G.R. No.

155683

February 16, 2007

PETRON CORPORATION, Petitioner,

vs.
NATIONAL COLLEGE OF BUSINESS AND ARTS, Respondent.
DECISION
CORONA, J.:
The sole question raised in this petition for review on certiorari 1 is whether petitioner Petron Corporation
(Petron) should be held liable to pay attorneys fees and exemplary damages to respondent National
College of Business and Arts (NCBA).

holding him liable to Petron (then known as Petrophil Corporation) on a 1972 promissory note. On April
29, 1985, the V. Mapa properties were sold at public auction to satisfy the judgments in the Manila and
Makati cases. Petron, the highest bidder, acquired both Felipes and Enriques undivided interests in the
property. The final deeds of sale of Enriques and Felipes shares in the V. Mapa properties were awarded
to Petron in 1986. Sometime later, the Monserrats TCTs were cancelled and new ones were issued to
Petron. Thus it was that, towards the end of 1987, Petron intervened in NCBAs suit against Felipe,
Enrique and DBP (Civil Case No. 83-16617) to assert its right to the V. Mapa properties.
The RTC rendered judgment on March 11, 1996.6 It ruled, among other things, that Petron never acquired
valid title to the V. Mapa properties as the levy and sale thereof were void and that NCBA was now the
lawful owner of the properties. Moreover, the RTC held Petron, DBP, Felipe and Enrique jointly and
severally liable to NCBA for exemplary damages and attorneys fees for the following reasons:

This case, however, is but part of a larger controversy over the lawful ownership of seven parcels of land 2
in the V. Mapa area of Sta. Mesa, Manila (the V. Mapa properties) that arose out of a series of events that
began in 1969.3

FELIPE and ENRIQUE had no reason to renege on their undertaking in the Deed of Absolute Sale "to
secure the release of the titles to the properties xxx free from all the liens and encumbrances, and to cause
the lifting of the levy on execution of Commercial Credit Corporation, Industrial Finance Corporation[,]
and Filoil over the V. Mapa [p]roperty. Moreover, ENRIQUE had no reason to repudiate FELIPE and
disavow authority he had [given] the latter to sell his share in the V. Mapa property.

Sometime in 1969, the V. Mapa properties, then owned by Felipe and Enrique Monserrat, Jr., were
mortgaged to the Development Bank of the Philippines (DBP) as part of the security for the P5.2 million
loan of Manila Yellow Taxicab Co., Inc. (MYTC) and Monserrat Enterprises Co. MYTC, for its part,
mortgaged four parcels of land located in Quiapo, Manila.

On the other hand, the mortgage in favor of DBP had been fully extinguished thru dacion en pago as early
as 18 June 1981 but it unjustifiably and whimsically refused to release the mortgage and to surrender to
the buyer (NCBA) the owners duplicate copies of Transfer Certificates of Title No[s]. 83621 to 83627,
thereby preventing NCBA from registering the sale in its favor.

On March 31, 1975, however, Felipes undivided interest in the V. Mapa properties was levied upon in
execution of a money judgment rendered by the Regional Trial Court (RTC) of Manila in Filoil Marketing
Corporation v. MYTC, Felipe Monserrat, and Rosario Vda. De Monserrat (the Manila case).4 DBP
challenged the levy through a third-party claim asserting that the V. Mapa properties were mortgaged to it
and were, for that reason, exempt from levy or attachment. The RTC quashed it.

Similarly, [Petron] has absolutely no reason to claim the V. Mapa property. For, as shown above, the levy
in execution and sale of the shares of FELIPE and ENRIQUE in the V. Mapa property were null and void.

On June 18, 1981, MYTC and the Monserrats got DBP to accept a dacion en pago arrangement whereby
MYTC conveyed to the bank the four mortgaged Quiapo properties as full settlement of their loan
obligation. But despite this agreement, DBP did not release the V. Mapa properties from the mortgage.
On May 21, 1982, Felipe, acting for himself and as Enriques attorney-in-fact, sold the V. Mapa properties
to respondent NCBA. Part of the agreement was that Felipe and Enrique would secure the release of the
titles to the properties free of all liens and encumbrances including DBPs mortgage lien and Filoils levy
on or before July 31, 1982. But the Monserrats failed to comply with this undertaking. Thus, on February
3, 1983, NCBA caused the annotation of an affidavit of adverse claim on the TCTs covering the V. Mapa
properties.

Finally, in their Memorandum of Agreement dated 25 September 1992 with Technical Institute of the
Philippines, [Petron] and DBP attempted to pre-empt this Courts power to adjudicate on the claim of
ownership stipulating that "to facilitate their defenses and cause of action in Civil Case No. 83-16617,"
they agreed on the disposition of the V. Mapa property among themselves. For obvious reasons, this Court
refused to give its imprimatur and denied their prayer for dismissal of the complaint against DBP.
These acts of defendants and intervenor demonstrate their wanton, fraudulent, reckless, oppressive and
malevolent conduct in their dealings with NCBA. Furthermore, they acted with gross and evident bad faith
in refusing to satisfy NCBAs plainly valid and demandable claims. Assessment of exemplary damages
and attorneys fees in the amounts of P100,000.00 and P150,000.00, respectively, is therefore in order
(Arts. 2208 and 2232, Civil Code).7

Shortly thereafter, NCBA filed a complaint against Felipe and Enrique for specific performance with an
alternative prayer for rescission and damages in the RTC of Manila. The case was raffled to Branch 30 and
docketed as Civil Case No. 83-16617. On March 30, 1983, NCBA had a notice of lis pendens inscribed on
the TCTs of the V. Mapa properties. A little over two years later, NCBA impleaded DBP as an additional
defendant in order to compel it to release the V. Mapa properties from mortgage.

Enrique, DBP and Petron appealed to the Court of Appeals (CA). The appeal was docketed as CAG.R.
CV No. 53466. In a decision dated June 21, 2002,8 the CA affirmed the RTC decision in toto. On motion
for reconsideration, Petron and DBP tried to have the award of exemplary damages and attorneys fees
deleted for lack of legal and factual basis. The Philippine National Oil Company (PNOC), which had been
allowed to intervene in the appeal as transferee pendente lite of Petrons right to the V. Mapa properties,
moved for reconsideration of the ruling on ownership. In a resolution dated October 16, 2002,9 the CA
denied these motions for lack of merit. Thereupon, Petron and PNOC took separate appeals to this Court.

On February 28, 1985, during the pendency of Civil Case No. 83-16617, Enriques undivided interest in
the V. Mapa properties was levied on in execution of a judgment of the RTC of Makati (the Makati case) 5

In this appeal, the only issue is Petrons liability for exemplary damages and attorneys fees. And on this
matter, we reverse the rulings of the trial and appellate courts.

Article 2208 lays down the rule that in the absence of stipulation, attorneys fees cannot be recovered
except in the following instances:

NCBAs suit against DBP and the Monserrats in order to assert what it believed (and had good reason to
believe) were its rights and to have the disputed ownership of the V. Mapa properties settled decisively in
a single lawsuit.

(1) When exemplary damages are awarded;

(2) When the defendants act or omission has compelled the plaintiff to litigate with third
persons or to incur expense to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;

With respect to the award of exemplary damages, the rule in this jurisdiction is that the plaintiff must
show that he is entitled to moral, temperate or compensatory damages before the court may even consider
the question of whether exemplary damages should be awarded.15 In other words, no exemplary damages
may be awarded without the plaintiffs right to moral, temperate, liquidated or compensatory damages
having first been established. Therefore, in view of our ruling that Petron cannot be made liable to NCBA
for compensatory damages (i.e., attorneys fees), Petron cannot be held liable for exemplary damages
either.

(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;

WHEREFORE, the petition is hereby GRANTED. The imposition of liability on Petron Corporation for
exemplary damages and attorneys fees is REVOKED. The June 21, 2002 decision and October 16, 2002
resolution of the Court of Appeals in CAG.R. CV No. 53466 and the March 11, 1996 decision of the
Regional Trial Court of Manila in Civil Case No. 83-16617 are hereby MODIFIED accordingly.
SO ORDERED.

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmens compensation and employers liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorneys fees and
expenses of litigation should be recovered.10
Here, the RTC held Petron liable to NCBA for attorneys fees under Article 2208(5), which allows such an
award "where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly
valid, just, and demandable claim." However, the only justification given for this verdict was that Petron
had no reason to claim the V. Mapa properties because, in the RTCs opinion, the levy and sale thereof
were void.11 This was sorely inadequate and it was erroneous for the CA to have upheld that ruling built on
such a flimsy foundation.
Article 2208(5) contemplates a situation where one refuses unjustifiably and in evident bad faith to satisfy
anothers plainly valid, just and demandable claim, compelling the latter needlessly to seek redress from
the courts.12 In such a case, the law allows recovery of money the plaintiff had to spend for a lawyers
assistance in suing the defendant expenses the plaintiff would not have incurred if not for the
defendants refusal to comply with the most basic rules of fair dealing. It does not mean, however, that the
losing party should be made to pay attorneys fees merely because the court finds his legal position to be
erroneous and upholds that of the other party, for that would be an intolerable transgression of the policy
that no one should be penalized for exercising the right to have contending claims settled by a court of
law.13 In fact, even a clearly untenable defense does not justify an award of attorneys fees unless it
amounts to gross and evident bad faith.14
Petrons claim to the V. Mapa properties, founded as it was on final deeds of sale on execution, was far
from untenable. No gross and evident bad faith could be imputed to Petron merely for intervening in

G.R. No. 121171 December 29, 1998

ASSET PRIVATIZATION TRUST, petitioner,
vs.
COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T.
CABARRUS, JOSE MIGUEL CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U.
MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock-Holders of Marinduque Mining
and Industrial Corporation, respondents.
KAPUNAN, J.:
The petition for review on certiorari before us seeks to reverse and set aside the decision of the
Court of Appeals which denied due course to the petition for certiorari filed by the Asset
Privatization Trust (APT) assailing the order of the Regional Trial Court (RTC) Branch 62, Makati
City. The Makati RTC's order upheld and confirmed the award made by the Arbitration
Committee in favor of Marinduque Mining and Industrial Corporation (MMIC) and against the
Government, represented by herein petitioner APT for damages in the amount of P2.5 BILLION
(or approximately P4.5 BILLION, including interest).
Ironically, the staggering amount of damages was imposed on the Government for exercising its
legitimate right of foreclosure as creditor against the debtor MMIC as a consequence of the
latter's failure to pay its overdue and unpaid obligation of P22 billion to the Philippine National
Bank (PNB) and the Development Bank of the Philippines (DBP).
The antecedent facts
of the case.
The development, exploration and utilization of the mineral deposits in the Surigao Mineral
Reservation have been authorized by Republic Act No. 1528, as amended by Republic Acts

Nos. 2077 and 4167, by virtue of which laws, a Memorandum of Agreement was drawn on July
3, 1968, whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board,
granted MMIC the exclusive right to explore, develop and exploit nickel, cobalt and other
minerals in the Surigao mineral reservation. 1 MMIC is a domestic corporation engaged in mining
with respondent Jesus S. Cabarrus, Sr. as President and among its original stockholders.
The Philippine Government undertook to support the financing of MMIC by purchase of MMIC
debenture bonds and extension of guarantees. Further, the Philippine Government obtained a
firm commitment form the DBP and/or other government financing institutions to subscribe in
MMIC and issue guarantee/s for foreign loans or deferred payment arrangements secured from
the US Eximbank, Asian Development Bank, Kobe Steel, of amount not exceeding US$100
Million. 2
DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were
based on the unutilized portion of the Government commitment. Thereafter, the Government
extended accommodations to MMIC in various amounts.
On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement 3 whereby MMIC,
as mortgagor, agreed to constitute a mortgage in favor or PNB and DBP as mortgagees, over all
MMIC's assets; subject of real estate and chattel mortgage executed by the mortgagor, and
additional assets described and identified, including assets of whatever kind, nature or
description, which the mortgagor may acquire whether in substitution of, in replenishment, or in
addition thereto.
Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly
includes the event that the MORTGAGOR shall fail to pay any amount secured by this Mortgage
Trust Agreement when due. 4
Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the enumerated
events of defaults, circumstances by which the mortgagor may be declared in default, the
procedure therefor, waiver of period to foreclose, authority of Trustee before, during and after
foreclosure, including taking possession of the mortgaged properties. 5
In various requests for advances/remittances of loans if huge amounts, Deeds of Undertaking,
Promissory Notes, Loan Documents, Deeds of Real Estate Mortgages, MMIC invariably
committed to pay either on demand or under certain terms the loans and accommodations
secured from or guaranteed by both DBP and PNB.
By 1984, DBP and PNB's financial both in loans and in equity in MMIC had reached tremendous
proportions, and MMIC was having a difficult time meeting its financial obligations. MMIC had an
outstanding loan with DBP in the amount of P13,792,607,565.92 as of August 31, 1984 and with
PNB in the amount of P8,789,028,249.38 as July 15, 1984 or a total Government expose of
Twenty Two Billion Six Hundred Sixty-Eight Million Five Hundred Thirty-Seven Hundred Seventy
and 05/100 (P22, 668,537,770.05), Philippine Currency. 6 Thus, a financial restructuring plan
(FRP) designed to reduce MMIC's interest expense through debt conversion to equity was
drafted by the Sycip Gorres Velayo accounting firm. 7 On April 30, 1984, the FRP was approved
by the Board of Directors of the MMIC. 8 However, the proposed FRP had never been formally
adopted, approved or ratified by either PNB or DBP. 9
In August and September 1984, as the various loans and advances made by DBP and PNB to
MMIC had become overdue and since any restructuring program relative to the loans was no

longer feasible, and in compliance with the directive of Presidential Decree No. 385, DBP and
PNB as mortgagees of MMIC assets, decided to exercise their right to extrajudicially foreclose
the mortgages in accordance with the Mortgage Trust Agreement. 10
The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly
formed corporations, namely, Nonoc Mining Corporation, Maricalum Mining and Industrial
Corporation, and Island Cement Corporation. In 1986, these assets were transferred to the
Asset Privatization Trust (APT). 11
On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC,
filed a derivative suit against DBP and PNB before the RTC of Makati, Branch 62, for Annulment
of Foreclosures, Specific Performance and Damages. 12 The suit, docketed as Civil Case No.
9900, prayed that the court: (1) annul the foreclosures, restore the foreclosed assets to MMIC,
and require the banks to account for their use and operation in the interim; (2) direct the banks
to honor and perform their commitments under the alleged FRP; and (3) pay moral and
exemplary damages, attorney's fees, litigation expenses and costs.
In the course of the trial, private respondents and petitioner APT, as successor of the DBP and
the PNB's interest in MMIC, mutually agreed to submit the case to arbitration by entering into a
"Compromise and Arbitration Agreement," stipulating, inter alia:
NOW THEREFORE, for and in consideration of the foregoing premises and
the mutual covenants contained herein the parties agree as follows:
1. Withdrawal and Compromise. The parties have agreed to withdraw their
respective claims from the Trial Court and to resolve their dispute through
arbitration by praying to the Trial Court to issue a Compromise Judgment
based on this Compromise and Arbitration Agreement.
In withdrawing their dispute from the court and in choosing to resolve it
through arbitration, the parties have agreed that:
(a) their respective money claims shall be reduced to purely money claims;
and
(b) as successor and assignee of the PNB and DBP interests in MMIC and
the MMIC accounts, APT shall likewise succeed to the rights and obligations
of PNB and DBP in respect of the controversy subject of Civil Case No.
9900 to be transferred to arbitration and any arbitral award/order against
either PNB and/or DBP shall be the responsibility be discharged by and be
enforceable against APT, the parties having agreed to drop PNB and DBP
from the arbitration.
2. Submission. The parties hereby agree that (a) the controversy in Civil
Case No. 9900 shall be submitted instead to arbitration under RA 876 and
(b) the reliefs prayed for in Civil Case No. 9900 shall, with the approval of
the Trial Court of this Compromise and Arbitration Agreement, be
transferred and reduced to pure pecuniary/money claims with the parties
waiving and foregoing all other forms of reliefs which they prayed for or
should have prayed for in Civil Case No. 9900. 13

The Compromise and Arbitration Agreement limited the issues to the following:
5. Issues The issues to be submitted for the Committee's resolution shall be
(a) Whether PLAINTIFFS have the capacity or the personality to institute
this derivative suit in behalf of the MMIC or its directors, (b) Whether or not
the actions leading to, and including,. the PNB-DBP foreclosure of the
MMIC assets were proper, valid and in good
faith. 14
This agreement was presented for approval to the trial court. On October 14, 1992, the Makati
RTC, Branch 61, issued an order, to wit:
WHEREFORE, this Court orders:
1. Substituting PNB and DBP with the Asset
Privatization Trust as party defendant.
2. Approving the Compromise and Arbitration
Agreement dated October 6, 1997, attached as Annex
"C" of the Omnibus Motion.
3. Approving the Transformation of the reliefs prayed for
[by] the plaintiffs in this case into pure money claims;
and
4. The Complaint is hereby DISMISSED. 15
The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento
as Chairman, Atty. Jose C. Sison and former Court of Appeals Justice Magdangal Elma as
Members. On November 24, 1993, after conducting several hearings, the Arbitration Committee
rendered a majority decision in favor of MMIC, the pertinent portions of which read as follows:
Since, as this Committee finds, there is no foreclosure at all as it was not
legally and validly done, the Committee holds and so declares that the loans
of PNB and DBP to MMIC. for the payment and recovery of which the void
foreclosure sales were undertaken, continue to remain outstanding and
unpaid. Defendant APT as the successor-in-interest of PNB and DBP to the
said loans is therefore entitled and retains the right, to collect the same from
MMIC pursuant to, and based on the loan documents signed by MMIC,
subject to the legal and valid defenses that the latter may duly and
seasonably interpose. Such loans shall, however, be reduced by the amount
which APT may have realized from the sale of the seized assets of MMIC
which by agreement should no longer be returned even if the foreclosures
were found to be null and void.
The documentary evidence submitted and adopted by the parties (Exhibits
"3", "3-B"; Exhibit "100"; and also Exhibit "ZZZ") as their exhibits would
show that the total outstanding obligation due to DBP and PNB as of the
date of foreclosure is P22,668,537,770.05, more or less.

