G.R. No.

L-19550 June 19, 1967

HARRY S. STONEHILL, ROBERT P. BROOKS, JOHN J. BROOKS and KARL BECK, petitioners,
vs. HON. JOSE W. DIOKNO, in his capacity as SECRETARY OF JUSTICE; JOSE LUKBAN, in his
capacity as Acting Director, National Bureau of Investigation; SPECIAL PROSECUTORS PEDRO D.
CENZON, EFREN I. PLANA and MANUEL VILLAREAL, JR. and ASST. FISCAL MANASES G.
REYES; JUDGE AMADO ROAN, Municipal Court of Manila; JUDGE ROMAN CANSINO, Municipal
Court of Manila; JUDGE HERMOGENES CALUAG, Court of First Instance of Rizal-Quezon City
Branch, and JUDGE DAMIAN JIMENEZ, Municipal Court of Quezon City, respondents.

Paredes, Poblador, Cruz and Nazareno and Meer, Meer and Meer and Juan T. David for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico P. de Castro, Assistant
Solicitor General Frine C. Zaballero, Solicitor Camilo D. Quiason and Solicitor C. Padua for respondents.

CONCEPCION, C.J.:

Upon application of the officers of the government named on the margin1 hereinafter referred to as
Respondents-Prosecutors several judges2 hereinafter referred to as Respondents-Judges issued, on
different dates,3 a total of 42 search warrants against petitioners herein4 and/or the corporations of which they
were officers,5 directed to the any peace officer, to search the persons above-named and/or the premises of their
offices, warehouses and/or residences, and to seize and take possession of the following personal property to wit:

Books of accounts, financial records, vouchers, correspondence, receipts, ledgers, journals, portfolios,
credit journals, typewriters, and other documents and/or papers showing all business transactions
including disbursements receipts, balance sheets and profit and loss statements and Bobbins (cigarette
wrappers).

as "the subject of the offense; stolen or embezzled and proceeds or fruits of the offense," or "used or intended to
be used as the means of committing the offense," which is described in the applications adverted to above as
"violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and the Revised Penal
Code."

Alleging that the aforementioned search warrants are null and void, as contravening the Constitution and the
Rules of Court because, inter alia: (1) they do not describe with particularity the documents, books and things
to be seized; (2) cash money, not mentioned in the warrants, were actually seized; (3) the warrants were issued to
fish evidence against the aforementioned petitioners in deportation cases filed against them; (4) the searches and
seizures were made in an illegal manner; and (5) the documents, papers and cash money seized were not delivered
to the courts that issued the warrants, to be disposed of in accordance with law on March 20, 1962, said
petitioners filed with the Supreme Court this original action for certiorari, prohibition, mandamus and injunction,
and prayed that, pending final disposition of the present case, a writ of preliminary injunction be issued restraining
Respondents-Prosecutors, their agents and /or representatives from using the effects seized as aforementioned or
any copies thereof, in the deportation cases already adverted to, and that, in due course, thereafter, decision be
rendered quashing the contested search warrants and declaring the same null and void, and commanding the
respondents, their agents or representatives to return to petitioners herein, in accordance with Section 3, Rule 67,
of the Rules of Court, the documents, papers, things and cash moneys seized or confiscated under the search
warrants in question.

In their answer, respondents-prosecutors alleged, 6 (1) that the contested search warrants are valid and have been
issued in accordance with law; (2) that the defects of said warrants, if any, were cured by petitioners' consent; and
(3) that, in any event, the effects seized are admissible in evidence against herein petitioners, regardless of the
alleged illegality of the aforementioned searches and seizures.
On March 22, 1962, this Court issued the writ of preliminary injunction prayed for in the petition. However, by
resolution dated June 29, 1962, the writ was partially lifted or dissolved, insofar as the papers, documents and
things seized from the offices of the corporations above mentioned are concerned; but, the injunction was
maintained as regards the papers, documents and things found and seized in the residences of petitioners herein.7

Thus, the documents, papers, and things seized under the alleged authority of the warrants in question may be
split into two (2) major groups, namely: (a) those found and seized in the offices of the aforementioned
corporations, and (b) those found and seized in the residences of petitioners herein.

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 of the interest of each of them in said corporations, and whatever the offices they
hold therein may be.8 Indeed, it is well settled that the legality of a seizure can be contested only by the party
whose rights have been impaired thereby,9 and that the objection to an unlawful search and seizure is purely
personal and cannot be availed of by third parties. 10 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. 11 Indeed, it has been held:

. . . that the Government's action in gaining possession of papers belonging to the corporation did not
relate to nor did it affect the personal defendants. If these papers were unlawfully seized and thereby the
constitutional rights of or any one were invaded, they were the rights of the corporation and not the rights
of the other defendants. Next, it is clear that a question of the lawfulness of a seizure can be raised only by
one whose rights have been invaded. Certainly, such a seizure, if unlawful, could not affect the
constitutional rights of defendants whose property had not been seized or the privacy of whose homes had
not been disturbed; nor could they claim for themselves the benefits of the Fourth Amendment, when its
violation, if any, was with reference to the rights of another. Remus vs. United States (C.C.A.)291 F. 501,
511. It follows, therefore, that the question of the admissibility of the evidence based on an alleged
unlawful search and seizure does not extend to the personal defendants but
embraces only the corporation whose property was taken. . . . (A Guckenheimer & Bros. Co. vs. United
States, [1925] 3 F. 2d. 786, 789, Emphasis supplied.)

With respect to the documents, papers and things seized in the residences of petitioners herein, the aforementioned
resolution of June 29, 1962, lifted the writ of preliminary injunction previously issued by this Court, 12 thereby,
in effect, restraining herein Respondents-Prosecutors from using them in evidence against petitioners herein.

In connection with said documents, papers and things, two (2) important questions need be settled, namely: (1)
whether the search warrants in question, and the searches and seizures made under the authority thereof, are valid
or not, and (2) if the answer to the preceding question is in the negative, whether said documents, papers and
things may be used in evidence against petitioners herein.1wph1.t

Petitioners maintain that the aforementioned search warrants are in the nature of general warrants and that
accordingly, the seizures effected upon the authority there of are null and void. In this connection, the
Constitution 13provides:

The right of the people to be secure in their persons, houses, papers, and effects against unreasonable
searches and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be
determined by the judge after examination under oath or affirmation of the complainant and the witnesses
he may produce, and particularly describing the place to be searched, and the persons or things to be
seized.
Two points must be stressed in connection with this constitutional mandate, namely: (1) that no warrant shall
issue but upon probable cause, to be determined by the judge in the manner set forth in said provision; and (2)
that the warrant shall particularly describe the things to be seized.

None of these requirements has been complied with in the contested warrants. Indeed, the same were issued upon
applications stating that the natural and juridical person therein named had committed a "violation of
Central Ban Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal Code." In other words,
no specific offense had been alleged in said applications. The averments thereof with respect to the
offense committed were abstract. As a consequence, it was impossible for the judges who issued the warrants to
have found the existence of probable cause, for the same presupposes the introduction of competent proof that
the party against whom it is sought has performed particular acts, or committed specific omissions, violating a
given provision of our criminal laws. As a matter of fact, the applications involved in this case do not allege any
specific acts performed by herein petitioners. It would be the legal heresy, of the highest order, to convict anybody
of a "violation of Central Bank Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised Penal
Code," as alleged in the aforementioned applications without reference to any determinate provision of said
laws or

To uphold the validity of the warrants in question would be to wipe out completely one of the most fundamental
rights guaranteed in our Constitution, for it would place the sanctity of the domicile and the privacy of
communication and correspondence at the mercy of the whims caprice or passion of peace officers. This is
precisely the evil sought to be remedied by the constitutional provision above quoted to outlaw the so-called
general warrants. It is not difficult to imagine what would happen, in times of keen political strife, when the party
in power feels that the minority is likely to wrest it, even though by legal means.

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 14 by providing in its counterpart,
under the Revised Rules of Court 15 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."

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

Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios,
credit journals, typewriters, and other documents and/or papers 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.

Relying upon Moncado vs. People's Court (80 Phil. 1), Respondents-Prosecutors maintain that, even if the
searches and seizures under consideration were unconstitutional, the documents, papers and things thus seized
are admissible in evidence against petitioners herein. Upon mature deliberation, however, we are unanimously of
the opinion that the position taken in the Moncado case must be abandoned. Said position was in line with the
American common law rule, that the criminal should not be allowed to go free merely "because the constable has
blundered," 16 upon the theory that the constitutional prohibition against unreasonable searches and seizures is
protected by means other than the exclusion of evidence unlawfully obtained, 17 such as the common-law action
for damages against the searching officer, against the party who procured the issuance of the search warrant and
against those assisting in the execution of an illegal search, their criminal punishment, resistance, without liability
to an unlawful seizure, and such other legal remedies as may be provided by other laws.

However, most common law jurisdictions have already given up this approach and eventually adopted the
exclusionary rule, realizing that this is the only practical means of enforcing the constitutional injunction against
unreasonable searches and seizures. In the language of Judge Learned Hand:

As we understand it, the reason for the exclusion of evidence competent as such, which has been
unlawfully acquired, is that exclusion is the only practical way of enforcing the constitutional privilege.
In earlier times the action of trespass against the offending official may have been protection enough; but
that is true no longer. Only in case the prosecution which itself controls the seizing officials, knows that it
cannot profit by their wrong will that wrong be repressed.18

In fact, over thirty (30) years before, the Federal Supreme Court had already declared:

If letters and private documents can thus be seized and held and used in evidence against a citizen accused
of an offense, the protection of the 4th Amendment, declaring his rights to be secure against such searches
and seizures, is of no value, and, so far as those thus placed are concerned, might as well be stricken from
the Constitution. The efforts of the courts and their officials to bring the guilty to punishment,
praiseworthy as they are, are not to be aided by the sacrifice of those great principles established by years
of endeavor and suffering which have resulted in their embodiment in the fundamental law of the land.19

This view was, not only reiterated, but, also, broadened in subsequent decisions on the same Federal Court. 20After
reviewing previous decisions thereon, said Court held, in Mapp vs. Ohio (supra.):

. . . Today we once again examine the Wolf's constitutional documentation of the right of privacy free
from unreasonable state intrusion, and after its dozen years on our books, are led by it to close the only
courtroom door remaining open to evidence secured by official lawlessness in flagrant abuse of that basic
right, reserved to all persons as a specific guarantee against that very same unlawful conduct. We hold
that all evidence obtained by searches and seizures in violation of the Constitution is, by that same
authority, inadmissible in a State.

Since the Fourth Amendment's right of privacy has been declared enforceable against the States through
the Due Process Clause of the Fourteenth, it is enforceable against them by the same sanction of exclusion
as it used against the Federal Government. Were it otherwise, then just as without the Weeks rule the
assurance against unreasonable federal searches and seizures would be "a form of words," valueless and
underserving of mention in a perpetual charter of inestimable human liberties, so too, without that rule the
freedom from state invasions of privacy would be so ephemeral and so neatly severed from its conceptual
nexus with the freedom from all brutish means of coercing evidence as not to permit this Court's high
regard as a freedom "implicit in the concept of ordered liberty." At the time that the Court held in Wolf
that the amendment was applicable to the States through the Due Process Clause, the cases of this Court
as we have seen, had steadfastly held that as to federal officers the Fourth Amendment included the
exclusion of the evidence seized in violation of its provisions. Even Wolf "stoutly adhered" to that
proposition. The right to when conceded operatively enforceable against the States, was not susceptible
of destruction by avulsion of the sanction upon which its protection and enjoyment had always been
deemed dependent under the Boyd, Weeks and Silverthorne Cases. Therefore, in extending the substantive
protections of due process to all constitutionally unreasonable searches state or federal it was
logically and constitutionally necessarily that the exclusion doctrine an essential part of the right to
privacy be also insisted upon as an essential ingredient of the right newly recognized by the Wolf Case.
In short, the admission of the new constitutional Right by Wolf could not tolerate denial of its most
important constitutional privilege, namely, the exclusion of the evidence which an accused had been
forced to give by reason of the unlawful seizure. To hold otherwise is to grant the right but in reality to
 withhold its privilege and enjoyment. Only last year the Court itself recognized that the purpose of the
exclusionary rule to "is to deter to compel respect for the constitutional guaranty in the only effectively
available way by removing the incentive to disregard it" . . . .

The ignoble shortcut to conviction left open to the State tends to destroy the entire system of constitutional
restraints on which the liberties of the people rest. Having once recognized that the right to privacy
embodied in the Fourth Amendment is enforceable against the States, and that the right to be secure against
rude invasions of privacy by state officers is, therefore constitutional in origin, we can no longer permit
that right to remain an empty promise. Because it is enforceable in the same manner and to like effect as
other basic rights secured by its Due Process Clause, we can no longer permit it to be revocable at the
whim of any police officer who, in the name of law enforcement itself, chooses to suspend its enjoyment.
Our decision, founded on reason and truth, gives to the individual no more than that which the
Constitution guarantees him to the police officer no less than that to which honest law enforcement is
entitled, and, to the courts, that judicial integrity so necessary in the true administration of justice.
(emphasis ours.)

Indeed, the non-exclusionary rule is contrary, not only to the letter, but also, to the spirit of the constitutional
injunction against unreasonable searches and seizures. To be sure, if the applicant for a search warrant has
competent evidence to establish probable cause of the commission of a given crime by the party against whom
the warrant is intended, then there is no reason why the applicant should not comply with the requirements of the
fundamental law. Upon the other hand, if he has no such competent evidence, then it is not possible for the Judge
to find that there is probable cause, and, hence, no justification for the issuance of the warrant. The only possible
explanation (not justification) for its issuance is the necessity of fishing evidence of the commission of a crime.
But, then, this fishing expedition is indicative of the absence of evidence to establish a probable cause.

Moreover, the theory that the criminal prosecution of those who secure an illegal search warrant and/or make
unreasonable searches or seizures would suffice to protect the constitutional guarantee under consideration,
overlooks the fact that violations thereof are, in general, committed By agents of the party in power, for, certainly,
those belonging to the minority could not possibly abuse a power they do not have. Regardless of the handicap
under which the minority usually but, understandably finds itself in prosecuting agents of the majority, one
must not lose sight of the fact that the psychological and moral effect of the possibility 21 of securing their
conviction, is watered down by the pardoning power of the party for whose benefit the illegality had been
committed.

In their Motion for Reconsideration and Amendment of the Resolution of this Court dated June 29, 1962,
petitioners allege that Rooms Nos. 81 and 91 of Carmen Apartments, House No. 2008, Dewey Boulevard, House
No. 1436, Colorado Street, and Room No. 304 of the Army-Navy Club, should be included among the premises
considered in said Resolution as residences of herein petitioners, Harry S. Stonehill, Robert P. Brook, John J.
Brooks and Karl Beck, respectively, and that, furthermore, the records, papers and other effects seized in the
offices of the corporations above referred to include personal belongings of said petitioners and other effects
under their exclusive possession and control, for the exclusion of which they have a standing under the latest
rulings of the federal courts of federal courts of the United States. 22

We note, however, that petitioners' theory, regarding their alleged possession of and control over the
aforementioned records, papers and effects, and the alleged "personal" nature thereof, has Been Advanced, not in
their petition or amended petition herein, but in the Motion for Reconsideration and Amendment of the Resolution
of June 29, 1962. In other words, said theory would appear to be readjustment of that followed in said petitions,
to suit the approach intimated in the Resolution sought to be reconsidered and amended. Then, too, some of the
affidavits or copies of alleged affidavits attached to said motion for reconsideration, or submitted in support
thereof, contain either inconsistent allegations, or allegations inconsistent with the theory now advanced by
petitioners herein.
Upon the other hand, we are not satisfied that the allegations of said petitions said motion for reconsideration,
and the contents of the aforementioned affidavits and other papers submitted in support of said motion, have
sufficiently established the facts or conditions contemplated in the cases relied upon by the petitioners; to warrant
application of the views therein expressed, should we agree thereto. At any rate, we do not deem it necessary to
express our opinion thereon, it being best to leave the matter open for determination in appropriate cases in the
future.

We hold, therefore, that the doctrine adopted in the Moncado case must be, as it is hereby, abandoned; that the
warrants for the search of three (3) residences of herein petitioners, as specified in the Resolution of June 29,
1962, are null and void; that the searches and seizures therein made are illegal; that the writ of
preliminary injunction heretofore issued, in connection with the documents, papers and other effects thus seized
in said residences of herein petitioners is hereby made permanent; that the writs prayed for are granted, insofar as
the documents, papers and other effects so seized in the aforementioned residences are concerned; that the
aforementioned motion for Reconsideration and Amendment should be, as it is hereby, denied; and that the
petition herein is dismissed and the writs prayed for denied, as regards the documents, papers and other effects
seized in the twenty-nine (29) places, offices and other premises enumerated in the same Resolution, without
special pronouncement as to costs.

It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar and Sanchez, JJ., concur.

G.R. No. 75885 May 27, 1987

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,

vs.PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN JOVITO SALONGA,
COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ,
COMMISSIONER RAUL R. DAZA, COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B.
SIACUNCO, et al., respondents.

Apostol, Bernas, Gumaru, Ona and Associates for petitioner.

Vicente G. Sison for intervenor A.T. Abesamis.

NARVASA, J.:

Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan
Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by President
Corazon C. Aquino on 1986 and March 12, 1986, respectively, and (2) sequestration, takeover, and other orders
issued, and acts done, in accordance with said executive orders by the Presidential Commission on Good
Government and/or its Commissioners and agents, affecting said corporation.

1. The Sequestration, Takeover, and Other Orders Complained of

a. The Basic Sequestration Order

The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on
April 14, 1986 by Commissioner Mary Concepcion Bautista. It was addressed to three of the agents of the
Commission, hereafter simply referred to as PCGG. It reads as follows:

RE: SEQUESTRATION ORDER

By virtue of the powers vested in the Presidential Commission on Good Government, by authority
of the President of the Philippines, you are hereby directed to sequester the following companies.

1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and
Mariveles Shipyard)

2. Baseco Quarry

3. Philippine Jai-Alai Corporation

4. Fidelity Management Co., Inc.

5. Romson Realty, Inc.

6. Trident Management Co.

7. New Trident Management

8. Bay Transport

9. And all affiliate companies of Alfredo Romualdez

You are hereby ordered:

1. To implement this sequestration order with a minimum disruption of these companies' business
activities.

2. To ensure the continuity of these companies as going concerns, the care and maintenance of
these assets until such time that the Office of the President through the Commission on Good
Government should decide otherwise.

3. To report to the Commission on Good Government periodically.

Further, you are authorized to request for Military/Security Support from the Military/Police
authorities, and such other acts essential to the achievement of this sequestration order. 1

b. Order for Production of Documents

On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated
April 18, 1986 to the President and other officers of petitioner firm, reiterating an earlier request for the production
of certain documents, to wit:

1. Stock Transfer Book

2. Legal documents, such as:

 2.1. Articles of Incorporation

2.2. By-Laws

2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986

2.4. Minutes of the Regular and Special Meetings of the Board of Directors from
1973 to 1986

2.5. Minutes of the Executive Committee Meetings from 1973 to 1986

2.6. Existing contracts with suppliers/contractors/others.

3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986 duly
certified by the Corporate Secretary.

4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to
December 31, 1985.

