No. 87597, 3 August 1990, 188 SCRA 328. See also Abrogar v. Intermediate Appellate Court, No.
L-67970, 15 January 1988, 157 SCRA 57.

[50]

G.R. No. 125778, 10 June 2003, 403 SCRA 452.

[51]

Ibid. See PNB v. CA, 326 Phil. 504 (1996). See also ABS-CBN Broadcasting Corp. v. CA, 361 Phil. 499 (1999).

[52]

Worcester v. Ocampo, 22 Phil. 42 (1912).

[53]

Ibid.

[54]

50 Am. Jur. 2d, Libel and Slander 370.

[55]

Ibid., 358.

[56]

Rollo, p. 31.

CASE 12
THIRD DIVISION
MANILA ELECTRIC COMPANY,
Petitioners,

G.R. No. 131723


Present:

- versus YNARES-SANTIAGO, J.,


Chairperson,

T.E.A.M. ELECTRONICS CORPORATION,


TECHNOLOGY ELECTRONICS ASSEMBLY
and MANAGEMENT PACIFIC
CORPORATION; and ULTRA ELECTRONICS
INSTRUMENTS, INC.,
Respondents.

AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
Promulgated:
December 13, 2007

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal of the
Decision[1] of the Court of Appeals (CA) dated June 18, 1997and its Resolution [2] dated December 3, 1997 in CA-G.R. CV
No. 40282 denying the appeal filed by petitioner Manila Electric Company.

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

Petitioner and NS Electronics (Philippines), Inc., the predecessor-in-interest of respondent TEC, were parties to
two separate contracts denominated as Agreements for the Sale of Electric Energy under the following account numbers:
09341-1322-16[3] and 09341-1812-13.[4] Under the aforesaid agreements, petitioner undertook to supply TECs building
known as Dyna Craft International Manila (DCIM) located at Electronics Avenue, Food Terminal Complex, Taguig, Metro
Manila, with electric power. Another contract was entered into for the supply of electric power to TECs NS Building under
Account No. 19389-0900-10.
In September 1986, TEC, under its former name National Semi-Conductors (Phils.) entered into a Contract of
Lease[5] with respondent Ultra Electronics Industries, Inc. (Ultra) for the use of the formers DCIM building for a period of
five years or until September 1991. Ultra was, however, ejected from the premises on February 12, 1988 by virtue of a
court order, for repeated violation of the terms and conditions of the lease contract.

On September 28, 1987, a team of petitioners inspectors conducted a surprise inspection of the electric meters
installed at the DCIM building, witnessed by Ultras [6]representative, Mr. Willie Abangan. The two meters covered by
account numbers 09341-1322-16 and 09341-1812-13, were found to be allegedly tampered with and did not register the

actual power consumption in the building. The results of the inspection were reflected in the Service Inspection
Reports[7] prepared by the team.

In a letter dated November 25, 1987, petitioner informed TEC of the results of the inspection and demanded from
the

latter

the

payment

of P7,040,401.01

representing

its

unregistered

consumption

from February

10,

1986 until September 28, 1987, as a result of the alleged tampering of the meters. [8] TEC received the letters on January
7, 1988.Since Ultra was in possession of the subject building during the covered period, TECs Managing Director, Mr.
Bobby Tan, referred the demand letter to Ultra [9] which, in turn, informed TEC that its Executive Vice-President had met
with petitioners representative. Ultra further intimated that assuming that there was tampering of the meters, petitioners
assessment was excessive.[10] For failure of TEC to pay the differential billing, petitioner disconnected the electricity supply
to the DCIM building on April 29, 1988.

TEC demanded from petitioner the reconnection of electrical service, claiming that it had nothing to do with the
alleged tampering but the latter refused to heed the demand. Hence, TEC filed a complaint on May 27, 1988 before the
Energy Regulatory Board (ERB) praying that electric power be restored to the DCIM building. [11] The ERB immediately
ordered the reconnection of the service but petitioner complied with it only on October 12, 1988 after TEC
paid P1,000,000.00, under protest. The complaint before the ERB was later withdrawn as the parties deemed it best to
have the issues threshed out in the regular courts. Prior to the reconnection, or on June 7, 1988, petitioner conducted a
scheduled inspection of the questioned meters and found them to have been tampered anew. [12]
Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in TECs NS Building. The
inspection allegedly revealed that the electric meters were not registering the correct power consumption. Petitioner, thus,
sent a letter dated June 18, 1988 demanding payment of P280,813.72 representing the differential billing. [13] TEC denied
petitioners allegations and claim in a letter dated June 29, 1988.[14] Petitioner, thus, sent TEC another letter demanding
payment of the aforesaid amount, with a warning that the electric service would be disconnected in case of continued
refusal to pay the differential billing. [15] To avert the impending disconnection of electrical service, TEC paid the above
amount, under protest.[16]

On January 13, 1989, TEC and TPC filed a complaint for damages against petitioner and Ultra [17] before the
Regional Trial Court (RTC) of Pasig. The case was raffled to Branch 162 and was docketed as Civil Case No. 56851.
[18]

Upon the filing of the parties answer to the complaint, pre-trial was scheduled.

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


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

2. Whether or not the plaintiff is liable for (sic) the defendant for the differential billings in the
amount of P7,040,401.01.
3. Whether or not the plaintiff is liable to defendant for exemplary damages. [19]

For failure of the parties to reach an amicable settlement, trial on the merits ensued. On June 17, 1992, the trial court
rendered a Decision in favor of respondents TEC and TPC, and against respondent Ultra and petitioner. The pertinent
portion of the decision reads:
WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiffs and against the
defendants as follows:
(1)
Ordering both defendants Meralco and ULTRA Electronics Instruments, Inc. to
jointly and severally reimburse plaintiff TEC actual damages in the amount of ONE
MILLION PESOS with legal rate of interest from the date of the filing of this case
on January 19, 1989 until the said amount shall have been fully paid;
(2)
Ordering defendant Meralco to pay to plaintiff TEC the amount of P280,813.72
as actual damages with legal rate of interest also from January 19, 1989;
(3)
Ordering defendant Meralco to pay to plaintiff TPC the amount of P150,000.00
as actual damages with interest at legal rate from January 19, 1989;
(4)
Condemning defendant Meralco to pay both plaintiffs moral damages in the
amount pf P500,000.00;
(5)
Condemning defendant Meralco to pay both plaintiffs corrective and/or
exemplary damages in the amount of P200,000.00;
(6)
Ordering defendant Meralco to pay attorneys fees in the amount
of P200,000.00
Costs against defendant Meralco.
SO ORDERED.[20]

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

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

WHEREFORE, this Court renders judgment affirming in toto the Decision rendered by the trial
court with the slight modification that the interest at legal rate shall be computed from January 13, 1989
and that Meralco shall pay plaintiff T.E.A.M. Electronics Corporation and Technology Electronics Assembly
and Management Pacific Corporation the sum of P150,000.00 per month for five (5) months for actual
damages incurred when it was compelled to lease a generator set with interest at the legal rate from the
above-stated date.
SO ORDERED.[24]

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

Petitioner now comes before this Court in this petition for review on certiorari contending that:
The Court of Appeals committed grievous errors and decided matters of substance contrary to law and
the rulings of this Honorable Court:
1. In finding that the issue in the case is whether there was deliberate tampering of the metering
installations at the building owned by TEC.
2. In not finding that the issue is: whether or not, based on the tampered meters, whether or not petitioner
is entitled to differential billing, and if so, how much.
3. In declaring that petitioner ME RALCO had the burden of proof to show by clear and convincing
evidence that with respect to the tampered meters that TEC and/or TPC authored their tampering.
4. In finding that petitioner Meralco should not have held TEC and/or TPC responsible for the acts of
Ultra.
5. In finding that TEC should not be held liable for the tampering of this electric meter in its DCIM Building.
6. In finding that there was no notice of disconnection.
7. In finding that petitioner MERALCO was negligent in informing TEC of the alleged tampering.
8. In making the finding that it is difficult to believe that when petitioner MERALCO inspected on June 7,
1988 the meter installations, they were found to be tampered.
9.
meters.

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

10. In finding that the method employed by MERALCO to as certain (sic) the correct amount of
electricity consumed is questionable;
11. In declaring that MERALCO all throughout its dealings with TEC took on an attitude which is
oppressive, wanton and reckless.
12. In declaring that MERALCO acted arbitrarily in inspecting TECs DCIM building and the NS
building.
13. In declaring that respondents TEC and TPC are entitled to the damages which it awarded.
14. In not declaring that petitioner is entitled to the differential bill.
15. In not declaring that respondents are liable to petitioner for exemplary damages, attorneys fee
and expenses for litigation.[25]

The petition must fail.

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

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

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

Looking at the record, we note that petitioner claims to have discovered three incidences of meter-tampering; twice in the
DCIM building on September 28, 1987 and June 7, 1988; and once in the NS building on April 24, 1988.
The first instance was supposedly discovered on September 28, 1987. The inspector allegedly found the presence of a
short circuiting device and saw that the meter seal was deformed. In addition, petitioner, through the Supervising Engineer
of its Special Billing Analysis Department, [27] claimed that there was a sudden and unexplainable drop in TECs electrical
consumption starting February 10, 1986. On the basis of the foregoing, petitioner concluded that the electric meters were
tampered with.
However, contrary to petitioners claim that there was a drastic and unexplainable drop in TECs electric consumption
during the affected period, the Pattern of TECs Electrical Consumption [28] shows that the sudden drop is not peculiar to the
said period. Noteworthy is the observation of the RTC in this wise:
In fact, in Account No. 09341-1812-13 (heretofore referred as Account/Meter No. 2), as evidenced by
Exhibits 35 and 35-A, there was likewise a sudden drop of electrical consumption from the year 1984
which recorded an average 141,300 kwh/month to 1985 which recorded an average kwh/month at 87,600
or a difference-drop of 53,700 kwh/month; from 1985s 87,600 recorded consumption, the same dropped
to 18,600 kwh/month or a difference-drop of 69,000 kwh/month. Surely, a drop of 53,700 could be equally
categorized as a sudden drop amounting to 69,000 which, incidentally, the Meralco claimed as
unexplainable. x x x.[29]

The witnesses for petitioner who testified on the alleged tampering of the electric meters, declared that tampering
is committed by consumers to prevent the meter from registering the correct amount of electric consumption, and result in

a reduced monthly electric bill, while continuing to enjoy the same power supply. Only the registration of actual electric
energy consumption, not the supply of electricity, is affected when a meter is tampered with. [30] The witnesses claimed that
after the inspection, the tampered electric meters were corrected, so that they would register the correct consumption of
TEC. Logically, then, after the correction of the allegedly tampered meters, the customers registered consumption would
go up.