Therefore defendant APT can, and is still entitled to, collect the outstanding
obligations of MMIC to PNB and DBP amounting to P22,668,537,770.05,
more or less, with interest thereon as stipulated in the loan documents from
the date of foreclosure up to the time they are fully paid less the
proportionate liability of DBP as owner of 87% of the total capitalization of
MMIC under the FRP. Simply put, DBP shall share in the award of damages
to, and in the obligations of, MMIC in proportion to its 87% equity in tile total
capital stock of MMIC.
xxx xxx xxx
As this Committee holds that the FRP is valid, DBP's equity in MMIC is
raised to 87%. So pursuant to the above provision of the Compromise and
Arbitration Agreement, the 87% equity of DBP is hereby deducted from the
actual damages of P19,486,118,654.00 resulting in the net actual damages
of P2,531,635,425.02 plus interest.
DISPOSITION
WHEREFORE, premises considered, judgment is hereby rendered:
1. Ordering the defendant to pay to the Marinduque Mining and Industrial
Corporation, except the DBP, the sum of P2,531,635,425.02 with interest
thereon at the legal rate of six per cent (6%) per annum reckoned from
August 3, 9, and 24, 1984, pari passu, as and for actual damages. Payment
of these actual damages shall be offset by APT from the outstanding and
unpaid loans of MMIC with DBP and PNB, which have not been converted
into equity. Should there be any balance due to MMIC after the offsetting,
the same shall be satisfied from the funds representing the purchase price
of the sale of the shares of Island Cement Corporation in the amount of
P503,000,000.00 held under escrow pursuant to the Escrow Agreement
dated April 22, 1988 or to such subsequent escrow agreement that would
supercede [sic] it pursuant to paragraph (9) of the Compromise and
Arbitration Agreement;
2. Ordering the defendant to pay to the Marinduque Mining and Industrial
Corporation, except the DBP, the sum of P13,000.000.00, as and for moral
and exemplary damages. Payment of these moral and exemplary damages
shall be offset by APT from the outstanding and unpaid loans of MMIC with
DBP and PNB, which have not been converted into equity. Should there be
any balance due to MMIC after the offsetting, the same shall be satisfied
from the funds representing the purchase price of the sale of the shares of
Island Cement Corporation in the amount of P503,000,000.00 held under
escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede [sic] it pursuant to
paragraph (9) of the Compromise and Arbitration Agreement;
3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the
sum of P10,000,000.00, to be satisfied likewise from the funds held under
escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supersede it, pursuant to

paragraph (9) of the Compromise and Arbitration Agreement, as and for

moral damages; and
4. Ordering the defendant to pay arbitration costs.
This Decision is FINAL and EXECUTORY.
IT IS SO ORDERED. 16
Motions for reconsideration were filed by both parties, but the same were denied.
On October 17, 1993, private respondents filed in the same Civil Case No. 9900 an
"Application/Motion for Confirmation of Arbitration Award." Petitioner countered with an
"Opposition and Motion to Vacate Judgment" raising the following grounds.
1. The plaintiffs Application/Motion is improperly filed with this branch of the
Court, considering that the said motion is neither a part nor the continuation
of the proceedings in Civil Case No. 9900 which was dismissed upon
motion of the parties. In fact, the defendants in the said Civil Case No. 9900
were the Development Bank of the Philippines and the Philippine National
Bank (PNB);
2. Under Section 71 of Rep. Act 876, an arbitration under a contract or
submission shall be deemed a special proceedings and a party to the
controversy which was arbitrated may apply to the court having jurisdiction,
(not necessarily with this Honorable Court) for an order confirming the
award;
3. The issues submitted for arbitration have been limited to two: (1) propriety
of the plaintiffs filing the derivative suit and (2) the regularity of the
foreclosure proceedings. The arbitration award sought to be confirmed
herein, far exceeded the issues submitted and even granted moral
damages to one of the herein plaintiffs;
4. Under Section 24 of Rep. Act 876, the Court must make an order
vacating the award where the arbitrators exceeded their powers, or so
imperfectly executed them, that a mutual, final and definite award upon the
subject matter submitted to them was not made. 17

Decision of the Arbitration Committee promulgated on November 24, 1993,

as affirmed in a Resolution dated July 26, 1994, and finally settled and
clarified in the Separate Opinion dated September 2, 1994 of Committee
Member Elma, and the pertinent provisions of RA 876, also known as the
Arbitration Law, this Court GRANTS PLAINTIFFS' APPLICATION AND
THUS CONFIRMS THE ARBITRATION AWARD, AND JUDGMENT IS
HEREBY RENDERED:
(a) Ordering the defendant APT to the Marinduque Mining and Industrial
Corporation (MMIC), except the DBP, the sum of P3,811,757,425.00, as and
for actual damages, which shall be partially satisfied from the funds held
under escrow in the amount of P503,000,000.00 pursuant to the Escrow
Agreement dated April 22, 1988. The balance of the award, after the escrow
funds are fully applied, shall be executed against the APT;
(b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of
P13,000,000.00 as and for moral and exemplary damages;
(c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of
P10,000,000.00 as and for moral damages; and
(d) Ordering the defendant to pay the herein plaintiffs/applicants/movants
the sum of P1,705,410.23 as arbitration costs.
In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8
paragraph 2 of the Compromise and Arbitration Agreement, and the final
edict of the Arbitration Committee's decision, and with this Court's
Confirmation, the issuance of the Arbitration Committee's Award shall
henceforth be final and executory.
SO ORDERED. 18
On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated
November 28, 1994. Private respondents, in turn, submitted their reply and opposition thereto.

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

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

In an Order dated November 28, 1993, the trial court confirmed the award of the Arbitration
Committee. The dispositive portion of said order reads:

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

WHEREFORE, premises considered, and in the light of the parties [sic]

Compromise and Arbitration Agreement dated October 6, 1992, the

Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with
temporary restraining order and/or preliminary injunction dated February 13, 1996 to annul and

declare as void the Orders of the RTC-Makati dated November 28, 1994 and January 18, 1995
for having been issued without or in excess of jurisdiction and/or with grave abuse of discretion.
19
As ground therefor, petitioner alleged that:

THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT

PETITIONER WAS ESTOPPED FROM QUESTIONING THE
ARBITRATION AWARD, WHEN PETITIONER QUESTIONED THE
JURISDICTION OF THE RTC-MAKATI, BRANCH 62 AND AT THE SAME
TIME MOVED TO VACATE THE ARBITRAL AWARD.

III

THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED

JURISDICTION MUCH LESS, HAS THE COURT AUTHORITY, TO
CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE ORIGINAL
CASE, CIVIL CASE NO. 9900, HAD PREVIOUSLY BEEN DISMISSED.

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE

RESPONDENT TRIAL COURT SHOULD HAVE EITHER
DISMISSED/DENIED PRIVATE RESPONDENTS' MOTION/PETITION FOR
CONFIRMATION OF ARBITRATION AWARD AND/OR SHOULD HAVE
CONSIDERED THE MERITS OF THE MOTION TO VACATE ARBITRAL
AWARD.

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

IV
THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER
APT'S PETITION FOR CERTIORARI AS AN APPEAL TAKEN FROM THE
ORDER CONFIRMING THE AWARD.

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

V
THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL
ISSUE OF WHEN TO RECKON THE COUNTING OF THE PERIOD TO
FILE A MOTION FOR RECONSIDERATION. 21
The petition is impressed with merit.

On July 12, 1995, he Court of Appeals, through its Fifth-Division, denied due course and
dismissed the petition for certiorari.
Hence, the instant petition for review on certiorari imputing to the Court of Appeals the following
errors:
ASSIGNMENT OF ERRORS

I
The RTC of Makati, Branch 62, did not have jurisdiction to confirm the arbitral award.
The use of the term "dismissed" is not "a mere semantic imperfection". The dispositive portion of
the Order of the trial court dated October 14, 1992 stated in no uncertain terms:
4. The Complaint is hereby DISMISSED. 22

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

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

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

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

The aforequoted provision, however, does not preclude a party aggrieved by the arbitral award
from resorting to the extraordinary remedy of certiorari under Rule 65 of the Rules of Court
where, as in this case, the Regional Trial Court to which the award was submitted for
confirmation has acted without jurisdiction or with grave abuse of discretion and there is no
appeal, nor any plain, speedy remedy in the course of law.
Thus, Section 1 of Rule 65 provides:
Sec 1. Petition for Certiorari: When any tribunal, board or officer
exercising judicial functions, has acted without or in excess of its or his
jurisdiction, or with grave abuse of discretion and there is no appeal, nor any
plain, speed, and adequate remedy in the ordinary course of law, a person
aggrieved thereby may file a verified petition in the proper court alleging the
facts with certainty and praying that judgment be rendered annulling or
modifying the proceedings, as the law requires, of such tribunal, board or
officer.
In the instant case, the respondent court erred in dismissing the special civil action for certiorari,
it being clear from the pleadings and the evidence that the trial court lacked jurisdiction and/or
committed grave abuse of discretion in taking cognizance of private respondents' motion to
confirm the arbitral award and, worse, in confirming said award which is grossly and patently not
in accord with the arbitration agreement, as will be hereinafter demonstrated.
IV
The nature and limits of the Arbitrators' power.
As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to
the law or as to the facts. 29 Courts are without power to amend or overrule merely because of
disagreement with matters of law or facts determined by the arbitrators. 30 They will not review
the findings of law and fact contained in an award, and will not undertake to substitute their
judgment for that of the arbitrators, since any other rule would make an award the
commencement, not the end, of litigation. 31 Errors of law and fact, or an erroneous decision of
matters submitted to the judgment of the arbitrators, are insufficient to invalidate an award fairly
and honestly made. 32 Judicial review of an arbitration is thus, more limited than judicial review of
a trial. 33

Appeal of petitioner to the Court of Appeals thru certiorari under Rule 65 was proper.

We do not agree.

Nonetheless, the arbitrators' award is not absolute and without exceptions. The arbitrators
cannot resolve issues beyond the scope of the submission agreement. 34 The parties to such an
agreement are bound by the arbitrators' award only to the extent and in the manner prescribed
by the contract and only if the award is rendered in conformity thereto. 35 Thus, Sections 24 and
25 of the Arbitration Law provide grounds for vacating, rescinding or modifying an arbitration
award. Where the conditions described in Articles 2038, 36
2039, 37 and 1040 38 of the Civil Code applicable to compromises and arbitration are attendant,
the arbitration award may also be annulled.

Section 99 of Republic Act No. 876, 28 provides that:

In Chung Fu Industries (Phils.) vs. Court of Appeals,

The Court of Appeals in dismissing APT's petition for certiorari upheld the trial court's denial of
APT's motion for reconsideration of the trial court's order confirming the arbitral award, on the
ground that said motion was filed beyond the 15-day reglementary period; consequently, the
petition for certiorari could not be resorted to as substitute to the lost right of appeal.

. . . An appeal may be taken from an order made in a proceeding under this

Act, or from a judgment entered upon an award through certiorari
proceedings, but such appeals shall be limited to questions of law. . . ..

39

we held:

. . . . It is stated explicitly under Art. 2044 of the Civil Code that the finality of
the arbitrators' award is not absolute and without exceptions. Where the

conditions described in Articles 2038, 2039 and 2040 applicable to both

compromises and arbitrations are obtaining, the arbitrator's award may be
annulled or rescended. Additionally, under Sections 24 and 25 of the
Arbitration Law, there are grounds for vacating, modifying or rescinding an
arbitrator's award. Thus, if and when the factual circumstances referred to
the above-cited provisions are present, judicial review of the award is
properly warranted.
According, Section 20 of R.A. 876 provides:
Sec. 20. Form and contents of award. The award must be made in
writing and signed and acknowledge by a majority of the arbitrators, if more
than one; and by the sole arbitrator, if there is only only. Each party shall be
furnished with a copy of the award. The arbitrators in their award may grant
any remedy or relief which they deem just and equitable and within the
scope of the agreement of the parties, which shall include, but not be limited
to, the specific performance of a contract.
xxx xxx xxx
The arbitrators shall have the power to decide only those matters which
have been submitted to them. The terms of the award shall be confined to
such disputes. (Emphasis ours).
xxx xxx xxx
Sec. 24 of the same law enumerating the grounds for vacating an award states:
Sec. 24. Grounds for vacating award. In any one of the following cases,
the court must make an order vacating the award upon the petition of any
party to the controversy when such party proves affirmatively that in the
arbitration proceeding:

xxx xxx xxx.

Section 25 which enumerates the grounds for modifying the award provides:
Sec. 25. Grounds for modifying or correcting award In anyone of the
following cases, the court must make an order modifying or correcting the
award, upon the application of any party to the controversy which was
arbitrated:
(a) Where there was an evident miscalculation of figures, or an evident
mistake in the description of any person, thing or property referred to in the
award; or
(b) Where the arbitrators have awarded upon a matter not submitted to
them, not affecting the merits of the decision upon the matter submitted; or
(c) Where the award is imperfect in a matter of form not affecting the merits
of the controversy, and if it had been a commissioner's report, the defect
could have been amended or disregarded by the court.
xxx xxx xxx
Finally, it should be stressed that while a court is precluded from overturning an award for errors
in the determination of factual issues, nevertheless, if an examination of the record reveals no
support whatever for the arbitrators determinations, their award must be vacated. 40 in the same
manner, an award must be vacated if it was made in "manifest disregard of the law." 41
Against the backdrop of the foregoing provisions and principles, we find that the arbitrators came
out with an award in excess of their powers and palpably devoid of factual and legal basis.
V

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

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

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

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

(c) That the arbitrators were guilty of misconduct in refusing to postpone the
hearing upon sufficient cause shown, or in refusing to hear evidence
pertinent and material to the controversy; that one or more of the arbitrators
was disqualified to act as such under section nine hereof, and willfully
refrained from disclosing such disqualifications or any other misbehavior by
which the rights of any party have been materially prejudiced; or
(d) That the arbitrators exceeded their powers, or so imperfectly executed
them, that a mutual, final and definite award upon the subject matter
submitted to them was not made. (Emphasis ours)

As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a
separate opinion:
1. The various loans and advances made by DBP and PNB to MMIC have
become overdue and remain unpaid. The fact that a FRP was drawn up is
enough to establish that MMIC has not been complying with the terms of the
loan agreement. Restructuring simply connotes that the obligations are past
due that is why it is "restructurable";

2. When MMIC thru its board and the stockholders agreed and adopted the
FRP, it only means that MMIC had been informed or notified that its
obligations were past due and that foreclosure is forthcoming;
3. At that stage, MMIC also knew that PNB-DBP had the option of either
approving the FRP or proceeding with the foreclosure. Cabarrus, who filed
this case supposedly in behalf of MMIC should have insisted on the FRP.
Yet Cabarrus himself opposed the FRP;
4. So when PNB-DBP proceeded with the foreclosure, it was done without
bad faith but with the honest and sincere belief that foreclosure was the only
alternative; a decision further explained by Dr. Placido Mapa who testified
that foreclosure was, in the judgment of PNB, the best move to save MMIC
itself.
Q : Now in this portion of Exh. "L" which was marked as Exh. "L-1", and we
adopted as Exh. 37-A for the respondent, may I know from you, Dr. Mapa
what you meant by "that the decision to foreclose was neither precipitate
nor arbitrary"?
A : Well, it is not a whimsical decision but rather decision arrived at after
weighty consideration of the information that we have received, and
listening to the prospects which reported to us that what we had assumed
would be the premises of the financial rehabilitation plan was not
materialized nor expected to materialize.
Q : And this statement that "it was premised upon the known fact" that
means, it was referring to the decision to foreclose, was premised upon the
known fact that the rehabilitation plan earlier approved by the stockholders
was no longer feasible, just what is meant "by no longer feasible"?
A : Because the revenue that they were counting on to make the
rehabilitation plan possible, was not anymore expected to be forthcoming
because it will result in a short fall compared to the prices that were actually
taking place in the market.
Q : And I suppose that was what you were referring to when you stated that
the production targets and assumed prices of MMIC's products, among
other projections, used in the financial reorganization program that will make
it viable were not met nor expected to be met?
A : Yes.
xxx xxx xxx
Which brings me to my last point in this separate opinion. Was PNB and
DBP absolutely unjustified in foreclosing the mortgages?
In this connection, it can readily be seen and it cannot quite be denied that
MMIC accounts in PNB-DBP were past due. The drawing up of the FRP is

the best proof of this. When MMIC adopted a restructuring program for its
loan, it only meant that these loans were already due and unpaid. If these
loans were restructurable because they were already due and unpaid, they
are likewise "forecloseable". The option is with the PNB-DBP on what steps
to take.
The mere fact that MMIC adopted the FRP does not mean that DBP-PNB
lost the option to foreclose. Neither does it mean that the FRP is legally
binding and implementable. It must be pointed that said FRP will, in effect,
supersede the existing and past due loans of MMIC with PNB-DBP. It will
become the new loan agreement between the lenders and the borrowers.
As in all other contracts, there must therefore be a meeting of minds of the
parties; the PNB and DBP must have to validly adopt and ratify such FRP
before they can be bound by it; before it can be implemented. In this case,
not an iota of proof has been presented by the PLAINTIFFS showing that
PNB and DBP ratified and adopted the FRP. PLAINTIFFS simply relied on a
legal doctrine of promissory estoppel to support its allegations in this regard.
42

Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No. 385,
which took effect on January 31, 1974. The decree requires government financial institutions to
foreclose collaterals for loans where the arrearages amount to 20% of the total outstanding
obligations. The pertinent provisions of said decree read as follow:
Sec. 1. It shall be mandatory for government financial institutions, after the
lapse of sixty (60) days from the issuance of this Decree, to foreclose the
collaterals and/or securities for any loan, credit, accommodation, and/or
guarantees granted by them whenever the arrearages on such account,
including accrued interest and other charges, amount to at least twenty
percent (20%) of the total outstanding obligations, including interest and
other charges, as appearing in the books of account and/or related records
of the financial institutions concerned. This shall be without prejudice to the
exercise by the government financial institutions of such rights and/or
remedies available to them under their respective contracts with their
debtors, including the right to foreclosure on loans, credits,
accommodations and/or guarantees on which the arrearages are less than
twenty percent (20%).
Sec. 2. No restraining order temporary or permanent injunction shall be
issued by the court against any government financial institution in any action
taken by such institution in compliance with the mandatory foreclosure
provided in Section 1 hereof, whether such restraining order, temporary or
permanent injunction is sought by the borrower(s) or any third party or
parties, except after due hearing in which it is established by the borrower
and admitted by the government financial institution concerned that twenty
percent (20%) of the outstanding arrearages has been paid after the filing of
foreclosure proceedings. (Emphasis supplied.)