5. Monthly Financial Statements for the current year up to March 31, 1986.

6. Consolidated Cash Position Reports from January to April 15, 1986.

7. Inventory listings of assets up dated up to March 31, 1986.

8. Updated schedule of Accounts Receivable and Accounts Payable.

9. Complete list of depository banks for all funds with the authorized signatories for withdrawals
thereof.

10. Schedule of company investments and placements. 2

The letter closed with the warning that if the documents were not submitted within five days, the officers would
be cited for "contempt in pursuance with Presidential Executive Order Nos. 1 and 2."

c. Orders Re Engineer Island

(1) Termination of Contract for Security Services

A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued on April
21, 1986 by a Capt. Zabala, a member of the task force assigned to carry out the basic sequestration order. He
sent a letter to BASECO's Vice-President for Finance, 3 terminating the contract for security services within the
Engineer Island compound between BASECO and "Anchor and FAIRWAYS" and "other civilian security
agencies," CAPCOM military personnel having already been assigned to the area,

(2) Change of Mode of Payment of Entry Charges

On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and Contractors,"
particularly a "Mr. Buddy Ondivilla National Marine Corporation," advising of the amendment in part of their
contracts with BASECO in the sense that the stipulated charges for use of the BASECO road network were made
payable "upon entry and not anymore subject to monthly billing as was originally agreed upon." 4
 d. Aborted Contract for Improvement of Wharf at Engineer Island

On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of BASECO with
Deltamarine Integrated Port Services, Inc., in virtue of which the latter undertook to introduce improvements
costing approximately P210,000.00 on the BASECO wharf at Engineer Island, allegedly then in poor condition,
avowedly to "optimize its utilization and in return maximize the revenue which would flow into the government
coffers," in consideration of Deltamarine's being granted "priority in using the improved portion of the wharf
ahead of anybody" and exemption "from the payment of any charges for the use of wharf including the area where
it may install its bagging equipments" "until the improvement remains in a condition suitable for port
operations." 5 It seems however that this contract was never consummated. Capt. Jorge B. Siacunco, "Head-
(PCGG) BASECO Management Team," advised Deltamarine by letter dated July 30, 1986 that "the new
management is not in a position to honor the said contract" and thus "whatever improvements * * (may be
introduced) shall be deemed unauthorized * * and shall be at * * (Deltamarine's) own risk." 6

e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan

By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor Melba O.
Buenaventura, "to plan and implement progress towards maximizing the continuous operation of the BASECO
Sesiman Rock Quarry * * by conventional methods;" but afterwards, Commissioner Bautista, in representation
of the PCGG, authorized another party, A.T. Abesamis, to operate the quarry, located at Mariveles, Bataan, an
agreement to this effect having been executed by them on September 17, 1986. 7

f. Order to Dispose of Scrap, etc.

By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor Buenaventura was also
"authorized to clean and beautify the Company's compound," and in this connection, to dispose of or sell "metal
scraps" and other materials, equipment and machineries no longer usable, subject to specified guidelines and
safeguards including audit and verification. 8

g. The TAKEOVER Order

By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover by the PCGG of
BASECO, "the Philippine Dockyard Corporation and all their affiliated companies." 9 Diaz invoked the
provisions of Section 3 (c) of Executive Order No. 1, empowering the Commission

* * To provisionally takeover in the public interest or to prevent its disposal or dissipation, business
enterprises and properties taken over by the government of the Marcos Administration or by
entities or persons close to former President Marcos, until the transactions leading to such
acquisition by the latter can be disposed of by the appropriate authorities.

A management team was designated to implement the order, headed by Capt. Siacunco, and was given the
following powers:

1. Conducts all aspects of operation of the subject companies;

2. Installs key officers, hires and terminates personnel as necessary;

3. Enters into contracts related to management and operation of the companies;

4. Ensures that the assets of the companies are not dissipated and used effectively and efficiently;
revenues are duly accounted for; and disburses funds only as may be necessary;
 5. Does actions including among others, seeking of military support as may be necessary, that will
ensure compliance to this order;

6. Holds itself fully accountable to the Presidential Commission on Good Government on all
aspects related to this take-over order.

h. Termination of Services of BASECO Officers

Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez, Gilberto
Pasimanero, and Benito R. Cuesta I, advising of the termination of their services by the PCGG. 10

2. Petitioner's Plea and Postulates

It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat, petitioner
BASECO would have this Court nullify. More particularly, BASECO prays that this Court-

1) declare unconstitutional and void Executive Orders Numbered 1 and 2;

2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on
the basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of the services of the
BASECO executives. 11

a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders

While BASECO concedes that "sequestration without resorting to judicial action, might be made within the
context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was
promulgated, under the principle that the law promulgated by the ruler under a revolutionary regime is the law of
the land, it ceased to be acceptable when the same ruler opted to promulgate the Freedom Constitution on March
25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was adopted
providing, among others, that "No person shall be deprived of life, liberty and property without due process of
law." (Const., Art. I V, Sec. 1)." 12

It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order *
* and Takeover Order * * issued purportedly under the authority of said Executive Orders, rests on four
fundamental considerations: First, no notice and hearing was accorded * * (it) before its properties and business
were taken over; Second, the PCGG is not a court, but a purely investigative agency and therefore not competent
to act as prosecutor and judge in the same cause; Third, there is nothing in the issuances which envisions any
proceeding, process or remedy by which petitioner may expeditiously challenge the validity of the takeover after
the same has been effected; and Fourthly, being directed against specified persons, and in disregard of the
constitutional presumption of innocence and general rules and procedures, they constitute a Bill of Attainder." 13

b. Re Order to Produce Documents

It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied
with, was issued without court authority and infringed its constitutional right against self-incrimination, and
unreasonable search and seizure. 14

c. Re PCGG's Exercise of Right of Ownership and Management

BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of
its business affairs by
1) terminating its contract for security services with Fairways & Anchor, without the consent and against the will
of the contracting parties; and amending the mode of payment of entry fees stipulated in its Lease Contract with
National Stevedoring & Lighterage Corporation, these acts being in violation of the non-impairment clause of the
constitution; 15

2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated
Port Services, Inc., giving the latter free use of BASECO premises; 16

3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at Sesiman,
Mariveles; 17

4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other materials; 18

5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies;

6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM
Moises M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19

7) planning to elect its own Board of Directors; 20

8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at Mariveles
* * rolls of cable wires, worth P600,000.00 on May 11, 1986; 21

9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been buried
therein. 22

3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders

Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders have been
engendered by misapprehension, or incomplete comprehension if not indeed downright ignorance of the law
governing these remedies. It is needful that these misconceptions and doubts be dispelled so that uninformed and
useless debates about them may be avoided, and arguments tainted by sophistry or intellectual dishonesty be
quickly exposed and discarded. Towards this end, this opinion will essay an exposition of the law on the matter.
In the process many of the objections raised by BASECO will be dealt with.

4. The Governing Law

a. Proclamation No. 3

The impugned executive orders are avowedly meant to carry out the explicit command of the
Provisional Constitution, ordained by Proclamation No. 3, 23 that the President-in the exercise of legislative power
which she was authorized to continue to wield "(until a legislature is elected and convened under a new
Constitution" "shall give priority to measures to achieve the mandate of the people," among others to recover
ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the
people through orders of sequestration or freezing of assets or accounts." 24

b. Executive Order No. 1 (CREATION OF PCGG)

Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast
resources of the government have been amassed by former President Marcos, his immediate family, relatives, and
close associates both here and abroad." 25 Upon these premises, the Presidential Commission on Good
Government was created, 26 "charged with the task of assisting the President in regard to (certain specified)
matters," among which was precisely-

* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E. Marcos,
his immediate family, relatives, subordinates and close associates, whether located in the
Philippines or abroad, including the takeover or sequestration of all business enterprises and
entities owned or controlled by them, during his administration, directly or through nominees, by
taking undue advantage of their public office and/or using their powers, authority, influence,
connections or relationship. 27

In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its mission,
the PCGG was granted "power and authority" to do the following particular acts, to wit:

1. To sequester or place or cause to be placed under its control or possession any building or
office wherein any ill-gotten wealth or properties may be found, and any records pertaining thereto,
in order to prevent their destruction, concealment or disappearance which would frustrate or
hamper the investigation or otherwise prevent the Commission from accomplishing its task.

2. To provisionally take over in the public interest or to prevent the disposal or dissipation,
business enterprises and properties taken over by the government of the Marcos Administration or
by entities or persons close to former President Marcos, until the transactions leading to such
acquisition by the latter can be disposed of by the appropriate authorities.

3. To restrain any actual or threatened acts by any person or entity that may render moot and
academic, or frustrate or otherwise make ineffectual the efforts of the Commission to carry out its
task under this order. 28

So that it might ascertain the facts germane to its objectives, it was granted power to conduct investigations;
require submission of evidence by subpoenae ad testificandum and duces tecum; administer oaths; punish for
contempt. 29It was given power also to promulgate such rules and regulations as may be necessary to carry out
the purposes of * * (its creation). 30

c. Executive Order No. 2(SPECIFICIED DIRECTIONS FOR RECOVERY)

Executive Order No. 2 gives additional and more specific data and directions respecting "the recovery of ill-gotten
properties amassed by the leaders and supporters of the previous regime." It declares that:

1) * * the Government of the Philippines is in possession of evidence showing that there are assets
and properties purportedly pertaining to former Ferdinand E. Marcos, and/or his wife Mrs. Imelda
Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or
nominees which had been or were acquired by them directly or indirectly, through or as a result of
the improper or illegal use of funds or properties owned by the government of the Philippines or
any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking
undue advantage of their office, authority, influence, connections or relationship, resulting in their
unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic
of the Philippines:" and

2) * * said assets and properties are in the form of bank accounts, deposits, trust accounts, shares
of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other
kinds of real and personal properties in the Philippines and in various countries of the world." 31
Upon these premises, the President-

1) froze "all assets and properties in the Philippines in which former President Marcos and/or his
wife, their close relatives, subordinates, business associates, dummies, agents, or nominees have
any interest or participation;

2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives,
subordinates, business associates, duties, agents, or nominees from transferring, conveying,
encumbering, concealing or dissipating said assets or properties in the Philippines and abroad,
pending the outcome of appropriate proceedings in the Philippines to determine whether any such
assets or properties were acquired by them through or as a result of improper or illegal use of or
the conversion of funds belonging to the Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their
official position, authority, relationship, connection or influence to unjustly enrich themselves at
the expense and to the grave damage and prejudice of the Filipino people and the Republic of the
Philippines;

3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting or

concealing such assets and properties or from assisting or taking part in their transfer,
encumbrance, concealment or dissipation under pain of such penalties as are prescribed by law;"
and

4) required "all persons in the Philippines holding such assets or properties, whether located in the
Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of
the same to the Commission on Good Government within thirty (30) days from publication of *
(the) Executive Order, * *. 32

d. Executive Order No. 14 (FILE AND PROSECUTE)

A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is empowered, "with the
assistance of the Office of the Solicitor General and other government agencies, * * to file and prosecute all cases
investigated by it * * as may be warranted by its findings." 34 All such cases, whether civil or criminal, are to be
filed "with the Sandiganbayanwhich shall have exclusive and original jurisdiction thereof." 35 Executive Order
No. 14 also pertinently provides that civil suits for restitution, reparation of damages, or indemnification for
consequential damages, forfeiture proceedings provided for under Republic Act No. 1379, or any other civil
actions under the Civil Code or other existing laws, in connection with * * (said Executive Orders Numbered 1
and 2) may be filed separately from and proceed independently of any criminal proceedings and may be proved
by a preponderance of evidence;" and that, moreover, the "technical rules of procedure and evidence shall not be
strictly applied to* * (said)civil cases." 36

5. Contemplated Situations

The situations envisaged and sought to be governed are self-evident, these being:

1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the previous
regime"; 37

a) more particularly, that ill-gotten wealth (was) accumulated by former President Ferdinand E.
Marcos, his immediate family, relatives, subordinates and close associates, * * located in the
Philippines or abroad, * * (and) business enterprises and entities (came to be) owned or controlled
by them, during * * (the Marcos) administration, directly or through nominees, by taking undue
 advantage of their public office and/or using their powers, authority, influence, Connections or
relationship; 38

b) otherwise stated, that "there are assets and properties purportedly pertaining to former President
Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives,
subordinates, business associates, dummies, agents or nominees which had been or were acquired
by them directly or indirectly, through or as a result of the improper or illegal use of funds or
properties owned by the Government of the Philippines or any of its branches, instrumentalities,
enterprises, banks or financial institutions, or by taking undue advantage of their office, authority,
influence, connections or relationship, resulting in their unjust enrichment and causing grave
damage and prejudice to the Filipino people and the Republic of the Philippines"; 39

c) that "said assets and properties are in the form of bank accounts. deposits, trust. accounts, shares
of stocks, buildings, shopping centers, condominiums, mansions, residences, estates, and other
kinds of real and personal properties in the Philippines and in various countries of the
world;" 40 and

2) that certain "business enterprises and properties (were) taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos. 41

6. Government's Right and Duty to Recover All Ill-gotten Wealth

There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-gotten
wealth."

Neither can there be any debate about the proposition that assuming the above described factual premises of the
Executive Orders and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery
from Marcos, his family and his dominions of the assets and properties involved, is not only a right but a duty on
the part of Government.

But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling
necessity that a proper respect be accorded and adequate protection assured, the fundamental rights of private
property and free enterprise which are deemed pillars of a free society such as ours, and to which all members of
that society may without exception lay claim.

* * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary

components freedom of conscience, freedom of expression, and freedom in the pursuit of
happiness. Along with these freedoms are included economic freedom and freedom of
enterprise within reasonable bounds and under proper control. * * Evincing much concern for the
protection of property, the Constitution distinctly recognizes the preferred position which real
estate has occupied in law for ages. Property is bound up with every aspect of social life in a
democracy as democracy is conceived in the Constitution. The Constitution realizes the
indispensable role which property, owned in reasonable quantities and used legitimately, plays in
the stimulation to economic effort and the formation and growth of a solid social middle class that
is said to be the bulwark of democracy and the backbone of every progressive and happy country. 42

a. Need of Evidentiary Substantiation in Proper Suit

Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly
established by adequate proof in each case, in a proper judicial proceeding, so that the recovery of the ill-gotten
wealth may be validly and properly adjudged and consummated; although there are some who maintain that the
fact-that an immense fortune, and "vast resources of the government have been amassed by former President
Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and abroad," and they have
resorted to all sorts of clever schemes and manipulations to disguise and hide their illicit acquisitions-is within
the realm of judicial notice, being of so extensive notoriety as to dispense with proof thereof, Be this as it may,
the requirement of evidentiary substantiation has been expressly acknowledged, and the procedure to be followed
explicitly laid down, in Executive Order No. 14.

b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits

Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as the
evidence at hand may reveal, there is an obvious and imperative need for preliminary, provisional measures to
prevent the concealment, disappearance, destruction, dissipation, or loss of the assets and properties subject of
the suits, or to restrain or foil acts that may render moot and academic, or effectively hamper, delay, or negate
efforts to recover the same.

7. Provisional Remedies Prescribed by Law

To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2)
freeze orders; and (3) provisional takeover.

Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth." The
remedy of "provisional takeover" is peculiar to cases where "business enterprises and properties (were) taken over
by the government of the Marcos Administration or by entities or persons close to former President Marcos." 43

a. Sequestration

By the clear terms of the law, the power of the PCGG to sequester property claimed to be "ill-gotten" means to
place or cause to be placed under its possession or control said property, building or office wherein any such
property and records pertaining thereto may be found, including "business enterprises and entities,"-
for the purpose of preventing the destruction, concealment or dissipation of, and otherwise conserving and
preserving, the same-until it can be determined, through appropriate judicial proceedings, whether the property is
will- gotten," i.e., acquired through or as a result of improper or illegal use of or the conversion of funds belonging
to the Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by
taking undue advantage of official position, authority relationship, connection or influence, resulting in unjust
enrichment of the ostensible owner and grave damage and prejudice to the State. 44 And this, too, is the sense in
which the term is commonly understood in other jurisdictions. 45

b. "Freeze Order"

A "freeze order" prohibits the person having possession or control of property allegedly "ill-gotten wealth" "from
transferring, conveying, encumbering or depleting or concealing such property, or from assisting or taking part
in its transfer, encumbrance, concealment, or dissipation." 46 In other words, it commands the possessor to
hold the property and conserve it subject to the orders and disposition of the authority decreeing such freezing. In
this sense, it is akin to a garnishment by which the possessor or ostensible owner of property is enjoined not to
deliver, transfer, or otherwise dispose of any effects or credits in his possession or control, and thus becomes in a
sense an involuntary depositary thereof. 47

c. Provisional Takeover

In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinction between "ill
gotten" "business enterprises and entities" (going concerns, businesses in actual operation), generally, as to which
the remedy of sequestration applies, it being necessarily inferred that the remedy entails no interference, or the
least possible interference with the actual management and operations thereof; and "business enterprises which
were taken over by the government government of the Marcos Administration or by entities or persons close to
him," in particular, as to which a "provisional takeover" is authorized, "in the public interest or to prevent disposal
or dissipation of the enterprises." 48 Such a "provisional takeover" imports something more than sequestration or
freezing, more than the placing of the business under physical possession and control, albeit without or with the
least possible interference with the management and carrying on of the business itself. In a "provisional takeover,"
what is taken into custody is not only the physical assets of the business enterprise or entity, but the business
operation as well. It is in fine the assumption of control not only over things, but over operations or on- going
activities. But, to repeat, such a "provisional takeover" is allowed only as regards "business enterprises * * taken
over by the government of the Marcos Administration or by entities or persons close to former President Marcos."

d. No Divestment of Title Over Property Seized

It may perhaps be well at this point to stress once again the provisional, contingent character of the remedies just
described. Indeed the law plainly qualifies the remedy of take-over by the adjective, "provisional." These remedies
may be resorted to only for a particular exigency: to prevent in the public interest the disappearance or dissipation
of property or business, and conserve it pending adjudgment in appropriate proceedings of the primary issue of
whether or not the acquisition of title or other right thereto by ill gotten wealth. None of the remedies is meant to
deprive the owner or possessor of his title or any right to the property sequestered, frozen or taken over and vest
it in the sequestering agency, the Government or other person. This can be done only for the causes and by the
processes laid down by law.

That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and
exercised, the language of the executive orders in question leaves no doubt. Executive Order No. 1 declares that
the sequestration of property the acquisition of which is suspect shall last "until the transactions leading to such
acquisition * * can be disposed of by the appropriate authorities." 49 Executive Order No. 2 declares that the
assets or properties therein mentioned shall remain frozen "pending the outcome of appropriate proceedings in
the Philippines to determine whether any such assets or properties were acquired" by illegal means. Executive
Order No. 14 makes clear that judicial proceedings are essential for the resolution of the basic issue of whether
or not particular assets are "ill-gotten," and resultant recovery thereof by the Government is warranted.

e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command

There is thus no cause for the apprehension voiced by BASECO 50 that sequestration, freezing or provisional
takeover is designed to be an end in itself, that it is the device through which persons may be deprived of their
property branded as "ill-gotten," that it is intended to bring about a permanent, rather than a passing, transitional
state of affairs. That this is not so is quite explicitly declared by the governing rules.

Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these provisional
remedies. Section 26 of its Transitory Provisions, 51 lays down the relevant rule in plain terms, apart from
extending ratification or confirmation (although not really necessary) to the institution by presidential fiat of the
remedy of sequestration and freeze orders:

SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated
March 25, 1986 in relation to the recovery of ill-gotten wealth shag remain operative for
not more than 18 months after the ratification of this Constitution. However, in the national
interest, as certified by the President, the Congress may extend said period.

A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order
and the list of the sequestered or frozen properties shall forthwith be registered with the
proper court. For orders issued before the ratification of this Constitution, the corresponding
judicial action or proceeding shall be filed within six months from its ratification. For those issued
 after such ratification, the judicial action or proceeding shall be commenced within six
months from the issuance thereof.