In this case, the period claimed to have been affected by the tampered electric meters is from February 1986 until
September 1987. Based on petitioners Billing Record [31] (for the DCIM building), TECs monthly electric consumption on
Account No. 9341-1322-16 was between 4,500 and 27,000 kwh. [32] Account No. 9341-1812-13 showed a monthly
consumption between 9,600 and 34,200 kwh. [33] It is interesting to note that, after correction of the allegedly tampered
meters, TECs monthly electric consumption from October 1987 to February 1988 (the last month that Ultra occupied the
DCIM building) was between 8,700 and 24,300 kwh in its first account, and 16,200 to 46,800 kwh on the second account.

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

Petitioner likewise claimed that when the subject meters were again inspected on June 7, 1988, they were found
to have been tampered anew. The Court notes that prior to the inspection, TEC was informed about it; and months before
the inspection, there was an unsettled controversy between TEC and petitioner, brought about by the disconnection of
electric power and the non-payment of differential billing. We are more disposed to accept the trial courts conclusion that it
is hard to believe that a customer previously apprehended for tampered meters and assessed P7 million would further
jeopardize itself in the eyes of petitioner.[34] If it is true that there was evidence of tampering found on September 28,
1987 and again on June 7, 1988, the better view would be that the defective meters were not actually corrected after the
first inspection. If so, thenManila Electric Company v. Macro Textile Mills Corporation [35] would apply, where we said that
we cannot sanction a situation wherein the defects in the electric meter are allowed to continue indefinitely until suddenly,
the public utilities demand payment for the unrecorded electricity utilized when they could have remedied the situation
immediately. Petitioners failure to do so may encourage neglect of public utilities to the detriment of the consuming public.
Corollarily, it must be underscored that petitioner has the imperative duty to make a reasonable and proper inspection of
its apparatus and equipment to ensure that they do not malfunction, and the due diligence to discover and repair defects

therein. Failure to perform such duties constitutes negligence. [36] By reason of said negligence, public utilities run the risk
of forfeiting amounts originally due from their customers. [37]
As to the alleged tampering of the electric meter in TECs NS building, suffice it to state that the allegation was not proven,
considering that the meters therein were enclosed in a metal cabinet the metal seal of which was unbroken, with petitioner
having sole access to the said meters.[38]

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

The law in force at the time material to this controversy was Presidential Decree (P.D.) No. 401 [39] issued on March 1,
1974.[40] The decree penalized unauthorized installation of water, electrical or telephone connections and such acts as the
use of tampered electrical meters. It was issued in answer to the urgent need to put an end to illegal activities that
prejudice the economic well-being of both the companies concerned and the consuming public. [41] P.D. 401 granted the
electric companies the right to conduct inspections of electric meters and the criminal prosecution [42] of erring consumers
who were found to have tampered with their electric meters. It did not expressly provide for more expedient remedies
such as the charging of differential billing and immediate disconnection against erring consumers. Thus, electric
companies found a creative way of availing themselves of such remedies by inserting into their service contracts (or
agreements for the sale of electric energy) a provision for differential billing with the option of disconnection upon nonpayment by the erring consumer. The Court has recognized the validity of such stipulations. [43] However, recourse to
differential billing with disconnection was subject to the prior requirement of a 48-hour written notice of disconnection. [44]

Petitioner, in the instant case, resorted to the remedy of disconnection without prior notice. While it is true that petitioner
sent a demand letter to TEC for the payment of differential billing, it did not include any notice that the electric supply
would be disconnected. In fine, petitioner abused the remedies granted to it under P.D. 401 and Revised General Order
No.

by

outrightly

depriving

TEC

of

electrical

services

without

first

notifying

it

of

the

impending

disconnection. Accordingly, the CA did not err in affirming the RTC decision.

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

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

However, despite the appellate courts conclusion that no tampering was committed, it held Ultra solidarily liable with
petitioner for P1,000,000.00, only because the former, as occupant of the building, promised to settle the claims of the
latter. This ruling is erroneous. Ultras promise was conditioned upon the finding of defect or tampering of the meters. It did
not acknowledge any culpability and liability, and absent any tampered meter, it is absurd to make the lawful occupant
liable. It was petitioner who received the P1 million; thus, it alone should be held liable for the return of the amount.
TEC also sufficiently established its claim for the reimbursement of the amount paid as rentals for the generator
set it was constrained to rent by reason of the illegal disconnection of electrical service. The official receipts and purchase
orders submitted by TEC as evidence sufficiently show that such rentals were indeed made. However, the amount
of P150,000.00 per month for five months, awarded by the CA, is excessive. Instead, a total sum of P150,000.00, as
found by the RTC, is proper.

As to the payment of exemplary damages and attorneys fees, we find no cogent reason to disturb the
same. Exemplary damages are imposed by way of example or correction for the public good in addition to moral,
temperate, liquidated, or compensatory damages. [47] In this case, to serve as an example that before a disconnection of
electrical supply can be effected by a public utility, the requisites of law must be complied with we affirm the award
of P200,000.00 as exemplary damages. With the award of exemplary damages, the award of attorneys fees is likewise
proper, pursuant to Article 2208[48] of the Civil Code. It is obvious that TEC needed the services of a lawyer to argue its
cause through three levels of the judicial hierarchy. Thus, the award of P200,000.00 is in order.[49]

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

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

CASE 13

MARISSA R. UNCHUAN,
Petitioner,

G.R. No. 172671


Present:

- versus -

QUISUMBING, J., Chairperson,


CARPIO MORALES,
TINGA,
VELASCO, JR., and
BRION, JJ.

ANTONIO J.P. LOZADA, ANITA LOZADA and Promulgated:


THE REGISTER OF DEEDS OF CEBU CITY,
April 16, 2009

Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
QUISUMBING, J.:

For review are the Decision[1] dated February 23, 2006 and Resolution[2] dated April 12, 2006 of the Court of
Appeals in CA-G.R. CV. No. 73829. The appellate court had affirmed with modification the Order [3] of the Regional Trial
Court (RTC) of Cebu City, Branch 10 reinstating its Decision[4] dated June 9, 1997.
The facts of the case are as follows:
Sisters Anita Lozada Slaughter and Peregrina Lozada Saribay were the registered co-owners of Lot Nos. 898-A-3
and 898-A-4 covered by Transfer Certificates of Title (TCT) Nos. 53258 [5] and 53257[6] in Cebu City.
The sisters, who were based in the United States, sold the lots to their nephew Antonio J.P. Lozada (Antonio)
under a Deed of Sale[7] dated March 11, 1994. Armed with a Special Power of Attorney[8] from Anita, Peregrina went to the
house of their brother, Dr. Antonio Lozada (Dr. Lozada), located at 4356 Faculty Avenue, Long BeachCalifornia.[9] Dr.
Lozada agreed to advance the purchase price of US$367,000 or P10,000,000 for Antonio, his nephew. The Deed of Sale
was later notarized and authenticated at the Philippine Consuls Office. Dr. Lozada then forwarded the deed, special power
of attorney, and owners copies of the titles to Antonio in the Philippines. Upon receipt of said documents, the latter
recorded the sale with the Register of Deeds of Cebu. Accordingly, TCT Nos. 128322[10] and 128323[11] were issued in the
name of Antonio Lozada.
Pending registration of the deed, petitioner Marissa R. Unchuan caused the annotation of an adverse claim on the
lots. Marissa claimed that Anita donated an undivided share in the lots to her under an unregistered Deed of
Donation[12] dated February 4, 1987.
Antonio and Anita brought a case against Marissa for quieting of title with application for preliminary injunction and
restraining order. Marissa for her part, filed an action to declare the Deed of Sale void and to cancel TCT Nos. 128322 and
128323. On motion, the cases were consolidated and tried jointly.
At the trial, respondents presented a notarized and duly authenticated sworn statement, and a videotape where Anita
denied having donated land in favor of Marissa. Dr. Lozada testified that he agreed to advance payment for Antonio in
preparation for their plan to form a corporation. The lots are to be eventually infused in the capitalization of Damasa
Corporation, where he and Antonio are to have 40% and 60% stake, respectively. Meanwhile, Lourdes G. Vicencio, a witness
for respondents confirmed that she had been renting the ground floor of Anitas house since 1983, and tendering rentals to
Antonio.
For her part, Marissa testified that she accompanied Anita to the office of Atty. Cresencio Tomakin for the signing
of the Deed of Donation. She allegedly kept it in a safety deposit box but continued to funnel monthly rentals to Peregrinas
account.
A witness for petitioner, one Dr. Cecilia Fuentes, testified on Peregrinas medical records. According to her
interpretation of said records, it was physically impossible for Peregrina to have signed the Deed of Sale on March 11,
1994, when she was reported to be suffering from edema. Peregrina died on April 4, 1994.