Private respondents' thesis that the foreclosure proceedings were null and void because of lack
of publication in the newspaper is nothing more than a mere unsubstantiated aliegation not
borne out by the evidence. In any case, a disputable presumption exists in favor of petitioner
that official duty has been regularly performed and ordinary course of business has been
followed. 43
VI
Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the facts of
the case, the arbitrators in making the award went beyond the arbitration agreement.
In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for
judgment in their favor:
1. Declaring the foreclosures effected by the defendants DBP and PNB on
the assets of MMIC null and void and directing said defendants to restore
the foreclosed assets to the possession of MMIC, to render an accounting
of their use and/or operation of said assets and to indemnify MMIC for the
loss occasioned by its dispossession or the deterioration thereof;
2. Directing the defendants DBP and PNB to honor and perform their
commitments under the financial reorganization plan which was approved at
the annual stockholders' meeting of MMIC on 30 April 1984;
3. Condemning the defendants DBP and PNB, jointly and severally to pay
the plaintiffs actual damages consisting of the loss of value of their
investments amounting to not less than P80,000,000, the damnum
emergens and lucrum cessans in such amount as may be established
during the trial, moral damages in such amount as this Honorable Court
may deem just and equitable in the premises, exemplary damages in such
amount as this Honorable Court may consider appropriate for the purpose
of setting an example for the public good, attorney's fees and litigation
expenses in such amounts as may be proven during the trial, and the costs
legally taxable in this litigation.
Further, plaintiffs pray for such other reliefs as may be just and equitable in
the premises. 44
Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties
clearly and explicitly defined and limited the issues to the following:
(a) whether PLAINTIFFS have the capacity or the personality to institute this
derivative suit in behalf of the MMIC or its directors;
(b) whether or not the actions leading to, and including, the PNB-DBP
foreclosure of the MMIC assets were proper, valid and in good faith. 45
Item No. 8 of the Agreement provides for the period by which the Committee was to render its
decision, as well as the nature thereof:

8. Decision. The committee shall issue a decision on the controversy not

later than six (6) months from the date of its constitution.
In the event the committee finds that PLAINTIFFS have the personality to
file this suit and the extra-judicial foreclosure of the MMIC assets wrongful, it
shall make an award in favor of the PLAINTIFFS (excluding DBP), in an
amount as may be established or warranted by the evidence which shall be
payable in Philippine Pesos at the time of the award. Such award shall be
paid by the APT or its successor-in-interest within sixty (60) days from the
date of the award in accordance with the provisions of par. 9
hereunder. . . . . The PLAINTIFFS' remedies under this Section shall be in
addition to other remedies that may be available to the PLAINTIFFS, all
such remedies being cumulative and not exclusive of each other.
On the other hand, in case the arbitration committee finds that PLAINTIFFS
have no capacity to sue and/or that the extra-judicial foreclosure is valid and
legal, it shall also make an award in favor of APT based on the
counterclaims of DBP and PNB in an amount as may be established or
warranted by the evidence. This decision of the arbitration committee in
favor of APT shall likewise finally settle all issues regarding the foreclosure
of the MMIC assets so that the funds held in escrow mentioned in par. 9
hereunder will thus be released in full in favor of
APT. 46
The clear and explicit terms of the submission notwithstanding, the Arbitration Committee clearly
exceeded its powers or so imperfectly executed them: (a) in ruling on and declaring valid the
FRP; (b) in awarding damages to MMIC which was not a party to the derivative suit; and (c) in
awarding moral damages to Jesus S. Cabarrus, Sr.
The arbiters overstepped their powers by declaring as valid the proposed
FinancialRestructuring Program.
The Arbitration Committee went beyond its mandate and thus acted in excess of its powers
when it ruled on the validity of, and gave effect to, the proposed FRP.
In submitting the case to arbitration, the parties had mutually agreed to limit the issue to the
"validity of the foreclosure" and to transform the relief prayed for therein into pure money claims.
There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to the
proposed FRP. It cannot be overemphasized that a FRP, as a contract, requires the consent of
the parties thereto. 47 The contract must bind both contracting parties. 48 Private respondents
even by their own admission recognized that the FRP had yet not been carried out and that the
loans of MMIC had not yet been converted into equity. 49
However, the Arbitration Committee not only declared the FRP valid and effective, but also
converted the loans of MMIC into equity raising the equity of DBP to 87%. 50
The Arbitration Committee ruled that there was "a commitment to carry out the FRP" 51 on the
ground of promissory estoppel.

Similarly, the principle of promissory estoppel applies in the present case

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

2217 of the Civil Code, moral damages include besmirched reputation which a corporation may
possibly suffer. A corporation whose overdue and unpaid debts to the Government alone
reached a tremendous amount of P22 Billion Pesos cannot certainly have a solid business
reputation to brag about. As Atty. Sison in his separate opinion persuasively put it:
Besides, it is not yet a well settled jurisprudence that corporations are
entitled to moral damages. While the Supreme Court may have awarded
moral damages to a corporation for besmirched reputation in Mambulao vs.
PNB, 22 SCRA 359, such ruling cannot find application in this case. It must
be pointed out that when the supposed wrongful act of foreclosure was
done, MMIC's credit reputation was no longer a desirable one. The
company then was already suffering from serious financial crisis which
definitely projects an image not compatible with good and wholesome
reputation. So it could not be said that there was a "reputation" besmirched
by the act of foreclosure. 55
The arbiters exceeded their authority in awarding damages to MMIC, which is not
impleaded as a party to the derivative suit.
Civil Case No. 9900 filed before the RTC being a derivative suit, MMIC should have been
impleaded as a party. It was not joined as a party plaintiff or party defendant at any stage of the
proceedings. As it is, the award of damages to MMIC, which was not a party before the
Arbitration Committee, is a complete nullity.
Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while
the stockholder filing suit for the corporation's behalf is only a nominal party. The corporation
should be included as a party in the suit.
An individual stockholder is permitted to institute a derivative suit on behalf
of the corporation wherein he holds stock in order to protect or vindicate
corporate rights, whenever the officials of the corporation refuse to sue, or
are the ones to be sued or hold the control of the corporation. In such
actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. . . . . 56
It is a condition sine qua non that the corporation be impleaded as a party because
. . . Not only is the corporation an indispensable party, but it is also the
present rule that it must be served with process. The reason given is that
the judgment must be made binding upon the corporation in order that the
corporation may get the benefit of the suit and may not bring a subsequent
suit against the same defendants for the same cause of action. In other
words the corporation must be joined as party because it is its cause of
action that is being litigated and because judgment must be a res ajudicata
against it. 57
The reasons given for not allowing direct individual suit are:
(1) . . . "the universally recognized doctrine that a stockholder in a
corporation has no title legal or equitable to the corporate property; that both

of these are in the corporation itself for the benefit of the stockholders." In
other words, to allow shareholders to sue separately would conflict with the
separate corporate entity principle;
(2) . . . that the prior rights of the creditors may be prejudiced. Thus, our
Supreme Court held in the case of Evangelista v. Santos, that "the
stockholders may not directly claim those damages for themselves for that
would result in the appropriation by, and the distribution among them of part
of the corporate assets before the dissolution of the corporation and the
liquidation of its debts and liabilities, something which cannot be legally
done in view of section 16 of the Corporation Law . . .;
(3) the filing of such suits would conflict with the duty of the management to
sue for the protection of all concerned;
(4) it would produce wasteful multiplicity of suits; and
(5) it would involve confusion in a ascertaining the effect of partial recovery
by an individual on the damages recoverable by the corporation for the
same act. 58
If at all an award was due MMIC, which it was not, the same should have been given sans
deduction, regardless of whether or not the party liable had equity in the corporation, in view of
the doctrine that a corporation has a personality separate and distinct from its individual
stockholders or members. DBP's alleged equity, even if it were indeed 87%, did not give it
ownership over any corporate property, including the monetary award, its right over said
corporate property being a mere expectancy or inchoate right. 59 Notably, the stipulation even
had the effect of prejudicing the other creditors of MMIC.
The arbiters, likewise, exceeded their authority in awarding moral damages to Jesus
Cabarrus, Sr.
It is perplexing how the Arbitration Committee can in one breath rule that the case before it is a
derivative suit, in which the aggrieved party or the real party in interest is supposedly the MMIC,
and at the same time award moral damages to an individual stockholder, to wit:
WHEREFORE, premises considered, judgment is hereby rendered:
xxx xxx xxx
3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the
sum of P10,000,000.00, to be satisfied likewise from the funds held under
escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supersede it, pursuant to
paragraph (9), Compromise and Arbitration Agreement, as and for moral
damages; . . . 60
The majority decision of the Arbitration Committee sought to justify its award of moral damages
to Jesus S. Cabarrus, Sr. by pointing to the fact that among the assets seized by the
government were assets belonging to Industrial Enterprise Inc. (IEI), of which Cabarrus is the

majority stockholder. It then acknowledged that Cabarrus had already recovered said assets in
the RTC, but that "he won no more than actual damages. While the Committee cannot possibly
speak for the RTC, there is no doubt that Jesus S. Cabarrus, Sr., suffered moral damages on
account of that specific foreclosure, damages the Committee believes and so holds, he, Jesus
S. Cabarrus, Sr., may be awarded in this proceeding." 61
Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the
majority stockholder, having been ventilated in a complaint he previously filed with the RTC, from
which he obtained actual damages, he was barred by res judicata from filing a similar case in
another court, this time asking for moral damages which he failed to get from the earlier case. 62
Worse, private respondents violated the rule against non-forum shopping.
It is a basic postulate that a corporation has a personality separate and distinct from its
stockholders. 63 The properties foreclosed belonged to MMIC, not to its stockholders. Hence, if
wrong was committed in the foreclosure, it was done against the corporation. Another reason is
that Jesus S. Cabarrus, Sr. cannot directly claim those damages for himself that would result in
the appropriation by, and the distribution to, him part of the corporation's assets before the
dissolution of the corporation and the liquidation of its debts and liabilities. The Arbitration
Committee, therefore, passed upon matters nor submitted to it. Moreover, said cause of action
had already been decided in a separate case. It is thus quite patent that the arbitration
committee exceeded the authority granted to it by the parties' Compromise and Arbitration
Agreement by awarding moral damages to Jesus S. Cabarrus, Sr.
Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral
damages to Jesus S. Cabarrus, Sr.:
It is clear and it cannot be disputed therefore that based on these stipulated
issues, the parties themselves have agreed that the basic ingredient of the
causes of action in this case is the wrong committed on the corporation
(MMIC) for the alleged illegal foreclosure of its assets. By agreeing to this
stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit that the cause
of action pertains only to the corporation (MMIC) and that they are filing this
for and in behalf of MMIC.
Perforce this has to be so because it is the basic rule in Corporation Law
that "the shareholders have no title, legal or equitable to the property which
is owned by the corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil.
83). In Ganzon & Sons vs. Register of Deeds, 6 SCRA 373, the rule has
been reiterated that "a stockholder is not the co-owner of corporate
property." Since the property or assets foreclosed belongs [sic] to MMIC, the
wrong committed, if any, is done against the corporation. There is therefore
no direct injury or direct violation of the rights of Cabarrus et al. There is no
way, legal or equitable, by which Cabarrus et al. could recover damages in
their personal capacities even assuming or just because the foreclosure is
improper or invalid. The Compromise and Arbitration Agreement itself and
the elementary principles of Corporation Law say so. Therefore, I am
constrained to dissent from the award of moral damages to Cabarrus. 64
From the foregoing discussions, it is evident that, not only did the arbitration committee exceed
its powers or so imperfectly execute them, but also, its findings and conclusions are palpably
devoid of any factual basis, and in manifest disregard of the law.

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

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

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

G.R. No. L-22973

January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiff-appellant,

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

On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga Branch
of defendant PNB and the former offered real estate, machinery, logging and transportation
equipments as collaterals. The application, however, was approved for a loan of P100,000 only.
To secure the payment of the loan, the plaintiff mortgaged to defendant PNB a parcel of land,
together with the buildings and improvements existing thereon, situated in the poblacion of
Jose Panganiban (formerly Mambulao), province of Camarines Norte, and covered by Transfer
Certificate of Title No. 381 of the land records of said province, as well as various sawmill
equipment, rolling unit and other fixed assets of the plaintiff, all situated in its compound in the
aforementioned municipality.
On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for which
the plaintiff signed a promissory note wherein it promised to pay to the PNB the said sum in
five equal yearly installments at the rate of P6,528.40 beginning July 31, 1957, and every year
thereafter, the last of which would be on July 31, 1961.
On October 19, 1956, the PNB made another release of P15,500 as part of the approved loan
granted to the plaintiff and so on the said date, the latter executed another promissory note
wherein it agreed to pay to the former the said sum in five equal yearly installments at the rate
of P3,679.64 beginning July 31, 1957, and ending on July 31, 1961.
The plaintiff failed to pay the amortization on the amounts released to and received by it.
Repeated demands were made upon the plaintiff to pay its obligation but it failed or otherwise
refused to do so. Upon inspection and verification made by employees of the PNB, it was
found that the plaintiff had already stopped operation about the end of 1957 or early part of
1958.
On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte
requesting him to take possession of the parcel of land, together with the improvements
existing thereon, covered by Transfer Certificate of Title No. 381 of the land records of
Camarines Norte, and to sell it at public auction in accordance with the provisions of Act No.
3135, as amended, for the satisfaction of the unpaid obligation of the plaintiff, which as of
September 22, 1961, amounted to P57,646.59, excluding attorney's fees. In compliance with
the request, on October 16, 1961, the Provincial Sheriff of Camarines Norte issued the
corresponding notice of extra-judicial sale and sent a copy thereof to the plaintiff. According to
the notice, the mortgaged property would be sold at public auction at 10:00 a.m. on November
21, 1961, at the ground floor of the Court House in Daet, Camarines Norte.
On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte
requesting him to take possession of the chattels mortgaged to it by the plaintiff and sell them
at public auction also on November 21, 1961, for the satisfaction of the sum of P57,646.59,
plus 6% annual interest therefore from September 23, 1961, attorney's fees equivalent to 10%
of the amount due and the costs and expenses of the sale. On the same day, the PNB sent notice
to the plaintiff that the former was foreclosing extrajudicially the chattels mortgaged by the
latter and that the auction sale thereof would be held on November 21, 1961, between 9:00 and
12:00 a.m., in Mambulao, Camarines Norte, where the mortgaged chattels were situated.