The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding
is commenced as herein provided. 52

f. Kinship to Attachment Receivership

As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of
preliminary attachment, or receivership. 53 By attachment, a sheriff seizes property of a defendant in a civil suit
so that it may stand as security for the satisfaction of any judgment that may be obtained, and not disposed of, or
dissipated, or lost intentionally or otherwise, pending the action. 54 By receivership, property, real or personal,
which is subject of litigation, is placed in the possession and control of a receiver appointed by the Court, who
shall conserve it pending final determination of the title or right of possession over it. 55 All these remedies
sequestration, freezing, provisional, takeover, attachment and receivership are provisional, temporary,
designed for-particular exigencies, attended by no character of permanency or finality, and always subject to the
control of the issuing court or agency.

g. Remedies, Non-Judicial

Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of no moment.
The Solicitor General draws attention to the writ of distraint and levy which since 1936 the Commissioner of
Internal Revenue has been by law authorized to issue against property of a delinquent taxpayer. 56 BASECO itself
declares that it has not manifested "a rigid insistence on sequestration as a purely judicial remedy * * (as it feels)
that the law should not be ossified to a point that makes it insensitive to change." What it insists on, what it
pronounces to be its "unyielding position, is that any change in procedure, or the institution of a new one, should
conform to due process and the other prescriptions of the Bill of Rights of the Constitution." 57 It is, to be sure, a
proposition on which there can be no disagreement.

h. Orders May Issue Ex Parte

Like the remedy of preliminary attachment and receivership, as well as delivery of personal property
in replevin suits, sequestration and provisional takeover writs may issue ex parte. 58 And as in preliminary
attachment, receivership, and delivery of personality, no objection of any significance may be raised to the ex
parte issuance of an order of sequestration, freezing or takeover, given its fundamental character of temporariness
or conditionality; and taking account specially of the constitutionally expressed "mandate of the people to recover
ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the
people;" 59 as well as the obvious need to avoid alerting suspected possessors of "ill-gotten wealth" and thereby
cause that disappearance or loss of property precisely sought to be prevented, and the fact, just as self-evident,
that "any transfer, disposition, concealment or disappearance of said assets and properties would frustrate, obstruct
or hamper the efforts of the Government" at the just recovery thereof. 60

8. Requisites for Validity

What is indispensable is that, again as in the case of attachment and receivership, there exist a prima facie factual
foundation, at least, for the sequestration, freeze or takeover order, and adequate and fair opportunity to contest
it and endeavor to cause its negation or nullification. 61

Both are assured under the executive orders in question and the rules and regulations promulgated by the PCGG.
 a. Prima Facie Evidence as Basis for Orders

Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due
process." 62Executive Order No. 2 declares that with respect to claims on allegedly "ill-gotten" assets and
properties, "it is the position of the new democratic government that President Marcos * * (and other parties
affected) be afforded fair opportunity to contest these claims before appropriate Philippine authorities." 63 Section
7 of the Commission's Rules and Regulations provides that sequestration or freeze (and takeover) orders issue
upon the authority of at least two commissioners, based on the affirmation or complaint of an interested
party, or motu proprio when the Commission has reasonable grounds to believe that the issuance thereof is
warranted. 64 A similar requirement is now found in Section 26, Art. XVIII of the 1987 Constitution, which
requires that a "sequestration or freeze order shall be issued only upon showing of a prima facie case." 65

b. Opportunity to Contest

And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a party may seek to
set aside a writ of sequestration or freeze order, viz:

SECTION 5. Who may contend.-The person against whom a writ of sequestration or freeze or hold
order is directed may request the lifting thereof in writing, either personally or through counsel
within five (5) days from receipt of the writ or order, or in the case of a hold order, from date of
knowledge thereof.

SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio for good
cause shown, the Commission may lift the writ or order unconditionally or subject to such
conditions as it may deem necessary, taking into consideration the evidence and the circumstance
of the case. The resolution of the commission may be appealed by the party concerned to the Office
of the President of the Philippines within fifteen (15) days from receipt thereof.

Parenthetically, even if the requirement for a prima facie showing of "ill- gotten wealth" were not expressly
imposed by some rule or regulation as a condition to warrant the sequestration or freezing of property
contemplated in the executive orders in question, it would nevertheless be exigible in this jurisdiction in which
the Rule of Law prevails and official acts which are devoid of rational basis in fact or law, or are whimsical and
capricious, are condemned and struck down. 66

9. Constitutional Sanction of Remedies

If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of
sequestration, freeze and takeover orders, it should be dispelled by the fact that these particular remedies and the
authority of the PCGG to issue them have received constitutional approbation and sanction. As already mentioned,
the Provisional or "Freedom" Constitution recognizes the power and duty of the President to enact "measures to
achieve the mandate of the people to * * * (recover ill- gotten properties amassed by the leaders and supporters
of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets
or accounts." And as also already adverted to, Section 26, Article XVIII of the 1987 Constitution 67 treats of, and
ratifies the "authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986."

The institution of these provisional remedies is also premised upon the State's inherent police power, regarded,
as it lie power of promoting the public welfare by restraining and regulating the use of liberty and property," 68 and
as "the most essential, insistent and illimitable of powers * * in the promotion of general welfare and the public
interest," 69 and said to be co-extensive with self-protection and * * not inaptly termed (also) the'law of overruling
necessity." " 70
10. PCGG not a "Judge"; General Functions

It should also by now be reasonably evident from what has thus far been said that the PCGG is not, and was never
intended to act as, a judge. Its general function is to conduct investigations in order to collect evidence establishing
instances of "ill-gotten wealth;" issue sequestration, and such orders as may be warranted by the evidence thus
collected and as may be necessary to preserve and conserve the assets of which it takes custody and control and
prevent their disappearance, loss or dissipation; and eventually file and prosecute in the proper court of competent
jurisdiction all cases investigated by it as may be warranted by its findings. It does not try and decide, or hear and
determine, or adjudicate with any character of finality or compulsion, cases involving the essential issue of
whether or not property should be forfeited and transferred to the State because "ill-gotten" within the meaning
of the Constitution and the executive orders. This function is reserved to the designated court, in this case, the
Sandiganbayan. 71 There can therefore be no serious regard accorded to the accusation, leveled by
BASECO, 72 that the PCGG plays the perfidious role of prosecutor and judge at the same time.

11. Facts Preclude Grant of Relief to Petitioner

Upon these premises and reasoned conclusions, and upon the facts disclosed by the record, hereafter to be
discussed, the petition cannot succeed. The writs of certiorari and prohibition prayed for will not be issued.

The facts show that the corporation known as BASECO was owned or controlled by President Marcos "during
his administration, through nominees, by taking undue advantage of his public office and/or using his powers,
authority, or influence, " and that it was by and through the same means, that BASECO had taken over the business
and/or assets of the National Shipyard and Engineering Co., Inc., and other government-owned or controlled
entities.

12. Organization and Stock Distribution of BASECO

BASECO describes itself in its petition as "a ship repair and shipbuilding company * * incorporated as a domestic
private corporation * * (on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping executives. Its
main office is at Engineer Island, Port Area, Manila, where its Engineer Island Shipyard is housed, and its main
shipyard is located at Mariveles Bataan." 73 Its Articles of Incorporation disclose that its authorized capital stock
is P60,000,000.00 divided into 60,000 shares, of which 12,000 shares with a value of P12,000,000.00 have been
subscribed, and on said subscription, the aggregate sum of P3,035,000.00 has been paid by the
incorporators. 74 The same articles Identify the incorporators, numbering fifteen (15), as follows: (1) Jose A.
Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T.
Yap, (7) Antonio M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro
Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo Torres.

By 1986, however, of these (15) incorporators, six (6) had ceased to be stockholders, namely: (1) Generoso
Tanseco, (2) Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo
Torres. As of this year, 1986, there were twenty (20) stockholders listed in BASECO's Stock and Transfer
Book. 75Their names and the number of shares respectively held by them are as follows:

13 Acquisition of NASSCO by BASECO

Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel Corporation, or
NASSCO, a GOCC, the latter's shipyard at Mariveles, Bataan, known as the Bataan National Shipyard (BNS),
and except for NASSCO's Engineer Island Shops and certain equipment of the BNS, consigned for future
negotiation all its structures, buildings, shops, quarters, houses, plants, equipment and facilities, in stock or in
transit. This it did in virtue of a "Contract of Purchase and Sale with Chattel Mortgage" executed on February 13,
1973. The price was P52,000,000.00. As partial payment thereof, BASECO delivered to NASSCO a cash bond
of P11,400,000.00, convertible into cash within twenty-four (24) hours from completion of the inventory
undertaken pursuant to the contract. The balance of P41,600,000.00, with interest at seven percent (7%) per
annum, compounded semi-annually, was stipulated to be paid in equal semi-annual installments over a term of
nine (9) years, payment to commence after a grace period of two (2) years from date of turnover of the shipyard
to BASECO. 76

14. Subsequent Reduction of Price; Intervention of Marcos

Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00, about eight
(8) months later. A document to this effect was executed on October 9, 1973, entitled "Memorandum Agreement,"
and was signed for NASSCO by Arturo Pacificador, as Presiding Officer of the Board of Directors, and David R.
Ines, as General Manager. 77 This agreement bore, at the top right corner of the first page, the word "APPROVED"
in the handwriting of President Marcos, followed by his usual full signature. The document recited that a down
payment of P5,862,310.00 had been made by BASECO, and the balance of P19,449,240.00 was payable in equal
semi-annual installments over nine (9) years after a grace period of two (2) years, with interest at 7% per annum.

15. Acquisition of 300 Hectares from Export Processing Zone Authority

On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export
Processing Zone Authority for the price of P10,047,940.00 of which, as set out in the document of sale,
P2,000.000.00 was paid upon its execution, and the balance stipulated to be payable in installments. 78

16. Acquisition of Other Assets of NASSCO; Intervention of Marcos

Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of
President Marcos, acquired ownership of the rest of the assets of NASSCO which had not been included in the
first two (2) purchase documents. This was accomplished by a deed entitled "Contract of Purchase and
Sale," 79 which, like the Memorandum of Agreement dated October 9, 1973 supra also bore at the upper right-
hand corner of its first page, the handwritten notation of President Marcos reading, "APPROVED, July 29, 1973,"
and underneath it, his usual full signature. Transferred to BASECO were NASSCO's "ownership and all its titles,
rights and interests over all equipment and facilities including structures, buildings, shops, quarters, houses, plants
and expendable or semi-expendable assets, located at the Engineer Island, known as the Engineer Island Shops,
including all the equipment of the Bataan National Shipyards (BNS) which were excluded from the sale of NBS
to BASECO but retained by BASECO and all other selected equipment and machineries of NASSCO at J.
Panganiban Smelting Plant." In the same deed, NASSCO committed itself to cooperate with BASECO for the
acquisition from the National Government or other appropriate Government entity of Engineer Island.
Consideration for the sale was set at P5,000,000.00; a down payment of P1,000,000.00 appears to have been
made, and the balance was stipulated to be paid at 7% interest per annum in equal semi annual installments over
a term of nine (9) years, to commence after a grace period of two (2) years. Mr. Arturo Pacificador again signed
for NASSCO, together with the general manager, Mr. David R. Ines.

17. Loans Obtained

It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from "the last available
Japanese war damage fund of $19,000,000.00," to pay for "Japanese made heavy equipment (brand new)." 80 On
September 3, 1975, it got another loan also from the NDC in the amount of P30,000,000.00 (id.). And on January
28, 1976, it got still another loan, this time from the GSIS, in the sum of P12,400,000.00. 81 The claim has been
made that not a single centavo has been paid on these loans. 82

18. Reports to President Marcos

In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. The first was
contained in a letter dated September 5, 1977 of Hilario M. Ruiz, BASECO president. 83 The second was
embodied in a confidential memorandum dated September 16, 1977 of Capt. A.T. Romualdez. 84 They further
disclose the fine hand of Marcos in the affairs of BASECO, and that of a Romualdez, a relative by affinity.

a. BASECO President's Report

In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had been "no orders or
demands for ship construction" for some time and expressed the fear that if that state of affairs persisted, BASECO
would not be able to pay its debts to the Government, which at the time stood at the not inconsiderable amount
of P165,854,000.00. 85 He suggested that, to "save the situation," there be a "spin-off (of their) shipbuilding
activities which shall be handled exclusively by an entirely new corporation to be created;" and towards this end,
he informed Marcos that BASECO was

* * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan to
BASECO amounting to P341.165M and assuming and converting a portion of BASECO's
shipbuilding loans from REPACOM amounting to P52.2M or a total of P83.365M as NDC's equity
contribution in the new corporation. LUSTEVECO will participate by absorbing and converting a
portion of the REPACOM loan of Bay Shipyard and Drydock, Inc., amounting to P32.538M. 86

b. Romualdez' Report

Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It opened with the following
caption:

MEMORANDUM:

FOR : The President

SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission

FROM: Capt. A.T. Romualdez.

Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due chiefly to
the fact that "orders to build ships as expected * * did not materialize."

He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1) Jose A.
Rojas, (2) Severino de la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that
"Mr. Magiliw Torres * * is already dead and Mr. Jose A. Rojas had a major heart attack," he made the following
quite revealing, and it may be added, quite cynical and indurate recommendation, to wit:

* * (that) their replacements (be effected) so we can register their names in the stock book prior to
the implementation of your instructions to pass a board resolution to legalize the transfers under
SEC regulations;

2. By getting their replacements, the families cannot question us later on; and

3. We will owe no further favors from them. 87

He also transmitted to Marcos, together with the report, the following documents: 88

1. Stock certificates indorsed and assigned in blank with assignments and waivers; 89
 2. The articles of incorporation, the amended articles, and the by-laws of BASECO;

3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer Island",
Port Area, Manila;

4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering "Engineer Island";

5. Contract dated October 9, 1973, between NASSCO and BASECO re-structure and equipment
at Mariveles, Bataan;

6. Contract dated July 16, 1975, between NASSCO and BASECO re-structure and equipment at
Engineer Island, Port Area Manila;

7. Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of land at
Mariveles, Bataan;

8. List of BASECO's fixed assets;

9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC of P30,000,000.00;

10. BASECO-REPACOM Agreement dated May 27, 1975;

11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the housing facilities for
BASECO's rank-and-file employees. 90

Capt. Romualdez also recommended that BASECO's loans be restructured "until such period when BASECO will
have enough orders for ships in order for the company to meet loan obligations," and that

An LOI may be issued to government agencies using floating equipment, that a linkage scheme be
applied to a certain percent of BASECO's net profit as part of BASECO's amortization payments
to make it justifiable for you, Sir. 91

It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of BASECO, yet he has
presented a report on BASECO to President Marcos, and his report demonstrates intimate familiarity with the
firm's affairs and problems.

19. Marcos' Response to Reports

President Marcos lost no time in acting on his subordinates' recommendations, particularly as regards the
"spin-off" and the "linkage scheme" relative to "BASECO's amortization payments."

a. Instructions re "Spin-Off"

Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo Velasco of the Philippine
National Oil Company and Chairman Constante Farias of the National Development Company, directing them
"to participate in the formation of a new corporation resulting from the spin-off of the shipbuilding component
of BASECO along the following guidelines:

a. Equity participation of government shall be through LUSTEVECO and NDC in the amount of
P115,903,000 consisting of the following obligations of BASECO which are hereby authorized to
be converted to equity of the said new corporation, to wit:
 1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation)

2. LUSTEVECO P32,538,000 (Reparation)

b. Equity participation of government shall be in the form of non- voting shares.

For immediate compliance. 92

Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22) days after receiving
their president's memorandum, Messrs. Hilario M. Ruiz, Constante L. Farias and Geronimo Z. Velasco, in
representation of their respective corporations, executed a PRE-INCORPORATION AGREEMENT dated
October 20, 1977. 93 In it, they undertook to form a shipbuilding corporation to be known as "PHIL-ASIA
SHIPBUILDING CORPORATION," to bring to realization their president's instructions. It would seem that the
new corporation ultimately formed was actually named "Philippine Dockyard Corporation (PDC)." 94

b. Letter of Instructions No. 670

Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February 14, 1978,
he issued Letter of Instructions No. 670 addressed to the Reparations Commission REPACOM the Philippine
National Oil Company (PNOC), the Luzon Stevedoring Company (LUSTEVECO), and the National
Development Company (NDC). What is commanded therein is summarized by the Solicitor General, with pithy
and not inaccurate observations as to the effects thereof (in italics), as follows:

* * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to

NDC subject to reimbursement by NDC to BASECO (of) the amount of s allegedly representing
the handling and incidental expenses incurred by BASECO in the installation of said
equipment (so instead of NDC getting paid on its loan to BASECO, it was made to pay BASECO
instead the amount of P18.285M); 2) the shipbuilding equipment procured from reparations
through EPZA, now in the possession of BASECO and BSDI (Bay Shipyard & Drydocking, Inc.)
be transferred to LUSTEVECO through PNOC; and 3) the shipbuilding equipment (thus)
transferred be invested by LUSTEVECO, acting through PNOC and NDC, as the government's
equity participation in a shipbuilding corporation to be established in partnership with the private
sector.

xxx xxx xxx

And so, through a simple letter of instruction and memorandum, BASECO's loan obligation to
NDC and REPACOM * * in the total amount of P83.365M and BSD's REPACOM loan of
P32.438M were wiped out and converted into non-voting preferred shares. 95

20. Evidence of Marcos'

Ownership of BASECO

It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the
control by Marcos of BASECO has been sufficiently shown.

Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised
control over BASECO, but also that he actually owns well nigh one hundred percent of its outstanding stock.
It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock
outstanding, ostensibly owned by twenty (20) stockholders. 96 Four of these twenty are juridical persons:
(1) Metro Bay Drydock, recorded as holding 136,370 shares; (2) Fidelity Management, Inc., 65,882 shares;
(3) Trident Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares. The first three corporations,
among themselves, own an aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding stock.
(Owned by Marcos???)

Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in
Malacanang shortly after the sudden flight of President Marcos, were certificates corresponding to more
than ninety-five percent (95%) of all the outstanding shares of stock of BASECO, endorsed in blank, together
with deeds of assignment of practically all the outstanding shares of stock of the three (3) corporations above
mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof although not notarized. 97

More specifically, found in Malacanang (and now in the custody of the PCGG) were:

1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. which
supposedly owns as aforesaid 65,882 shares of BASECO stock;

2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro Bay Drydock
Corporation which allegedly owns 136,370 shares of BASECO stock;

3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc. which
allegedly owns 7,412 shares of BASECO stock, assigned in blank; 98 and

4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of BASECO
stock; that is, all but 5 % all endorsed in blank. 99

While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO
stockholders were still in possession of their respective stock certificates and had "never endorsed * * them in
blank or to anyone else," 100 that denial is exposed by his own prior and subsequent recorded statements as a
mere gesture of defiance rather than a verifiable factual declaration.

By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days "to
SUBMIT, as undertaken by him, * * the certificates of stock issued to the stockholders of * * BASECO as of
April 23, 1986, as listed in Annex 'P' of the petition.' 101 Counsel thereafter moved for extension; and in his
motion dated October 2, 1986, he declared inter alia that "said certificates of stock are in the possession of third
parties, among whom being the respondents themselves * * and petitioner is still endeavoring to secure
copies thereof from them." 102 On the same day he filed another motion praying that he be allowed "to secure
copies of the Certificates of Stock in the name of Metro Bay Drydock, Inc., and of all other Certificates, of Stock
of petitioner's stockholders in possession of respondents." 103

In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that counsel's
aforestated motion to secure copies of the stock certificates "confirms the fact that stockholders of petitioner
corporation are not in possession of * * (their) certificates of stock," and the reason, according to him, was "that
95% of said shares * * have been endorsed in blank and found in Malacaang after the former President and his
family fled the country." To this manifestation BASECO's counsel replied on November 5, 1986, as already
mentioned, Stubbornly insisting that the firm's stockholders had not really assigned their stock. 105

In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 among other things "to
require * * the petitioner * * to deposit upon proper receipt with Clerk of Court Juanito Ranjo the originals of the
stock certificates alleged to be in its possession or accessible to it, mentioned and described in Annex 'P' of its
petition, (and other pleadings) * * within ten (10) days from notice." 106 In a motion filed on December 5,
1986, 107 BASECO's counsel made the statement, quite surprising in the premises, that "it will negotiate with
the owners (of the BASECO stock in question) to allow petitioner to borrow from them, if available, the
certificates referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's counsel however
eventually had to confess inability to produce the originals of the stock certificates, putting up the feeble excuse
that while he had "requested the stockholders to allow * * (him) to borrow said certificates, * * some of * * (them)
claimed that they had delivered the certificates to third parties by way of pledge and/or to secure performance of
obligations, while others allegedly have entrusted them to third parties in view of last national
emergency." 108 He has conveniently omitted, nor has he offered to give the details of the transactions adverted
to by him, or to explain why he had not impressed on the supposed stockholders the primordial importance of
convincing this Court of their present custody of the originals of the stock, or if he had done so, why the
stockholders are unwilling to agree to some sort of arrangement so that the originals of their certificates might at
the very least be exhibited to the Court. Under the circumstances, the Court can only conclude that he could not
get the originals from the stockholders for the simple reason that, as the Solicitor General maintains, said
stockholders in truth no longer have them in their possession, these having already been assigned in blank to then
President Marcos.