In a Decision dated June 9, 1997, RTC Judge Leonardo B. Caares disposed of the consolidated cases as follows:
WHEREFORE, judgment is hereby rendered in Civil Case No. CEB-16145, to wit:
1. Plaintiff Antonio J.P. Lozada is declared the absolute owner of the properties in question;
2. The Deed of Donation (Exh. 9) is declared null and void, and Defendant Marissa R. Unchuan is
directed to surrender the original thereof to the Court for cancellation;
3. The Register of Deeds of Cebu City is ordered to cancel the annotations of the Affidavit of
Adverse Claim of defendant Marissa R. Unchuan on TCT Nos. 53257 and 53258 and on such all other
certificates of title issued in lieu of the aforementioned certificates of title;
4. Defendant Marissa R. Unchuan is ordered to pay Antonio J.P. Lozada and Anita Lozada
Slaughter the sum of P100,000.00 as moral damages; exemplary damages of P50,000.00;P50,000.00 for
litigation expenses and attorneys fees of P50,000.00; and
5. The counterclaims of defendant Marissa R. Unchuan [are] DISMISSED.
In Civil Case No. CEB-16159, the complaint is hereby DISMISSED.
In both cases, Marissa R. Unchuan is ordered to pay the costs of suit.
SO ORDERED.[13]

On motion for reconsideration by petitioner, the RTC of Cebu City, Branch 10, with Hon. Jesus S. dela Pea as
Acting Judge, issued an Order[14] dated April 5, 1999. Said order declared the Deed of Sale void, ordered the cancellation
of the new TCTs in Antonios name, and directed Antonio to pay Marissa P200,000 as moral damages, P100,000 as
exemplary damages, P100,000 attorneys fees and P50,000 for expenses of litigation. The trial court also declared the
Deed of Donation in favor of Marissa valid. The RTC gave credence to the medical records of Peregrina.
Respondents moved for reconsideration. On July 6, 2000, now with Hon. Soliver C. Peras, as Presiding Judge, the
RTC of Cebu City, Branch 10, reinstated the Decision dated June 9, 1997, but with the modification that the award of damages,
litigation expenses and attorneys fees were disallowed.
Petitioner appealed to the Court of Appeals. On February 23, 2006 the appellate court affirmed with modification
the July 6, 2000 Order of the RTC. It, however, restored the award of P50,000 attorneys fees and P50,000 litigation
expenses to respondents.
Thus, the instant petition which raises the following issues:
I.
WHETHER THE COURT OF APPEALS ERRED AND VIOLATED PETITIONERS RIGHT TO DUE
PROCESS WHEN IT FAILED TO RESOLVE PETITIONERS THIRD ASSIGNED ERROR.
II.
WHETHER THE HONORABLE SUPREME COURT MAY AND SHOULD REVIEW THE CONFLICTING
FACTUAL FINDINGS OF THE HONORABLE REGIONAL TRIAL COURT IN ITS OWN DECISION AND
RESOLUTIONS ON THE MOTIONS FOR RECONSIDERATION, AND THAT OF THE HONORABLE
COURT OF APPEALS.
III.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS CASE
IS BARRED BY LACHES.

IV.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF
DONATION EXECUTED IN FAVOR OF PETITIONER IS VOID.
V.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT ANITA
LOZADAS VIDEOTAPED STATEMENT IS HEARSAY.[15]

Simply stated, the issues in this appeal are: (1) Whether the Court of Appeals erred in upholding the Decision of
the RTC which declared Antonio J.P. Lozada the absolute owner of the questioned properties; (2) Whether the Court of
Appeals violated petitioners right to due process; and (3) Whether petitioners case is barred by laches.
Petitioner contends that the appellate court violated her right to due process when it did not rule on the validity of
the sale between the sisters Lozada and their nephew, Antonio. Marissa finds it anomalous that Dr. Lozada, an American
citizen, had paid the lots for Antonio. Thus, she accuses the latter of being a mere dummy of the former.Petitioner begs
the Court to review the conflicting factual findings of the trial and appellate courts on Peregrinas medical condition
on March 11, 1994 and Dr. Lozadas financial capacity to advance payment for Antonio. Likewise, petitioner assails the
ruling of the Court of Appeals which nullified the donation in her favor and declared her case barred by laches. Petitioner
finally challenges the admissibility of the videotaped statement of Anita who was not presented as a witness.
On their part, respondents pray for the dismissal of the petition for petitioners failure to furnish the Register of
Deeds of Cebu City with a copy thereof in violation of Sections 3 [16] and 4,[17] Rule 45 of the Rules. In addition, they aver
that Peregrinas unauthenticated medical records were merely falsified to make it appear that she was confined in the
hospital on the day of the sale. Further, respondents question the credibility of Dr. Fuentes who was neither presented in
court as an expert witness[18] nor professionally involved in Peregrinas medical care.
Further, respondents impugn the validity of the Deed of Donation in favor of Marissa. They assert that the Court of
Appeals did not violate petitioners right to due process inasmuch as it resolved collectively all the factual and legal issues
on the validity of the sale.
Faithful adherence to Section 14, [19] Article VIII of the 1987 Constitution is indisputably a paramount component of
due process and fair play. The parties to a litigation should be informed of how it was decided, with an explanation of the
factual and legal reasons that led to the conclusions of the court. [20]
In the assailed Decision, the Court of Appeals reiterates the rule that a notarized and authenticated deed of sale
enjoys the presumption of regularity, and is admissible without further proof of due execution. On the basis thereof, it
declared Antonio a buyer in good faith and for value, despite petitioners contention that the sale violates public
policy. While it is a part of the right of appellant to urge that the decision should directly meet the issues presented for
resolution,[21] mere failure by the appellate court to specify in its decision all contentious issues raised by the appellant and
the reasons for refusing to believe appellants contentions is not sufficient to hold the appellate courts decision contrary to
the requirements of the law[22] and the Constitution.[23] So long as the decision of the Court of Appeals contains the
necessary findings of facts to warrant its conclusions, we cannot declare said court in error if it withheld any specific
findings of fact with respect to the evidence for the defense. [24] We will abide by the legal presumption that official duty has
been regularly performed,[25] and all matters within an issue in a case were laid down before the court and were passed
upon by it.[26]

In this case, we find nothing to show that the sale between the sisters Lozada and their nephew Antonio violated the
public policy prohibiting aliens from owning lands in thePhilippines. Even as Dr. Lozada advanced the money for the
payment of Antonios share, at no point were the lots registered in Dr. Lozadas name. Nor was it contemplated that the lots
be under his control for they are actually to be included as capital of Damasa Corporation. According to their agreement,
Antonio and Dr. Lozada are to hold 60% and 40% of the shares in said corporation, respectively. Under Republic Act No.
7042,[27] particularly Section 3,[28] a corporation organized under the laws of the Philippines of which at least 60% of the
capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines, is considered a Philippine
National. As such, the corporation may acquire disposable lands in the Philippines. Neither did petitioner present proof to
belie Antonios capacity to pay for the lots subjects of this case.
Petitioner, likewise, calls on the Court to ascertain Peregrinas physical ability to execute the Deed of Sale on March 11,
1994. This essentially necessitates a calibration of facts, which is not the function of this Court. [29] Nevertheless, we have sifted
through the Decisions of the RTC and the Court of Appeals but found no reason to overturn their factual findings. Both the trial
court and appellate court noted the lack of substantial evidence to establish total impossibility for Peregrina to execute the Deed
of Sale.
In support of its contentions, petitioner submits a copy of Peregrinas medical records to show that she was
confined at the Martin Luther Hospital from February 27, 1994until she died on April 4, 1994. However, a
Certification[30] from Randy E. Rice, Manager for the Health Information Management of the hospital undermines the
authenticity of said medical records. In the certification, Rice denied having certified or having mailed copies of Peregrinas
medical records to the Philippines. As a rule, a document to be admissible in evidence, should be previously
authenticated, that is, its due execution or genuineness should be first shown. [31] Accordingly, the unauthenticated medical
records were excluded from the evidence. Even assuming that Peregrina was confined in the cited hospital, the Deed of
Sale was executed on March 11, 1994, a month before Peregrina reportedly succumbed to Hepato Renal Failure caused
by Septicemia due to Myflodysplastic Syndrome. [32] Nothing in the records appears to show that Peregrina was so
incapacitated as to prevent her from executing the Deed of Sale. Quite the contrary, the records reveal that close to the
date of the sale, specifically on March 9, 1994, Peregrina was even able to issue checks [33] to pay for her attorneys
professional fees and her own hospital bills. At no point in the course of the trial did petitioner dispute this revelation.
Now, as to the validity of the donation, the provision of Article 749 of the Civil Code is in point:
ART. 749. In order that the donation of an immovable may be valid, it must be made in a public
document, specifying therein the property donated and the value of the charges which the donee must
satisfy.
The acceptance may be made in the same deed of donation or in a separate public document,
but it shall not take effect unless it is done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be notified thereof in an
authentic form, and this step shall be noted in both instruments.

When the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract
be proved in a certain way, that requirement is absolute and indispensable.[34] Here, the Deed of Donation does not appear to
be duly notarized. In page three of the deed, the stamped name of Cresencio Tomakin appears above the words Notary
Public until December 31, 1983 but below it were the typewritten words Notary Public until December 31, 1987. A closer
examination of the document further reveals that the number 7 in 1987 and Series of 1987 were merely superimposed.
[35]

This was confirmed by petitioners nephew Richard Unchuan who testified that he saw petitioners husband write 7 over

1983 to make it appear that the deed was notarized in 1987. Moreover, a Certification[36] from Clerk of Court Jeoffrey S.

Joaquino of the Notarial Records Division disclosed that the Deed of Donation purportedly identified in Book No. 4,
Document No. 48, and Page No. 35 Series of 1987 was not reported and filed with said office. Pertinent to this, the Rules
require a party producing a document as genuine which has been altered and appears to have been altered after its
execution, in a part material to the question in dispute, to account for the alteration. He may show that the alteration was
made by another, without his concurrence, or was made with the consent of the parties affected by it, or was otherwise
properly or innocently made, or that the alteration did not change the meaning or language of the instrument. If he fails to do
that, the document shall, as in this case, not be admissible in evidence.[37]
Remarkably, the lands described in the Deed of Donation are covered by TCT Nos. 73645 [38] and 73646,[39] both
of which had been previously cancelled by an Order [40] dated April 8, 1981 in LRC Record No. 5988. We find it equally
puzzling that on August 10, 1987, or six months after Anita supposedly donated her undivided share in the lots to
petitioner, the Unchuan Development Corporation, which was represented by petitioners husband, filed suit to compel the
Lozada sisters to surrender their titles by virtue of a sale. The sum of all the circumstances in this case calls for no other
conclusion than that the Deed of Donation allegedly in favor of petitioner is void. Having said that, we deem it
unnecessary to rule on the issue of laches as the execution of the deed created no right from which to reckon delay in
making any claim of rights under the instrument.
Finally, we note that petitioner faults the appellate court for not excluding the videotaped statement of Anita as
hearsay evidence. Evidence is hearsay when its probative force depends, in whole or in part, on the competency and
credibility of some persons other than the witness by whom it is sought to be produced. There are three reasons for
excluding hearsay evidence: (1) absence of cross-examination; (2) absence of demeanor evidence; and (3) absence of oath.
[41]

It is a hornbook doctrine that an affidavit is merely hearsay evidence where its maker did not take the witness stand.