On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of the
chattels mortgaged by the plaintiff and made an inventory thereof in the presence of a PC
Sergeant and a policeman of the municipality of Jose Panganiban. On November 9, 1961, the
said Deputy Sheriff issued the corresponding notice of public auction sale of the mortgaged
chattels to be held on November 21, 1961, at 10:00 a.m., at the plaintiff's compound situated in
the municipality of Jose Panganiban, Province of Camarines Norte.
On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail matter,
one to the Naga Branch of the PNB and another to the Provincial Sheriff of Camarines Norte,
protesting against the foreclosure of the real estate and chattel mortgages on the grounds that
they could not be effected unless a Court's order was issued against it (plaintiff) for said
purpose and that the foreclosure proceedings, according to the terms of the mortgage contracts,
should be made in Manila. In said letter to the Naga Branch of the PNB, it was intimated that if
the public auction sale would be suspended and the plaintiff would be given an extension of
ninety (90) days, its obligation would be settled satisfactorily because an important negotiation
was then going on for the sale of its "whole interest" for an amount more than sufficient to
liquidate said obligation.
The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a
request for extension of the foreclosure sale of the mortgaged chattels and so it advised the
Sheriff of Camarines Norte to defer it to December 21, 1961, at the same time and place. A
copy of said advice was sent to the plaintiff for its information and guidance.
The foreclosure sale of the parcel of land, together with the buildings and improvements
thereon, covered by Transfer Certificate of Title No. 381, was, however, held on November 21,
1961, and the said property was sold to the PNB for the sum of P56,908.00, subject to the right
of the plaintiff to redeem the same within a period of one year. On the same date, Deputy
Provincial Sheriff Heraldo executed a certificate of sale in favor of the PNB and a copy thereof
was sent to the plaintiff.
In a letter dated December 14, 1961 (but apparently posted several days later), the plaintiff sent
a bank draft for P738.59 to the Naga Branch of the PNB, allegedly in full settlement of the
balance of the obligation of the plaintiff after the application thereto of the sum of P56,908.00
representing the proceeds of the foreclosure sale of parcel of land described in Transfer
Certificate of Title No. 381. In the said letter, the plaintiff reiterated its request that the
foreclosure sale of the mortgaged chattels be discontinued on the grounds that the mortgaged
indebtedness had been fully paid and that it could not be legally effected at a place other than
the City of Manila.
In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of Camarines
Norte that it had fully paid its obligation to the PNB, and enclosed therewith a copy of its letter
to the latter dated December 14, 1961.
On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the plaintiff
acknowledging the remittance of P738.59 with the advice, however, that as of that date the
balance of the account of the plaintiff was P9,161.76, to which should be added the expenses of
guarding the mortgaged chattels at the rate of P4.00 a day beginning December 19, 1961. It
was further explained in said letter that the sum of P57,646.59, which was stated in the request
for the foreclosure of the real estate mortgage, did not include the 10% attorney's fees and
expenses of the sale. Accordingly, the plaintiff was advised that the foreclosure sale scheduled
on the 21st of said month would be stopped if a remittance of P9,161.76, plus interest thereon
and guarding fees, would be made.

On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at 10:00 a.m.
and they were awarded to the PNB for the sum of P4,200 and the corresponding bill of sale
was issued in its favor by Deputy Provincial Sheriff Heraldo.
In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB advised the
plaintiff giving it priority to repurchase the chattels acquired by the former at public auction.
This offer was reiterated in a letter dated January 3, 1962, of the Attorney of the Naga Branch
of the PNB to the plaintiff, with the suggestion that it exercise its right of redemption and that
it apply for the condonation of the attorney's fees. The plaintiff did not follow the advice but on
the contrary it made known of its intention to file appropriate action or actions for the
protection of its interests.
On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff in
Jose Panganiban, Camarines Norte, and they informed Luis Salgado, Chief Security Guard of
the premises, that the properties therein had been auctioned and bought by the PNB, which in
turn sold them to Mariano Bundok. Upon being advised that the purchaser would take delivery
of the things he bought, Salgado was at first reluctant to allow any piece of property to be taken
out of the compound of the plaintiff. The employees of the PNB explained that should Salgado
refuse, he would be exposing himself to a litigation wherein he could be held liable to pay big
sum of money by way of damages. Apprehensive of the risk that he would take, Salgado
immediately sent a wire to the President of the plaintiff in Manila, asking advice as to what he
should do. In the meantime, Mariano Bundok was able to take out from the plaintiff's
compound two truckloads of equipment.
In the afternoon of the same day, Salgado received a telegram from plaintiff's President
directing him not to deliver the "chattels" without court order, with the information that the
company was then filing an action for damages against the PNB. On the following day, May
25, 1962, two trucks and men of Mariano Bundok arrived but Salgado did not permit them to
take out any equipment from inside the compound of the plaintiff. Thru the intervention,
however, of the local police and PC soldiers, the trucks of Mariano Bundok were able finally to
haul the properties originally mortgaged by the plaintiff to the PNB, which were bought by it at
the foreclosure sale and subsequently sold to Mariano Bundok.
Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated in the first
paragraph of this opinion, sentenced the Mambulao Lumber Company to pay to the defendant PNB the
sum of P3,582.52 with interest thereon at the rate of 6% per annum from December 22, 1961 (day
following the date of the questioned foreclosure of plaintiff's chattels) until fully paid, and the costs.
Mambulao Lumber Company interposed the instant appeal.
We shall discuss the various points raised in appellant's brief in seriatim.
The first question Mambulao Lumber Company poses is that which relates to the amount of its
indebtedness to the PNB arising out of the principal loans and the accrued interest thereon. It is contended
that its obligation under the terms of the two promissory notes it had executed in favor of the PNB
amounts only to P56,485.87 as of November 21, 1961, when the sale of real property was effected, and
not P58,213.51 as found by the trial court.
There is merit to this claim. Examining the terms of the promissory note executed by the appellant in
favor of the PNB, we find that the agreed interest on the loan of P43,000.00 P27,500.00 released on
August 2, 1956 as per promissory note of even date (Exhibit C-3), and P15,500.00 released on October 19,
1956, as per promissory note of the same date (Exhibit C-4) was six per cent (6%) per annum from the
respective date of said notes "until paid". In the statement of account of the appellant as of September 22,
1961, submitted by the PNB, it appears that in arriving at the total indebtedness of P57,646.59 as of that
date, the PNB had compounded the principal of the loan and the accrued 6% interest thereon each time the
yearly amortizations became due, and on the basis of these compounded amounts charged additional

delinquency interest on them up to September 22, 1961; and to this erroneously computed total of
P57,646.59, the trial court added 6% interest per annum from September 23, 1961 to November 21 of the
same year. In effect, the PNB has claimed, and the trial court has adjudicated to it, interest on accrued
interests from the time the various amortizations of the loan became due until the real estate mortgage
executed to secure the loan was extra-judicially foreclosed on November 21, 1961. This is an error.
Section 5 of Act No. 2655 expressly provides that in computing the interest on any obligation, promissory
note or other instrument or contract, compound interest shall not be reckoned, except by agreement, or in
default thereof, whenever the debt is judicially claimed. This is also the clear mandate of Article 2212 of
the new Civil Code which provides that interest due shall earn legal interest only from the time it is
judicially demanded, and of Article 1959 of the same code which ordains that interest due and unpaid shall
not earn interest. Of course, the parties may, by stipulation, capitalize the interest due and unpaid, which
as added principal shall earn new interest; but such stipulation is nowhere to be found in the terms of the
promissory notes involved in this case. Clearly therefore, the trial court fell into error when it awarded
interest on accrued interests, without any agreement to that effect and before they had been judicially
demanded.
Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale in favor of the
PNB. With respect to the amount of P298.54 allowed as expenses of the extra-judicial sale of the real
property, appellant maintains that the same has no basis, factual or legal, and should not have been
awarded. It likewise decries the award of attorney's fees which, according to the appellant, should not be
deducted from the proceeds of the sale of the real property, not only because there is no express agreement
in the real estate mortgage contract to pay attorney's fees in case the same is extra-judicially foreclosed,
but also for the reason that the PNB neither spent nor incurred any obligation to pay attorney's fees in
connection with the said extra-judicial foreclosure under consideration.
There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In this respect, the
trial court said:
The parcel of land, together with the buildings and improvements existing thereon covered by
Transfer Certificate of Title No. 381, was sold for P56,908. There was, however, no evidence
how much was the expenses of the foreclosure sale although from the pertinent provisions of
the Rules of Court, the Sheriff's fees would be P1 for advertising the sale (par. k, Sec. 7, Rule
130 of the Old Rules) and P297.54 as his commission for the sale (par. n, Sec. 7, Rule 130 of
the Old Rules) or a total of P298.54.
There is really no evidence of record to support the conclusion that the PNB is entitled to the amount
awarded as expenses of the extra-judicial foreclosure sale. The court below committed error in applying
the provisions of the Rules of Court for purposes of arriving at the amount awarded. It is to be borne in
mind that the fees enumerated under paragraphs k and n, Section 7, of Rule 130 (now Rule 141) are
demandable, only by a sheriff serving processes of the court in connection with judicial foreclosure of
mortgages under Rule 68 of the new Rules, and not in cases of extra-judicial foreclosure of mortgages
under Act 3135. The law applicable is Section 4 of Act 3135 which provides that the officer conducting
the sale is entitled to collect a fee of P5.00 for each day of actual work performed in addition to his
expenses in connection with the foreclosure sale. Admittedly, the PNB failed to prove during the trial of
the case, that it actually spent any amount in connection with the said foreclosure sale. Neither may
expenses for publication of the notice be legally allowed in the absence of evidence on record to support
it. 1 It is true, as pointed out by the appellee bank, that courts should take judicial notice of the fees
provided for by law which need not be proved; but in the absence of evidence to show at least the number
of working days the sheriff concerned actually spent in connection with the extra-judicial foreclosure sale,
the most that he may be entitled to, would be the amount of P10.00 as a reasonable allowance for two
day's work one for the preparation of the necessary notices of sale, and the other for conducting the
auction sale and issuance of the corresponding certificate of sale in favor of the buyer. Obviously,
therefore, the award of P298.54 as expenses of the sale should be set aside.
But the claim of the appellant that the real estate mortgage does not provide for attorney's fees in case the
same is extra-judicially foreclosed, cannot be favorably considered, as would readily be revealed by an

examination of the pertinent provision of the mortgage contract. The parties to the mortgage appear to
have stipulated under paragraph (c) thereof, inter alia:
. . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the Mortgagee
his attorney-in-fact to sell the property mortgaged under Act 3135, as amended, to sign all
documents and to perform all acts requisite and necessary to accomplish said purpose and to
appoint its substitute as such attorney-in-fact with the same powers as above specified. In case
of judicial foreclosure, the Mortgagor hereby consents to the appointment of the Mortgagee or
any of its employees as receiver, without any bond, to take charge of the mortgaged property at
once, and to hold possession of the same and the rents, benefits and profits derived from the
mortgaged property before the sale, less the costs and expenses of the receivership; the
Mortgagor hereby agrees further that in all cases, attorney's fees hereby fixed at Ten Per cent
(10%) of the total indebtedness then unpaid which in no case shall be less than P100.00
exclusive of all fees allowed by law, and the expenses of collection shall be the obligation of
the Mortgagor and shall with priority, be paid to the Mortgagee out of any sums realized as
rents and profits derived from the mortgaged property or from the proceeds realized from the
sale of the said property and this mortgage shall likewise stand as security therefor. . . .
We find the above stipulation to pay attorney's fees clear enough to cover both cases of foreclosure sale
mentioned thereunder, i.e., judicially or extra-judicially. While the phrase "in all cases" appears to be part
of the second sentence, a reading of the whole context of the stipulation would readily show that it
logically refers to extra-judicial foreclosure found in the first sentence and to judicial foreclosure
mentioned in the next sentence. And the ambiguity in the stipulation suggested and pointed out by the
appellant by reason of the faulty sentence construction should not be made to defeat the otherwise clear
intention of the parties in the agreement.
It is suggested by the appellant, however, that even if the above stipulation to pay attorney's fees were
applicable to the extra-judicial foreclosure sale of its real properties, still, the award of P5,821.35 for
attorney's fees has no legal justification, considering the circumstance that the PNB did not actually spend
anything by way of attorney's fees in connection with the sale. In support of this proposition, appellant
cites authorities to the effect: (1) that when the mortgagee has neither paid nor incurred any obligation to
pay an attorney in connection with the foreclosure sale, the claim for such fees should be denied; 2 and (2)
that attorney's fees will not be allowed when the attorney conducting the foreclosure proceedings is an
officer of the corporation (mortgagee) who receives a salary for all the legal services performed by him for
the corporation. 3 These authorities are indeed enlightening; but they should not be applied in this case.
The very same authority first cited suggests that said principle is not absolute, for there is authority to the
contrary. As to the fact that the foreclosure proceeding's were handled by an attorney of the legal staff of
the PNB, we are reluctant to exonerate herein appellant from the payment of the stipulated attorney's fees
on this ground alone, considering the express agreement between the parties in the mortgage contract
under which appellant became liable to pay the same. At any rate, we find merit in the contention of the
appellant that the award of P5,821.35 in favor of the PNB as attorney's fees is unconscionable and
unreasonable, considering that all that the branch attorney of the said bank did in connection with the
foreclosure sale of the real property was to file a petition with the provincial sheriff of Camarines Norte
requesting the latter to sell the same in accordance with the provisions of Act 3135.
The principle that courts should reduce stipulated attorney's fees whenever it is found under the
circumstances of the case that the same is unreasonable, is now deeply rooted in this jurisdiction to
entertain any serious objection to it. Thus, this Court has explained:
But the principle that it may be lawfully stipulated that the legal expenses involved in the
collection of a debt shall be defrayed by the debtor does not imply that such stipulations must
be enforced in accordance with the terms, no matter how injurious or oppressive they may be.
The lawful purpose to be accomplished by such a stipulation is to permit the creditor to receive
the amount due him under his contract without a deduction of the expenses caused by the
delinquency of the debtor. It should not be permitted for him to convert such a stipulation into
a source of speculative profit at the expense of the debtor.

Contracts for attorney's services in this jurisdiction stands upon an entirely different footing
from contracts for the payment of compensation for any other services. By express provision of
section 29 of the Code of Civil Procedure, an attorney is not entitled in the absence of express
contract to recover more than a reasonable compensation for his services; and even when an
express contract is made the court can ignore it and limit the recovery to reasonable
compensation if the amount of the stipulated fee is found by the court to be unreasonable. This
is a very different rule from that announced in section 1091 of the Civil Code with reference to
the obligation of contracts in general, where it is said that such obligation has the force of law
between the contracting parties. Had the plaintiff herein made an express contract to pay his
attorney an uncontingent fee of P2,115.25 for the services to be rendered in reducing the note
here in suit to judgment, it would not have been enforced against him had he seen fit to oppose
it, as such a fee is obviously far greater than is necessary to remunerate the attorney for the
work involved and is therefore unreasonable. In order to enable the court to ignore an express
contract for an attorney's fees, it is not necessary to show, as in other contracts, that it is
contrary to morality or public policy (Art. 1255, Civil Code). It is enough that it is
unreasonable or unconscionable. 4
Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever the fees
stipulated appear excessive, unconscionable, or unreasonable, because a lawyer is primarily a court officer
charged with the duty of assisting the court in administering impartial justice between the parties, and
hence, the fees should be subject to judicial control. Nor should it be ignored that sound public policy
demands that courts disregard stipulations for counsel fees, whenever they appear to be a source of
speculative profit at the expense of the debtor or mortgagor. 5 And it is not material that the present action
is between the debtor and the creditor, and not between attorney and client. As court have power to fix the
fee as between attorney and client, it must necessarily have the right to say whether a stipulation like this,
inserted in a mortgage contract, is valid. 6
In determining the compensation of an attorney, the following circumstances should be considered: the
amount and character of the services rendered; the responsibility imposed; the amount of money or the
value of the property affected by the controversy, or involved in the employment; the skill and experience
called for in the performance of the service; the professional standing of the attorney; the results secured;
and whether or not the fee is contingent or absolute, it being a recognized rule that an attorney may
properly charge a much larger fee when it is to be contingent than when it is not. 7 From the stipulation in
the mortgage contract earlier quoted, it appears that the agreed fee is 10% of the total indebtedness,
irrespective of the manner the foreclosure of the mortgage is to be effected. The agreement is perhaps fair
enough in case the foreclosure proceedings is prosecuted judicially but, surely, it is unreasonable when, as
in this case, the mortgage was foreclosed extra-judicially, and all that the attorney did was to file a petition
for foreclosure with the sheriff concerned. It is to be assumed though, that the said branch attorney of the
PNB made a study of the case before deciding to file the petition for foreclosure; but even with this in
mind, we believe the amount of P5,821.35 is far too excessive a fee for such services. Considering the
above circumstances mentioned, it is our considered opinion that the amount of P1,000.00 would be more
than sufficient to compensate the work aforementioned.
The next issue raised deals with the claim that the proceeds of the sale of the real properties alone together
with the amount it remitted to the PNB later was more than sufficient to liquidate its total obligation to
herein appellee bank. Again, we find merit in this claim. From the foregoing discussion of the first two
errors assigned, and for purposes of determining the total obligation of herein appellant to the PNB as of
November 21, 1961 when the real estate mortgage was foreclosed, we have the following illustration in
support of this conclusion:1wph1.t
A. I.

Principal Loan
(a) Promissory note dated August 2, 1956

P27,500.00

(1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961
(b) Promissory note dated October 19, 1956

P15,500.00

(1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 1961
II.

Sheriff's fees [for two (2) day's work]

III.

Attorney's fee

8,751.78

4,734.08
10.00
1,000.00

Total obligation as of Nov. 21, 1961

P57,495.86

B. I.

Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21, 1961

II.