21. Facts Justify Issuance of Sequestration and Takeover Orders

In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors
of BASECO as of April, 1986 109 were mere "dummies," nominees or alter egos of President Marcos; at any
rate, that they are no longer owners of any shares of stock in the corporation, the conclusion cannot be avoided
that said stockholders and directors have no basis and no standing whatever to cause the filing and prosecution of
the instant proceeding; and to grant relief to BASECO, as prayed for in the petition, would in effect be
to restore the assets, properties and business sequestered and taken over by the PCGG to persons who are
"dummies," nominees or alter egos of the former president.

From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private
corporation known as BASECO was "owned or controlled by former President Ferdinand E. Marcos * * during
his administration, * * through nominees, by taking advantage of * * (his) public office and/or using * * (his)
powers, authority, influence * *," and that NASSCO and other property of the government had been taken over
by BASECO; and the situation justified the sequestration as well as the provisional takeover of the corporation in
the public interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the filing of the requisite
actions with the Sandiganbayan to cause divestment of title thereto from Marcos, and its adjudication in favor of
the Republic pursuant to Executive Order No. 14.

As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it sustains the
acts of sequestration and takeover by the PCGG as being in accord with the law, and, in view of what has thus far
been set out in this opinion, pronounces to be without merit the theory that said acts, and the executive orders
pursuant to which they were done, are fatally defective in not according to the parties affected prior notice and
hearing, or an adequate remedy to impugn, set aside or otherwise obtain relief therefrom, or that the PCGG had
acted as prosecutor and judge at the same time.

22. Executive Orders Not a Bill of Attainder

Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A bill
of attainder is a legislative act which inflicts punishment without judicial trial." 111 "Its essence is the substitution
of a legislative for a judicial determination of guilt." 112

In the first place, nothing in the executive orders can be reasonably construed as a determination or
declaration of guilt. On the contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly
clear that any judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed down by a
judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the
second place, no punishment is inflicted by the executive orders, as the merest glance at their provisions will
immediately make apparent. In no sense, therefore, may the executive orders be regarded as a bill of attainder.

23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures

BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been
transgressed by the Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986
under pain of contempt of the Commission if it fails to do so." The order was issued upon the authority of Section
3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the production of
such books, papers, contracts, records, statements of accounts and other documents as may be material to the
investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power
to "require all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in
the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same * *."
The contention lacks merit.

It is elementary that the right against self-incrimination has no application to juridical persons.

While an individual may lawfully refuse to answer incriminating questions unless protected by an
immunity statute, it does not follow that a corporation, vested with special privileges and
franchises, may refuse to show its hand when charged with an abuse of such privileges * * 113

Relevant jurisprudence is also cited by the Solicitor General. 114

* * corporations are not entitled to all of the constitutional protections which private individuals
have. * * They are not at all within the privilege against self-incrimination, although this court
more than once has said that the privilege runs very closely with the 4th Amendment's Search and
Seizure provisions. It is also settled that an officer of the company cannot refuse to produce its
records in its possession upon the plea that they will either incriminate him or may incriminate
it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's).

* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of
the public. It received certain special privileges and franchises, and holds them subject to the laws
of the state and the limitations of its charter. Its powers are limited by law. It can make no contract
not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it
obeys the laws of its creation. There is a reserve right in the legislature to investigate its
contracts and find out whether it has exceeded its powers. It would be a strange anomaly to
hold that a state, having chartered a corporation to make use of certain franchises, could not, in the
exercise of sovereignty, inquire how these franchises had been employed, and whether they had
been abused, and demand the production of the corporate books and papers for that purpose. The
defense admits to this, that an officer of the corporation which is charged with a criminal violation
of the statute may plead the criminality of such corporation as a refusal to produce its books. To
state this proposition is to answer it. While an individual may lawfully refuse to answer
incriminating questions unless protected by an immunity statute, it does not follow that a
corporation, vested with special privileges and franchises may refuse to show its hand when
charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780
[emphasis, the Solicitor General's])

At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to
individuals required to produce evidence before the PCGG against any possible violation of his right against self-
incrimination. It gives them immunity from prosecution on the basis of testimony or information he is compelled
to present. As amended, said Section 4 now provides that
 xxx xxx xxx

The witness may not refuse to comply with the order on the basis of his privilege against self-
incrimination; but no testimony or other information compelled under the order (or any
information directly or indirectly derived from such testimony, or other information) may be used
against the witness in any criminal case, except a prosecution for perjury, giving a false statement,
or otherwise failing to comply with the order.

The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar
either. There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure
on the occasion thereof.

24. Scope and Extent of Powers of the PCGG

One other question remains to be disposed of, that respecting the scope and extent of the powers that may be
wielded by the PCGG with regard to the properties or businesses placed under sequestration or provisionally
taken over. Obviously, it is not a question to which an answer can be easily given, much less one which will
suffice for every conceivable situation.

a. PCGG May Not Exercise Acts of Ownership

One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property
sequestered, frozen or provisionally taken over. As already earlier stressed with no little insistence, the act of
sequestration; freezing or provisional takeover of property does not import or bring about a divestment of title
over said property; does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or
provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict
ownership; and this is specially true in the situations contemplated by the sequestration rules where, unlike cases
of receivership, for example, no court exercises effective supervision or can upon due application and hearing,
grant authority for the performance of acts of dominion.

Equally evident is that the resort to the provisional remedies in question should entail the least possible
interference with business operations or activities so that, in the event that the accusation of the business enterprise
being "ill gotten" be not proven, it may be returned to its rightful owner as far as possible in the same condition
as it was at the time of sequestration.

b. PCGG Has Only Powers of Administration

The PCGG may thus exercise only powers of administration over the property or business sequestered or
provisionally taken over, much like a court-appointed receiver, 115 such as to bring and defend actions in its own
name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may
be necessary to fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or
restrain any actual or threatened commission of acts by any person or entity that may render moot and academic,
or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect contempt in
accordance with the Rules of Court; and seek and secure the assistance of any office, agency or instrumentality
of the government. 116 In the case of sequestered businesses generally (i.e., going concerns, businesses in current
operation), as in the case of sequestered objects, its essential role, as already discussed, is that of conservator,
caretaker, "watchdog" or overseer. It is not that of manager, or innovator, much less an owner.
 c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him;
Limitations Thereon

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

d. Voting of Sequestered Stock; Conditions Therefor

So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise
the prerogative to vote sequestered stock of corporations, granted to it by the President of the Philippines through
a Memorandum dated June 26, 1986. That Memorandum authorizes the PCGG, "pending the outcome of
proceedings to determine the ownership of * * (sequestered) shares of stock," "to vote such shares of stock as it
may have sequestered in corporations at all stockholders' meetings called for the election of directors, declaration
of dividends, amendment of the Articles of Incorporation, etc." The Memorandum should be construed in such a
manner as to be consistent with, and not contradictory of the Executive Orders earlier promulgated on the same
matter. There should be no exercise of the right to vote simply because the right exists, or because the stocks
sequestered constitute the controlling or a substantial part of the corporate voting power. The stock is not to be
voted to replace directors, or revise the articles or by-laws, or otherwise bring about substantial changes in policy,
program or practice of the corporation except for demonstrably weighty and defensible grounds, and always in
the context of the stated purposes of sequestration or provisional takeover, i.e., to prevent the dispersion or undue
disposal of the corporate assets. Directors are not to be voted out simply because the power to do so exists.
Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at an possible,
and undertaken only when essential to prevent disappearance or wastage of corporate property, and always under
such circumstances as assure that the replacements are truly possessed of competence, experience and probity.

In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in
their stead because the evidence showed prima facie that the former were just tools of President Marcos and were
no longer owners of any stock in the firm, if they ever were at all. This is why, in its Resolution of October 28,
1986; 118 this Court declared that

Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents'
calling and holding of a stockholders' meeting for the election of directors as authorized by the
Memorandum of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in
 this case, the government can, through its designated directors, properly exercise control and
management over what appear to be properties and assets owned and belonging to the government
itself and over which the persons who appear in this case on behalf of BASECO have failed to
show any right or even any shareholding in said corporation.

It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management
of the company's affairs should henceforth be guided and governed by the norms herein laid down. They should
never for a moment allow themselves to forget that they are conservators, not owners of the business; they are
fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in the premises, required.

25. No Sufficient Showing of Other Irregularities

As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution of
certain contracts, inclusive of the termination of the employment of some of its executives, 119 this Court cannot,
in the present state of the evidence on record, pass upon them. It is not necessary to do so. The issues arising
therefrom may and will be left for initial determination in the appropriate action. But the Court will state that
absent any showing of any important cause therefor, it will not normally substitute its judgment for that of the
PCGG in these individual transactions. It is clear however, that as things now stand, the petitioner cannot be said
to have established the correctness of its submission that the acts of the PCGG in question were done without or
in excess of its powers, or with grave abuse of discretion.

WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted.

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

PHILIPPINE NATIONAL BANK, petitioner,

vs.THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO and THE PHILIPPINE
AMERICAN GENERAL INSURANCE COMPANY, INC., respondents.

Medina, Locsin, Corua, & Sumbillo for petitioner.

Manuel Lim & Associates for private respondents.

ANTONIO, J.:

Certiorari to review the decision of the Court of Appeals which affirmed the judgment of the Court of First
Instance of Manila in Civil Case No. 34185, ordering petitioner, as third-party defendant, to pay respondent Rita
Gueco Tapnio, as third-party plaintiff, the sum of P2,379.71, plus 12% interest per annum from September 19,
1957 until the same is fully paid, P200.00 attorney's fees and costs, the same amounts which Rita Gueco Tapnio
was ordered to pay the Philippine American General Insurance Co., Inc., to be paid directly to the Philippine
American General Insurance Co., Inc. in full satisfaction of the judgment rendered against Rita Gueco Tapnio in
favor of the former; plus P500.00 attorney's fees for Rita Gueco Tapnio and costs. The basic action is the
complaint filed by Philamgen (Philippine American General Insurance Co., Inc.) as surety against Rita Gueco
Tapnio and Cecilio Gueco, for the recovery of the sum of P2,379.71 paid by Philamgen to the Philippine National
Bank on behalf of respondents Tapnio and Gueco, pursuant to an indemnity agreement. Petitioner Bank was made
third-party defendant by Tapnio and Gueco on the theory that their failure to pay the debt was due to the fault or
negligence of petitioner.

The facts as found by the respondent Court of Appeals, in affirming the decision of the Court of First Instance of
Manila, are quoted hereunder:

Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco Tapnio as principal, in favor of the
Philippine National Bank Branch at San Fernando, Pampanga, to guarantee the payment of
defendant Rita Gueco Tapnio's account with said Bank. In turn, to guarantee the payment of
whatever amount the bonding company would pay to the Philippine National Bank, both
defendants executed the indemnity agreement, Exh. B. Under the terms and conditions of this
indemnity agreement, whatever amount the plaintiff would pay would earn interest at the rate of
12% per annum, plus attorney's fees in the amount of 15 % of the whole amount due in case of
court litigation.

The original amount of the bond was for P4,000.00; but the amount was later reduced to P2,000.00.

It is not disputed that defendant Rita Gueco Tapnio was indebted to the bank in the sum of
P2,000.00, plus accumulated interests unpaid, which she failed to pay despite demands. The Bank
wrote a letter of demand to plaintiff, as per Exh. C; whereupon, plaintiff paid the bank on
September 18, 1957, the full amount due and owing in the sum of P2,379.91, for and on account
of defendant Rita Gueco's obligation (Exhs. D and D-1).

Plaintiff, in turn, made several demands, both verbal and written, upon defendants (Exhs. E and
F), but to no avail.

Defendant Rita Gueco Tapnio admitted all the foregoing facts. She claims, however, when demand
was made upon her by plaintiff for her to pay her debt to the Bank, that she told the Plaintiff that
she did not consider herself to be indebted to the Bank at all because she had an agreement with
one Jacobo-Nazon whereby she had leased to the latter her unused export sugar quota for the 1956-
1957 agricultural year, consisting of 1,000 piculs at the rate of P2.80 per picul, or for a total of
P2,800.00, which was already in excess of her obligation guaranteed by plaintiff's bond, Exh. A.
This lease agreement, according to her, was with the knowledge of the bank. But the Bank has
placed obstacles to the consummation of the lease, and the delay caused by said obstacles forced
'Nazon to rescind the lease contract. Thus, Rita Gueco Tapnio filed her third-party complaint
against the Bank to recover from the latter any and all sums of money which may be adjudged
against her and in favor of the plaitiff plus moral damages, attorney's fees and costs.

Insofar as the contentions of the parties herein are concerned, we quote with approval the following
findings of the lower court based on the evidence presented at the trial of the case:

It has been established during the trial that Mrs. Tapnio had an export sugar quota
of 1,000 piculs for the agricultural year 1956-1957 which she did not need. She
agreed to allow Mr. Jacobo C. Tuazon to use said quota for the consideration of
P2,500.00 (Exh. "4"-Gueco). This agreement was called a contract of lease of sugar
allotment.

At the time of the agreement, Mrs. Tapnio was indebted to the Philippine National
Bank at San Fernando, Pampanga. Her indebtedness was known as a crop loan and
was secured by a mortgage on her standing crop including her sugar quota
allocation for the agricultural year corresponding to said standing crop. This
arrangement was necessary in order that when Mrs. Tapnio harvests, the P.N.B.,
 having a lien on the crop, may effectively enforce collection against her. Her sugar
cannot be exported without sugar quota allotment Sometimes, however, a planter
harvest less sugar than her quota, so her excess quota is utilized by another who
pays her for its use. This is the arrangement entered into between Mrs. Tapnio and
Mr. Tuazon regarding the former's excess quota for 1956-1957 (Exh. "4"-Gueco).

Since the quota was mortgaged to the P.N.B., the contract of lease had to be
approved by said Bank, The same was submitted to the branch manager at San
Fernando, Pampanga. The latter required the parties to raise the consideration of
P2.80 per picul or a total of P2,800.00 (Exh. "2-Gueco") informing them that "the
minimum lease rental acceptable to the Bank, is P2.80 per picul." In a letter
addressed to the branch manager on August 10, 1956, Mr. Tuazon informed the
manager that he was agreeable to raising the consideration to P2.80 per picul. He
further informed the manager that he was ready to pay said amount as the funds
were in his folder which was kept in the bank.

Explaining the meaning of Tuazon's statement as to the funds, it was stated by him
that he had an approved loan from the bank but he had not yet utilized it as he was
intending to use it to pay for the quota. Hence, when he said the amount needed to
pay Mrs. Tapnio was in his folder which was in the bank, he meant and the manager
understood and knew he had an approved loan available to be used in payment of
the quota. In said Exh. "6-Gueco", Tuazon also informed the manager that he would
want for a notice from the manager as to the time when the bank needed the money
so that Tuazon could sign the corresponding promissory note.

Further Consideration of the evidence discloses that when the branch manager of the Philippine
National Bank at San Fernando recommended the approval of the contract of lease at the price of
P2.80 per picul (Exh. 1 1-Bank), whose recommendation was concurred in by the Vice-president
of said Bank, J. V. Buenaventura, the board of directors required that the amount be raised to 13.00
per picul. This act of the board of directors was communicated to Tuazon, who in turn asked for a
reconsideration thereof. On November 19, 1956, the branch manager submitted Tuazon's request
for reconsideration to the board of directors with another recommendation for the approval of the
lease at P2.80 per picul, but the board returned the recommendation unacted upon, considering
that the current price prevailing at the time was P3.00 per picul (Exh. 9-Bank).

The parties were notified of the refusal on the part of the board of directors of the Bank to grant
the motion for reconsideration. The matter stood as it was until February 22, 1957, when Tuazon
wrote a letter (Exh. 10-Bank informing the Bank that he was no longer interested to continue the
deal, referring to the lease of sugar quota allotment in favor of defendant Rita Gueco Tapnio. The
result is that the latter lost the sum of P2,800.00 which she should have received from Tuazon and
which she could have paid the Bank to cancel off her indebtedness,

The court below held, and in this holding we concur that failure of the negotiation for the lease of
the sugar quota allocation of Rita Gueco Tapnio to Tuazon was due to the fault of the directors of
the Philippine National Bank, The refusal on the part of the bank to approve the lease at the rate
of P2.80 per picul which, as stated above, would have enabled Rita Gueco Tapnio to realize the
amount of P2,800.00 which was more than sufficient to pay off her indebtedness to the Bank, and
its insistence on the rental price of P3.00 per picul thus unnecessarily increasing the value by only
a difference of P200.00. inevitably brought about the rescission of the lease contract to the damage
and prejudice of Rita Gueco Tapnio in the aforesaid sum of P2,800.00. The unreasonableness of
the position adopted by the board of directors of the Philippine National Bank in refusing to
approve the lease at the rate of P2.80 per picul and insisting on the rate of P3.00 per picul, if only
 to increase the retail value by only P200.00 is shown by the fact that all the accounts of Rita Gueco
Tapnio with the Bank were secured by chattel mortgage on standing crops, assignment of leasehold
rights and interests on her properties, and surety bonds, aside from the fact that from Exh. 8-Bank,
it appears that she was offering to execute a real estate mortgage in favor of the Bank to replace
the surety bond This statement is further bolstered by the fact that Rita Gueco Tapnio apparently
had the means to pay her obligation fact that she has been granted several value of almost
P80,000.00 for the agricultural years from 1952 to 56. 1

Its motion for the reconsideration of the decision of the Court of Appeals having been denied, petitioner filed the
present petition.

The petitioner contends that the Court of Appeals erred:

(1) In finding that the rescission of the lease contract of the 1,000 piculs of sugar quota allocation of respondent
Rita Gueco Tapnio by Jacobo C. Tuazon was due to the unjustified refusal of petitioner to approve said lease
contract, and its unreasonable insistence on the rental price of P3.00 instead of P2.80 per picul; and

(2) In not holding that based on the statistics of sugar price and prices of sugar quota in the possession of the
petitioner, the latter's Board of Directors correctly fixed the rental of price per picul of 1,000 piculs of sugar quota
leased by respondent Rita Gueco Tapnio to Jacobo C. Tuazon at P3.00 per picul.

Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right, both under its own Charter and
under the Corporation Law, to safeguard and protect its rights and interests under the deed of assignment, which
include the right to approve or disapprove the said lease of sugar quota and in the exercise of that authority, its

Board of Directors necessarily had authority to determine and fix the rental price per picul of the sugar quota
subject of the lease between private respondents and Jacobo C. Tuazon. It argued further that both under its
Charter and the Corporation Law, petitioner, acting thru its Board of Directors, has the perfect right to adopt a
policy with respect to fixing of rental prices of export sugar quota allocations, and in fixing the rentals at P3.00
per picul, it did not act arbitrarily since the said Board was guided by statistics of sugar price and prices of sugar
quotas prevailing at the time. Since the fixing of the rental of the sugar quota is a function lodged with petitioner's
Board of Directors and is a matter of policy, the respondent Court of Appeals could not substitute its own
judgment for that of said Board of Directors, which acted in good faith, making as its basis therefore the prevailing
market price as shown by statistics which were then in their possession.

Finally, petitioner emphasized that under the appealed judgment, it shall suffer a great injustice because as a
creditor, it shall be deprived of a just claim against its debtor (respondent Rita Gueco Tapnio) as it would be
required to return to respondent Philamgen the sum of P2,379.71, plus interest, which amount had been previously
paid to petitioner by said insurance company in behalf of the principal debtor, herein respondent Rita Gueco
Tapnio, and without recourse against respondent Rita Gueco Tapnio.

We must advert to the rule that this Court's appellate jurisdiction in proceedings of this nature is limited to
reviewing only errors of law, accepting as conclusive the factual fin dings of the Court of Appeals upon its own
assessment of the evidence. 2

The contract of lease of sugar quota allotment at P2.50 per picul between Rita Gueco Tapnio and Jacobo C.
Tuazon was executed on April 17, 1956. This contract was submitted to the Branch Manager of the Philippine
National Bank at San Fernando, Pampanga. This arrangement was necessary because Tapnio's indebtedness to
petitioner was secured by a mortgage on her standing crop including her sugar quota allocation for the agricultural
year corresponding to said standing crop. The latter required the parties to raise the consideration to P2.80 per
picul, the minimum lease rental acceptable to the Bank, or a total of P2,800.00. Tuazon informed the Branch
Manager, thru a letter dated August 10, 1956, that he was agreeable to raising the consideration to P2.80 per picul.
He further informed the manager that he was ready to pay the said sum of P2,800.00 as the funds were in his
folder which was kept in the said Bank. This referred to the approved loan of Tuazon from the Bank which he
intended to use in paying for the use of the sugar quota. The Branch Manager submitted the contract of lease of
sugar quota allocation to the Head Office on September 7, 1956, with a recommendation for approval, which
recommendation was concurred in by the Vice-President of the Bank, Mr. J. V. Buenaventura. This
notwithstanding, the Board of Directors of petitioner required that the consideration be raised to P3.00 per picul.