[42]

Verily, the sworn statement of Anita was of this kind because she did not appear in court to affirm her averments

therein. Yet, a more circumspect examination of our rules of exclusion will show that they do not cover admissions of a party;
[43]

the videotaped statement of Anita appears to belong to this class. Section 26 of Rule 130 provides that the act,

declaration or omission of a party as to a relevant fact may be given in evidence against him. It has long been settled that
these admissions are admissible even if they are hearsay.[44] Indeed, there is a vital distinction between admissions against
interest and declaration against interest.Admissions against interest are those made by a party to a litigation or by one in
privity with or identified in legal interest with such party, and are admissible whether or not the declarant is available as a
witness. Declaration against interest are those made by a person who is neither a party nor in privity with a party to the suit,
are secondary evidence and constitute an exception to the hearsay rule. They are admissible only when the declarant is
unavailable as a witness.[45] Thus, a mans acts, conduct, and declaration, wherever made, if voluntary, are admissible
against him, for the reason that it is fair to presume that they correspond with the truth, and it is his fault if they do not.
[46]

However, as a further qualification, object evidence, such as the videotape in this case, must be authenticated by a

special testimony showing that it was a faithful reproduction.[47] Lacking this, we are constrained to exclude as evidence the
videotaped statement of Anita. Even so, this does not detract from our conclusion concerning petitioners failure to prove, by
preponderant evidence, any right to the lands subject of this case.
Anent the award of moral damages in favor of respondents, we find no factual and legal basis therefor. Moral
damages cannot be awarded in the absence of a wrongful act or omission or fraud or bad faith. When the action is filed in

good faith there should be no penalty on the right to litigate. One may have erred, but error alone is not a ground for moral
damages.[48] The award of moral damages must be solidly anchored on a definite showing that respondents actually
experienced emotional and mental sufferings. Mere allegations do not suffice; they must be substantiated by clear and
convincing proof.[49] As exemplary damages can be awarded only after the claimant has shown entitlement to moral
damages,[50] neither can it be granted in this case.
WHEREFORE, the instant petition is DENIED. The Decision dated February 23, 2006, and Resolution dated April
12, 2006 of the Court of Appeals in CA-G.R. CV. No. 73829 are AFFIRMED with MODIFICATION. The awards of moral
damages and exemplary damages in favor of respondents are deleted. No pronouncement as to costs.
SO ORDERED.

CASE 14

[G.R. No. 124293. September 24, 2003]

JG SUMMIT HOLDINGS, INC., petitioner, vs. COURT OF APPEALS, COMMITTEE ON PRIVATIZATION, its
Chairman and Members; ASSET PRIVATIZATION TRUST and PHILYARDS HOLDINGS, INC., respondents.
RESOLUTION
PUNO, J.:
The core issue posed by the Motions for Reconsideration is whether a shipyard is a public utility whose capitalization
must be sixty percent (60%) owned by Filipinos. Our resolution of this issue will determine the fate of the shipbuilding and
ship repair industry. It can either spell the industrys demise or breathe new life to the struggling but potentially healthy
partner in the countrys bid for economic growth. It can either kill an initiative yet in its infancy, or harness creativity in the
productive disposition of government assets.

The facts are undisputed and can be summarized briefly as follows:


On January 27, 1977, the National Investment and Development Corporation (NIDC), a government corporation,
entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the
construction, operation and management of the Subic National Shipyard, Inc. (SNS) which subsequently became the
Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will
contribute P330 million for the capitalization of PHILSECO in the proportion of 60%-40% respectively. [1] One of its salient
features is the grant to the parties of the right of first refusal should either of them decide to sell, assign or transfer its
interest in the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any third party without
giving the other under the same terms the right of first refusal. This provision shall not apply if the transferee is a
corporation owned or controlled by the GOVERNMENT or by a KAWASAKI affiliate. [2]
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the Philippine National Bank
(PNB). Such interests were subsequently transferred to the National Government pursuant to Administrative Order No. 14.
On December 8, 1986, President Corazon C. Aquino issued Proclamation No. 50 establishing the Committee on
Privatization (COP) and the Asset Privatization Trust (APT) to take title to, and possession of, conserve, manage and
dispose of non-performing assets of the National Government.Thereafter, on February 27, 1987, a trust agreement was
entered into between the National Government and the APT wherein the latter was named the trustee of the National
Governments share in PHILSECO. In 1989, as a result of a quasi-reorganization of PHILSECO to settle its huge
obligations to PNB, the National Governments shareholdings in PHILSECO increased to 97.41% thereby reducing
KAWASAKIs shareholdings to 2.59%.[3]
In the interest of the national economy and the government, the COP and the APT deemed it best to sell the National
Governments share in PHILSECO to private entities. After a series of negotiations between the APT and KAWASAKI, they
agreed that the latters right of first refusal under the JVA be exchanged for the right to top by five percent (5%) the highest
bid for the said shares. They further agreed that KAWASAKI would be entitled to name a company in which it was a
stockholder, which could exercise the right to top. On September 7, 1990, KAWASAKI informed APT that Philyards
Holdings, Inc. (PHI) would exercise its right to top.[4]
At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of the JVA between
NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for the National Governments 87.6%
equity share in PHILSECO.[5] The provisions of the ASBR were explained to the interested bidders who were notified that
the bidding would be held on December 2, 1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National Governments equity in
PHILSECO consisting of 896,869,942 shares of stock (representing 87.67% of PHILSECOs outstanding capital stock),
which will be sold as a whole block in accordance with the rules herein enumerated.
...
2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT Board of Trustees and the
Committee on Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the National Governments
87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION (P1,300,000,000.00).
...
6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting following the bidding, for
the purpose of determining whether or not it should be endorsed by the APT Board of Trustees to the COP, and the latter
approves the same. The APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, Philyards Holdings, Inc.,
that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or Philyards Holdings,
Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such advice from APT within which to
exercise their Option to Top the Highest Bid by offering a bid equivalent to the highest bid plus five (5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. exercise their Option to Top the Highest Bid,
they shall so notify the APT about such exercise of their option and deposit with APT the amount equivalent to ten percent

(10%) of the highest bid plus five percent (5%) thereof within the thirty (30)-day period mentioned in paragraph 6.0 above.
APT will then serve notice upon Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. declaring them as the
preferred bidder and they shall have a period of ninety (90) days from the receipt of the APTs notice within which to pay
the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. fail to exercise their Option to Top the Highest
Bid within the thirty (30)-day period, APT will declare the highest bidder as the winning bidder.
...
12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the official bid forms, including
any addenda or amendments thereto issued during the bidding period. The bidder shall likewise be responsible for
informing itself with respect to any and all conditions concerning the PHILSECO Shares which may, in any manner, affect
the bidders proposal. Failure on the part of the bidder to so examine and inform itself shall be its sole risk and no relief for
error or omission will be given by APT or COP. . ..[6]
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. submitted a bid of Two Billion and Thirty
Million Pesos (P2,030,000,000.00) with an acknowledgement of KAWASAKI/Philyards right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on APTs recommendation
based on the result of this bidding. Should the COP approve the highest bid, APT shall advise Kawasaki Heavy Industries,
Inc. and/or its nominee, Philyards Holdings, Inc. that the highest bid is acceptable to the National Government. Kawasaki
Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of
receipt of such advice from APT within which to exercise their Option to Top the Highest Bid by offering a bid equivalent to
the highest bid plus five (5%) percent thereof.[7]
As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993 subject to the right
of Kawasaki Heavy Industries, Inc./Philyards Holdings, Inc. to top JGSMIs bid by 5% as specified in the bidding rules. [8]
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its bid on the grounds
that: (a) the KAWASAKI/PHI consortium composed of Kawasaki, Philyards, Mitsui, Keppel, SM Group, ICTSI and Insular
Life violated the ASBR because the last four (4) companies were the losing bidders thereby circumventing the law and
prejudicing the weak winning bidder; (b) only KAWASAKI could exercise the right to top; (c) giving the same option to top
to PHI constituted unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a public bidding or
auction sale; and (e) the JG Summit consortium was not estopped from questioning the proceedings. [9]
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase price of the subject
bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised its option to top the highest bid and that
the COP had approved the same on January 6, 1994. On February 24, 1994, the APT and PHI executed a Stock
Purchase Agreement.[10] Consequently, petitioner filed with this Court a Petition for Mandamus under G.R. No. 114057. On
May 11, 1994, said petition was referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied the same
for lack of merit. It ruled that the petition for mandamus was not the proper remedy to question the constitutionality or
legality of the right of first refusal and the right to top that was exercised by KAWASAKI/PHI, and that the matter must be
brought by the proper party in the proper forum at the proper time and threshed out in a full blown trial. The Court of
Appeals further ruled that the right of first refusal and the right to top are prima facie legal and that the petitioner, by
participating in the public bidding, with full knowledge of the right to top granted to KASAWASAKI/Philyards is . . .estopped
from questioning the validity of the award given to Philyards after the latter exercised the right to top and had paid in full
the purchase price of the subject shares, pursuant to the ASBR. Petitioner filed a Motion for Reconsideration of said
Decision which was denied on March 15, 1996. Petitioner thus filed a Petition for Certiorari with this Court alleging grave
abuse of discretion on the part of the appellate court. [11]
On November 20, 2000, this Court rendered the now assailed Decision ruling among others that the Court of Appeals
erred when it dismissed the petition on the sole ground of the impropriety of the special civil action of mandamus because
the petition was also one of certiorari.[12] It further ruled that a shipyard like PHILSECO is a public utility whose
capitalization must be sixty percent (60%) Filipino-owned. [13] Consequently, the right to top granted to KAWASAKI under
the Asset Specific Bidding Rules (ASBR) drafted for the sale of the 87.67% equity of the National Government in
PHILSECO is illegal---not only because it violates the rules on competitive bidding--- but more so, because it allows
foreign corporations to own more than 40% equity in the shipyard. [14] It also held that although the petitioner had the
opportunity to examine the ASBR before it participated in the bidding, it cannot be estopped from questioning the
unconstitutional, illegal and inequitable provisions thereof. [15] Thus, this Court voided the transfer of the national
governments 87.67% share in PHILSECO to Philyard Holdings, Inc., and upheld the right of JG Summit, as the highest
bidder, to take title to the said shares, viz:

WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and Resolution of the
Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its bid price of Two Billion Thirty
Million Pesos (P2,030,000,000.00 ), less its bid deposit plus interests upon the finality of this Decision. In turn, APT is
ordered to:
(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6% of PHILSECOs
total capitalization;
(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One Million Five
Hundred Thousand Pesos (P2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.
SO ORDERED.[16]
In separate Motions for Reconsideration,[17] respondents submit three basic issues for our resolution: (1) Whether
PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI can exercise its right of first refusal only up to
40% of the total capitalization of PHILSECO; and (3) Whether the right to top granted to KAWASAKI violates the principles
of competitive bidding.