Additional amount remitted to the PNB on Dec. 18, 1961

P56,908.00
738.59

Total amount of Payment made to PNB as of Dec. 18, 1961

P57,646.59

Deduct: Total obligation to the PNB

P57,495.86

Excess Payment to the PNB

P 150.73
========

From the foregoing illustration or computation, it is clear that there was no further necessity to foreclose
the mortgage of herein appellant's chattels on December 21, 1961; and on this ground alone, we may
declare the sale of appellant's chattels on the said date, illegal and void. But we take into consideration the
fact that the PNB must have been led to believe that the stipulated 10% of the unpaid loan for attorney's
fees in the real estate mortgage was legally maintainable, and in accordance with such belief, herein
appellee bank insisted that the proceeds of the sale of appellant's real property was deficient to liquidate
the latter's total indebtedness. Be that as it may, however, we still find the subsequent sale of herein
appellant's chattels illegal and objectionable on other grounds.
That appellant vigorously objected to the foreclosure of its chattel mortgage after the foreclosure of its real
estate mortgage on November 21, 1961, can not be doubted, as shown not only by its letter to the PNB on
November 19, 1961, but also in its letter to the provincial sheriff of Camarines Norte on the same date.
These letters were followed by another letter to the appellee bank on December 14, 1961, wherein herein
appellant, in no uncertain terms, reiterated its objection to the scheduled sale of its chattels on December
21, 1961 at Jose Panganiban, Camarines Norte for the reasons therein stated that: (1) it had settled in full
its total obligation to the PNB by the sale of the real estate and its subsequent remittance of the amount of
P738.59; and (2) that the contemplated sale at Jose Panganiban would violate their agreement embodied
under paragraph (i) in the Chattel Mortgage which provides as follows:
(i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended, the
parties hereto agree that the corresponding complaint for foreclosure or the petition for sale
should be filed with the courts or the sheriff of the City of Manila, as the case may be; and that
the Mortgagor shall pay attorney's fees hereby fixed at ten per cent (10%) of the total
indebtedness then unpaid but in no case shall it be less than P100.00, exclusive of all costs and
fees allowed by law and of other expenses incurred in connection with the said foreclosure.
[Emphasis supplied]

Notwithstanding the abovequoted agreement in the chattel mortgage contract, and in utter disregard of the
objection of herein appellant to the sale of its chattels at Jose Panganiban, Camarines Norte and not in the
City of Manila as agreed upon, the PNB proceeded with the foreclosure sale of said chattels. The trial
court, however, justified said action of the PNB in the decision appealed from in the following rationale:
While it is true that it was stipulated in the chattel mortgage contract that a petition for the
extra-judicial foreclosure thereof should be filed with the Sheriff of the City of Manila,
nevertheless, the effect thereof was merely to provide another place where the mortgage chattel
could be sold in addition to those specified in the Chattel Mortgage Law. Indeed, a stipulation
in a contract cannot abrogate much less impliedly repeal a specific provision of the statute.
Considering that Section 14 of Act No. 1508 vests in the mortgagee the choice where the
foreclosure sale should be held, hence, in the case under consideration, the PNB had three
places from which to select, namely: (1) the place of residence of the mortgagor; (2) the place
of the mortgaged chattels were situated; and (3) the place stipulated in the contract. The PNB
selected the second and, accordingly, the foreclosure sale held in Jose Panganiban, Camarines
Norte, was legal and valid.
To the foregoing conclusion, We disagree. While the law grants power and authority to the mortgagee to
sell the mortgaged property at a public place in the municipality where the mortgagor resides or where the
property is situated, 8 this Court has held that the sale of a mortgaged chattel may be made in a place other
than that where it is found, provided that the owner thereof consents thereto; or that there is an agreement
to this effect between the mortgagor and the mortgagee. 9 But when, as in this case, the parties agreed to
have the sale of the mortgaged chattels in the City of Manila, which, any way, is the residence of the
mortgagor, it cannot be rightly said that mortgagee still retained the power and authority to select from
among the places provided for in the law and the place designated in their agreement over the objection of
the mortgagor. In providing that the mortgaged chattel may be sold at the place of residence of the
mortgagor or the place where it is situated, at the option of the mortgagee, the law clearly contemplated
benefits not only to the mortgagor but to the mortgagee as well. Their right arising thereunder, however,
are personal to them; they do not affect either public policy or the rights of third persons. They may
validly be waived. So, when herein mortgagor and mortgagee agreed in the mortgage contract that in
cases of both judicial and extra-judicial foreclosure under Act 1508, as amended, the corresponding
complaint for foreclosure or the petition for sale should be filed with the courts or the Sheriff of Manila,
as the case may be, they waived their corresponding rights under the law. The correlative obligation
arising from that agreement have the force of law between them and should be complied with in good
faith. 10
By said agreement the parties waived the legal venue, and such waiver is valid and legally
effective, because it, was merely a personal privilege they waived, which is not contrary, to
public policy or to the prejudice of third persons. It is a general principle that a person may
renounce any right which the law gives unless such renunciation is expressly prohibited or the
right conferred is of such nature that its renunciation would be against public policy. 11
On the other hand, if a place of sale is specified in the mortgage and statutory requirements in
regard thereto are complied with, a sale is properly conducted in that place. Indeed, in the
absence of a statute to the contrary, a sale conducted at a place other than that stipulated for in
the mortgage is invalid, unless the mortgagor consents to such sale. 12
Moreover, Section 14 of Act 1508, as amended, provides that the officer making the sale should make a
return of his doings which shall particularly describe the articles sold and the amount received from each
article. From this, it is clear that the law requires that sale be made article by article, otherwise, it would be
impossible for him to state the amount received for each item. This requirement was totally disregarded by
the Deputy Sheriff of Camarines Norte when he sold the chattels in question in bulk, notwithstanding the
fact that the said chattels consisted of no less than twenty different items as shown in the bill of sale. 13
This makes the sale of the chattels manifestly objectionable. And in the absence of any evidence to show
that the mortgagor had agreed or consented to such sale in gross, the same should be set aside.

It is said that the mortgagee is guilty of conversion when he sells under the mortgage but not in
accordance with its terms, or where the proceedings as to the sale of foreclosure do not comply with the
statute. 14 This rule applies squarely to the facts of this case where, as earlier shown, herein appellee bank
insisted, and the appellee deputy sheriff of Camarines Norte proceeded with the sale of the mortgaged
chattels at Jose Panganiban, Camarines Norte, in utter disregard of the valid objection of the mortgagor
thereto for the reason that it is not the place of sale agreed upon in the mortgage contract; and the said
deputy sheriff sold all the chattels (among which were a skagit with caterpillar engine, three GMC 6 x 6
trucks, a Herring Hall Safe, and Sawmill equipment consisting of a 150 HP Murphy Engine, plainer, large
circular saws etc.) as a single lot in violation of the requirement of the law to sell the same article by
article. The PNB has resold the chattels to another buyer with whom it appears to have actively cooperated
in subsequently taking possession of and removing the chattels from appellant compound by force, as
shown by the circumstance that they had to take along PC soldiers and municipal policemen of Jose
Panganiban who placed the chief security officer of the premises in jail to deprive herein appellant of its
possession thereof. To exonerate itself of any liability for the breach of peace thus committed, the PNB
would want us to believe that it was the subsequent buyer alone, who is not a party to this case, that was
responsible for the forcible taking of the property; but assuming this to be so, still the PNB cannot escape
liability for the conversion of the mortgaged chattels by parting with its interest in the property. Neither
would its claim that it afterwards gave a chance to herein appellant to repurchase or redeem the chattels,
improve its position, for the mortgagor is not under obligation to take affirmative steps to repossess the
chattels that were converted by the mortgagee. 15 As a consequence of the said wrongful acts of the PNB
and the Deputy Sheriff of Camarines Norte, therefore, We have to declare that herein appellant is entitled
to collect from them, jointly and severally, the full value of the chattels in question at the time they were
illegally sold by them. To this effect was the holding of this Court in a similar situation. 16
The effect of this irregularity was, in our opinion to make the plaintiff liable to the defendant
for the full value of the truck at the time the plaintiff thus carried it off to be sold; and of
course, the burden is on the defendant to prove the damage to which he was thus subjected. . . .
This brings us to the problem of determining the value of the mortgaged chattels at the time of their sale in
1961. The trial court did not make any finding on the value of the chattels in the decision appealed from
and denied altogether the right of the appellant to recover the same. We find enough evidence of record,
however, which may be used as a guide to ascertain their value. The record shows that at the time herein
appellant applied for its loan with the PNB in 1956, for which the chattels in question were mortgaged as
part of the security therefore, herein appellant submitted a list of the chattels together with its application
for the loan with a stated value of P107,115.85. An official of the PNB made an inspection of the chattels
in the same year giving it an appraised value of P42,850.00 and a market value of P85,700.00. 17 The same
chattels with some additional equipment acquired by herein appellant with part of the proceeds of the loan
were reappraised in a re-inspection conducted by the same official in 1958, in the report of which he gave
all the chattels an appraised value of P26,850.00 and a market value of P48,200.00. 18 Another reinspection report in 1959 gave the appraised value as P19,400.00 and the market value at P25,600.00. 19
The said official of the PNB who made the foregoing reports of inspection and re-inspections testified in
court that in giving the values appearing in the reports, he used a conservative method of appraisal which,
of course, is to be expected of an official of the appellee bank. And it appears that the values were
considerably reduced in all the re-inspection reports for the reason that when he went to herein appellant's
premises at the time, he found the chattels no longer in use with some of the heavier equipments
dismantled with parts thereof kept in the bodega; and finding it difficult to ascertain the value of the
dismantled chattels in such condition, he did not give them anymore any value in his reports. Noteworthy
is the fact, however, that in the last re-inspection report he made of the chattels in 1961, just a few months
before the foreclosure sale, the same inspector of the PNB reported that the heavy equipment of herein
appellant were "lying idle and rusty" but were "with a shed free from rains" 20 showing that although they
were no longer in use at the time, they were kept in a proper place and not exposed to the elements. The
President of the appellant company, on the other hand, testified that its caterpillar (tractor) alone is worth
P35,000.00 in the market, and that the value of its two trucks acquired by it with part of the proceeds of
the loan and included as additional items in the mortgaged chattels were worth no less than P14,000.00.
He likewise appraised the worth of its Murphy engine at P16,000.00 which, according to him, when taken
together with the heavy equipments he mentioned, the sawmill itself and all other equipment forming part
of the chattels under consideration, and bearing in mind the current cost of equipments these days which

he alleged to have increased by about five (5) times, could safely be estimated at P120,000.00. This
testimony, except for the appraised and market values appearing in the inspection and re-inspection reports
of the PNB official earlier mentioned, stand uncontroverted in the record; but We are not inclined to
accept such testimony at its par value, knowing that the equipments of herein appellant had been idle and
unused since it stopped operating its sawmill in 1958 up to the time of the sale of the chattels in 1961. We
have no doubt that the value of chattels was depreciated after all those years of inoperation, although from
the evidence aforementioned, We may also safely conclude that the amount of P4,200.00 for which the
chattels were sold in the foreclosure sale in question was grossly unfair to the mortgagor. Considering,
however, the facts that the appraised value of P42,850.00 and the market value of P85,700.00 originally
given by the PNB official were admittedly conservative; that two 6 x 6 trucks subsequently bought by the
appellant company had thereafter been added to the chattels; and that the real value thereof, although
depreciated after several years of inoperation, was in a way maintained because the depreciation is off-set
by the marked increase in the cost of heavy equipment in the market, it is our opinion that the market
value of the chattels at the time of the sale should be fixed at the original appraised value of P42,850.00.
Herein appellant's claim for moral damages, however, seems to have no legal or factual basis. Obviously,
an artificial person like herein appellant corporation cannot experience physical sufferings, mental
anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis of
moral damages. 21 A corporation may have a good reputation which, if besmirched, may also be a ground
for the award of moral damages. The same cannot be considered under the facts of this case, however, not
only because it is admitted that herein appellant had already ceased in its business operation at the time of
the foreclosure sale of the chattels, but also for the reason that whatever adverse effects of the foreclosure
sale of the chattels could have upon its reputation or business standing would undoubtedly be the same
whether the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place
agreed upon by the parties in the mortgage contract.
But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding
with the sale in utter disregard of the agreement to have the chattels sold in Manila as provided for in the
mortgage contract, to which their attentions were timely called by herein appellant, and in disposing of the
chattels in gross for the miserable amount of P4,200.00, herein appellant should be awarded exemplary
damages in the sum of P10,000.00. The circumstances of the case also warrant the award of P3,000.00 as
attorney's fees for herein appellant.
WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision appealed from should be, as
hereby, it is set aside. The Philippine National Bank and the Deputy Sheriff of the province of Camarines
Norte are ordered to pay, jointly and severally, to Mambulao Lumber Company the total amount of
P56,000.73, broken as follows: P150.73 overpaid by the latter to the PNB, P42,850.00 the value of the
chattels at the time of the sale with interest at the rate of 6% per annum from December 21, 1961, until
fully paid, P10,000.00 in exemplary damages, and P3,000.00 as attorney's fees. Costs against both
appellees.
G.R. No. 113176

July 30, 2001

HANIL DEVELOPMENT CO., LTD., petitioner,

vs.
COURT OF APPEALS AND M.R. ESCOBAR EXPLOSIVE ENGINEERS, INC., respondent.
---------------------------------------G.R. No. 113342

July 30, 2001

M.R. ESCOBAR EXPLOSIVE ENGINEERS, INC., petitioner,

vs.
COURT OF APPEALS AND HANIL DEVELOPMENT CO., LTD., respondents.
PUNO, J.:
Before us are Petitions for Review on Certiorari under Rule 45 of the Decision rendered on August 23,
1993 and the Resolution promulgated on January 5, 1994, both by the Court of Appeals.1
In the early seventies, the Ministry of Public Works and Highways (MPWH for brevity) awarded
petitioner Hanil Development Co., Ltd. (Hanil for brevity) the contract to construct the 200-kilometer
Iligan-Cagayan de Oro-Butuan Highway Project. On November 14, 1976, Hanil sub-let the rock-blasting
work portion of the contract to private respondent M.R. Escobar Explosive Engineers, Inc. (Escobar for
brevity). By express stipulation of the parties, Escobar will be compensated thus:
"x x x

xxx

xxx

9. For the services performed by Sub-Contractor (Escobar) in accordance with the terms and
conditions herein described, Hanil will pay twenty pesos (P20.00) per cubic meter on the
following basis:
a. If the rocks are solid in nature, quantity will be assessed as shown on the cross-section.
b. If the nature of the rock is soft and can be removed by using ripper, quantity may be
assessed on the actual blasted amount surveyed by both Company and Sub-Contractor's
engineers."2
On January 3, 1977, Escobar commenced its blasting works. It continued its services until terminated by
Hanil on December 15, 1978. For the duration of the contract, it worked on the segments of the
construction undertaking designated in the agreement as A-2, B-2, B-3, B-4, and C-1. It was fully paid for
the areas A-2 and B-4. It claimed, however, that Hanil still partially owes it one million three hundred
forty one thousand seven hundred twenty-seven and 40/100 (P1,341,727.40) pesos for blastings done in
the B-2, B-3 and C-1 areas. The claim was predicated on the theory that the rocks it caused to explode in
the contested areas were solid in nature, and therefore the volume should be computed using the crosssection approach pursuant to the above-quoted paragraph 9(a). It appears that all the payments it received
were fixed based on the joint survey method under paragraph 9(b). Escobar stressed that Hanil was always
paid by the MPWH using the cross-section system. This was pursuant to the awarded 200-km. highway
project contract between the MPWH and Hanil, where the volumes of rocks to be blasted in specific areas
were already pre-estimated based on the cross-section approach. In fine, Escobar's line of reasoning is that
Hanil should pay it the same amount of money Hanil received from the MPWH for the blastings it did in
the contested areas (B-2, B-3 and C-1). The figure P1,341,727.40 represents the difference between the
two.
Consequently, Escobar instituted Civil Case No. 35966 for recovery of a sum of money with damages
against Hanil before the then Court of First Instance of Rizal (CFI for brevity). Hanil filed its answer with
counterclaim for damages. Trial thereafter ensued. On April 16, 1982, the CFI handed down a Decision
ordering Hanil to pay P1,341,727.40 for the value of rocks blasted by Escobar; 10% of the amount due for
attorney's fees; and the costs of suit.