Tuazon, after being informed of the action of the Board of Directors, asked for a reconsideration thereof. On
November 19, 1956, the Branch Manager submitted the request for reconsideration and again recommended the
approval of the lease at P2.80 per picul, but the Board returned the recommendation unacted, stating that the
current price prevailing at that time was P3.00 per picul.

On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer interested in continuing
the lease of sugar quota allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed to utilize her sugar
quota, resulting in her loss in the sum of P2,800.00 which she should have received had the lease in favor of
Tuazon been implemented.

It has been clearly shown that when the Branch Manager of petitioner required the parties to raise the
consideration of the lease from P2.50 to P2.80 per picul, or a total of P2,800-00, they readily agreed. Hence, in
his letter to the Branch Manager of the Bank on August 10, 1956, Tuazon informed him that the minimum lease
rental of P2.80 per picul was acceptable to him and that he even offered to use the loan secured by him from
petitioner to pay in full the sum of P2,800.00 which was the total consideration of the lease. This arrangement
was not only satisfactory to the Branch Manager but it was also approves by Vice-President J. V. Buenaventura
of the PNB. Under that arrangement, Rita Gueco Tapnio could have realized the amount of P2,800.00, which was
more than enough to pay the balance of her indebtedness to the Bank which was secured by the bond of Philamgen.

There is no question that Tapnio's failure to utilize her sugar quota for the crop year 1956-1957 was due to the
disapproval of the lease by the Board of Directors of petitioner. The issue, therefore, is whether or not petitioner
is liable for the damage caused.

As observed by the trial court, time is of the essence in the approval of the lease of sugar quota allotments, since
the same must be utilized during the milling season, because any allotment which is not filled during such milling
season may be reallocated by the Sugar Quota Administration to other holders of allotments. 3 There was no proof
that there was any other person at that time willing to lease the sugar quota allotment of private respondents for a
price higher than P2.80 per picul. "The fact that there were isolated transactions wherein the consideration for the
lease was P3.00 a picul", according to the trial court, "does not necessarily mean that there are always ready takers
of said price. " The unreasonableness of the position adopted by the petitioner's Board of Directors is shown by
the fact that the difference between the amount of P2.80 per picul offered by Tuazon and the P3.00 per picul
demanded by the Board amounted only to a total sum of P200.00. Considering that all the accounts of Rita Gueco
Tapnio with the Bank were secured by chattel mortgage on standing crops, assignment of leasehold rights and
interests on her properties, and surety bonds and that she had apparently "the means to pay her obligation to the
Bank, as shown by the fact that she has been granted several sugar crop loans of the total value of almost
P80,000.00 for the agricultural years from 1952 to 1956", there was no reasonable basis for the Board of Directors
of petitioner to have rejected the lease agreement because of a measly sum of P200.00.

While petitioner had the ultimate authority of approving or disapproving the proposed lease since the quota was
mortgaged to the Bank, the latter certainly cannot escape its responsibility of observing, for the protection of the
interest of private respondents, that degree of care, precaution and vigilance which the circumstances justly
demand in approving or disapproving the lease of said sugar quota. The law makes it imperative that every person
"must in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith, 4 This petitioner failed to do. Certainly, it knew that the agricultural year was
about to expire, that by its disapproval of the lease private respondents would be unable to utilize the sugar quota
in question. In failing to observe the reasonable degree of care and vigilance which the surrounding circumstances
reasonably impose, petitioner is consequently liable for the damages caused on private respondents. Under Article
21 of the New Civil Code, "any person who wilfully causes loss or injury to another in a manner that is contrary
to morals, good customs or public policy shall compensate the latter for the damage." The afore-cited provisions
on human relations were intended to expand the concept of torts in this jurisdiction by granting adequate legal
remedy for the untold number of moral wrongs which is impossible for human foresight to specifically provide
in the statutes. 5

A corporation is civilly liable in the same manner as natural persons for torts, because "generally speaking, the
rules governing the liability of a principal or master for a tort committed by an agent or servant are the same
whether the principal or master be a natural person or a corporation, and whether the servant or agent be a natural
or artificial person. All of the authorities agree that a principal or master is liable for every tort which he expressly
directs or authorizes, and this is just as true of a corporation as of a natural person, A corporation is liable,
therefore, whenever a tortious act is committed by an officer or agent under express direction or authority from
the stockholders or members acting as a body, or, generally, from the directors as the governing body." 6

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED.

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant,

vs. TAN BOON KONG, defendant-appellee.

Attorney-General Jaranilla for appellant.

Alejandro de Aboitiz Pinaga for appellee.

OSTRAND, J.:

This is an appeal from an order of the Judge of the Twenty-third Judicial District sustaining to demurrer to an
information charging the defendant Tan Boon Kong with the violation of section 1458 of Act No. 2711 as
amended. The information reads as follows:

That on and during the four quarters of the year 1924, in the municipality of Iloilo, Province of Iloilo,
Philippine Islands, the said accused, as corporation organized under the laws of the Philippine Islands and
engaged in the purchase and the sale of sugar, "bayon," coprax, and other native products and as such
object to the payment of internal-revenue taxes upon its sales, did then and there voluntarily, illegally, and
criminally declare in 1924 for the purpose of taxation only the sum of P2,352,761.94, when in truth and
in fact, and the accused well knew that the total gross sales of said corporation during that year amounted
to P2543,303.44, thereby failing to declare for the purpose of taxation the amount of P190,541.50, and
voluntarily and illegally not paying the Government as internal-revenue percentage taxes the sum of
P2,960.12, corresponding to 1 per cent of said undeclared sales.

The question to be decided is whether the information sets forth facts rendering the defendant, as manager of the
corporation liable criminally under section 2723 of Act No. 2711 for violation of section 1458 of the same act for
the benefit of said corporation. Section 1458 and 2723 read as follows:

SEC. 1458. Payment of percentage taxes Quarterly reports of earnings. The percentage taxes on
business shall be payable at the end of each calendar quarter in the amount lawfully due on the business
transacted during each quarter; and it shall be on the duty of every person conducting a business subject
to such tax, within the same period as is allowed for the payment of the quarterly installments of the fixed
taxes without penalty, to make a true and complete return of the amount of the receipts or earnings of his
business during the preceeding quarter and pay the tax due thereon. . . . (Act No. 2711.)
 SEC. 2723. Failure to make true return of receipts and sales. Any person who, being required by law
to make a return of the amount of his receipts, sales, or business, shall fail or neglect to make such return
within the time required, shall be punished by a fine not exceeding two thousand pesos or by imprisonment
for a term not exceeding one year, or both.

And any such person who shall make a false or fraudulent return shall be punished by a fine not exceeding
ten thousand pesos or by imprisonment for a term not exceeding two years, or both. (Act No. 2711.)

Apparently, the court below based the appealed ruling on the ground that the offense charged must be regarded
as committed by the corporation and not by its officials or agents. This view is in direct conflict with the great
weight of authority. a corporation can act only through its officers and agent s, and where the business itself
involves a violation of the law, the correct rule is that all who participate in it are liable (Grall and Ostrand's Case,
103 Va., 855, and authorities there cited.)

In case of State vs. Burnam (17 Wash., 199), the court went so far as to hold that the manager of a diary
corporation was criminally liable for the violation of a statute by the corporation through he was not present when
the offense was committed.

In the present case the information or complaint alleges that he defendant was the manager of a corporation which
was engaged in business as a merchant, and as such manager, he made a false return, for purposes of taxation, of
the total amount of sale made by said false return constitutes a violation of law, the defendant, as the author of
the illegal act, must necessarily answer for its consequences, provided that the allegation are proven.

The ruling of the court below sustaining the demurrer to the complaint is therefore reversed, and the case will be
returned to said court for further proceedings not inconsistent with our view as hereinafter stated. Without costs.
So ordered.

MAMBULAO LUMBER COMPANY, plaintiff-appellant,

vs.PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of
Camarines Norte,defendants-appellees.

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

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

ANGELES, J.:

An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in Civil Case No. 52089,
entitled "Mambulao Lumber Company, plaintiff, versus Philippine National Bank and Anacleto Heraldo,
defendants", dismissing the complaint against both defendants and sentencing the plaintiff to pay to defendant
Philippine National Bank (PNB for short) the sum of P3,582.52 with interest thereon at the rate of 6% per annum
from December 22, 1961 until fully paid, and the costs of suit.

In seeking the reversal of the decision, the plaintiff advances several propositions in its brief which may be restated
as follows:

1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87 and not
P58,213.51 as concluded by the court a quo; hence, the proceeds of the foreclosure sale of its real property
 alone in the amount of P56,908.00 on that date, added to the sum of P738.59 it remitted to the PNB
thereafter was more than sufficient to liquidate its obligation, thereby rendering the subsequent foreclosure
sale of its chattels unlawful;

2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the additional sum of
P298.54 as expenses of the foreclosure sale;

3. That the subsequent foreclosure sale of its chattels is null and void, not only because it had already
settled its indebtedness to the PNB at the time the sale was effected, but also for the reason that the said
sale was not conducted in accordance with the provisions of the Chattel Mortgage Law and the venue
agreed upon by the parties in the mortgage contract;

4. That the PNB, having illegally sold the chattels, is liable to the plaintiff for its value; and

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

The antecedent facts of the case, as found by the trial court, are as follows:

On May 5, 1956 the plaintiff applied for an industrial loan of P155,000 with the Naga Branch of defendant
PNB and the former offered real estate, machinery, logging and transportation equipments as collaterals.
The application, however, was approved for a loan of P100,000 only. To secure the payment of the loan,
the plaintiff mortgaged to defendant PNB a parcel of land, together with the buildings and improvements
existing thereon, situated in the poblacion of Jose Panganiban (formerly Mambulao), province of
Camarines Norte, and covered by Transfer Certificate of Title No. 381 of the land records of said province,
as well as various sawmill equipment, rolling unit and other fixed assets of the plaintiff, all situated in its
compound in the aforementioned municipality.

On August 2, 1956, the PNB released from the approved loan the sum of P27,500, for which the plaintiff
signed a promissory note wherein it promised to pay to the PNB the said sum in five equal yearly
installments at the rate of P6,528.40 beginning July 31, 1957, and every year thereafter, the last of which
would be on July 31, 1961.

On October 19, 1956, the PNB made another release of P15,500 as part of the approved loan granted to
the plaintiff and so on the said date, the latter executed another promissory note wherein it agreed to pay
to the former the said sum in five equal yearly installments at the rate of P3,679.64 beginning July 31,
1957, and ending on July 31, 1961.

The plaintiff failed to pay the amortization on the amounts released to and received by it. Repeated
demands were made upon the plaintiff to pay its obligation but it failed or otherwise refused to do so.
Upon inspection and verification made by employees of the PNB, it was found that the plaintiff had
already stopped operation about the end of 1957 or early part of 1958.

On September 27, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him
to take possession of the parcel of land, together with the improvements existing thereon, covered by
Transfer Certificate of Title No. 381 of the land records of Camarines Norte, and to sell it at public auction
in accordance with the provisions of Act No. 3135, as amended, for the satisfaction of the unpaid
obligation of the plaintiff, which as of September 22, 1961, amounted to P57,646.59, excluding attorney's
fees. In compliance with the request, on October 16, 1961, the Provincial Sheriff of Camarines Norte
issued the corresponding notice of extra-judicial sale and sent a copy thereof to the plaintiff. According to
the notice, the mortgaged property would be sold at public auction at 10:00 a.m. on November 21, 1961,
at the ground floor of the Court House in Daet, Camarines Norte.

On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of Camarines Norte requesting him
to take possession of the chattels mortgaged to it by the plaintiff and sell them at public auction also on
November 21, 1961, for the satisfaction of the sum of P57,646.59, plus 6% annual interest therefore from
September 23, 1961, attorney's fees equivalent to 10% of the amount due and the costs and expenses of
the sale. On the same day, the PNB sent notice to the plaintiff that the former was foreclosing
extrajudicially the chattels mortgaged by the latter and that the auction sale thereof would be held on
November 21, 1961, between 9:00 and 12:00 a.m., in Mambulao, Camarines Norte, where the mortgaged
chattels were situated.

On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of the chattels
mortgaged by the plaintiff and made an inventory thereof in the presence of a PC Sergeant and a policeman
of the municipality of Jose Panganiban. On November 9, 1961, the said Deputy Sheriff issued the
corresponding notice of public auction sale of the mortgaged chattels to be held on November 21, 1961,
at 10:00 a.m., at the plaintiff's compound situated in the municipality of Jose Panganiban, Province of
Camarines Norte.

On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail matter, one to the
Naga Branch of the PNB and another to the Provincial Sheriff of Camarines Norte, protesting against the
foreclosure of the real estate and chattel mortgages on the grounds that they could not be effected unless
a Court's order was issued against it (plaintiff) for said purpose and that the foreclosure proceedings,
according to the terms of the mortgage contracts, should be made in Manila. In said letter to the Naga
Branch of the PNB, it was intimated that if the public auction sale would be suspended and the plaintiff
would be given an extension of ninety (90) days, its obligation would be settled satisfactorily because an
important negotiation was then going on for the sale of its "whole interest" for an amount more than
sufficient to liquidate said obligation.

The letter of the plaintiff to the Naga Branch of the PNB was construed by the latter as a request for
extension of the foreclosure sale of the mortgaged chattels and so it advised the Sheriff of Camarines
Norte to defer it to December 21, 1961, at the same time and place. A copy of said advice was sent to the
plaintiff for its information and guidance.

The foreclosure sale of the parcel of land, together with the buildings and improvements thereon, covered
by Transfer Certificate of Title No. 381, was, however, held on November 21, 1961, and the said property
was sold to the PNB for the sum of P56,908.00, subject to the right of the plaintiff to redeem the same
within a period of one year. On the same date, Deputy Provincial Sheriff Heraldo executed a certificate of
sale in favor of the PNB and a copy thereof was sent to the plaintiff.

In a letter dated December 14, 1961 (but apparently posted several days later), the plaintiff sent a bank
draft for P738.59 to the Naga Branch of the PNB, allegedly in full settlement of the balance of the
obligation of the plaintiff after the application thereto of the sum of P56,908.00 representing the proceeds
of the foreclosure sale of parcel of land described in Transfer Certificate of Title No. 381. In the said letter,
the plaintiff reiterated its request that the foreclosure sale of the mortgaged chattels be discontinued on the
grounds that the mortgaged indebtedness had been fully paid and that it could not be legally effected at a
place other than the City of Manila.

In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of Camarines Norte that
it had fully paid its obligation to the PNB, and enclosed therewith a copy of its letter to the latter dated
December 14, 1961.
 On December 18, 1961, the Attorney of the Naga Branch of the PNB, wrote to the plaintiff acknowledging
the remittance of P738.59 with the advice, however, that as of that date the balance of the account of the
plaintiff was P9,161.76, to which should be added the expenses of guarding the mortgaged chattels at the
rate of P4.00 a day beginning December 19, 1961. It was further explained in said letter that the sum of
P57,646.59, which was stated in the request for the foreclosure of the real estate mortgage, did not include
the 10% attorney's fees and expenses of the sale. Accordingly, the plaintiff was advised that the foreclosure
sale scheduled on the 21st of said month would be stopped if a remittance of P9,161.76, plus interest
thereon and guarding fees, would be made.

On December 21, 1961, the foreclosure sale of the mortgaged chattels was held at 10:00 a.m. and they
were awarded to the PNB for the sum of P4,200 and the corresponding bill of sale was issued in its favor
by Deputy Provincial Sheriff Heraldo.

In a letter dated December 26, 1961, the Manager of the Naga Branch of the PNB advised the plaintiff
giving it priority to repurchase the chattels acquired by the former at public auction. This offer was
reiterated in a letter dated January 3, 1962, of the Attorney of the Naga Branch of the PNB to the plaintiff,
with the suggestion that it exercise its right of redemption and that it apply for the condonation of the
attorney's fees. The plaintiff did not follow the advice but on the contrary it made known of its intention
to file appropriate action or actions for the protection of its interests.

On May 24, 1962, several employees of the PNB arrived in the compound of the plaintiff in Jose
Panganiban, Camarines Norte, and they informed Luis Salgado, Chief Security Guard of the premises,
that the properties therein had been auctioned and bought by the PNB, which in turn sold them to Mariano
Bundok. Upon being advised that the purchaser would take delivery of the things he bought, Salgado was
at first reluctant to allow any piece of property to be taken out of the compound of the plaintiff. The
employees of the PNB explained that should Salgado refuse, he would be exposing himself to a litigation
wherein he could be held liable to pay big sum of money by way of damages. Apprehensive of the risk
that he would take, Salgado immediately sent a wire to the President of the plaintiff in Manila, asking
advice as to what he should do. In the meantime, Mariano Bundok was able to take out from the plaintiff's
compound two truckloads of equipment.

In the afternoon of the same day, Salgado received a telegram from plaintiff's President directing him not
to deliver the "chattels" without court order, with the information that the company was then filing an
action for damages against the PNB. On the following day, May 25, 1962, two trucks and men of Mariano
Bundok arrived but Salgado did not permit them to take out any equipment from inside the compound of
the plaintiff. Thru the intervention, however, of the local police and PC soldiers, the trucks of Mariano
Bundok were able finally to haul the properties originally mortgaged by the plaintiff to the PNB, which
were bought by it at the foreclosure sale and subsequently sold to Mariano Bundok.

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

We shall discuss the various points raised in appellant's brief in seriatim.

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 8,751.78
(b) Promissory note dated October 19, 1956 P15,500.00
(1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 1961 4,734.08
II. Sheriff's fees [for two (2) day's work] 10.00
III. Attorney's fee 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 P56,908.00
II. Additional amount remitted to the PNB on Dec. 18, 1961 738.59

Total amount of Payment made to PNB as of Dec. 18, 1961 P57,646.59

Deduct: Total obligation to the PNB P57,495.86

Excess Payment to the PNB 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 re-inspection 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.
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.