I.
Whether PHILSECO is a Public Utility.
After carefully reviewing the applicable laws and jurisprudence, we hold that PHILSECO is not a public utility for the
following reasons:
First. By nature, a shipyard is not a public utility.
A public utility is a business or service engaged in regularly supplying the public with some commodity or service of
public consequence such as electricity, gas, water, transportation, telephone or telegraph service. [18] To constitute a public
utility, the facility must be necessary for the maintenance of life and occupation of the residents. However, the fact that a
business offers services or goods that promote public good and serve the interest of the public does not automatically
make it a public utility. Public use is not synonymous with public interest. As its name indicates, the term public utility
implies public use and service to the public. The principal determinative characteristic of a public utility is that of
service to, or readiness to serve, an indefinite public or portion of the public as such which has a legal right to demand
and receive its services or commodities. Stated otherwise, the owner or person in control of a public utility must have
devoted it to such use that the public generally or that part of the public which has been served and has accepted the
service, has the right to demand that use or service so long as it is continued, with reasonable efficiency and under proper
charges.[19] Unlike a private enterprise which independently determines whom it will serve, a public utility holds out
generally and may not refuse legitimate demand for service. [20] Thus, in Iloilo Ice and Cold Storage Co. vs. Public
Utility Board,[21] this Court defined public use, viz:
Public use means the same as use by the public. The essential feature of the public use is that it is not confined to
privileged individuals, but is open to the indefinite public. It is this indefinite or unrestricted quality that gives it its public
character. In determining whether a use is public, we must look not only to the character of the business to be done, but
also to the proposed mode of doing it. If the use is merely optional with the owners, or the public benefit is merely
incidental, it is not a public use, authorizing the exercise of jurisdiction of the public utility commission. There must be, in
general, a right which the law compels the owner to give to the general public. It is not enough that the general prosperity
of the public is promoted. Public use is not synonymous with public interest. The true criterion by which to judge the
character of the use is whether the public may enjoy it by right or only by permission. [22] (emphasis supplied)
Applying the criterion laid down in Iloilo to the case at bar, it is crystal clear that a shipyard cannot be considered a
public utility.

A shipyard is a place or enclosure where ships are built or repaired. [23] Its nature dictates that it serves but a limited
clientele whom it may choose to serve at its discretion. While it offers its facilities to whoever may wish to avail of its
services, a shipyard is not legally obliged to render its services indiscriminately to the public. It has no legal
obligation to render the services sought by each and every client. The fact that it publicly offers its services does not give
the public a legal right to demand that such services be rendered.
There can be no disagreement that the shipbuilding and ship repair industry is imbued with public interest as it
involves the maintenance of the seaworthiness of vessels dedicated to the transportation of either persons or goods.
Nevertheless, the fact that a business is affected with public interest does not imply that it is under a duty to serve the
public. While the business may be regulated for public good, the regulation cannot justify the classification of a purely
private enterprise as a public utility. The legislature cannot, by its mere declaration, make something a public utility which
is not in fact such; and a private business operated under private contracts with selected customers and not
devoted to public use cannot, by legislative fiat or by order of a public service commission, be declared a public
utility, since that would be taking private property for public use without just compensation, which cannot be done
consistently with the due process clause.[24]
It is worthy to note that automobile and aircraft manufacturers, which are of similar nature to shipyards, are not
considered public utilities despite the fact that their operations greatly impact on land and air transportation. The reason is
simple. Unlike commodities or services traditionally regarded as public utilities such as electricity, gas, water,
transportation, telephone or telegraph service, automobile and aircraft manufacturing---and for that matter ship building
and ship repair--- serve the public only incidentally.
Second. There is no law declaring a shipyard as a public utility.
History provides us hindsight and hindsight ought to give us a better view of the intent of any law. The succession of
laws affecting the status of shipyards ought not to obliterate, but rather, give us full picture of the intent of the legislature.
The totality of the circumstances, including the contemporaneous interpretation accorded by the administrative bodies
tasked with the enforcement of the law all lead to a singular conclusion: that shipyards are not public utilities.
Since the enactment of Act No. 2307 which created the Public Utility Commission (PUC) until its repeal by
Commonwealth Act No. 146, establishing the Public Service Commission (PSC), a shipyard, by legislative declaration,
has been considered a public utility.[25] A Certificate of Public Convenience (CPC) from the PSC to the effect that the
operation of the said service and the authorization to do business will promote the public interests in a proper and suitable
manner is required before any person or corporation may operate a shipyard. [26] In addition, such persons or corporations
should abide by the citizenship requirement provided in Article XIII, section 8 of the 1935 Constitution, [27] viz:
Sec. 8. No franchise, certificate, or any other form or authorization for the operation of a public utility shall be granted
except to citizens of the Philippines or to corporations or other entities organized under the laws of the
Philippines, sixty per centum of the capital of which is owned by citizens of the Philippines, nor shall such
franchise, certificate or authorization be exclusive in character or for a longer period than fifty years. No franchise or right
shall be granted to any individual, firm or corporation, except under the condition that it shall be subject to amendment,
alteration, or repeal by the National Assembly when the public interest so requires. (emphasis supplied)
To accelerate the development of shipbuilding and ship repair industry, former President Ferdinand E. Marcos issued
P.D. No. 666 granting the following incentives:
SECTION 1. Shipbuilding and ship repair yards duly registered with the Maritime Industry Authority shall be entitled to the
following incentive benefits:
(a) Exemption from import duties and taxes.- The importation of machinery, equipment and materials for shipbuilding, ship
repair and/or alteration, including indirect import, as well as replacement and spare parts for the repair and overhaul of
vessels such as steel plates, electrical machinery and electronic parts, shall be exempt from the payment of customs duty
and compensating tax: Provided, however, That the Maritime Industry Authority certifies that the item or items imported
are not produced locally in sufficient quantity and acceptable quality at reasonable prices, and that the importation is
directly and actually needed and will be used exclusively for the construction, repair, alteration, or overhaul of merchant
vessels, and other watercrafts; Provided, further, That if the above machinery, equipment, materials and spare parts are
sold to non-tax exempt persons or entities, the corresponding duties and taxes shall be paid by the original
importer; Provided, finally, That local dealers and/or agents who sell machinery, equipment, materials and accessories to
shipyards for shipbuilding and ship repair are entitled to tax credits, subject to approval by the total tariff duties and
compensating tax paid for said machinery, equipment, materials and accessories.
(b) Accelerated depreciation.- Industrial plant and equipment may, at the option of the shipbuilder and ship repairer, be
depreciated for any number of years between five years and expected economic life.

(c) Exemption from contractors percentage tax.- The gross receipts derived by shipbuilders and ship repairers from
shipbuilding and ship repairing activities shall be exempt from the Contractors Tax provided in Section 91 of the National
Internal Revenue Code during the first ten years from registration with the Maritime Industry Authority, provided that such
registration is effected not later than the year 1990; Provided, That any and all amounts which would otherwise have been
paid as contractors tax shall be set aside as a separate fund, to be known as Shipyard Development Fund, by the
contractor for the purpose of expansion, modernization and/or improvement of the contractors own shipbuilding or ship
repairing facilities; Provided, That, for this purpose, the contractor shall submit an annual statement of its receipts to the
Maritime Industry Authority; and Provided, further, That any disbursement from such fund for any of the purposes
hereinabove stated shall be subject to approval by the Maritime Industry Authority.
In addition, P.D. No. 666 removed the shipbuilding and ship repair industry from the list of public utilities, thereby
freeing the industry from the 60% citizenship requirement under the Constitution and from the need to obtain Certificate of
Public Convenience pursuant to section 15 of C.A No. 146. Section 1 (d) of P.D. 666 reads:
(d) Registration required but not as a Public Utility.- The business of constructing and repairing vessels or parts
thereof shall not be considered a public utility and no Certificate of Public Convenience shall be required
therefor. However, no shipyard, graving dock, marine railway or marine repair shop and no person or enterprise shall
engage in construction and/or repair of any vessel, or any phase or part thereof, without a valid Certificate of Registration
and license for this purpose from the Maritime Industry Authority, except those owned or operated by the Armed Forces of
the Philippines or by foreign governments pursuant to a treaty or agreement. (emphasis supplied)
Any law, decree, executive order, or rules and regulations inconsistent with P.D. No. 666 were repealed or modified
accordingly.[28] Consequently, sections 13 (b) and 15 of C.A. No. 146 were repealed in so far as the former law included
shipyards in the list of public utilities and required the certificate of public convenience for their operation. Simply stated,
the repeal was due to irreconcilable inconsistency, and by definition, this kind of repeal falls under the category of an
implied repeal.[29]
On April 28, 1983, Batas Pambansa Blg. 391, also known as the Investment Incentive Policy Act of 1983, was
enacted. It laid down the general policy of the government to encourage private domestic and foreign investments in the
various sectors of the economy, to wit:
Sec. 2. Declaration of Investment Policy.- It is the policy of the State to encourage private domestic and foreign
investments in industry, agriculture, mining and other sectors of the economy which shall: provide significant employment
opportunities relative to the amount of the capital being invested; increase productivity of the land, minerals, forestry,
aquatic and other resources of the country, and improve utilization of the products thereof; improve technical skills of the
people employed in the enterprise; provide a foundation for the future development of the economy; accelerate
development of less developed regions of the country; and result in increased volume and value of exports for the
economy.
It is the policy of the State to extend to projects which will significantly contribute to the attainment of these
objectives, fiscal incentives without which said projects may not be established in the locales, number and/or pace
required for optimum national economic development. Fiscal incentive systems shall be devised to compensate for
market imperfections, reward performance of making contributions to economic development, cost-efficient and
be simple to administer.
The fiscal incentives shall be extended to stimulate establishment and assist initial operations of the enterprise, and shall
terminate after a period of not more than 10 years from registration or start-up of operation unless a special period is
otherwise stated.
The foregoing declaration shall apply to all investment incentive schemes and in particular will supersede article 2 of
Presidential Decree No. 1789. (emphases supplied)
With the new investment incentive regime, Batas Pambansa Blg. 391 repealed the following laws, viz:
Sec. 20. The following provisions are hereby repealed:
1) Section 53, P.D. 463 (Mineral Resources Development Decree);
2.) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);