On May 24, 1982, upon Escobar's motion, the CFI garnished the bank accounts of Hanil and levied its
equipments. On June 29, 1982, it also granted Escobar's Ex-parte Motion to Deposit Cash praying that the
Finance Manager of the National Power Corporation (NAPOCOR) be directed to withdraw Hanil's funds
from the NAPOCOR and deposit the same with the Clerk of Court. Hanil challenged the issuance of the
May 24 and June 29 Orders before the Court of Appeals in a Petition for Certiorari with prayer for
Injunction and Preliminary Restraining Order, docketed as CA-G.R. No. SP-14512. The appellate court, in
a decision rendered on February 3, 1983, voided the challenged Orders.
While the above-mentioned petition was pending before the Court of Appeals and despite the writ of
injunction issued by it, other developments continued to unfold in the CFI. In an Order dated August 23,
1982, it disapproved Hanil's Amended Record on Appeal and dismissed its appeal. On October 19, 1982, it
denied Hanil's Motion for Reconsideration of the August 23 Order and at the same time granted Escobar's
Motion for Execution of Judgment. These two Orders were again contested by Hanil before the appellate
court in a Petition for Certiorari and Mandamus with prayer for Prohibition. The said Orders were again
annulled and set aside. Hanil's appeal was reinstated and the CFI was ordered to elevate the entire records
of the case to the Court of Appeals.
After transmittal of the records, the Court of Appeals notified Hanil on February 11, 1985 to file
Appellant's Brief within forty-five days. On March 13, 1985, and within the reglementary period to submit
its brief, Hanil filed an Application for Judgment against Attachment Bond and Motion to Defer Filing of
Appellant's Brief, praying for a hearing before the Court of Appeals so it could prove the damages it
sustained as a result of the illegal writ of attachment issued by the CFI. It wanted a judgment against the
attachment bond posted by Escobar and its insurer Sanpiro Insurance Corporation (Sanpiro for brevity) to
be included in the appealed decision in the main case, Civil Case No. 35966, then pending before the
Court of Appeals. Escobar filed its Comment with a Motion to Dismiss Appeal allegedly for Hanil's
failure to file its brief.
On April 30, 1985, the appellate court issued a Resolution denying Hanil's Application for Judgment
Against the Attachment Bond together with its Motion to Defer Filing of Appellant's Brief. It also
dismissed Hanil's appeal. Hanil's Motion for Reconsideration was denied on June 20, 1985. Hanil
promptly sought relief from said April 30 and June 20 Resolutions by filing with this Court a Petition for
Certiorari, Mandamus and Prohibition with Mandatory Injunction. In a decision rendered on September
30, 1986, we reversed and set aside the assailed Resolutions. We also directed the Court of Appeals to
conduct hearings on the application for damages against the bond filed by Hanil and to reinstate the
appeal.
Upon reinstatement of the appeal, the appellate court conducted hearings on the application for judgment
against the attachment bond. On August 23, 1993, it promulgated the herein contested Decision,3 the
decretal portion of which reads as follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. REVERSING and SETTING ASIDE the appealed decision in Civil Case No. 35966;
2. DISMISSING the complaint in Civil Case No. 35966;
3. ORDERING the plaintiff-appellee (Escobar) to pay defendant-appellant under the
counterclaim in Civil Case No. 35966 the following sums of money:
a. FIFTY THOUSAND (P50,000.00) PESOS, for and as attorney's fees;

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

damages;
4. ORDERING plaintiff-appellee and bondsman Sanpiro to jointly and severally pay
defendant-appellant under the attachment bond the total sum of FIFTY-SEVEN THOUSAND
FIVE HUNDRED SEVEN AND 90/100 (P57,507.90) PESOS as and for attorney's fees and
litigation expenses; and
5. ORDERING plaintiff-appellee to pay bondsman Sanpiro by way of reimbursement under
their Indemnity Agreement the sum of FIFTY-SEVEN THOUSAND FIVE HUNDRED
SEVEN AND 90/100 (P57,507.90) PESOS.
Costs against plaintiff-appellee."4
Hanil and Escobar filed their own respective Motions for Reconsideration, which were both denied in a
Resolution5 dated January 5, 1994.
On February 15, 1994, Hanil filed before this court a Petition for Review on Certiorari under Rule 45
assailing the amount of damages awarded to it. This was docketed as G.R. No. 113176, entitled Hanil
Development Co., Ltd., Petitioner, vs. Court of Appeals and M.R. Escobar Explosive Engineers,
Respondents. On February 24, 1994, Escobar likewise filed its own Petition for Review on Certiorari
under Rule 45, docketed as G.R. No. 113342, entitled M.R. Escobar Explosive Engineers, Inc.,
Petitioner, vs. Court of Appeals and Hanil Development Co., Ltd., Respondents.
In G.R. No. 113176, petitioner Hanil raises the following grounds:
"I. THE U.S.$3,000.00 INCURRED AND SPENT BY PETITIONER IN TAKING THE
DEPOSITION OF ONE OF ITS WITNESSES SHOULD HAVE BEEN ADJUDGED TO BE
PAID BY THE PRIVATE RESPONDENT.
II. THE PETITIONER SHOULD HAVE BEEN AWARDED WITH TEMPERATE
DAMAGES OF P5,000,000.00 IN LIEU OF ACTUAL DAMAGES, INSTEAD OF THE
SMALLER SUM OF P20,000.00 IN NOMINAL DAMAGES.
III. THE PETITIONER SHOULD HAVE BEEN AWARDED MORAL DAMAGES IN THE
AMOUNT OF P1,000,000.00.
IV. THE PRIVATE RESPONDENT SHOULD BE MADE TO PAY THE PETITIONER
EXEMPLARY DAMAGES IN THE AMOUNT OF P5,000,000.00 IN ORDER TO BE AN
EFFECTIVE DETERRENT TO MALEVOLENT, FRAUDULENT AND MALICIOUS SUIT
AND APPLICATION FOR ATTACHMENT AND OTHER SIMILAR ACTS;
V. THE AWARDED ATTORNEY'S FEES FOR THE PRINCIPAL ACTION SHOULD HAVE
BEEN INCREASED FROM P50,000.00 TO P500,000.00."6
In G. R. No. 113342, petitioner Escobar makes the following assignment of errors:
"I.

THE COURT OF APPEALS ERRED GRAVELY IN NOT AFFIRMING THE TRIAL

COURT'S 16 APRIL 1982 DECISION IN PETITIONER'S FAVOR.
II.
THE COURT OF APPEALS FURTHER ERRED GRAVELY IN AWARDING DAMAGES
AND ATTORNEY'S FEES TO PRIVATE RESPONDENT, AS WELL AS IN AWARDING
ADDITIONAL ATTORNEY'S FEES AND INJUNCTION BOND PREMIUM ON PRIVATE
RESPONDENT'S APPLICATION FOR DAMAGES ON ATTACHMENT.
III.
THEREFORE THE COURT OF APPEALS ERRED IN NOT DISMISSING THE PETITION
IN CA-G.R. NO. 05055 OUTRIGHT FOR BEING UTTERLY DEVOID OF MERIT." 7
We will jointly discuss the related issues forwarded by the parties, first, in respect of the appeal from the
Decision of the CFI in Civil Case No. 35966, before ruling on the issues advanced anent the application
for judgment on the attachment bond.
Re: Appeal from the Decision of the CFI in Civil Case No. 35966
In its petition in G.R. No. 113342, Escobar claims that the Court of Appeals erroneously relied on subparagraph (b) of paragraph 9 of the Sub-Contract Agreement. It maintains that all the blasting works it
performed in areas B-2, B-3 and C-1 were for and on solid rock areas. It emphasizes that since Hanil was
paid by the MPWH based on the cross-section system in these areas, it should likewise be paid in the same
manner.
The contention fails to impress. Just because the MPWH paid Hanil using the cross-section approach for
the blastings in the contested areas does not necessarily mean that Hanil should in turn compensate
Escobar based on the same technique of computation. Apropos is the observation made by Mr. N.A.
Vaitialingam, the Project Manager of the engineering consultants Sauti, Certeza & F.F. Cruz for the 200kilometer Iligan-Butuan highway construction project. In a letter8 dated December 10, 1979 addressed to
the Honorable Minister of the MPWH, he declared the following:
"These payments are made subject to the specification under Clause 105-3-2 'Rock Material' of
the General Specifications, copy attached. Therefore it is not possible to ascertain the exact
volume of rock or boulders blasted by the sub-contractor from the volume paid to the
contractor because the rock blasted may be, for example, 60% or 65 % of the volume paid in
the cross-section. Also very often boulders are pushed by the bull-dozers without blasting.
Thus it is desired that the main contractor (Hanil) and the sub-contractor should come to a
mutual agreement on the subject." (emphasis supplied.)
The import of this observation was correctly interpreted by the Court of Appeals, thus:
"What Mr. N.A. Vaitialingam simply means is that the cross-section computation for payment
by the MPWH to appellant (Hanil), as contractor, could not be in turn used as an accurate basis
for payment by appellant to appellee (Escobar), as sub-contractor, not only because the rock
blasted in each cross-section might have been (sic) consisted only of 60% or 65% solid rock

but also because very often blasting was no longer necessary since boulders were just removed
by bulldozers. The truth of Mr. Vaitialingam's statement is confirmed by appellee's own
documentary evidence which show that "rock blasting and boulders" comprised a major
portion of the work done in segment "B-2" (Exh. "B-3") and segment "B-3" (Exh. "B-2") and
that the work in segment "C-1" (Exh. "B-1") consisted entirely of "blasting and dozing."
Moreover, appellee's Exhibits "B-1", "B-2" and "B-3" clearly evince that "In all cases there
were overburden of earth of varying depths on top of rock and boulders." In other words,
payment to appellee "as shown by cross-section" under Sub-paragraph (a) of Paragraph 9 of
the questioned document was obviously inapplicable for not being based on an actual and
accurate method of measurement." 9
This letter (Exhibit "H") is part of the evidence of Escobar. It cannot impugn its own evidence. 10
To be sure, what governs the contractual relation between Escobar and Hanil are the stipulations contained
in their Sub-contract Agreement. A contract is the law between the parties and where there is nothing in it
which is contrary to law, morals, good customs, public policy or public good, its validity must be
sustained.
The express terms of the agreement are clear as day to necessitate any interpretation. For the cross-section
approach under paragraph 9(a) to apply, it is imperative to establish that the rocks blasted were solid in
nature. Otherwise, the joint survey procedure will be followed. Escobar failed to prove the nature of the
rocks it blasted in the disputed areas. It did not introduce in evidence object samples of the rocks in the
area. Neither did it present "photographs, both wide and close-up angles of representative portions of the
said areas that it worked on, let alone photographs of typical clusters of the rock it blasted." 11
That the cross-section system was not at all followed by the parties is further shown by Escobar's act in
the first seven months of the two-year agreement when it received monthly payments computed on the
basis of the joint survey method. During the period from January to July 1977, its monthly billings were
fixed after a joint survey of the estimated quantity of rocks before blasting and another joint assessment of
the actual volume of rocks blasted by its own engineers and those of Hanil, which is in accordance with
Paragraph 9(b), not 9(a), of their Sub-contract Agreement. Its belated assertion that these monthly
collections were understood to be mere partial compensation, subject to adjustment after applying the
cross-section approach, appears to be an afterthought. If the claim is true, it could have easily indicated or
annotated the condition in the billings that it sent Hanil and the receipts for the payment. Since Escobar
accepted payment for a considerable period of time under the joint survey method [par. 9(b)], it cannot
later be allowed to assume an inconsistent position by invoking the cross-section approach [par. 9(a)].
We now discuss the merit of Hanil's petition. For its part, it seeks an increase in the grant of nominal
damages and attorney's fees. It also prays for additional awards of moral and exemplary damages.
Hanil's plea for additional amount in the form of temperate damages in lieu of the nominal damages
awarded to it must be denied. We agree with the appellate court's ruling that the amount of twenty
thousand pesos (P20,000.00) is just. Hanil failed to prove the actual value of pecuniary injury which it
sustained as a consequence of Escobar's institution of an unfounded civil suit. The testimony of one of its
witnesses presented in the CFI, to the effect that "the filing of the complaint affected Hanil's reputation
and that it affected the management and engineers working in the site,"12 is not enough proof. The
institution of the suit, unfounded though it may be, does not always lead to pecuniary loss as to warrant an
award of actual or temperate damages. The link between the cause (the suit) and the effect (the loss) must
be established by the required proof.

So, too, must its demand for payment of moral damages fail. The rule is that moral damages can not be
granted in favor of a corporation. Being an artificial person and having existence only in legal
contemplation, a corporation has no feelings, no emotions, no senses. It cannot, therefore, experience
physical suffering, mental anguish, fright, serious anxiety, wounded feelings or moral shock or social
humiliation, which can be suffered only by one having a nervous system. 13
Hanil's prayer for exemplary damages must likewise be denied. It must be remembered that this kind of
damages cannot be recovered as a matter of right. Its allowance rests in the sound discretion of the court,
and only upon a showing of its legal foundation. Under the Civil Code, the claimant must first establish
that he is entitled to moral, temperate, compensatory or liquidated damages before it may be imposed in
his favor.14 Hanil failed to do so, hence, it cannot claim exemplary damages.
We hold, however, that an increase in the grant of attorney's fees from fifty thousand pesos (P50,000.00)
to one hundred fifty thousand pesos (P150,000.00) is in order. Although the original complaint lodged
with the CFI was merely for collection of a sum of money with damages, involving as it did modest legal
issues, that complaint had in reality generated several incidents during the close to twenty years that this
case was under litigation. Twice, Hanil filed Petitions for Certiorari with the Court of Appeals. Once, it
elevated the case to this Court questioning the dismissal of the appeal by the appellate court. Then, after
reinstatement of the appeal, it had to present and defend its case not only for the appeal but also for its
application on the attachment bond. And now, Hanil has to contend with Escobar's Petition in G.R. No.
113342, even as it concerns itself with its own Petition in G.R. No. 113176. In fine, taking into account the
over-all factual environment upon which this case proceeded, we find the award of P50,000.00 insufficient
and hereby augment it to P150,000.00.
Re: Application for Judgment on the Attachment Bond
Apropos the Application for Judgment on the Attachment Bond, Escobar claims in its petition that the
award of attorney's fees and injunction bond premium in favor of Hanil is to law and jurisprudence. It
contends that no malice or bad faith may be imputed to it in procuring the writ.
Escobar's protestation is now too late in the day. The question of the illegality of the attachment and
Escobar's bad faith in obtaining it has long been settled in one of the earlier incidents of this case. The
Court of Appeals, in its decision rendered on February 3, 1983 in C.A.-G.R. No. SP-14512, voided the
challenged writ, having been issued with grave abuse of discretion. Escobar's bad faith in procuring the
writ cannot be doubted. Its Petition for the Issuance of Preliminary Attachment made such damning
allegations that: Hanil was already able to secure a complete release of its final collection from the
MPWH; it has moved out some of its heavy equipments for unknown destination, and it may leave the
country anytime. Worse, its Ex Parte Motion to Resolve Petition alleged that "after personal verification
by (Escobar) of (Hanil's) equipment in Cagayan de Oro City, it appears that the equipments were no
longer existing from their compound." All these allegations of Escobar were found to be totally baseless
and untrue. So manifest was their baselessness that Escobar did not even submit a reply to refute the
assertions Hanil made in its Opposition to the Petition for the Issuance of Preliminary Attachment. Nor did
it attempt to negate the same assertions of Hanil in its Motion for Reconsideration. Instead, it advanced the
evasive claim that the Motion has become moot and academic on the ground that the writ of attachment
has already been executed.
We therefore hold that on the basis of the evidence presented, Hanil is entitled to temperate damages in the
amount of five hundred thousand pesos (P500,000.00). As a consequence of the illegal writ, Hanil suffered
the following damages: (1) some of the checks it issued were dishonored after its bank accounts were
garnished; (2) its operation stopped temporarily for five days because it was prevented from using its
equipments and machineries; and (3) its goodwill, reputation and commercial standing as one of the top
multi-national construction firms in Asia was tarnished.

In light of Escobar's bad faith in procuring the attachment and garnishment orders, we grant the additional
award of exemplary damages in the amount of one million pesos (P1,000,000.00) by way of example or
correction for public good. This should deter parties in litigations from resorting to baseless and
preposterous allegations to obtain writs of attachments from gullible judges. The misuse of our legal
processes cannot be tolerated especially if they victimize persons and institutions of foreign nationality
doing legitimate business in our jurisdiction. While as a general rule, the liability on the attachment bond
is limited to actual (or in some cases, temperate or nominal) damages, exemplary damages may be
recovered where the attachment was established to be maliciously sued out. 15
We, however, delete the award of attorney's fees for the litigation of the application for damages against
the bond since we have already included the same in our grant of attorney's fees in the main action
concerning the appeal.
In other aspects, we sustain the assailed Decision and Resolution of the Court of Appeals. The claim of
Hanil that as part of the cost of suit, Escobar should be made to pay three thousand U.S. dollars (U.S.
$3,000.00) for the money it spent in taking the deposition upon written interrogatories of one of its
witnesses, Engr. Chan Woo Park, in South Korea on November 18, 1988 is bereft of merit. The case law
on this issue is now settled, viz.:
"(T)he expenses of taking depositions are allowable as costs only if it appears to the court: (1)
that they were reasonably necessary; (2) the burden of so demonstrating is upon the party
claiming such expenses as costs; (3) whether that burden is met is within the sound discretion
of the trial court; and (4) its ruling thereon is presumed to be correct and will not be
disturbed unless it is so unreasonable as to manifest a clear abuse of discretion." 16 (emphasis
supplied)
Whether the taking of a deposition was reasonably necessary to the protection of the party's interests as to
entitle it to reimbursement of expenses is a question primarily for the lower court to decide based on all
the facts and circumstances of the case. On this score, the Court of Appeals (which heard the Application
for Damages) disallowed Hanil's claim since the deposition "was merely corroborative in nature and,
therefore, superfluous."17 We agree. A cursory reading of the transcript of deposition of Engr. Chan will
readily reveal that his testimony only corroborated that of Hanil's earlier witness, Mr. Chang Yong Ahn, its
Operations Manager, who took the stand on February 26, 1988. The two testimonies dealt with the same
topic: the illegal writ of attachment on Hanil's equipments and garnishment of its funds, and the pecuniary
loss it suffered as a consequence thereof. In fact, despite the Court of Appeals's own conclusion about the
superfluity of the deposition, it still decided in favor of Hanil based on the other undisputed evidence on
record.
In the same vein, we sustain the grant of seven thousand five hundred seven pesos and ninety centavos
(P7,507.90) as injunction bond premium for being reasonable under the premises.
Finally, we find and so hold that, as between Escobar and its bondsman Sanpiro, the former is liable to the
latter by virtue of their Indemnity Agreement18 for the damages the subject attachment bond is herein
made to answer. However, since the extent of its liability will be determined only by the terms and
conditions of the contract of suretyship,19 it can only be held answerable up to the amount of one million
three hundred forty-one thousand, seven hundred twenty-seven pesos and forty centavos
(P1,341,727.40).1wphi1.nt
IN VIEW WHEREOF, the assailed Decision and Resolution of the Court of Appeals are hereby modified
as follows:

1. ORDERING Escobar to pay Hanil under the counterclaim in Civil Case No. 35966 the following sums
of money:
a. TWENTY THOUSAND PESOS (P20,000.00) as nominal damages;
b. ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00) for and as attorney's fees.
2. ORDERING Escobar, and bondsman Sanpiro to jointly and severally pay with it up to the extent of one
million three hundred forty-one thousand seven hundred twenty-seven pesos and forty centavos
(P1,341,727.40), to pay Hanil under the attachment bond the following sums of money:
a. FIVE HUNDRED THOUSAND PESOS (P500,000.00) as temperate damages;
b. ONE MILLION PESOS (P1,000,000.00) as exemplary damages;
c. SEVEN THOUSAND FIVE HUNDRED SEVEN PESOS AND NINETY CENTAVOS
(P7,507.90) for the Injunction Bond Premium.
3. ORDERING Escobar to pay Hanil the remainder of the amount of temperate, exemplary and bond
premium damages - which cannot be fully covered by the attachment bond - in the sum of ONE
HUNDRED SIXTY-FIVE THOUSAND SEVEN HUNDRED EIGHTY PESOS AND FIFTY
CENTAVOS (P165,780.50).
4. ORDERING Escobar to pay bondsman Sanpiro by way of reimbursement under their Indemnity
Agreement the sum of ONE MILLION THREE HUNDRED FORTY-ONE THOUSAND SEVEN
HUNDRED TWENTY-SEVEN PESOS AND FORTY CENTAVOS (P1,341,727.40).
Costs against Escobar.