DECISION
KAPUNAN, J.:

The petition for review on certiorari before us seeks us 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 RTCs 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 latters 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. 1828, as amended by Republic Acts No. 2077 and 4167, by virtue of which
laws, a Memorandum of Agreement was drawn on July 3, 1968, whereby the Republic of the Philippines thru the
Surigao Mineral Reservation Board, granted MMIC the exclusive right to explore, develop and exploit nickel,
cobalt and other minerals in the Surigao mineral reservation.[1] MMIC is a domestic corporation engaged in
mining with respondents Jesus S. Cabarrus, Sr. as President and among its original stockholders.
The Philippine Government undertook to support the financing of MMIC by purchase of MMIC debenture
and extension of guarantees. Further, the Philippine Government obtained a firm, commitment from the DBP
and/or other government financing institutions to subscribed in MMIC and issue guarantee/s for foreign loans or
deferred payment arrangements secured from the US Eximbank, Asian Development Bank, Kobe Steel, of amount
not exceeding US$100 Million.[2]
DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were based on the
unutilized portion of the Government commitment. Thereafter, the Government extended accommodations to
MMIC in various amounts.
On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement [3] whereby MMIC, as
mortgagor, agreed to constitute a mortgage in favor of PNB and DBP as mortgagees, over all MMICs assets,
subject of real estate and chattel mortgage executed by the mortgagor, and additional assets described and
identified, including assets of whatever kind, nature or description, which the mortgagor may acquire whether in
substitution of, in replenishment, or in addition thereto.
Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly includes the
event that the MORTGAGOR shall fail to pay any amount secured by this Mortgage Trust Agreement when
due.[4]
Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the enumerated events of
defaults, circumstances by which the mortgagor may be declared in default, the procedure therefor, waiver of
period to foreclose, authority of Trustee before, during and after foreclosure, including taking possession of the
mortgaged properties.[5]
In various request for advances/remittances of loans of huge amounts, Deeds of Undertakings, Promissory
Notes, Loans Documents, Deeds of Real Estate Mortgages, MMIC invariably committed to pay either on demand
or under certain terms the loans and accommodations secured from or guaranteed by both DBP and PNB.
By 1984, DBP and PNBs financial exposure both in loans and in equity in MMIC had reached tremendous
proportions, and MMIC was having a difficult time meeting its financial obligations. MMIC had an outstanding
loan with DBP in the amount of P13,792,607,565.92 as of August 31, 1984 and in the amount
of P8,789,028,249.38 as of July 15, 1984 or a total Government exposure of Twenty Two Billion Six Hundred
Sixty-Eight Million Five Hundred Thirty-Seven Thousand Seven Hundred Seventy and 05/100
(P22,668,537,770.05), Philippine Currency.[6] Thus, a financial restructuring plan (FRP) designed to reduce
MMIC' interest expense through debt conversion to equity was drafted by the Sycip Gorres Velayo accounting
firm.[7] On April 30, 1984, the FRP was approved by the Board of Directors of the MMIC. [8] However, the
proposed FRP had never been formally adopted, approved or ratified by either PNB or DBP.[9]
In August and September 1984, as the various loans and advances made by DBP and PNB to MMIC had
become overdue and since any restructuring program relative to the loans was no longer feasible, and in
compliance with the directive of Presidential Decree No. 385, DBP and PNB as mortgagees of MMIC assets,
decided to exercise their right to extrajudicially foreclose the mortgages in accordance with the Mortgage Trust
Agreement.[10]
The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly formed
corporations, namely, Nonoc Mining Corporation, Maricalum Mining and Industrial Corporation, and Island
Cement Corporation. In 1986, these assets were transferred to the Asset Privatization Trust (APT).[11]
On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC, filed a
derivative suit against DBP and PNB before the RTC of Makati, Branch 62, for Annulment of Foreclosures,
Specific Performance and Damages.[12] The suit, docketed as Civil Case No. 9900, prayed that the court: (1) annul
the foreclosure, restore the foreclosed assets to MMIC, and require the banks to account for their use and operation
in the interim; (2) direct the banks to honor and perform their commitments under the alleged FRP; and (3) pay
moral and exemplary damages, attorneys fees, litigation expenses and costs.
In the course of the trial, private respondents and petitioner APT, as successor of the DBP and PNBs interest
in MMIC, mutually agreed to submit the case to arbitration by entering into a Compromise and Arbitration
Agreement, stipulating, inter alia:

NOW, THEREFORE, for and in consideration of the foregoing premises and the mutual covenants contain herein,
the parties agreed as follows:

1. Withdrawal and Compromise. The parties have agreed to withdraw their respective claims from the Trial Court
and to resolve their dispute through arbitration by praying to the Trial Court to issue a Compromise Judgment
based on this Compromise and Arbitration Agreement.

In withdrawing their dispute form the court and in choosing to resolve it through arbitration, the parties have
agreed that:

(a) their respective money claims shall be reduced to purely money claims; and

(b) as successor and assignee of the PNB and DBP interest in MMIC and the MMIC accounts, APT shall likewise
succeed to the rights and obligations of PNB and DBP in respect of the controversy subject of Civil Case No.
9900 to be transferred to arbitration and any arbitral award/order against either PNB and/or DBP shall be the
responsibility of, be discharged by and be enforceable against APT, the partied having agreed to drop PNB and
DBP from the arbitration.

2. Submission. The parties hereby agree that (a) the controversy in Civil Case No. 9900 shall be submitted instead
to arbitration under RA 876 and (b) the reliefs prayed for in Civil Case No. 9900 shall, with the approval of the
Trial Court of this Compromise and Arbitration Agreement, be transferred and reduced to pure pecuniary/money
claims with the parties waiving and foregoing all other forms of reliefs which they prayed for or should have
payed for in Civil Case No. 9900.[13]

The Compromise and Arbitration Agreement limited the issues to the following:

5. Issues. The issues to be submitted for the Committees resolution shall be: (a) Whether PLAINTIFFS have the
capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors; (b) Whether or
not the actions leading to, and including, the PNB-DBP foreclosure of the MMIC assets were proper, valid and
in good faith.[14]

This agreement was presented for approval to the trial court. On October 14, 1992, the Makati RTC, Branch
62, issued an order, to wit:

WHEREFORE, this Court orders:

1. Substituting PNB and DBP with the Asset Privatization Trust as party defendant.

2. Approving the Compromise and Arbitration Agreement dated October 6, 1992, attached as Annex C
of the Omnibus Motion.

3. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in this case into pure money
claims; and

4. The Complaint is hereby DISMISSED.[15]

The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento as
Chairman, Atty. Jose C. Sison and former Court of Appeals Justice Magdangal Elma as Members. On November
24, 1993, after conducting several hearings, the Arbitration Committee rendered a majority decision in favor of
MMIC, the pertinent portions of which read as follows:

Since, as this Committee finds, there is no foreclosure at all was not legally and validly done, the Committee
holds and so declares that the loans of PNB and DBP to MMIC, for the payment and recovery of which the void
foreclosure sales were undertaken, continue to remain outstanding and unpaid. Defendant APT as the successor-
in-interest of PNB and DBP to the said loans is therefore entitled and retains the right, to collect the same from
MMIC pursuant to and based on the loan documents signed by MMIC, subject to the legal and valid defenses that
the latter may duly and seasonably interpose. Such loans shall, however, be reduced by the amount which APT
may have realized from the sale of the seized assets of MMIC which by agreement should no longer be returned
even if the foreclosure were found to be null and void.

The documentary evidence submitted and adopted by both parties (Exhibits 3, 3-B; Exhibits 100; and also Exhibit
ZZZ) as their exhibits would show that the total outstanding obligation due to DBP and PNB as of the date of
foreclosure is P22,668,537,770.05, more or less.

Therefore, defendant APT can, and is still entitled to, collect the outstanding obligations of MMIC to PNB and
DBP amounting to P22,668.537,770.05, more or less, with interest thereon as stipulated in the loan documents
from the date of foreclosure up to the time they are fully paid less the proportionate liability of DBP as owner of
87% of the total capitalization of MMIC under the FRP. Simply put, DBP shall share in the award of damages to,
and in obligations of MMIC in proportion to its 87% equity in the total capital stock of MMIC.

x x x.

As this Committee holds that the FRP is valid, DBPs equity in MMIC is raised to 87%. So pursuant to the above
provision of the Compromise and Arbitration Agreement, the 87% equity of DBP is hereby deducted from the
actual damages of P19,486,118,654.00 resulting in the net actual damages of P2,531,635,425.02 plus interest.

DISPOSITION

WHEREFORE, premises considered, judgment is hereby rendered:

1. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum
of P2,531,635,425.02 with interest thereon at the legal rate of six per cent (6%) per annum reckoned from August
3, 9, and 24, 1984, pari passu, as and for actual damages. Payment of these actual damages shall be offset by APT
from the outstanding and unpaid loans of the MMIC with DBP and PNB, which have not been converted into
equity. Should there be any balance due to the MMIC after the offsetting, the same shall be satisfied from the
funds representing the purchase price of the sale of the shares of Island Cement Corporation in the amount
of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and
Arbitration Agreement;

2. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum
of P13,000,000.00 as and for moral and exemplary damages. Payment of these moral and exemplary damages
shall be offset by APT from the outstanding and unpaid loans of MMIC with DBP and PNB, which have not been
converted into equity. Should there be any balance due to MMIC after the offsetting, the same shall be satisfied
from the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the
of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and
Arbitration Agreement;

3. Ordering the defendant to pay to the plaintiff, Jesus Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supercede it, pursuant to paragraph (9) of the Compromise and
Arbitration Agreement, as and for moral damages; and

4. Ordering the defendant to pay arbitration costs.

This Decision is FINAL and EXECUTORY.

IT IS SO ORDERED.[16]

Motions for reconsiderations were filed by both parties, but the same were denied.
On October 17, 1994, private respondents filed in the same Civil Case No. 9900 an Application/Motion for
Confirmation of Arbitration Award. Petitioner countered with an Opposition and Motion to Vacate Judgment
raising the following grounds:

1. The plaintiffs Application/Motion is improperly filed with this branch of the Court, considering that the said
motion is neither a part nor the continuation of the proceedings in Civil Case No. 9900 which was dismissed upon
motion of the parties. In fact, the defendants in the said Civil Case No. 9900 were the Development Bank of the
Philippines and the Philippine National Bank (PNB);

2. Under Section 22 of Rep. Act 876, an arbitration under a contract or submission shall be deemed a special
proceedings and a party to the controversy which was arbitrated may apply to the court having jurisdiction, (not
necessarily with this Honorable Court) for an order confirming the award;

3. The issues submitted for arbitration have been limited to two: (1) propriety of the plaintiffs filing the derivative
suit and (2) the regularity of the foreclosure proceedings. The arbitration award sought to be confirmed herein far
exceeded the issues submitted and even granted moral damages to one of the herein plaintiffs;

4. Under Section 24 of Rep. Act 876, the Court must make an order vacating the award where the arbitrators
exceeded their powers, or so imperfectly executed them, that a mutual final and definite award upon the subject
matter submitted to them was not made.[17]

Private respondents filed a REPLY AND OPPOSITION dated November 10, 1984, arguing that a dismissal
of Civil case No. 9900 was merely a qualified dismissal to pave the way for the submission of the controversy to
arbitration, and operated simply as a mere suspension of the proceedings. They denied that the Arbitration
Committee had exceeded its powers.
In an Order dated November 28, 1994, the trial court confirmed the award of the Arbitration Committee. The
dispositive portion of said order reads:

WHEREFORE, premises considered, and in the light of the parties [sic] Compromise and Arbitration Agreement
dated October 6, 1992, the Decision of the Arbitration Committee promulgated on November 24, 1993, as
affirmed in a Resolution dated July 26, 1994, and finally settled and clarified in the Separate Opinion dated
September 2, 1994 of Committee Member Elma, and the pertinent provisions of RA 876,also known as the
Arbitration Law, this Court GRANTS PLAINTIFFS APPLICATION AND THUS CONFIRMS THE
ARBITRATION AWARD, AND JUDGMENT IS HEREBY RENDERED:

(a) Ordering the defendant APT to the Marinduque Mining and Industrial Corporation (MMIC, except the DBP,
the sum of P3,811,757,425.00, as and for actual damages, which shall be partially satisfied from the funds held
under escrow in the amount of P503,000,000.00 pursuant to the Escrow Agreement dated April 22, 1988. The
Balance of the award, after the escrow funds are fully applied, shall be executed against the APT;

(b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of P13,000,000.00 as and moral and
exemplary damages;

(c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of P10,000,000.00 as and for moral damages;
and

(d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum of P1,705,410.22 as arbitration
costs.

In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8 paragraph 2 of the Compromise and
Arbitration Agreement, and the final edict of the Arbitration Committees decision, and with this Courts
Confirmation, the issuance of the Arbitration Committees Award shall henceforth be final and executory.

SO ORDERED.[18]

On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated November 28,
1994. Private respondents, in turn, submitted their reply and opposition thereto.
 On January 18, 1995, the trial court handed down its order denying APTs motion for reconsideration for lack
of merit and for having been filed out of time. The trial court declared that considering that the defendant APT
through counsel, officially and actually received a copy of the Order of this Court dated November 28, 1994 on
December 6, 1994, the Motion for Reconsideration thereof filed by the defendant APT on December 27, 1994, or
after the lapse of 21 days, was clearly filed beyond the 15-day reglementary period prescribed or provided for by
law for the filing of an appeal from final orders, resolutions, awards, judgments or decisions of any court in all
cases, and by necessary implication for the filling of a motion for reconsideration thereof.
On February 7, 1995, petitioner received private respondents motion for Execution and Appointment of
Custodian of Proceeds of Execution dated February 6, 1995.
Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with temporary
restraining order and/or preliminary injunction dated February 13, 1996 to annul and declare as void the Orders
of the 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:
I

THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION MUCH LESS, HAS THE
COURT AUTHORITY, TO CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE ORIGINAL
CASE, CIVIL CASE NO. 9900, HAD PREVIOUSLY BEEN DISMISSED.

II

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

III

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

On July 12, 1995, the Court of Appeals, through its fifth Division denied due course and dismissed the
petition for certiorari.
Hence, the instant petition for review on certiorari imputing to the Court of Appeals the following errors.

ASSIGNMENT OF ERRORS

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

II
 THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT PETITIONER WAS ESTOPPED
FROM QUESTIONING THE ARBITRATION AWARD, WHEN PETITIONER QUESTIONED THE
JURISDICTION OF THE RTC-MAKATI, BRANCH 62 AND AT THE SAME TIME MOVED TO
VACATE THE ARBITRAL AWARD.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT TRIAL COURT
SHOULD HAVE EITHER DISMISSED/DENIED PRIVATE RESPONDENTS MOTION/PETITION FOR
CONFIRMATION OF ARBITRATION AWARD AND/OR SHOULD HAVE CONSIDERED THE
MERITS OF THE MOTION TO VACATE ARBITRAL AWARD.

IV

THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APTS PETITION

FOR CERTIORARI AS AN APPEAL TAKEN FROM THE ORDER CONFIRMING THE AWARD

THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE OF WHEN TO RECKON
THE COUNTING OF THE PERIOD TO FILE A MOTION FOR RECONSIDERATION.[21]

The petition is impressed with merit.

I

The RTC of Makati, Branch 62, did not have jurisdiction to confirm the arbitral award

The use of the term dismissed is not a mere semantic imperfection. The dispositive portion of the Order of
the trial court dated October 14, 1992 stated in no uncertain terms:
4. The Complaint is hereby DISMISSED.[22]
The term dismiss has a precise definition in law. To dispose of an action suit, or motion without trial on the issues
involved. Conclude, discontinue, terminate, quash.[23]
Admittedly the correct procedure was for the parties to go back to the court where the case was pending to
have the award confirmed by said court. However, Branch 62 made the fatal mistake of issuing a final order
dismissing the case. While Branch 62 should have merely suspended the case and not dismissed it, [24] neither of
the parties questioned said dismissal. Thus, both parties as well as said court are bound by such error.
It is erroneous then to argue, as private respondents do, that petitioner APT was charged with the knowledge
that the case was merely stayed until arbitration finished, as again, the order of Branch 62 in very clear terms
stated that the complaint was dismissed. By its own action, Branch 62 had lost jurisdiction over the vase. It could
not have validly reacquired jurisdiction over the said case on mere motion of one of the parties. The Rules of
Court is specific on how a new case may be initiated and such is not done by mere motion in a particular branch
of the RTC. Consequently, as there was no pending action to speak of, the petition to confirm the arbitral award
should have been filed as a new case and raffled accordingly to one of the branches of the Regional Trial Court.
II

Petitioner was not estopped from questioning the jurisdiction of Branch 62 of the RTC of Makati.
 The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the RTC to confirm
the arbitral award because it sought affirmative relief in said court by asking that the arbitral award be vacated.
The rule is that Where the court itself clearly has no jurisdiction over the subject matter or the nature of the
action, the invocation of this defense may de done at any time. It is neither for the courts nor for the parties to
violate or disregard that rule, let alone to confer that jurisdiction, this matter being legislative in character.[25] As
a rule the, neither waiver nor estoppel shall apply to confer jurisdiction upon a court barring highly meritorious
and exceptional circumstances.[26] One such exception was enunciated in Tijam vs. Sibonghanoy,[27] where it was
held that after voluntarily submitting a cause and encountering an adverse decision on the merits, it is too late for
the loser to question the jurisdiction or power of the court."
Petitioners situation is different because from the outset, it has consistently held the position that the RTC,
Branch 62 had no jurisdiction to confirm the arbitral award; consequently, it cannot be said that it was estopped
from questioning the RTCs jurisdiction. Petitioners prayer for the setting aside of the arbitral award was not
inconsistent with its disavowal of the courts jurisdiction.
III

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

The Court of Appeals in dismissing APTs petition for certiorari upheld the trial courts denial of APTs motion
for reconsideration of the trial courts order confirming the arbitral award, on the ground that said motion was filed
beyond the 15-day reglementary period; consequently, the petition for certiorari could not be resorted to as
substitute to the lost right of appeal.
We do not agree.
Section 29 of Republic Act No. 876,[28] provides that:

x x x An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered
upon an award through certiorari proceedings, but such appeals shall be limited to question of law. x x x.

The aforequoted provision, however, does not preclude a party aggrieved by the arbitral award from resorting
to the extraordinary remedy of certiorari under Rule 65 of the Rules of Court where, as in this case, the Regional
Trial Court to which the award was submitted for confirmation has acted without jurisdiction, or with grave abuse
of discretion and there is no appeal, nor any plain, speedy remedy in the course of law.
Thus, Section 1 of Rule 65 provides:

SEC 1. Petition for Certiorari: - When any tribunal, board or officer exercising judicial functions, has acted
without or in excess of its or his jurisdiction, or with grave abuse of discretion and there is no appeal, nor any
plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified
petition in the proper court alleging the facts with certainty and praying that judgment be rendered annulling or
modifying the proceedings, as the law requires, of such tribunal, board or officer.

In the instant case, the respondent court erred in dismissing the special civil action for certiorari, it being
from the pleadings and the evidence that the trial court lacked jurisdiction and/or committed grave abuse of
discretion in taking cognizance of private respondent motion to confirm the arbitral award and, worse, in
confirming said award which is grossly and patently not in accord with the arbitration agreement, as will be
hereinafter demonstrated.
IV
The nature and limits of the Arbitrators powers.

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to the law or as
to the facts.[29] Courts are without power to amend or overrule merely because of disagreement with matters of
law or facts determined by the arbitrators.[30] They will not review the findings of law and fact contained in an
award, and will not undertake to substitute their judgment for that of the arbitrators, since any other rule would
make an award the commencement, not the end, of litigation.[31]Errors of law and fact, or an erroneous decision
of matters submitted to the judgment of the arbitrators, are insufficient to invalidate an award fairly and honestly
made.[32] Judicial review of an arbitration is, thus, more limited than judicial review of a trial.[33]
Nonetheless, the arbitrators awards is not absolute and without exceptions. The arbitrators cannot resolve
issues beyond the scope of the submission agreement.[34] The parties to such an agreement are bound by the
arbitrators award only to the extent and in the manner prescribed by the contract and only if the award is rendered
in conformity thereto.[35] Thus, Sections 24 and 25 of the Arbitration Law provide grounds for vacating,
rescinding or modifying an arbitration award. Where the conditions described in Articles 2038,[36] 2039[37] and
2040[38] of the Civil Code applicable to compromises and arbitration are attendant, the arbitration award may also
be annulled.
In Chung Fu Industries (Phils.) vs. Court of Appeals,[39] we held:

x x x. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrators awards is not
absolute and without exceptions. Where the conditions described in Articles 2038, 2039, and 2040 applicable to
both compromises and arbitration are obtaining, the arbitrators' award may be annulled or rescinded. Additionally,
under Sections 24 and 25, of the Arbitration Law, there are grounds for vacating, modifying or rescinding an
arbitrators award. Thus, if and when the factual circumstances referred to in the above-cited provisions are
present, judicial review of the award is properly warranted.