3) Section 6, P.D. 1101 (Radioactive Minerals);


4) LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and
5) The following articles of Presidential Decree 1789: 2, 18, 19, 22, 28, 30, 39, 49 (d), 62, and 77. Articles 45, 46
and 48 are hereby amended only with respect to domestic and export producers.
All other laws, decrees, executive orders, administrative orders, rules and regulations or parts thereof which are
inconsistent with the provisions of this Act are hereby repealed, amended or modified accordingly.
All other incentive systems which are not in any way affected by the provisions of this Act may be restructured by the
President so as to render them cost-efficient and to make them conform with the other policy guidelines in the declaration
of policy provided in Section 2 of this Act. (emphasis supplied)
From the language of the afore-quoted provision, the whole of P.D. No. 666, section 1 was expressly and
categorically repealed. As a consequence, the provisions of C.A. No. 146, which were impliedly repealed by P.D. No. 666,
section 1 were revived.[30] In other words, with the enactment of Batas Pambansa Blg. 391, a shipyard reverted back to its
status as a public utility and as such, requires a CPC for its operation.
The crux of the present controversy is the effect of the express repeal of Batas Pambansa Blg. 391 by Executive
Order No. 226 issued by former President Corazon C. Aquino under her emergency powers.
We rule that the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226 did not revive Section 1 of P.D. No.
666. But more importantly, it also put a period to the existence of sections 13 (b) and 15 of C.A. No. 146. It bears
emphasis that sections 13 (b) and 15 of C.A. No. 146, as originally written, owed their continued existence to Batas
Pambansa Blg. 391. Had the latter not repealed P.D. No. 666, the former should have been modified accordingly and
shipyards effectively removed from the list of public utilities. Ergo, with the express repeal of Batas Pambansa Blg. 391 by
E.O. No. 226, the revival of sections 13 (b) and 15 of C.A. No. 146 had no more leg to stand on. A law that has been
expressly repealed ceases to exist and becomes inoperative from the moment the repealing law becomes effective.
[31]
Hence, there is simply no basis in the conclusion that shipyards remain to be a public utility. A repealed statute cannot
be the basis for classifying shipyards as public utilities.
In view of the foregoing, there can be no other conclusion than to hold that a shipyard is not a pubic utility. A shipyard
has been considered a public utility merely by legislative declaration. Absent this declaration, there is no more reason why
it should continuously be regarded as such. The fact that the legislature did not clearly and unambiguously express its
intention to include shipyards in the list of public utilities indicates that that it did not intend to do so. Thus, a shipyard
reverts back to its status as non-public utility prior to the enactment of the Public Service Law.
This interpretation is in accord with the uniform interpretation placed upon it by the Board of Investments (BOI), which
was entrusted by the legislature with the preparation of annual Investment Priorities Plan (IPPs). The BOI has consistently
classified shipyards as part of the manufacturing sector and not of the public utilities sector. The enactment of Batas
Pambansa Blg. 391 did not alter the treatment of the BOI on shipyards. It has been, as at present, classified as part of the
manufacturing and not of the public utilities sector.[32]
Furthermore, of the 441 Ship Building and Ship Repair (SBSR) entities registered with the MARINA, [33] none appears
to have an existing franchise. If we continue to hold that a shipyard is a pubic utility, it is a necessary consequence that all
these entities should have obtained a franchise as was the rule prior to the enactment of P.D. No. 666. But MARINA
remains without authority, pursuant to P.D. No. 474[34] to issue franchises for the operation of shipyards. Surely,
the legislature did not intend to create a vacuum by continuously treating a shipyard as a public utility without giving
MARINA the power to issue a Certificate of Public Convenience (CPC) or a Certificate of Public Convenience and
Necessity (CPCN) as required by section 15 of C.A. No. 146.
II.
Whether under the 1977 Joint Venture Agreement,
KAWASAKI can purchase only a maximum of 40%
of PHILSECOs total capitalization.
A careful reading of the 1977 Joint Venture Agreement reveals that there is nothing that prevents KAWASAKI from
acquiring more than 40% of PHILSECOs total capitalization. Section 1 of the 1977 JVA states:

1.3 The authorized capital stock of Philseco shall be P330 million. The parties shall thereafter increase their subscription
in Philseco as may be necessary and as called by the Board of Directors, maintaining a proportion of 60%-40% for NIDC
and KAWASAKI respectively, up to a total subscribed and paid-up capital stock of P312 million.
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [renamed PHILSECO] to any third party
without giving the other under the same terms the right of first refusal. This provision shall not apply if the transferee is a
corporation owned and controlled by the GOVERMENT [of the Philippines] or by a Kawasaki affiliate.
1.5 The By-Laws of SNS [PHILSECO] shall grant the parties preemptive rights to unissued shares of SNS [PHILSECO]. [35]
Under section 1.3, the parties agreed to the amount of P330 million as the total capitalization of their joint venture.
There was no mention of the amount of their initial subscription. What is clear is that they are to infuse the needed capital
from time to time until the total subscribed and paid-up capital reaches P312 million. The phrase maintaining a proportion
of 60%-40% refers to their respective share of the burden each time the Board of Directors decides to increase the
subscription to reach the target paid-up capital of P312 million. It does not bind the parties to maintain the sharing scheme
all throughout the existence of their partnership.
The parties likewise agreed to arm themselves with protective mechanisms to preserve their respective interests in
the partnership in the event that (a) one party decides to sell its shares to third parties; and (b) new Philseco shares are
issued. Anent the first situation, the non-selling party is given the right of first refusal under section 1.4 to have a
preferential right to buy or to refuse the selling partys shares. The right of first refusal is meant to protect the original or
remaining joint venturer(s) or shareholder(s) from the entry of third persons who are not acceptable to it as co-venturer(s)
or co-shareholder(s). The joint venture between the Philippine Government and KAWASAKI is in the nature of a
partnership[36] which, unlike an ordinary corporation, is based on delectus personae.[37] No one can become a member of
the partnership association without the consent of all the other associates. The right of first refusal thus ensures that the
parties are given control over who may become a new partner in substitution of or in addition to the original partners.
Should the selling partner decide to dispose all its shares, the non-selling partner may acquire all these shares and
terminate the partnership. No person or corporation can be compelled to remain or to continue the partnership. Of course,
this presupposes that there are no other restrictions in the maximum allowable share that the non-selling partner may
acquire such as the constitutional restriction on foreign ownership in public utility. The theory that KAWASAKI can acquire,
as a maximum, only 40% of PHILSECOs shares is correct only if a shipyard is a public utility. In such instance, the nonselling partner who is an alien can acquire only a maximum of 40% of the total capitalization of a public utility despite the
grant of first refusal. The partners cannot, by mere agreement, avoid the constitutional proscription. But as aforediscussed, PHILSECO is not a public utility and no other restriction is present that would limit the right of KAWASAKI to
purchase the Governments share to 40% of Philsecos total capitalization.
Furthermore, the phrase under the same terms in section 1.4 cannot be given an interpretation that would limit the
right of KAWASAKI to purchase PHILSECO shares only to the extent of its original proportionate contribution of 40% to
the total capitalization of the PHILSECO. Taken together with the whole of section 1.4, the phrase under the same terms
means that a partner to the joint venture that decides to sell its shares to a third party shall make a similar offer
to the non-selling partner. The selling partner cannot make a different or a more onerous offer to the non-selling partner.
The exercise of first refusal presupposes that the non-selling partner is aware of the terms of the conditions attendant
to the sale for it to have a guided choice. While the right of first refusal protects the non-selling partner from the entry of
third persons, it cannot also deprive the other partner the right to sell its shares to third persons if, under the same offer, it
does not buy the shares.
Apart from the right of first refusal, the parties also have preemptive rights under section 1.5 in the unissued
shares of Philseco. Unlike the former, this situation does not contemplate transfer of a partners shares to third parties but
the issuance of new Philseco shares. The grant of preemptive rights preserves the proportionate shares of the original
partners so as not to dilute their respective interests with the issuance of the new shares. Unlike the right of first refusal, a
preemptive right gives a partner a preferential right over the newly issued shares only to the extent that it retains its
original proportionate share in the joint venture.
The case at bar does not concern the issuance of new shares but the transfer of a partners share in the joint venture.
Verily, the operative protective mechanism is the right of first refusal which does not impose any limitation in the maximum
shares that the non-selling partner may acquire.
III.
Whether the right to top granted to KAWASAKI
in exchange for its right of first refusal violates
the principles of competitive bidding.