This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of preliminary
mandatory and prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a corporation duly
organized and existing under the laws of the Philippines, and its President, Frederick E. Seggerman, pray
this Court to declare null and void Search Warrant No. 2-M-70 issued by respondent Judge on February
25, 1970; to order respondents to desist from enforcing the same and/or keeping the documents, papers
and effects seized by virtue thereof, as well as from enforcing the tax assessments on petitioner
corporation alleged by petitioners to have been made on the basis of the said documents, papers and
effects, and to order the return of the latter to petitioners. We gave due course to the petition but did not
issue the writ of preliminary injunction prayed for therein.
The pertinent facts of this case, as gathered from record, are as follows:chanrob1es virtual 1aw library
On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter
addressed to respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against
petitioners for violation of Section 46(a) of the National Internal Revenue Code, in relation to all other
pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and 209, and authorizing Revenue
Examiner Rodolfo de Leon, one of herein respondents, to make and file the application for search warrant
which was attached to the letter.
In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness, respondent
Arturo Logronio, went to the Court of First Instance of Rizal. They brought with them the following
papers: respondent Veras aforesaid letter-request; an application for search warrant already filled up but
still unsigned by respondent De Leon; an affidavit of respondent Logronio subscribed before respondent
De Leon; a deposition in printed form of respondent Logronio already accomplished and signed by him
but not yet subscribed; and a search warrant already accomplished but still unsigned by respondent Judge.
At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed his Deputy
Clerk of Court to take the depositions of respondents De Leon and Logronio. After the session had
adjourned, respondent Judge was informed that the depositions had already been taken. The stenographer,
upon request of respondent Judge, read to him her stenographic notes; and thereafter, respondent Judge
asked respondent Logronio to take the oath and warned him that if his deposition was found to be false
and without legal basis, he could be charged for perjury. Respondent Judge signed respondent de Leons
application for search warrant and respondent Logronios deposition, Search Warrant No. 2-M-70 was
then sign by respondent Judge and accordingly issued.
Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the search warrant
petitioners at the offices of petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners lawyers
protested the search on the ground that no formal complaint or transcript of testimony was attached to the
warrant. The agents nevertheless proceeded with their search which yielded six boxes of documents.

SO ORDERED.
[G.R. No. L-32409. February 27, 1971.]
BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v. HON. JUDGE
VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity as Commissioner of Internal Revenue,
ARTURO LOGRONIO, RODOLFO DE LEON, GAVINO VELASQUEZ, MIMIR DELLOSA,
NICANOR ALCORDO, JOHN DOE, JOHN DOE, JOHN DOE, and JOHN DOE, Respondents.
San Juan, Africa, Gonzales & San Agustin, for Petitioners.
Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V . Bautista, Solicitor Pedro
A. Ramirez and Special Attorney Jaime M. Maza for Respondents.

On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying that the
search warrant be quashed, dissolved or recalled, that preliminary prohibitory and mandatory writs of
injunction be issued, that the search warrant be declared null and void, and that the respondents be ordered
to pay petitioners, jointly and severally, damages and attorneys fees. On March 18, 1970, the respondents,
thru the Solicitor General, filed an answer to the petition. After hearing, the court, presided over by
respondent Judge, issued on July 29, 1970, an order dismissing the petition for dissolution of the search
warrant. In the meantime, or on April 16, 1970, the Bureau of Internal Revenue made tax assessments on
petitioner corporation in the total sum of P2,594,729.97, partly, if not entirely, based on the documents
thus seized. Petitioners came to this Court.
The petition should be granted for the following reasons:chanrob1es virtual 1aw library

DECISION

1. Respondent Judge failed to personally examine the complainant and his witness.
VILLAMOR, J.:

The pertinent provisions of the Constitution of the Philippines and of the Revised Rules of Court
are:jgc:chanrobles.com.ph
"(3) The right of the people to be secure in their persons, houses, papers and effects against unreasonable

searches and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be
determined by the judge after examination under oath or affirmation of the complainant and the witnesses
he may produce, and particularly describing the place to be searched, and the persons or things to be
seized." (Art. III, Sec. 1, Constitution.)
"SEC. 3. Requisites for issuing search warrant. A search warrant shall not issue but upon probable
cause in connection with one specific offense to be determined by the judge or justice of the peace after
examination under oath or affirmation of the complainant and the witnesses he may produce, and
particularly describing the place to be searched and the persons or things to be seized.
"No search warrant shall issue for more than one specific offense.
"SEC. 4. Examination of the applicant. The judge or justice of the peace must, before issuing the
warrant, personally examine on oath or affirmation the complainant and any witnesses he may produce
and take their depositions in writing, and attach them to the record, in addition to any affidavits presented
to him." (Rule 126, Revised Rules of Court.)
The examination of the complainant and the witnesses he may produce, required by Art. III, Sec. 1, par. 3,
of the Constitution, and by Secs. 3 and 4, Rule 126 of the Revised Rules of Court, should be conducted by
the judge himself and not by others. The phrase "which shall be determined by the judge after examination
under oath or affirmation of the complainant and the witnesses he may produce," appearing in the said
constitutional provision, was introduced by Delegate Francisco as an amendment to the draft submitted by
the Sub-Committee of Seven. The following discussion in the Constitutional Convention (Laurel,
Proceedings of the Philippine Constitutional Convention, Vol. III, pp. 755-757) is
enlightening:jgc:chanrobles.com.ph

it requires the judge, before issuing a search warrant, to "personally examine on oath or affirmation the
complainant and any witnesses he may produce . . ."cralaw virtua1aw library
Personal examination by the judge of the complainant and his witnesses is necessary to enable him to
determine the existence or non-existence of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the
Constitution, and Sec. 3, Rule 126 of the Revised Rules of Court, both of which prohibit the issuance of
warrants except "upon probable cause." The determination of whether or not a probable cause exists calls
for the exercise of judgment after a judicial appraisal of facts and should not be allowed to be delegated in
the absence of any rule to the contrary.
In the case at bar, no personal examination at all was conducted by respondent Judge of the complainant
(respondent De Leon) and his witness (respondent Logronio). While it is true that the complainants
application for search warrant and the witness printed-form deposition were subscribed and sworn to
before respondent Judge, the latter did not ask either of the two any question the answer to which could
possibly be the basis for determining whether or not there was probable cause against herein petitioners.
Indeed, the participants seem to have attached so little significance to the matter that notes of the
proceedings before respondent Judge were not even taken. At this juncture it may be well to recall the
salient facts. The transcript of stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition)
taken at the hearing of this case in the court below shows that per instruction of respondent Judge, Mr.
Eleodoro V. Gonzales, Special Deputy Clerk of Court, took the depositions of the complainant and his
witness, and that stenographic notes thereof were taken by Mrs. Gaspar. At that time respondent Judge was
at the sala hearing a case. After respondent Judge was through with the hearing, Deputy Clerk Gonzales,
stenographer Gaspar, complainant De Leon and witness Logronio went to respondent Judges chamber
and informed the Judge that they had finished the depositions. Respondent Judge then requested the
stenographer to read to him her stenographic notes. Special Deputy Clerk Gonzales testified as
follows:jgc:chanrobles.com.ph

"SR. ORENSE. Vamos a dejar compaero los piropos y vamos al grano.

En los casos de una necesidad de actuar inmediatamente para que no se frusten los fines de la justicia
mediante el registro inmediato y la incautacion del cuerpo del delito, no cree Su Seoria que causaria
cierta demora el procedimiento apuntado en su enmienda en tal forma que podria frustrar los fines de la
justicia o si Su Seoria encuentra un remedio para esto casos con el fin de compaginar los fines de la
justicia con los derechos del individuo en su persona, bienes etcetera, etcetera.

"A And after finishing reading the stenographic notes, the Honorable Judge requested or instructed them,
requested Mr. Logronio to raise his hand and warned him if his deposition will be found to be false and
without legal basis, he can be charged criminally for perjury. The Honorable Court told Mr. Logronio
whether he affirms the facts contained in his deposition and the affidavit executed before Mr. Rodolfo de
Leon.
"Q And thereafter?

"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su Seoria pregunta por la siguiente
razon: el que solicita un mandamiento de registro tiene que hacerlo por escrito y ese escrito no aparecer en
la Mesa del Juez sin que alguien vaya el juez a presentar ese escrito o peticion de sucuestro. Esa persona
que presenta el registro puede ser el mismo denunciante o alguna persona que solicita dicho mandamiento
de registro. Ahora toda la enmienda en esos casos consiste en que haya peticion de registro y el juez no se
atendra solamente a sea peticion sino que el juez examiner a ese denunciante y si tiene testigos tambin
examiner a los testigos.

"A And thereafter, he signed the deposition of Mr. Logronio.

"Q Who is this he?
"A The Honorable Judge.
"Q The deposition or the affidavit?

"SR. ORENSE. No cree Su Seoria que el tomar le declaracion de ese denunciante por escrito siempre
requeriria algun tiempo?.
"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en todo lo posible
las vejaciones injustas con la expedicion arbitraria de los mandamientos de registro. Creo que entre dos
males debemos escoger. el menor.
x

"MR. LAUREL. . . . The reason why we are in favor of this amendment is because we are incorporating in
our constitution something of a fundamental character. Now, before a judge could issue a search warrant,
he must be under the obligation to examine personally under oath the complainant and if he has any
witness, the witnesses that he may produce . . ."cralaw virtua1aw library
The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is more emphatic and candid, for

"A The affidavit, Your Honor."cralaw virtua1aw library

Thereafter, respondent Judge signed the search warrant.
The participation of respondent Judge in the proceedings which led to the issuance of Search Warrant No.
2-M-70 was thus limited to listening to the stenographers readings of her notes, to a few words of
warning against the commission of perjury, and to administering the oath to the complainant and his
witness. This cannot be consider a personal examination. If there was an examination at all of the
complainant and his witness, it was the one conducted by the Deputy Clerk of Court. But, as stated, the
Constitution and the rules require a personal examination by the judge. It was precisely on account of the
intention of the delegates to the Constitutional Convention to make it a duty of the issuing judge to
personally examine the complainant and his witnesses that the question of how much time would be
consumed by the judge in examining them came up before the Convention, as can be seen from the record
of the proceedings quoted above. The reading of the stenographic notes to respondent Judge did not
constitute sufficient compliance with the constitutional mandate and the rule; for by that manner

respondent Judge did not have the opportunity to observe the demeanor of the complainant and his
witness, and to propound initial and follow-up questions which the judicial mind, on account of its
training, was in the best position to conceive. These were important in arriving at a sound inference on the
all-important question of whether or not there was probable cause.

3. The search warrant does not particularly describe the things to be seized.
The documents, papers and effects sought to be seized are described in Search Warrant No. 2-M-70 in this
manner:jgc:chanrobles.com.ph

2. The search warrant was issued for more than one specific offense.
Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec. 46(a) of the National Internal Revenue
Code in relation to all other pertinent provisions thereof particularly Secs. 53, 72, 73, 208 and 209." The
question is: Was the said search warrant issued "in connection with one specific offense," as required by
Sec. 3, Rule 126?

"Unregistered and private books of accounts (ledgers, journals, columnars, receipts and disbursements
books, customers ledgers); receipts for payments received; certificates of stocks and securities; contracts,
promissory notes and deeds of sale; telex and coded messages; business communications, accounting and
business records; checks and check stubs; records of bank deposits and withdrawals; and records of
foreign remittances, covering the years 1966 to 1970."cralaw virtua1aw library

To arrive at the correct answer it is essential to examine closely the provisions of the Tax Code referred to
above. Thus we find the following:chanrob1es virtual 1aw library

The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of Sec. 3, Rule
126 of the Revised Rules of Court, that the warrant should particularly describe the things to be seized.

Sec. 46(a) requires the filing of income tax returns by corporations.

In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto Concepcion, said:jgc:chanrobles.com.ph

Sec. 53 requires the withholding of income taxes at source.

"The grave violation of the Constitution made in the application for the contested search warrants was
compounded by the description therein made of the effects to be searched for and seized, to
wit:chanrob1es virtual 1aw library

Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false and fraudulent
returns.
Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply the
information required under the Tax Code.
Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, compounds, or manufactures any article
subject to a specific tax, without having paid the privilege tax therefore, or who aids or abets in the
conduct of illicit distilling, rectifying, compounding, or illicit manufacture of any article subject to
specific tax . . .," and provides that in the case of a corporation, partnership, or association, the official
and/or employee who caused the violation shall be responsible.
Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of output
removed, or to pay the tax due thereon.
The search warrant in question was issued for at least four distinct offenses under the Tax Code. The first
is the violation of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax returns), which are interrelated.
The second is the violation of Sec. 53 (withholding of income taxes at source). The third is the violation of
Sec. 208 (unlawful pursuit of business or occupation); and the fourth is the violation of Sec. 209 (failure to
make a return of receipts, sales, business or gross value of output actually removed or to pay the tax due
thereon). Even in their classification the six above-mentioned provisions are embraced in two different
titles: Secs. 46(a), 53, 72 and 73 are under Title II (Income Tax); while Secs. 208 and 209 are under Title
V (Privilege Tax on Business and Occupation).
Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June 19, 1967 (20 SCRA 383), is not
applicable, because there the search warrants were issued for "violation of Central Bank Laws, Internal
Revenue (Code) and Revised Penal Code;" whereas, here Search Warrant No 2-M-70 was issued for
violation of only one code, i.e., the National Internal Revenue Code. The distinction more apparent than
real, because it was precisely on account of the Stonehill incident, which occurred sometime before the
present Rules of Court took effect on January 1, 1964, that this Court amended the former rule by
inserting therein the phrase "in connection with one specific offense," and adding the sentence "No search
warrant shall issue for more than one specific offense," in what is now Sec. 3, Rule 126. Thus we said in
Stonehill:jgc:chanrobles.com.ph
"Such is the seriousness of the irregularities committed in connection with the disputed search warrants,
that this Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court that a search
warrant shall not issue but upon probable cause in connection with one specific offense. Not satisfied
with this qualification, the Court added thereto a paragraph, directing that no search warrant shall issue
for more than one specific offense."

Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios,
credit journals, typewriters, and other documents and/or paper showing all business transactions including
disbursement receipts, balance sheets and related profit and loss statements.
"Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions
of petitioners herein, regardless of whether the transactions were legal or illegal. The warrants sanctioned
the seizure of all records of the petitioners and the aforementioned corporations, whatever their nature,
thus openly contravening the explicit command of our Bill of Rights that the things to be seized be
particularly described as well as tending to defeat its major objective: the elimination of general
warrants."cralaw virtua1aw library
While the term "all business transactions" does not appear in Search Warrant No. 2-M-70, the said warrant
nevertheless tends to defeat the major objective of the Bill of Rights, i.e., the elimination of general
warrants, for the language used therein is so all-embracing as to include all conceivable records of
petitioner corporation, which, if seized, could possibly render its business inoperative.
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had occasion to explain the
purpose of the requirement that the warrant should particularly describe the place to be searched and the
things to be seized, to wit:jgc:chanrobles.com.ph
". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require that a search
warrant should particularly describe the place to be searched and the things to be seized. The evident
purpose and intent of this requirement is to limit the things to be seized to those, and only those,
particularly described in the search warrant to leave the officers of the law with no discretion regarding
what articles they shall seize, to the end that unreasonable searches and seizures may not be made,
that abuses may not be committed. That this is the correct interpretation of this constitutional provision is
borne out by American authorities."cralaw virtua1aw library
The purpose as thus explained could, surely and effectively, be defeated under the search warrant issued in
this case.
A search warrant may be said to particularly describe the things to be seized when the description therein
is as specific as the circumstances will ordinarily allow (People v. Rubio; 57 Phil. 384); or when the
description expresses a conclusion of fact not of law by which the warrant officer may be guided in
making the search and seizure (idem., dissent of Abad Santos, J.,); or when the things described are
limited to those which bear direct relation to the offense for which the warrant is being issued (Sec. 2,
Rule 126, Revised Rules of Court). The herein search warrant does not conform to any of the foregoing

tests. If the articles desired to be seized have any direct relation to an offense committed, the applicant
must necessarily have some evidence, other than those articles, to prove the said offense; and the articles
subject of search and seizure should come in handy merely to strengthen such evidence. In this event, the
description contained in the herein disputed warrant should have mentioned, at least, the dates, amounts,
persons, and other pertinent data regarding the receipts of payments, certificates of stocks and securities,
contracts, promissory notes, deeds of sale, messages and communications, checks, bank deposits and
withdrawals, records of foreign remittances, among others, enumerated in the warrant.
Respondents contend that certiorari does not lie because petitioners failed to file a motion for
reconsideration of respondent Judges order of July 29, 1970. The contention is without merit. In the first
place, when the questions raised before this Court are the same as those which were squarely raised in and
passed upon by the court below, the filing of a motion for reconsideration in said court before certiorari
can be instituted in this Court is no longer a prerequisite. (Pajo, etc., Et. Al. v. Ago, Et Al., 108 Phil., 905).
In the second place, the rule requiring the filing of a motion for reconsideration before an application for a
writ of certiorari can be entertained was never intended to be applied without considering the
circumstances. (Matutina v. Buslon, Et Al., 109 Phil., 140.) In the case at bar time is of the essence in view
of the tax assessments sought to be enforced by respondent officers of the Bureau of Internal Revenue
against petitioner corporation, On account of which immediate and more direct action becomes necessary.
(Matute v. Court of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule does not apply where, as in this case,
the deprivation of petitioners fundamental right to due process taints the proceeding against them in the
court below not only with irregularity but also with nullity. (Matute v. Court of Appeals, Et Al., supra.)
It is next contended by respondents that a corporation is not entitled to protection against unreasonable
search and seizures. Again, we find no merit in the contention.
"Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is
charged with a violation of a statute of the state of its creation, or of an act of Congress passed in the
exercise of its constitutional powers, cannot refuse to produce the books and papers of such corporation,
we do not wish to be understood as holding that a corporation is not entitled to immunity, under the 4th
Amendment, against unreasonable searches and seizures. A corporation is, after all, but an association of
individuals under an assumed name and with a distinct legal entity. In organizing itself as a collective
body it waives no constitutional immunities appropriate to such body. Its property cannot be taken without
compensation. It can only be proceeded against by due process of law, and is protected, under the 14th
Amendment, against unlawful discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied
to a corporation, the ground that it was not privileged from producing its books and papers. But the rights
of a corporation against unlawful search and seizure are to be protected even if the same result might have
been achieved in a lawful way." (Silverthorne Lumber Company, Et. Al. v. United States of America, 251
U.S. 385, 64 L. ed. 319.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a corporation to
object against unreasonable searches and seizures, thus:jgc:chanrobles.com.ph
"As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of
the contested warrants and of the seizures made in pursuance thereof, for the simple reason that said
corporations have their respective personalities, separate and distinct from the personality of herein
petitioners, regardless of the amount of shares of stock or the interest of each of them in said corporations,
whatever, the offices they hold therein may be. Indeed, it is well settled that the legality of a seizure can be
contested only by the party whose rights have been impaired thereby, and that the objection to an unlawful
search and seizure is purely personal and cannot be availed of by third parties. Consequently, petitioners
herein may not validly object to the use in evidence against them of the documents, papers and things
seized from the offices and premises of the corporations adverted to above, since the right to object to the
admission of said papers in evidence belongs exclusively to the corporations, to whom the seized effects
belong, and may not be invoked by the corporate officers in proceedings against them in their individual
capacity . . ."cralaw virtua1aw library
In the Stonehill case only the officers of the various corporations in whose offices documents, papers and

effects were searched and seized were the petitioners. In the case at bar, the corporation to whom the
seized documents belong, and whose rights have thereby been impaired, is itself a petitioner. On that
score, petitioner corporation here stands on a different footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were, if not entirely as claimed by petitioners
at least partly as in effect admitted by respondents based on the documents seized by virtue of
Search Warrant No. 2-M-70. Furthermore, the fact that the assessments were made some one and one-half
months after the search and seizure on February 25, 1970, is a strong indication that the documents thus
seized served as basis for the assessments. Those assessments should therefore not be enforced.
PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by
respondent Judge is declared null and void; respondents are permanently enjoined from enforcing the said
search warrant; the documents, papers and effects seized thereunder are ordered to be returned to
petitioners; and respondent officials the Bureau of Internal Revenue and their representatives are
permanently enjoined from enforcing the assessments mentioned in Annex "G" of the present petition, as
well as other assessments based on the documents, papers and effects seized under the search warrant
herein nullified, and from using the same against petitioners in any criminal or other proceeding. No
pronouncement as to costs.
G.R. No. L-31061 August 17, 1976
SULO NG BAYAN INC., plaintiff-appellant,
vs.
GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL WATERWORKS &
SEWERAGE AUTHORITY, HACIENDA CARETAS, INC, and REGISTER OF DEEDS OF
BULACAN, defendants-appellees.
Hill & Associates Law Offices for appellant.
Araneta, Mendoza & Papa for appellee Gregorio Araneta, Inc.
Carlos, Madarang, Carballo & Valdez for Paradise Farms, Inc.
Leopoldo M. Abellera, Arsenio J. Magpale & Raul G. Bernardo, Office of the Government
Corporate Counsel for appellee National Waterworks & Sewerage Authority.
Candido G. del Rosario for appellee Hacienda Caretas, Inc.
ANTONIO, J.:
The issue posed in this appeal is whether or not plaintiff corporation (non- stock may institute an
action in behalf of its individual members for the recovery of certain parcels of land allegedly
owned by said members; for the nullification of the transfer certificates of title issued in favor of
defendants appellees covering the aforesaid parcels of land; for a declaration of "plaintiff's
members as absolute owners of the property" and the issuance of the corresponding certificate
of title; and for damages.
On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de revindicacion with the
Court of First Instance of Bulacan, Fifth Judicial District, Valenzuela, Bulacan, against
defendants-appellees to recover the ownership and possession of a large tract of land in San
Jose del Monte, Bulacan, containing an area of 27,982,250 square meters, more or less,
registered under the Torrens System in the name of defendants-appellees' predecessors-ininterest. 1 The complaint, as amended on June 13, 1966, specifically alleged that plaintiff is a

corporation organized and existing under the laws of the Philippines, with its principal office and
place of business at San Jose del Monte, Bulacan; that its membership is composed of natural
persons residing at San Jose del Monte, Bulacan; that the members of the plaintiff corporation,
through themselves and their predecessors-in-interest, had pioneered in the clearing of the forementioned tract of land, cultivated the same since the Spanish regime and continuously
possessed the said property openly and public under concept of ownership adverse against the
whole world; that defendant-appellee Gregorio Araneta, Inc., sometime in the year 1958, through
force and intimidation, ejected the members of the plaintiff corporation fro their possession of the
aforementioned vast tract of land; that upon investigation conducted by the members and
officers of plaintiff corporation, they found out for the first time in the year 1961 that the land in
question "had been either fraudelently or erroneously included, by direct or constructive fraud, in
Original Certificate of Title No. 466 of the Land of Records of the province of Bulacan", issued on
May 11, 1916, which title is fictitious, non-existent and devoid of legal efficacy due to the fact that
"no original survey nor plan whatsoever" appears to have been submitted as a basis thereof and
that the Court of First Instance of Bulacan which issued the decree of registration did not acquire
jurisdiction over the land registration case because no notice of such proceeding was given to
the members of the plaintiff corporation who were then in actual possession of said properties;
that as a consequence of the nullity of the original title, all subsequent titles derived therefrom,
such as Transfer Certificate of Title No. 4903 issued in favor of Gregorio Araneta and Carmen
Zaragoza, which was subsequently cancelled by Transfer Certificate of Title No. 7573 in the
name of Gregorio Araneta, Inc., Transfer Certificate of Title No. 4988 issued in the name of, the
National Waterworks & Sewerage Authority (NWSA), Transfer Certificate of Title No. 4986
issued in the name of Hacienda Caretas, Inc., and another transfer certificate of title in the name
of Paradise Farms, Inc., are therefore void. Plaintiff-appellant consequently prayed (1) that
Original Certificate of Title No. 466, as well as all transfer certificates of title issued and derived
therefrom, be nullified; (2) that "plaintiff's members" be declared as absolute owners in common
of said property and that the corresponding certificate of title be issued to plaintiff; and (3) that
defendant-appellee Gregorio Araneta, Inc. be ordered to pay to plaintiff the damages therein
specified.
On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss the
amended complaint on the grounds that (1) the complaint states no cause of action; and (2) the
cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and Hacienda
Caretas, Inc. filed motions to dismiss based on the same grounds. Appellee National
Waterworks & Sewerage Authority did not file any motion to dismiss. However, it pleaded in its
answer as special and affirmative defenses lack of cause of action by the plaintiff-appellant and
the barring of such action by prescription and laches.
During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated October 7,
1966, praying that the case be transferred to another branch of the Court of First Instance sitting
at Malolos, Bulacan, According to defendants-appellees, they were not furnished a copy of said
motion, hence, on October 14, 1966, the lower court issued an Order requiring plaintiff-appellant
to furnish the appellees copy of said motion, hence, on October 14, 1966, defendant-appellant's
motion dated October 7, 1966 and, consequently, prayed that the said motion be denied for lack
of notice and for failure of the plaintiff-appellant to comply with the Order of October 14, 1966.
Similarly, defendant-appellee paradise Farms, Inc. filed, on December 2, 1966, a manifestation
information the court that it also did not receive a copy of the afore-mentioned of appellant. On
January 24, 1967, the trial court issued an Order dismissing the amended complaint.
On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on the
grounds that the court had no jurisdiction to issue the Order of dismissal, because its request for
the transfer of the case from the Valenzuela Branch of the Court of First Instance to the Malolos
Branch of the said court has been approved by the Department of Justice; that the complaint

states a sufficient cause of action because the subject matter of the controversy in one of
common interest to the members of the corporation who are so numerous that the present
complaint should be treated as a class suit; and that the action is not barred by the statute of
limitations because (a) an action for the reconveyance of property registered through fraud does
not prescribe, and (b) an action to impugn a void judgment may be brought any time. This
motion was denied by the trial court in its Order dated February 22, 1967. From the aforementioned Order of dismissal and the Order denying its motion for reconsideration, plaintiffappellant appealed to the Court of Appeals.
On September 3, 1969, the Court of Appeals, upon finding that no question of fact was involved
in the appeal but only questions of law and jurisdiction, certified this case to this Court for
resolution of the legal issues involved in the controversy.
I
Appellant contends, as a first assignment of error, that the trial court acted without authority and
jurisdiction in dismissing the amended complaint when the Secretary of Justice had already
approved the transfer of the case to any one of the two branches of the Court of First Instance of
Malolos, Bulacan.
Appellant confuses the jurisdiction of a court and the venue of cases with the assignment of
cases in the different branches of the same Court of First Instance. Jurisdiction implies the
power of the court to decide a case, while venue the place of action. There is no question that
respondent court has jurisdiction over the case. The venue of actions in the Court of First
Instance is prescribed in Section 2, Rule 4 of the Revised Rules of Court. The laying of venue is
not left to the caprice of plaintiff, but must be in accordance with the aforesaid provision of the
rules. 2 The mere fact that a request for the transfer of a case to another branch of the same
court has been approved by the Secretary of Justice does not divest the court originally taking
cognizance thereof of its jurisdiction, much less does it change the venue of the action. As
correctly observed by the trial court, the indorsement of the Undersecretary of Justice did not
order the transfer of the case to the Malolos Branch of the Bulacan Court of First Instance, but
only "authorized" it for the reason given by plaintiff's counsel that the transfer would be
convenient for the parties. The trial court is not without power to either grant or deny the motion,
especially in the light of a strong opposition thereto filed by the defendant. We hold that the court
a quo acted within its authority in denying the motion for the transfer the case to Malolos
notwithstanding the authorization" of the same by the Secretary of Justice.
II
Let us now consider the substantive aspect of the Order of dismissal.
In dismissing the amended complaint, the court a quo said:
The issue of lack of cause of action raised in the motions to dismiss refer to
the lack of personality of plaintiff to file the instant action. Essentially, the
term 'cause of action' is composed of two elements: (1) the right of the
plaintiff and (2) the violation of such right by the defendant. (Moran, Vol. 1,
p. 111). For these reasons, the rules require that every action must be
prosecuted and defended in the name of the real party in interest and that
all persons having an interest in the subject of the action and in obtaining
the relief demanded shall be joined as plaintiffs (Sec. 2, Rule 3). In the

amended complaint, the people whose rights were alleged to have been
violated by being deprived and dispossessed of their land are the members
of the corporation and not the corporation itself. The corporation has a
separate. and distinct personality from its members, and this is not a mere
technicality but a matter of substantive law. There is no allegation that the
members have assigned their rights to the corporation or any showing that
the corporation has in any way or manner succeeded to such rights. The
corporation evidently did not have any rights violated by the defendants for
which it could seek redress. Even if the Court should find against the
defendants, therefore, the plaintiff corporation would not be entitled to the
reliefs prayed for, which are recoveries of ownership and possession of the
land, issuance of the corresponding title in its name, and payment of
damages. Neither can such reliefs be awarded to the members allegedly
deprived of their land, since they are not parties to the suit. It appearing
clearly that the action has not been filed in the names of the real parties in
interest, the complaint must be dismissed on the ground of lack of cause of
action. 3
Viewed in the light of existing law and jurisprudence, We find that the trial court correctly
dismissed the amended complaint.
It is a doctrine well-established and obtains both at law and in equity that a corporation is a
distinct legal entity to be considered as separate and apart from the individual stockholders or
members who compose it, and is not affected by the personal rights, obligations and
transactions of its stockholders or members. 4 The property of the corporation is its property and
not that of the stockholders, as owners, although they have equities in it. Properties registered in
the name of the corporation are owned by it as an entity separate and distinct from its members.
5
Conversely, a corporation ordinarily has no interest in the individual property of its stockholders
unless transferred to the corporation, "even in the case of a one-man corporation. 6 The mere
fact that one is president of a corporation does not render the property which he owns or
possesses the property of the corporation, since the president, as individual, and the corporation
are separate similarities. 7 Similarly, stockholders in a corporation engaged in buying and dealing
in real estate whose certificates of stock entitled the holder thereof to an allotment in the
distribution of the land of the corporation upon surrender of their stock certificates were
considered not to have such legal or equitable title or interest in the land, as would support a suit
for title, especially against parties other than the corporation. 8
It must be noted, however, that the juridical personality of the corporation, as separate and
distinct from the persons composing it, is but a legal fiction introduced for the purpose of
convenience and to subserve the ends of justice. 9 This separate personality of the corporation
may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak
or cover for fraud or illegality, or to work -an injustice, or where necessary to achieve equity. 10
Thus, when "the notion of legal entity is used to defeat public convenience, justify wrong, protect
fraud, or defend crime, ... the law will regard the corporation as an association of persons, or in
the case of two corporations, merge them into one, the one being merely regarded as part or
instrumentality of the other. 11 The same is true where a corporation is a dummy and serves no
business purpose and is intended only as a blind, or an alter ego or business conduit for the sole
benefit of the stockholders. 12 This doctrine of disregarding the distinct personality of the
corporation has been applied by the courts in those cases when the corporate entity is used for
the evasion of taxes 13 or when the veil of corporate fiction is used to confuse legitimate issue of
employer-employee relationship, 14 or when necessary for the protection of creditors, in which

case the veil of corporate fiction may be pierced and the funds of the corporation may be
garnished to satisfy the debts of a principal stockholder. 15 The aforecited principle is resorted to
by the courts as a measure protection for third parties to prevent fraud, illegality or injustice. 16
It has not been claimed that the members have assigned or transferred whatever rights they
may have on the land in question to the plaintiff corporation. Absent any showing of interest,
therefore, a corporation, like plaintiff-appellant herein, has no personality to bring an action for
and in behalf of its stockholders or members for the purpose of recovering property which
belongs to said stockholders or members in their personal capacities.
It is fundamental that there cannot be a cause of action 'without an antecedent primary legal
right conferred' by law upon a person. 17 Evidently, there can be no wrong without a
corresponding right, and no breach of duty by one person without a corresponding right
belonging to some other person. 18 Thus, the essential elements of a cause of action are legal
right of the plaintiff, correlative obligation of the defendant, an act or omission of the defendant in
violation of the aforesaid legal right. 19 Clearly, no right of action exists in favor of plaintiff
corporation, for as shown heretofore it does not have any interest in the subject matter of the
case which is material and, direct so as to entitle it to file the suit as a real party in interest.
III
Appellant maintains, however, that the amended complaint may be treated as a class suit,
pursuant to Section 12 of Rule 3 of the Revised Rules of Court.
In order that a class suit may prosper, the following requisites must be present: (1) that the
subject matter of the controversy is one of common or general interest to many persons; and (2)
that the parties are so numerous that it is impracticable to bring them all before the court. 20
Under the first requisite, the person who sues must have an interest in the controversy, common
with those for whom he sues, and there must be that unity of interest between him and all such
other persons which would entitle them to maintain the action if suit was brought by them jointly.
21

As to what constitutes common interest in the subject matter of the controversy, it has been
explained in Scott v. Donald 22 thus:
The interest that will allow parties to join in a bill of complaint, or that will
enable the court to dispense with the presence of all the parties, when
numerous, except a determinate number, is not only an interest in the
question, but one in common in the subject Matter of the suit; ... a
community of interest growing out of the nature and condition of the right in
dispute; for, although there may not be any privity between the numerous
parties, there is a common title out of which the question arises, and which
lies at the foundation of the proceedings ... [here] the only matter in
common among the plaintiffs, or between them and the defendants, is an
interest in the Question involved which alone cannot lay a foundation for the
joinder of parties. There is scarcely a suit at law, or in equity which settles a
Principle or applies a principle to a given state of facts, or in which a general
statute is interpreted, that does not involved a Question in which other
parties are interested. ... (Emphasis supplied )

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

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