Accordingly, Section 20 of R.A. 876 provides:

SEC. 20. Form and contents of award. The award must be made in writing and signed and acknowledged by a
majority of the arbitrators, if more than one; and by the sole arbitrator, if there is only one. Each party shall be
furnished with a copy of the award.The arbitrators in their award may grant any remedy or relief which they deem
just and equitable and within the scope of the agreement of the parties, which shall include, but not be limited to,
the specific performance of a contract.

xxx

The arbitrators shall have the power to decide only those matters which have been submitted to them. The terms
of the award shall be confined to such disputes. (Underscoring ours).

xxx.
Section 24 of the same law enumerating the grounds for vacating an award states:

SEC. 24. Grounds for vacating award. In any one of the following cases, the court must make an order vacating
the award upon the petition of any party to the controversy when such party proves affirmatively that in the
arbitration proceedings:

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

(b) That there was evident partiality or corruption in arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown,
or in refusing to hear evidence pertinent and material to the controversy; that one or more of the arbitrators was
disqualified to act as such under section nine hereof, and willfully refrained from disclosing such disqualifications
or any other misbehavior by which the rights of any party have been materially prejudiced; or

(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite
award upon the subject matter submitted to them was not made. (Underscoring ours).

xxx.
Section 25 which enumerates the grounds for modifying the award provides:

SEC. 25. Grounds for modifying or correcting award In anyone of the following cases, the court must make an
order modifying or correcting the award, upon the application of any party to the controversy which was
arbitrated:

(a) Where there was an evident miscalculation of figures, or an evident mistake in the description of any person,
thing or property referred to in the award; or

(b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits of the
decision upon the matter submitted; or

(c) Where the award is imperfect in a matter of form not affecting the merits of the controversy, and if it had been
a commissioners report, the defect could have been amended or disregarded by the court.

x x x.
Finally, it should be stressed that while a court is precluded from overturning an award for errors in
determination of factual issues, nevertheless, if an examination of the record reveals no support whatever for the
arbitrators determinations, their award must be vacated.[40] In the same manner, an award must be vacated if it
was made in manifest disregard of the law.[41]
Against the backdrop of the foregoing provisions and principles, we find that the arbitrators came out with
an award in excess of their powers and palpably devoid of factual and legal basis.
V

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

The point need not be belabored that PNB and DBP had the legitimate right to foreclose of the mortgages of
MMIC whose obligations were past due. The foreclosure was not a wrongful act of the banks and, therefore, could
not be the basis of any award of damages. There was no financial restructuring agreement to speak of that could
have constituted an impediment to the exercise of the banks right to foreclose.
As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a separate
opinion:

1. The various loans and advances made by DBP and PNB to MMIC have become overdue and remain
unpaid. The fact that a FRP was drawn up is enough to establish that MMIC has not been complying with the
terms of the loan agreement. Restructuring simply connotes that the obligations are past due that is why it is
restructurable;
2. When MMIC thru its board and the stockholders agreed and adopted the FRP, it only means that MMIC had
been informed or notified that its obligations were past due and that foreclosure is forthcoming;

3. At that stage, MMIC also knew that PNB-DBP had the option of either approving the FRP or proceeding with
the foreclosure. Cabarrus, who filed this case supposedly in behalf of MMIC should have insisted on the FRP. Yet
Cabarrus himself opposed the FRP;

4. So when PNB-DBP proceeded with the foreclosure, it was done without bad faith but with honest and sincere
belief that foreclosure was the only alternative; a decision further explained by Dr. Placido Mapa who testified
that foreclosure was, in the judgment of PNB, the best move to save MMIC itself.

Q : Now in this portion of Exh. L which was marked as Exh. L-1, and we adopted as Exh. 37-A for the
respondent, may I know from you, Dr. Mapa what you meant by that the decision to foreclose was neither
precipitate nor arbitrary?
A : Well, it is not a whimsical decision but rather decision arrived at after weighty considerations of the
information that we have received, and listening to the prospects which reported to us that we had assumed
would be the premises of the financial rehabilitation plan was not materialized nor expected to
materialized.
Q : And this statement that it was premised upon the known fact that means, it was referring to the decision to
foreclose, was premised upon the known fact that the rehabilitation plan earlier approved by the
stockholders was no longer feasible, just what is meant by no longer feasible?
A : Because the revenue that they were counting on to make the rehabilitation plan possible, was not anymore
expected to be forthcoming because it will result in a short fall compared to the prices that were actually
taking place in the market.
Q : And I supposed that was you were referring to when you stated that the production targets and assumed
prices of MMICs products, among other projections, used in the financial reorganization program that will
make it viable were not met nor expected to be met?
A : Yes.
xxx

Which brings me to my last point in this separate opinion. Was PNB and DBP absolutely unjustified in foreclosing
the mortgages?

In this connection, it can readily be seen and it cannot quite be denied that MMIC accounts in PNB-DBP were
past due. The drawing up of the FRP is the best proof of this. When MMIC adopted a restructuring program for
its loan, it only meant that these loans were already due and unpaid. If these loans were restructurable because
they were already due and unpaid, they are likewise forecloseable. The option is with the PNB-DBP on what steps
to take.

The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the option to foreclose. Neither
does it mean that the FRP is legally binding and implementable. It must be pointed that said FRP will, in effect,
supersede the existing and past due loans of MMIC with PNB-DBP. It will become the new loan agreement
between the lenders and the borrowers. As in all other contracts, there must therefore be a meeting of minds of
the parties; the PNB and DBP must have to validly adopt and ratify such FRP before they can be bound by it;
before it can be implemented. In this case, not an iota of proof has been presented by the PLAINTIFFS showing
that PNB and DBP ratified and adopted the FRP. PLAINTIFFS simply relied on a legal doctrine of promissory
estoppel to support its allegation in this regard.[42]
 Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No. 385, which took
effect on January 31, 1974. The decree requires government financial institutions to foreclose collaterals for loans
where the arrearages amount to 20% of the total outstanding obligations. The pertinent provisions of said decree
read as follows:

SEC. 1. It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the
issuance of this Decree to foreclose the collaterals and/or securities for any loan, credit, accommodations, and/or
guarantees granted by them whenever the arrearages on such account, including accrued interest and other
charges, amount to at least twenty percent (20%) of the total outstanding obligations, including interest and other
charges, as appearing in the books of account and/or related records of the financial institutions concerned. This
shall be without prejudice to the exercise by the government financial institutions of such rights and/or remedies
available to them under their respective contracts with their debtor, including the right to foreclosure on loans,
credits, accommodations and/or guarantees on which the arrearages are less than twenty percent (20%).

SEC. 2. No restraining order, temporary or permanent injunction shall be issued by the court against any
government financial institution in any action taken by such institution in compliance with the mandatory
foreclosure provided in Section 1 hereof, whether such restraining order, temporary or permanent injunction is
sought by the borrower(s) or any third party or parties, except after due hearing in which it is established by the
borrower and admitted by the government financial institution concerned that twenty percent (20%) of the
outstanding arrearages has been paid after the filing of foreclosure proceedings. (Underscoring supplied.)

Private respondents thesis that the foreclosure proceedings were null and void because of lack of publication
in the newspaper is nothing more than a mere unsubstantiated allegation not borne out by the evidence. In any
case, a disputable presumption exists in favor of petitioner that official duty has been regularly performed and
ordinary course of business has been followed.[43]
VI
Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the facts of the case,
the arbitrators in making the award went beyond the arbitration agreement.
In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for judgment in their
favor:

1. Declaring the foreclosure effected by the defendants DBP and PNB on the assets of MMIC null and void and
directing said defendants to restore the foreclosed assets to the possession of MMIC, to render an accounting of
their use and/or operation of said assets and to indemnify MMIC for the loss occasioned by its dispossession or
the deterioration thereof;

2. Directing the defendants DBP and PNB to honor and perform their commitments under the financial
reorganization plan which was approved at the annual stockholders meeting of MMIC on 30 April 1984;

3. Condemning the defendants DBP and PNB, jointly and severally to pay the plaintiffs actual damages consisting
of the loss of value of their investment amounting to not less than P80,000,000.00, the damnum emerges and
lucrum cessans in such amount as may be establish during the trial, moral damages in such amount as this
Honorable Court may deem just and equitable in the premises, exemplary damages in such amount as this
Honorable Court may consider appropriate for the purpose of setting an example for the public good, attorneys
fees and litigation expenses in such amounts as may be proven during the trial, and the costs legally taxable in
this litigation.

Further, Plaintiffs pray for such other reliefs as may be just and equitable in the premises.[44]
 Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties clearly and
explicitly defined and limited the issues to the following:
(a) whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf
of the MMIC or its directors;
(b) whether or not the actions leading to, and including, the PNB-DBP foreclosure of the MMIC assets
were proper, valid and in good faith.[45]
Item No. 8 of the Agreement provides for the period by which the Committee was to render its decision, as
well as the nature thereof:
8. Decision. The committee shall issue a decision on the controversy not later than six (6) months from
the date of its constitution.

In the event the committee finds that PLAINTIFFS have the personality to file this suit and extra-judicial
foreclosure of the MMIC assets wrongful, it shall make an award in favor of the PLAINTIFFS (excluding
DBP), in an amount as may be established or warranted by the evidence which shall be payable in Philippine
Pesos at the time of the award. Such award shall be paid by the APT or its successor-in-interest within sixty (60)
days from the date of the award in accordance with the provisions of par. 9 hereunder. x x x. The PLAINTIFFS
remedies under this Section shall be in addition to other remedies that may be available to the PLAINTIFFS, all
such remedies being cumulative and not exclusive of each other.

On the other hand, in case the arbitration committee finds that PLAINTIFFS have no capacity to sue and/or that
the extra-judicial foreclosure is valid and legal, it shall also make an award in favor of APT based on the
counterclaims of DBP and PNB in an amount as may be established or warranted by the evidence. This decision
of the arbitration committee in favor of APT shall likewise finally settle all issues regarding the foreclosure of the
MMIC assets so that the funds held in escrow mentioned in par. 9 hereunder will thus be released in full in favor
of APT.[46]

The clear and explicit terms of the submission notwithstanding, the Arbitration Committee clearly exceeded
its powers or so imperfectly executed them: (a) in ruling on and declaring valid the FRP; (b) in awarding damages
to MMIC which was not a party to the derivative suit; and (c) in awarding moral damages to Jesus S. Cabarrus,
Sr.

The arbiters overstepped their powers by declaring as valid proposed Financial Restructuring Program.

The Arbitration Committee went beyond its mandate and thus acted in excess of its powers when it ruled on
the validity of, and gave effect to, the proposed FRP.
In submitting the case to arbitration, the parties had mutually agreed to limit the issue to the validity of the
foreclosure and to transform the reliefs prayed for therein into pure money claims.
There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to the proposed FRP. It
cannot be overemphasized that a FRP, as a contract, requires the consent of the parties thereto. [47] The contract
must bind both contracting parties.[48] Private respondents even by their own admission recognized that the FRP
had yet not been carried out and that the loans of MMIC had not yet been converted into equity.[49]
However, the arbitration Committee not only declared the FRP valid and effective, but also converted the
loans of MMIC into equity raising the equity of DBP to 87%.[50]
The Arbitration Committee ruled that there was a commitment to carry out the FRP[51] on the ground of
promissory estoppel.
Similarly, the principle of promissory estoppel applies in the present case considering as we observed, the fact
that the government (that is Alfredo Velayo) was the FRPs proponent. Although the plaintiffs are agreed that the
government executed no formal agreement, the fact remains that the DBP itself which made representations that
the FRP constituted a way out for MMIC. The Committee believes that although the DBP did not formally agree
(assuming that the board and stockholders approvals were not formal enough), it is bound nonetheless if only for
its conspicuous representations.

Although the DBP sat in the board in a dual capacity-as holder of 36% of MMICs equity (at that time) and as
MMICs creditor-the DBP can not validly renege on its commitments simply because at the same time, it held
interest against the MMIC.

The fact, of course, is that as APT itself asserted, the FRP was being carried out although apparently, it would
supposedly fall short of its targets. Assuming that the FRP would fail to meet its targets, the DBP-and so this
Committee holds-can not, in any event, brook any denial that it was bound to begin with, and the fact is that
adequate or not (the FRP), the government is still bound by virtue of its acts.

The FRP, of course, did not itself promise a resounding success, although it raised DBPs equity in MMIC to
87%. It is not excuse, however, for the government to deny its commitments.[52]

Atty. Sison, however, did not agree and correctly observed that:

But the doctrine of promissory estoppel can hardly find application here. The nearest that there can be said of any
estoppel being present in this case is the fact that the board of MMIC was, at the time the FRP was adopted,
mostly composed of PNB and DBP representatives. But those representatives, singly or collectively, are not
themselves PNB or DBP. They are individuals with personalities separate and distinct from the banks they
represent. PNB and DBP have different boards with different members who may have different decisions. It is
unfair to impose upon them the decision of the board of another company and thus pin them down on the equitable
principle of estoppel. Estoppel is a principle based on equity and it is certainly not equitable to apply it in this
particular situation. Otherwise the rights of entirely separate, distinct and autonomous legal entities like PNB and
DBP with thousands of stockholders will be suppressed and rendered nugatory.[53]

As a rule, a corporation exercises its powers, including the power to enter into contracts, through its board of
directors. While a corporation may appoint agents to enter into a contract in its behalf, the agent, should not
exceed his authority.[54] In the case at bar, there was no showing that the representatives of PNB and DBP in
MMIC even had the requisite authority to enter into a debt-for-equity swap. And if they had such authority, there
was no showing that the banks, through their board of directors, had ratified the FRP.
Further, how could the MMIC be entitled to a big amount of moral damages when its credit reputation was
not exactly something to be considered sound and wholesome. Under Article 2217 of the Civil Code, moral
damages include besmirched reputation which a corporation may possibly suffer. A corporation whose overdue
and unpaid debts to the Government alone reached a tremendous amount of P22 Billion Pesos cannot certainly
have a solid business reputation to brag about. As Atty. Sison in his separate opinion persuasively put it:

Besides, it is not yet a well settled jurisprudence that corporations are entitled to moral damages. While the
Supreme Court may have awarded moral damages to a corporation for besmirched reputation in Mambulao vs.
PNB 22 SCRA 359, such ruling cannot find application in this case. It must be pointed out that when the supposed
wrongful act of foreclosure was done, MMICs credit reputation was no longer a desirable one. The company then
was already suffering from serious financial crisis which definitely projects an image not compatible with good
and wholesome reputation. So it could not be said that there was a reputation besmirches by the act of
foreclosure.[55]
The arbiters exceeded their authority in awarding damages to MMIC, which is not impleaded as a party to the derivative suit.

Civil Code No. 9900 filed before the RTC being a derivative suit, MMIC should have been impleaded as a
party. It was not joined as a party plaintiff or party defendant at any stage of the proceedings. As it is, the award
of damages to MMIC, which was not a party before the Arbitration Committee, is a complete nullity.
Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the stockholder
filing suit for the corporations behalf is only nominal party. The corporation should be included as a party in the
suit.

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds
stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or
are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded
as a nominal party, with the corporation as the real party in interest. x x x.[56]

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

x x x. Not only is the corporation an indispensible party, but it is also the present rule that it must be served with
process. The reason given is that the judgment must be made binding upon the corporation and in order that the
corporation may get the benefit of the suit and may not bring a subsequent suit against the same defendants for
the same cause of action. In other words the corporations must be joined as party because it is its cause of action
that is being litigated and because judgment must be a res ajudicataagainst it.[57]

The reasons given for not allowing direct individual suit are:

(1) x x x the universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to
the corporate property; that both of these are in the corporation itself for the benefit of the stockholders. In other
words, to allow shareholders to sue separately would conflict with the separate corporate entity principle;

(2) x x x that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case
of Evangelista v. Santos, that the stockholders may not directly claim those damages for themselves for that would
result in the appropriation by, and the distribution among them of part of the corporate assets before the dissolution
of the corporation and the liquidation of its debts and liabilities, something which cannot be legally done in view
of section 16 of the Corporation Law xxx;

(3) the filing of such suits would conflict with the duty of the management to sue for the protection of all
concerned;

(4) it would produce wasteful multiplicity of suits; and

(5) it would involve confusion in a ascertaining the effect of partial recovery by an individual on the damages
recoverable by the corporation for the same act.[58]

If at all an award was due MMIC, which it was not, the same should have been given sans deduction,
regardless of whether or not the party liable had equity in the corporation, in view of the doctrine that a corporation
has a personality separate and distinct from its individual stockholders or members. DBPs alleged equity, even if
it were indeed 87%, did not give it ownership over any corporate property, including the monetary award, its right
over said corporate property being a mere expectancy or inchoate right.[59]Notably, the stipulation even had the
effect of prejudicing the other creditors of MMIC.
The arbiters, likewise, exceeded their authority in awarding moral damages to Jesus Cabarrus, Sr.

It is perplexing how the Arbitration Committee can in one breath rule that the case before it is a derivative
suit, in which the aggrieved party or the real party in interest is supposedly the MMIC, and at the same time award
moral damages to an individual stockholder, to wit:

WHEREFORE, premises considered, judgment is hereby rendered:

xxx.

3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied
likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such
subsequent escrow agreement that would supersede it, pursuant to paragraph (9), Compromise and Arbitration
Agreement, as and for moral damages; x x x[60]

The majority decision of the Arbitration Committee sought to justify its award of moral damages to Jesus S.
Cabarrus, Sr. by pointing to the fact that among the assets seized by the government were assets belonging to
Industrial Enterprise Inc. (IEI), of which Cabarrus is the majority stockholder. It then acknowledge that Cabarrus
had already recovered said assets in the RTC, but that he won no more than actual damages. While the Committee
cannot possibly speak for the RTC, there is no doubt that Jesus S. Cabarrus, Sr., suffered moral damages on
account of that specific foreclosure, damages the Committee believes and so holds, he Jesus S. Cabarrus, Sr., may
be awarded in this proceeding.[61]
Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the majority stockholder,
having been ventilated in a complaint he previously filed with the RTC, from which he obtained actual damages,
he was barred res judicata from filing a similar case in another court, this time asking for moral damages which
he failed to get from the earlier case.[62] Worse, private respondents violated the rule against non-forum shopping.
It is a basic postulate that s corporation has a personality separate and distinct from its stockholders. [63] The
properties foreclosed belonged to MMIC, not to its stockholders. Hence, if wrong was committed in the
foreclosure, it was done against the corporation. Another reason is that Jesus S. Cabarrus, Sr. cannot directly
claim those damages for himself that would result in the appropriation by, and the distribution to, him part of the
corporations assets before the dissolution of the corporation and the liquidation of its debts and liabilities. The
Arbitration Committee, therefore, passed upon matters not submitted to it. Moreover, said cause of action had
already been decided in a separate case. It is thus quite patent that the arbitration committee exceeded the authority
granted to it by the parties Compromise and Arbitration Agreement by awarding moral damages to Jesus S.
Cabarrus, Sr.
Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral damages to Jesus
S. Cabarrus, Sr.:

It is clear and it cannot be disputed therefore that based on these stipulated issues, the parties themselves
have agreed that the basic ingredient of the causes of action in this case is the wrong committed on the
corporation (MMIC) for the alleged illegal foreclosure of its assets. By agreeing to this
stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit that the cause of action pertains only to the
corporation (MMIC) and that they are filing this for and in behalf of MMIC.

Perforce this has to be so because it is the basic rule in Corporation Law that the shareholders have no title, legal
or equitable to the property which is owned by the corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil.
83). In Ganzon & Sons vs. Register of Deeds, 6 SCRA 373, the rule has been reiterated that a stockholder is not
the co-owner of corporate property. Since the property or assets foreclosed belongs [sic] to MMIC, the wrong
committed, if any, is done against the corporation. There is therefore no direct injury or direct violation of the
rights of Cabarrus et al. There is no way, legal or equitable, by which Cabarrus et al. could recover damages in
their personal capacities even assuming or just because the foreclosure is improper or invalid. The Compromise
and Arbitration Agreement itself and the elementary principles of Corporation Law say so. Therefore, I am
constrained to dissent from the award of moral damages to Cabarrus.[64]

From the foregoing discussions, it is evident that, not only did the arbitration committee exceed its powers
or so imperfectly execute them, but also, its findings and conclusions are palpably devoid of any factual basis and
in manifest disregard of the law.
We do not find it necessary to remand this case to the RTC for appropriate action. The pleadings and
memoranda filed with this Court, as well as in the Court of Appeals, raised and extensively discussed the issues
on the merits. Such being the case, there is sufficient basis for us to resolve the controversy between the parties
anchored on the records and the pleadings before us.[65]
WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the Orders of the
Regional Trial Court of Makati, Branch 62, dated November 28, 1994 and January 19, 1995, is hereby
REVERSED and SET ASIDE, and the decision of the Arbitration Committee is hereby VACATED.