We also hold that the right to top granted to KAWASAKI and exercised by private respondent did not violate the rules
of competitive bidding.
The word bidding in its comprehensive sense means making an offer or an invitation to prospective contractors
whereby the government manifests its intention to make proposals for the purpose of supplies, materials and equipment
for official business or public use, or for public works or repair. [38] The three principles of public bidding are: (1) the offer to
the public; (2) an opportunity for competition; and (3) a basis for comparison of bids. [39] As long as these three principles
are complied with, the public bidding can be considered valid and legal. It is not necessary that the highest bid be
automatically accepted. The bidding rules may specify other conditions or the bidding process be subjected to certain
reservation or qualification such as when the owner reserves to himself openly at the time of the sale the right to bid upon
the property, or openly announces a price below which the property will not be sold. Hence, where the seller reserves the
right to refuse to accept any bid made, a binding sale is not consummated between the seller and the bidder until the
seller accepts the bid. Furthermore, where a right is reserved in the seller to reject any and all bids received, the owner
may exercise the right even after the auctioneer has accepted a bid, and this applies to the auction of public as well as
private property. [40] Thus:
It is a settled rule that where the invitation to bid contains a reservation for the Government to reject any or all bids, the
lowest or the highest bidder, as the case may be, is not entitled to an award as a matter of right for it does not become a
ministerial duty of the Government to make such an award. Thus, it has been held that where the right to reject is so
reserved, the lowest bid or any bid for that matter may be rejected on a mere technicality, that all bids may be rejected,
even if arbitrarily and unwisely, or under a mistake, and that in the exercise of a sound discretion, the award may be made
to another than the lowest bidder. And so, where the Government as advertiser, availing itself of that right, makes its
choice in rejecting any or all bids, the losing bidder has no cause to complain nor right to dispute that choice, unless an
unfairness or injustice is shown. Accordingly, he has no ground of action to compel the Government to award the contract
in his favor, nor compel it to accept his bid.[41]
In the instant case, the sale of the Government shares in PHILSECO was publicly known. All interested bidders were
welcomed. The basis for comparing the bids were laid down. All bids were accepted sealed and were opened and read in
the presence of the COAs official representative and before all interested bidders. The only question that remains is
whether or not the existence of KAWASAKIs right to top destroys the essence of competitive bidding so as to say that the
bidders did not have an opportunity for competition. We hold that it does not.
The essence of competition in public bidding is that the bidders are placed on equal footing. This means that all
qualified bidders have an equal chance of winning the auction through their bids. In the case at bar, all of the bidders were
exposed to the same risk and were subjected to the same condition, i.e., the existence of KAWASAKIs right to top. Under
the ASBR, the Government expressly reserved the right to reject any or all bids, and manifested its intention not to accept
the highest bid should KAWASAKI decide to exercise its right to top under the ABSR. This reservation or qualification was
made known to the bidders in a pre-bidding conference held on September 28, 1993. They all expressly accepted this
condition in writing without any qualification. Furthermore, when the Committee on Privatization notified petitioner of the
approval of the sale of the National Government shares of stock in PHILSECO, it specifically stated that such approval
was subject to the right of KAWASAKI Heavy Industries, Inc./Philyards Holdings, Inc. to top JGSMIs bid by 5% as
specified in the bidding rules. Clearly, the approval of the sale was a conditional one. Since Philyards eventually exercised
its right to top petitioners bid by 5%, the sale was not consummated. Parenthetically, it cannot be argued that the
existence of the right to top set for naught the entire public bidding. Had Philyards Holdings, Inc. failed or refused to
exercise its right to top, the sale between the petitioner and the National Government would have been consummated. In
like manner, the existence of the right to top cannot be likened to a second bidding, which is countenanced, except when
there is failure to bid as when there is only one bidder or none at all. A prohibited second bidding presupposes that based
on the terms and conditions of the sale, there is already a highest bidder with the right to demand that the seller accept its
bid. In the instant case, the highest bidder was well aware that the acceptance of its bid was conditioned upon the nonexercise of the right to top.
To be sure, respondents did not circumvent the requirements for bidding by granting KAWASAKI, a non-bidder, the
right to top the highest bidder. The fact that KAWASAKIs nominee to exercise the right to top has among its stockholders
some losing bidders cannot also be deemed unfair.
It must be emphasized that none of the parties questions the existence of KAWASAKIs right of first refusal, which is
concededly the basis for the grant of the right to top. Under KAWASAKIs right of first refusal, the National Government is
under the obligation to give preferential right to KAWASAKI in the event it decides to sell its shares in PHILSECO. It has to
offer to KAWASAKI the shares and give it the option to buy or refuse under the same terms for which it is willing to sell
the said shares to third parties. KAWASAKI is not a mere non-bidder. It is a partner in the joint venture; the incidents of
which are governed by the law on contracts and on partnership.
It is true that properties of the National Government, as a rule, may be sold only after a public bidding is held. Public
bidding is the accepted method in arriving at a fair and reasonable price and ensures that overpricing, favoritism and other

anomalous practices are eliminated or minimized. [42] But the requirement for public bidding does not negate the exercise
of the right of first refusal. In fact, public bidding is an essential first step in the exercise of the right of first refusal because
it is only after the public bidding that the terms upon which the Government may be said to be willing to sell its shares to
third parties may be known. It is only after the public bidding that the Government will have a basis with which to offer
KAWASAKI the option to buy or forego the shares.
Assuming that the parties did not swap KAWASAKIs right of first refusal with the right to top, KAWASAKI would have
been able to buy the National Governments shares in PHILSECOunder the same terms as offered by the highest bidder.
Stated otherwise, by exercising its right of first refusal, KAWASAKI could have bought the shares for only P2.03 billion and
not the higher amount of P2.1315 billion. There is, thus, no basis in the submission that the right to top unfairly favored
KAWASAKI. In fact, with the right to top, KAWASAKI stands to pay higher than it should had it settled with its right of first
refusal. The obvious beneficiary of the scheme is the National Government.
If at all, the obvious consideration for the exchange of the right of first refusal with the right to top is that KAWASAKI
can name a nominee, which it is a shareholder, to exercise the right to top. This is a valid contractual stipulation; the right
to top is an assignable right and both parties are aware of the full legal consequences of its exercise. As aforesaid, all
bidders were aware of the existence of the right to top, and its possible effects on the result of the public bidding was fully
disclosed to them. The petitioner, thus, cannot feign ignorance nor can it be allowed to repudiate its acts and question the
proceedings it had fully adhered to.[43]
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life Assurance, Mitsui
and ICTSI), has joined Philyards in the latters effort to raise P2.131 billion necessary in exercising the right to top is not
contrary to law, public policy or public morals. There is nothing in the ASBR that bars the losing bidders from joining either
the winning bidder (should the right to top is not exercised) or KAWASAKI/PHI (should it exercise its right to top as it did),
to raise the purchase price. The petitioner did not allege, nor was it shown by competent evidence, that the participation of
the losing bidders in the public bidding was done with fraudulent intent. Absent any proof of fraud, the formation by
Philyards of a consortium is legitimate in a free enterprise system. The appellate court is thus correct in holding the
petitioner estopped from questioning the validity of the transfer of the National Governments shares in PHILSECO to
respondent.
Finally, no factual basis exists to support the view that the drafting of the ASBR was illegal because no prior approval
was given by the COA for it, specifically the provision on the right to top the highest bidder and that the public auction on
December 2, 1993 was not witnessed by a COA representative. No evidence was proffered to prove these allegations and
the Court cannot make legal conclusions out of mere allegations. Regularity in the performance of official duties is
presumed[44] and in the absence of competent evidence to rebut this presumption, this Court is duty bound to uphold this
presumption.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration is hereby GRANTED. The impugned Decision and
Resolution of the Court of Appeals are AFFIRMED.

SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, and Corona, JJ., concur.
Tinga, J., please see separate opinion.

CASE15
WILSON P. GAMBOA,

G.R. No. 176579

Petitioner,
Present:
- versus CORONA, C.J.,
FINANCE SECRETARY MARGARITO B.
TEVES, FINANCE UNDERSECRETARY JOHN
P. SEVILLA, AND COMMISSIONER RICARDO
ABCEDE OF THE PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT
(PCGG) IN THEIR CAPACITIES AS CHAIR
AND MEMBERS, RESPECTIVELY, OF THE
PRIVATIZATION COUNCIL,

CARPIO,

CHAIRMAN ANTHONI SALIM OF FIRST


PACIFIC CO., LTD. IN HIS CAPACITY AS
DIRECTOR OF METRO PACIFIC ASSET

PERALTA,

VELASCO, JR.,
LEONARDO-DE CASTRO,
BRION,

HOLDINGS INC., CHAIRMAN MANUEL V.


PANGILINAN OF PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY (PLDT)
IN HIS CAPACITY AS MANAGING DIRECTOR
OF FIRST PACIFIC CO., LTD., PRESIDENT
NAPOLEON L. NAZARENO OF PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY,
CHAIR FE BARIN OF THE SECURITIES
EXCHANGE COMMISSION, and PRESIDENT
FRANCIS LIM OF THE PHILIPPINE STOCK
EXCHANGE,

BERSAMIN,
DEL CASTILLO,
ABAD,
VILLARAMA, JR.,
PEREZ,
MENDOZA, and

Respondents.
SERENO, JJ.

PABLITO V. SANIDAD and

Promulgated:

ARNO V. SANIDAD,
Petitioners-in-Intervention.

June 28, 2011

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

DECISION

CARPIO, J.:

The Case

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

The Antecedents

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

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

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

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

Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC shares is actually
an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares of PLDT. With the sale, First

Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent, thereby increasing the
common shareholdings of foreigners in PLDT to about 81.47 percent. This violates Section 11, Article XII of the 1987
Philippine Constitution which limits foreign ownership of the capital of a public utility to not more than 40 percent. 3

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

On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings. PTIC held
26,034,263 PLDT common shares, or 13.847 percent of the total PLDT outstanding common shares. PHI, on the other
hand, was incorporated in 1977, and became the owner of 111,415 PTIC shares or 46.125 percent of the outstanding
capital stock of PTIC by virtue of three Deeds of Assignment executed by Ramon Cojuangco and Luis Tirso Rivilla. In
1986, the 111,415 PTIC shares held by PHI were sequestered by the PCGG, and subsequently declared by this Court as
part of the ill-gotten wealth of former President Ferdinand Marcos. The sequestered PTIC shares were reconveyed to the
Republic of the Philippines in accordance with this Courts decision 4 which became final and executory on 8 August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the outstanding
common shares of stock of PLDT, and designated the Inter-Agency Privatization Council (IPC), composed of the
Department of Finance and the PCGG, as the disposing entity. An invitation to bid was published in seven different
newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-bid conference was held, and the original
deadline for bidding scheduled on 4 December 2006 was reset to 8 December 2006. The extension was published in nine
different newspapers.

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

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

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

On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and declaration of
nullity of sale of the 111,415 PTIC shares. Petitioner claims, among others, that the sale of the 111,415 PTIC shares would

result in an increase in First Pacifics common shareholdings in PLDT from 30.7 percent to 37 percent, and this, combined
with Japanese NTT DoCoMos common shareholdings in PLDT, would result to a total foreign common shareholdings in
PLDT of 51.56 percent which is over the 40 percent constitutional limit. 6 Petitioner asserts:

If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent to 37.0 percent of its
common or voting- stockholdings, x x x. Hence, the consummation of the sale will put the two largest foreign
investors in PLDT First Pacific and Japans NTT DoCoMo, which is the worlds largest wireless
telecommunications firm, owning 51.56 percent of PLDT common equity. xx x With the completion of the sale,
data culled from the official website of the New York Stock Exchange (www.nyse.com) showed that those foreign
entities, which own at least five percent of common equity, will collectively own 81.47 percent of PLDTs common
equity. x x x
x x x as the annual disclosure reports, also referred to as Form 20-K reports x x x which PLDT
submitted to the New York Stock Exchange for the period 2003-2005, revealed that First Pacific
and several other foreign entities breached the constitutional limit of 40 percent ownership as
early as 2003. x x x7

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

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

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

The Issue

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

The Ruling of the Court

The petition is partly meritorious.

Petition for declaratory relief treated as petition for mandamus

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

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

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

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

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

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

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

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

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

The Court first encountered the issue on the definition of the term capital in Section 11, Article XII of the Constitution in the
case of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case involved the same public utility (PLDT) and
substantially the same private respondents. Despite the importance and novelty of the constitutional issue raised therein
and despite the fact that the petition involved a purely legal question, the Court declined to resolve the case on the merits,
and instead denied the same for disregarding the hierarchy of courts. 17 There, petitioner Fernandez assailed on a pure
question of law the Regional Trial Courts Decision of 21 February 2003 via a petition for review under Rule 45. The Courts
Resolution, denying the petition, became final on 21 December 2004.
The instant petition therefore presents the Court with another opportunity to finally settle this purely legal issue which is
of transcendental importance to the national economy and a fundamental requirement to a faithful adherence to our
Constitution. The Court must forthwith seize such opportunity, not only for the benefit of the litigants, but more significantly
for the benefit of the entire Filipino people, to ensure, in the words of the Constitution, a self-reliant and independent
national economy effectively controlled by Filipinos.18 Besides, in the light of vague and confusing positions taken by
government agencies on this purely legal issue, present and future foreign investors in this country deserve, as a matter
of basic fairness, a categorical ruling from this Court on the extent of their participation in the capital of public utilities and
other nationalized businesses.

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

Petitioner has locus standi

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

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

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

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

Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance, the petitioner
has the requisite locus standi.

Definition of the Term Capital in


Section 11, Article XII of the 1987 Constitution

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

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

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

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

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

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

Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that
the Filipinization provision in the 1987 Constitution is one of the products of the spirit of nationalism which gripped the
1935 Constitutional Convention.25 The 1987 Constitution provides for the Filipinization of public utilities by requiring that
any form of authorization for the operation of public utilities should be granted only to citizens of the Philippines or to
corporations or associations organized under the laws of the Philippines at least sixty per centum of whose capital is

owned by such citizens. The provision is [an express] recognition of the sensitive and vital position of public
utilities both in the national economy and for national security.26 The evident purpose of the citizenship requirement
is to prevent aliens from assuming control of public utilities, which may be inimical to the national interest. 27 This specific
provision explicitly reserves to Filipino citizens control of public utilities, pursuant to an overriding economic goal of the
1987 Constitution: to conserve and develop our patrimony 28 and ensure a self-reliant and independent national
economy effectively controlled by Filipinos.29

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

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

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

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

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

In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the procedural infirmities of
the petition and the supposed violation of the due process rights of the affected foreign common shareholders.
Respondent Nazareno does not deny petitioners allegation of foreigners dominating the common shareholdings of
PLDT. Nazarenostressed mainly that the petition seeks to divest foreign common shareholders purportedly
exceeding 40% of the total common shareholdings in PLDT of their ownership over their shares. Thus, the foreign
natural and juridical PLDT shareholders must be impleaded in this suit so that they can be
heard.34 Essentially, Nazareno invokes denial of due process on behalf of the foreign common shareholders.

While Nazareno does not introduce any definition of the term capital, he states that among the factual assertions that
need to be established to counter petitioners allegations is the uniform interpretation by government agencies
(such as the SEC), institutions and corporations (such as the Philippine National Oil Company-Energy

Development Corporation or PNOC-EDC) of including both preferred shares and common shares in controlling
interest in view of testing compliance with the 40% constitutional limitation on foreign ownership in public
utilities.35

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

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

The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla, Commissioner
Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the definition of the term capital. In its Memorandum 37 dated
24 September 2007, the OSG also limits its discussion on the supposed procedural defects of the petition, i.e. lack of
standing, lack of jurisdiction, non-inclusion of interested parties, and lack of basis for injunction. The OSG does not
present any definition or interpretation of the term capital in Section 11, Article XII of the Constitution. The OSG contends
that the petition actually partakes of a collateral attack on PLDTs franchise as a public utility, which in effect requires a fullblown trial where all the parties in interest are given their day in court. 38

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

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

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

Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on fully nationalized
and partially nationalized activities is for Filipino nationals to be always in control of the corporation undertaking
said activities. Otherwise, if the Trial Courts ruling upholding respondents arguments were to be given credence, it
would be possible for the ownership structure of a public utility corporation to be divided into one percent (1%)

common stocks and ninety-nine percent (99%) preferred stocks. Following the Trial Courts ruling adopting
respondents arguments, the common shares can be owned entirely by foreigners thus creating an absurd
situation wherein foreigners, who are supposed to be minority shareholders, control the public utility corporation.

xxxx

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

xxxx

Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution
refers to ownership of shares of stock entitled to vote, i.e., common shares. Furthermore, ownership of record of
shares will not suffice but it must be shown that the legal and beneficial ownership rests in the hands of Filipino
citizens. Consequently, in the case of petitioner PLDT, since it is already admitted that the voting interests of
foreigners which would gain entry to petitioner PLDT by the acquisition of SMART shares through the Questioned
Transactions is equivalent to 82.99%, and the nominee arrangements between the foreign principals and the
Filipino owners is likewise admitted, there is, therefore, a violation of Section 11, Article XII of the Constitution.
Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to support the
proposition that the meaning of the word capital as used in Section 11, Article XII of the Constitution allegedly
refers to the sum total of the shares subscribed and paid-in by the shareholder and it allegedly is immaterial how
the stock is classified, whether as common or preferred, cannot stand in the face of a clear legislative policy as
stated in the FIA which took effect in 1991 or way after said opinions were rendered, and as clarified by the
above-quoted Amendments. In this regard, suffice it to state that as between the law and an opinion rendered by
an administrative agency, the law indubitably prevails. Moreover, said Opinions are merely advisory and cannot
prevail over the clear intent of the framers of the Constitution.

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

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

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

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

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

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

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

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

We agree with petitioner and petitioners-in-intervention. The term capital in Section 11, Article XII of the Constitution refers
only to shares of stock entitled to vote in the election of directors, and thus in the present case only to common
shares,41 and not to the total outstanding capital stock comprising both common and non-voting preferred shares.
The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:

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

stated in the articles of incorporation which are not violative of the provisions of this Code: Provided, That
preferred shares of stock may be issued only with a stated par value. The Board of Directors, where authorized in
the articles of incorporation, may fix the terms and conditions of preferred shares of stock or any series thereof:
Provided, That such terms and conditions shall be effective upon the filing of a certificate thereof with the
Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of
such shares shall not be liable to the corporation or to its creditors in respect thereto: Provided; That shares
without par value may not be issued for a consideration less than the value of five (P5.00) pesos per share:
Provided, further, That the entire consideration received by the corporation for its no-par value shares shall be
treated as capital and shall not be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or
legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall
be equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of
such shares shall nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate
property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other corporations;
7. Investment of corporate funds in another corporation or business in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate
act as provided in this Code shall be deemed to refer only to stocks with voting rights.

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

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

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

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

MR. VILLEGAS. That is right.

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

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

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

MR. VILLEGAS. That is right.

MR. NOLLEDO. Thank you.

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

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

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

MR. VILLEGAS. Yes.48

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

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

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

MR. VILLEGAS. Yes.

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

MR. VILLEGAS. That is right.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market value of P2,328.00
per share,64 while PLDT preferred shares with a par value ofP10.00 per share have a current stock market value ranging
from only P10.92 to P11.06 per share,65 is a glaring confirmation by the market that control and beneficial ownership of
PLDT rest with the common shares, not with the preferred shares.

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

Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to
Filipinos specific areas of investment, such as the development of natural resources and ownership of land, educational
institutions and advertising business, is self-executing. There is no need for legislation to implement these self-executing
provisions of the Constitution. The rationale why these constitutional provisions are self-executing was explained
in Manila Prince Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a constitutional mandate,
the presumption now is that all provisions of the constitution are self-executing. If the constitutional provisions are
treated as requiring legislation instead of self-executing, the legislature would have the power to ignore and
practically nullify the mandate of the fundamental law. This can be cataclysmic. That is why the prevailing view is,
as it has always been, that

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

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

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

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

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

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

To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935 Constitution, or
over the last 75 years, not one of the constitutional provisions expressly reserving specific areas of investments to
corporations, at least 60 percent of the capital of which is owned by Filipinos, was enforceable. In short, the framers of the
1935, 1973 and 1987 Constitutions miserably failed to effectively reserve to Filipinos specific areas of investment, like the

operation by corporations of public utilities, the exploitation by corporations of mineral resources, the ownership by
corporations of real estate, and the ownership of educational institutions. All the legislatures that convened since 1935
also miserably failed to enact legislations to implement these vital constitutional provisions that determine who will
effectively control the national economy, Filipinos or foreigners. This Court cannot allow such an absurd interpretation of
the Constitution.

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

Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove the Articles of
Incorporation of any corporation where the required percentage of ownership of the capital stock to be owned by
citizens of the Philippines has not been complied with as required by existing laws or the Constitution. Thus, the
SEC is the government agency tasked with the statutory duty to enforce the nationality requirement prescribed in Section
11, Article XII of the Constitution on the ownership of public utilities. This Court, in a petition for declaratory relief that is
treated as a petition for mandamus as in the present case, can direct the SEC to perform its statutory duty under the law,
a duty that the SEC has apparently unlawfully neglected to do based on the 2010 GIS that respondent PLDT submitted to
the SEC.
Under Section 5(m) of the Securities Regulation Code, 71 the SEC is vested with the power and function to suspend or
revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships
or associations, upon any of the grounds provided by law. The SEC is mandated under Section 5(d) of the same
Code with the power and function to investigate x x x the activities of persons to ensure compliance with the laws
and regulations that SEC administers or enforces. The GIS that all corporations are required to submit to SEC annually
should put the SEC on guard against violations of the nationality requirement prescribed in the Constitution and existing
laws. This Court can compel the SEC, in a petition for declaratory relief that is treated as a petition for mandamus as in
the present case, to hear and decide a possible violation of Section 11, Article XII of the Constitution in view of the
ownership structure of PLDTs voting shares, as admitted by respondents and as stated in PLDTs 2010 GIS that PLDT
submitted to SEC.

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

SO ORDERED.

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