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

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

DECISION
DAVIDE, JR., C.J.:

In this petition for review on certiorari, petitioners ABS-CBN Broadcasting Corp. (hereinafter ABS-CBN)
seeks to reverse and set aside the decision[1] of 31 October 1996 and the resolution[2] of 10 March 1997 of the
Court of Appeals in CA-G.R. CV No. 44125. The former affirmed with modification the decision[3] of 28 April
1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No. Q-12309. The latter denied
the motion to reconsider the decision of 31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:

In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. A) whereby Viva gave ABS-CBN
an exclusive right to exhibit some Viva films. Sometime in December 1991, in accordance with paragraph 2.4
[sic] of said agreement stating that-

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast under
such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by
ABS-CBN from the actual offer in writing.

Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list
of three (3) film packages (36 title) from which ABS-CBN may exercise its right of first refusal under the afore-
said agreement (Exhs. 1 par. 2, 2, 2-A and 2-B Viva). ABS-CBN, however through Mrs. Concio, can tick off only
ten (10) titles (from the list) we can purchase (Exh. 3 Viva) and therefore did not accept said list (TSN, June 8,
1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case at bar except the film Maging
Sino Ka Man.

For further enlightenment, this rejection letter dated January 06, 1992 (Exh 3 Viva) is hereby quoted:
6 January 1992

Dear Vic,

This is not a very formal business letter I am writing to you as I would like to express my difficulty in
recommending the purchase of the three film packages you are offering ABS-CBN.

From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I hope you will
understand my position. Most of the action pictures in the list do not have big action stars in the cast. They are
not for primetime. In line with this I wish to mention that I have not scheduled for telecast several action pictures
in our very first contract because of the cheap production value of these movies as well as the lack of big action
stars. As a film producer, I am sure you understand what I am trying to say as Viva produces only big action
pictures.

In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in out non-
primetime slots. We have to cover the amount that was paid for these movies because as you very well know that
non-primetime advertising rates are very low. These are the unaired titles in the first contract.

1. Kontra Persa [sic]

2. Raider Platoon
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. lady Commando
7. Batang Matadero
8. Rebelyon

I hope you will consider this request of mine.

The other dramatic films have been offered to us before and have been rejected because of the ruling of MTRCB
to have them aired at 9:00 p.m. due to their very adult themes.

As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva movies
produced last year, I have quite an attractive offer to make.

Thanking you and with my warmest regards.

(Signed)
Charo Santos-Concio

On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms. Concio, with a list consisting of 52
original movie titles (i.e., not yet aired on television) including the 14 titles subject of the present case, as well as
104 re-runs (previously aired on television) from which ABS-CBN may choose another 52 titles, as a total of 156
titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 re-runs
for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of television spots (Exh.
4 to 4-C Viva; 9 Viva).

On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager, Eugenio Lopez III, met at the
Tamarind Grill Restaurant in Quezon City to discuss the package proposal of VIVA. What transpired in that lunch
meeting is the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly agreed
that ABS-CBN was granted exclusive film rights to fourteen (14) films for a total consideration of P36 million;
that he allegedly put this agreement as to the price and number of films in a napkin and signed it and gave it to
Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand. Del Rosario denied having
made any agreement with Lopez regarding the 14 Viva films; denied the existence of a napkin in which Lopez
wrote something; and insisted that what he and Lopez discussed at the lunch meeting was Vivas film package
offer of 104 films (52 originals and 52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic]to make
a counter proposal which came in the form of a proposal contract Annex C of the complaint (Exh. 1 Viva; Exh C
ABS-CBN).

On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the
terms and conditions of Vivas offer to sell the 104 films, after the rejection of the same package by ABS-CBN.

On April 07, 1992, defendant Del Rosario received through his secretary , a handwritten note from Ms. Concio,
(Exh. 5 Viva), which reads: Heres the draft of the contract. I hope you find everything in order, to which was
attached a draft exhibition agreement (Exh. C ABS-CBN; Exh. 9 Viva p. 3) a counter-proposal covering 53 films,
52 of which came from the list sent by defendant Del Rosario and one film was added by Ms. Concio, for a
consideration of P35 million. Exhibit C provides that ABS-CBN is granted film rights to 53 films and contains a
right of first refusal to 1992 Viva Films. The said counter proposal was however rejected by Vivas Board of
Directors [in the] evening of the same day, April 7, 1992, as Viva would not sell anything less than the package
of 104 films for P60 million pesos (Exh. 9 Viva), and such rejection was relayed to Ms. Concio.

On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings defendant
Del Rosario and Vivas President Teresita Cruz, in consideration of P60 million, signed a letter of agreement dated
April 24, 1992, granting RBS the exclusive right to air 104 Viva-produced and/or acquired films (Exh. 7-A -
RBS; Exh. 4 RBS) including the fourteen (14) films subject of the present case.[4]

On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a
writ of preliminary injunction and/or temporary restraining order against private respondents Republic
Broadcasting Corporation[5] (hereafter RBS), Viva Production (hereafter VIVA), and Vicente del Rosario. The
complaint was docketed as Civil Case No. Q-92-12309.
On 28 May 1992, the RTC issued a temporary restraining order[6] enjoining private respondents from
proceeding with the airing, broadcasting, and televising of the fourteen VIVA films subject of the controversy,
starting with the film Maging Sino Ka Man, which was scheduled to be shown on private respondent RBS channel
7 at seven oclock in the evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an order[7] directing the issuance of a writ
of preliminary injunction upon ABS-CBNs posting of a P35 million bond. ABS-CBN moved for the reduction of
the bond,[8] while private respondents moved for reconsideration of the order and offered to put up a
counterbond.[9]
In the meantime, private respondents filed separate answer with counterclaim.[10] RBS also set up a cross-
claim against VIVA.
On 3 August 1992, the RTC issued an order[11] dissolving the writ of preliminary injunction upon the posting
by RBS of a P30 million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such
dissolution. However, it reduced petitioners injunction bond to P15 million as a condition precedent for the
reinstatement of the writ of preliminary injunction should private respondents be unable to post a counterbond.
At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the court, agreed to explore the possibility
of an amicable settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put
up a P30 million counterbond in the event that no settlement would be reached.
As the parties failed to enter into an amicable settlement, RBS posted on 1 October 1992 a counterbond,
which the RTC approved in its Order of 15 October 1992.[13]
 On 19 October 1992, ABS-CBN filed a motion for reconsideration[14] of the 3 August and 15 October 1992
Orders, which RBS opposed.[15]
On 29 October, the RTC conducted a pre-trial.[16]
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a
petition[17] challenging the RTCs Order of 3 August and 15 October 1992 and praying for the issuance of a writ
of preliminary injunction to enjoin the RTC from enforcing said orders. The case was docketed as CA-G.R. SP
No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining order[18] to enjoin the airing,
broadcasting, and televising of any or all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a decision[19] dismissing the petition in CA-G.R.
SP No. 29300 for being premature. ABS-CBN challenged the dismissal in a petition for review filed with this
Court on 19 January 1993, which was docketed s G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-92-12309. Thereafter, on
28 April 1993, it rendered a decision[20] in favor of RBS and VIVA and against ABS-CBN disposing as follows:

WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is rendered in favor of
defendants and against the plaintiff.

(1) The complaint is hereby dismissed;

(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00 the amount of premium paid by RBS to the surety which issued defendants RBSs
bond to lift the injunction;
b) P191,843.00 for the amount of print advertisement for Maging Sino Ka Man in various
newspapers;
c) Attorneys fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable
attorneys fees.
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged
agreement between Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors, and
said agreement was disapproved during the meeting of the Board on 7 April 1992. Hence, there was no basis for
ABS-CBNs demand that VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right of first refusal
under the 1990 Film Exhibition Agreement had previously been exercised per Ms. Concios letter to Del Rosario
ticking off ten titles acceptable to them, which would have made the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied[21] ABS-CBNs petition for review in G.R. No. 108363, as no reversible
error was committed by the Court of Appeals in its challenged decision and the case had become moot and
academic in view of the dismissal of the main action by the court a quo in its decision of 28 April 1993.
Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals claiming that there was a
perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject
films. Private respondents VIVA and Del Rosario also appealed seeking moral and exemplary damages and
additional attorneys fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABS-
CBN and VIVA had not been perfected, absent the approval by the VIVA Board of Directors of whatever Del
Rosario, its agent, might have agreed with Lopez III. The appellate court did not even believe ABS-CBNs
evidence that Lopez III actually wrote down such an agreement on a napkin, as the same was never produced in
court. It likewise rejected ABS-CBNs insistence on its right of first refusal and ratiocinated as follows:

As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered into
between Appellant ABS-CBN and appellant VIVA under Exhibit A in 1990 and that parag. 1.4 thereof provides:

1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV telecast under
such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be exercised by
ABS-CBN within a period of fifteen (15) days from the actual offer in writing (Records, p. 14).

[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subjected to such
terms as may be agreed upon by the parties thereto, and that the said right shall be exercised by ABS-CBN within
fifteen (15) days from the actual offer in writing.

Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did not fix the price of the film right to the
twenty-four (24) films, nor did it specify the terms thereof. The same are still left to be agreed upon by the parties.

In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick off ten (10)
films, and the draft contract Exhibit C accepted only fourteen (14) films, while parag. 1.4 of Exhibit A speaks of
the next twenty-four (24) films.

The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B; Records, pp. 86-88; Decision, p. 11,
Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice
President of ABS-CBN, Mrs. Charo Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records, p.
89) where ABS-CBN exercised its right of refusal by rejecting the offer of VIVA. As aptly observed by the trial
court, with the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And
even if We reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when another list was
sent to ABS-CBN after the letter of Mrs. Concio, still the fifteen (15) day period within which ABS-CBN shall
exercise its right of first refusal has already expired.[22]

Accordingly, respondent court sustained the award factual damages consisting in the cost of print
advertisements and the premium payments for the counterbond, there being adequate proof of the pecuniary loss
which RBS has suffered as a result of the filing of the complaint by ABS-CBN. As to the award of moral damages,
the Court of Appeals found reasonable basis therefor, holding that RBSs reputation was debased by the filing of
the complaint in Civil Case No. Q-92-12309 and by the non-showing of the film Maging Sino Ka
Man. Respondent court also held that exemplary damages were correctly imposed by way of example or
correction for the public good in view of the filing of the complaint despite petitioners knowledge that the contract
with VIVA had not been perfected. It also upheld the award of attorneys fees, reasoning that with ABS-CBNs act
of instituting Civil Case No. Q-92-12309, RBS was unnecessarily forced to litigate. The appellate court, however,
reduced the awards of moral damages to P 2 million, exemplary damages to P2 million, and attorneys fees
to P500,000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosarios appeal because it was RBS
and not VIVA which was actually prejudiced when the complaint was filed by ABS-CBN.
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that
the Court of Appeals gravely erred in
I
RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND
PRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONFERANCE OF EVIDENCE
ADDUCED BY PETITIONER TO THE CONTRARY.
II
IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE
RESPONDENT RBS.
III
IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE
RESPONDENT RBS.
IV
IN AWARDING ATORNEYS FEES OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the
1990 Film Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence
to Lopezs testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and
conditions of the second list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the same
on a paper napkin. It also asserts that the contract has already been effective, as the elements thereof, namely,
consent, object, and consideration were established. It then concludes that the Court of Appeals pronouncements
were not supported by law and jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons Milling,
Inc. v. Court of Appeals,[23] which cited Toyota Shaw, Inc. v. Court of Appeals;[24] Ang Yu Asuncion v. Court of
Appeals,[25] and Villonco Realty Company v. Bormaheco, Inc.[26]
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the
premium on the counterbond of its own volition in order to negate the injunction issued by the trial court after the
parties had ventilated their respective positions during the hearings for the purpose. The filing of the counterbond
was an option available to RBS, but it can hardly be argued that ABS-CBN compelled RBS to incur such
expense. Besides, RBS had another available option, i.e., move for the dissolution of the injunction; or if it was
determined to put up a counterbond, it could have presented a cash bond. Furthermore under Article 2203 of the
Civil Code, the party suffering loss injury is also required to exercise the diligence of a good father of a family to
minimize the damages resulting from the act or omission. As regards the cost of print advertisements, RBS had
not convincingly established that this was a loss attributable to the non-showing of Maging Sino Ka Man; on the
contrary, it was brought out during trial that with or without the case or injunction, RBS would have spent such
an amount to generate interest in the film.
ABS-CBN further contends that there was no other clear basis for the awards of moral and exemplary
damages. The controversy involving ABS-CBN and RBS did not in any way originate from business transaction
between them. The claims for such damages did not arise from any contractual dealings or from specific acts
committed by ABS-CBN against RBS that may be characterized as wanton, fraudulent, or reckless; they arose by
virtue only of the filing of the complaint. An award of moral and exemplary damages is not warranted where the
record is bereft of any proof that a party acted maliciously or in bad faith in filing an action. [27] In any case, free
resort to courts for redress of wrongs is a matter of public policy. The law recognizes the right of every one to sue
for that which he honestly believes to be his right without fear of standing trial for damages where by lack of
sufficient evidence, legal technicalities, or a different interpretation of the laws on the matter, the case would lose
ground.[28] One who, makes use of his own legal right does no injury.[29] If damage results from filing of the
complaint, it is damnum absque injuria.[30] Besides, moral damages are generally not awarded in favor of a
juridical person, unless it enjoys a good reputation that was debased by the offending party resulting in social
humiliation.[31]
 As regards the award of attorneys fees, ABS-CBN maintains that the same had no factual, legal, or equitable
justification. In sustaining the trial courts award, the Court of Appeals acted in clear disregard of the doctrine laid
down in Buan v. Camaganacan[32] that the text of the decision should state the reason why attorneys fees are
being awarded; otherwise, the award should be disallowed. Besides, no bad faith has been imputed on, much less
proved as having been committed by, ABS-CBN. It has been held that where no sufficient showing of bad faith
would be reflected in a partys persistence in a case other than an erroneous conviction of the righteousness of his
cause, attorneys fees shall not be recovered as cost.[33]
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent
meeting of minds between them regarding the object and consideration of the alleged contract. It affirms that
ABS-CBNs claim of a right of first refusal was correctly rejected by the trial court. RBS insists the premium it
had paid for the counterbond constituted a pecuniary loss upon which it may recover. It was obliged to put up the
counterbond due to the injunction procured by ABS-CBN. Since the trial court found that ABS-CBN had no cause
of action or valid claim against RBS and, therefore not entitled to the writ of injunction, RBS could recover from
ABS-CBN the premium paid on the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove
to be more expensive, as the loss would be equivalent to the cost of money RBS would forego in case the P30
million came from its funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the
film Maging Sino Ka Man because the print advertisements were out to announce the showing on a particular day
and hour on Channel 7, i.e., in its entirety at one time, not as series to be shown on a periodic basis. Hence, the
print advertisements were good and relevant for the particular date of showing, and since the film could not be
shown on that particular date and hour because of the injunction, the expenses for the advertisements had gone to
waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions
purely for the purpose of harassing and prejudicing RBS. Pursuant then to Articles 19 and 21 of the Civil Code,
ABS-CBN must be held liable for such damages. Citing Tolentino,[34] damages may be awarded in cases of abuse
of rights even if the done is not illicit, and there is abuse of rights where a plaintiff institutes an action purely for
the purpose of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages, private respondent
RBS cited People v. Manero,[35] where it was stated that such entity may recover moral and exemplary damages
if it has a good reputation that is debased resulting in social humiliation. It then ratiocinates; thus:

There can be no doubt that RBS reputation has been debased by ABS-CBNs acts in this case. When RBS was not
able to fulfill its commitment to the viewing public to show the film Maging Sino Ka Man on the scheduled dates
and times (and on two occasions that RBS advertised), it suffered serious embarrassment and social
humiliation. When the showing was cancelled, irate viewers called up RBS offices and subjected RBS to verbal
abuse (Announce kayo ng announce, hindi ninyo naman ilalabas, nanloloko yata kayo) (Exh. 3-RBS, par.3). This
alone was not something RBS brought upon itself. It was exactly what ABS-CBN had planted to happen.

The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the amount of
the award.

The first is that the humiliation suffered by RBS, is national in extent. RBS operations as a broadcasting company
is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watch television. It is not
an exaggeration to state, and it is a matter of judicial notice that almost every other person in the country watches
television. The humiliation suffered by RBS is multiplied by the number of televiewers who had anticipated the
showing of the film, Maging Sino Ka Man on May 28 and November 3, 1992 but did not see it owing to the
cancellation. Added to this are the advertisers who had placed commercial spots for the telecast and to whom
RBS had a commitment in consideration of the placement to show the film in the dates and times specified.
The second is that it is a competitor that caused RBS suffer the humiliation. The humiliation and injury are far
greater in degree when caused by an entity whose ultimate business objective is to lure customers (viewers in this
case) away from the competition.[36]

For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court
of Appeals do not support ABS-CBNs claim that there was a perfected contract. Such factual findings can no
longer be disturbed in this petition for review under Rule 45, as only questions of law can be raised, not questions
of fact. On the issue of damages and attorneys fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-
CBN, and (2) whether RBS is entitled to damages and attorneys fees. It may be noted that that award of attorneys
fees of P212,000 in favor of VIVA is not assigned as another error.
I
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons
whereby one binds himself to give something or render some service to another[37] for a consideration. There is
no contract unless the following requisites concur: (1) consent of the contracting parties; (2) object certain which
is the subject of the contract; and (3) cause of the obligation, which is established.[38] A contract undergoes three
stages:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at
the moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms
of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the
contract.[39]
Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is
concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of payment
a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must be
absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without
variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a
counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly
what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or
variation from the terms of the offer annuls the offer.[40]
When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss
the package of films, said package of 104 VIVA films was VIVAs offer to ABS-CBN to enter into a new Film
Exhibition Agreement. But ABS-CBN, sent through Ms. Concio, counter-proposal in the form a draft contract
proposing exhibition of 53 films for a consideration of P35 million. This counter-proposal could be nothing less
than the counter-offer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly,
there was no acceptance of VIVAs offer, for it was met by a counter-offer which substantially varied the terms of
the offer.
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of Appeals[41] and Villonco Realty Company v.
Bormaheco, Inc.,[42] is misplaced. In these cases, it was held that an acceptance may contain a request for certain
changes in the terms of the offer and yet be a binding acceptance as long as it is clear that the meaning of the
acceptance is positively and unequivocally to accept the offer, whether such request is granted or not. This ruling
was, however, reversed in the resolution of 29 March 1996,[43] which ruled that the acceptance of an offer must
be unqualified and absolute, i.e., it must be identical in all respects with that of the offer so as to produce consent
or meetings of the minds.
 On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not
material but merely clarificatory of what had previously been agreed upon. It cited the statement in Stuart v.
Franklin Life Insurance Co.[44] that a vendors change in a phrase of the offer to purchase, which change does not
essentially change the terms of the offer, does not amount to a rejection of the offer and the tender of a counter-
offer.[45] However, when any of the elements of the contract is modified upon acceptance, such alteration amounts
to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer hence, they underwent period
of bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract. VIVA through
its Board of Directors, rejected such counter-offer. Even if it be conceded arguendo that Del Rosario had accepted
the counter-offer, the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the
specific authority to do so.
Under the Corporation Code,[46] unless otherwise provided by said Code, corporate powers, such as the power
to enter into contracts, are exercised by the Board of Directors. However, the Board may delegate such powers to
either an executive committee or officials or contracted managers. The delegation, except for the executive
committee, must be for specific purposes.[47] Delegation to officers makes the latter agents of the corporation;
accordingly, the general rules of agency as to the binding effects of their acts would apply. [48] For such officers
to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially authorize
them to do so. that Del Rosario did not have the authority to accept ABS-CBNs counter-offer was best evidenced
by his submission of the draft contract to VIVAs Board of Directors for the latters approval. In any event, there
was between Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are
instructive:

A number of considerations militate against ABS-CBNs claim that a contract was perfected at that lunch meeting
on April 02, 1992 at the Tamarind Grill.

FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the number
of films, which he wrote on a napkin. However, Exhibit C contains numerous provisions which were not discussed
at the Tamarind Grill, if Lopez testimony was to be believed nor could they have been physically written on a
napkin. There was even doubt as to whether it was a paper napkin or cloth napkin. In short what were written in
Exhibit C were not discussed, and therefore could not have been agreed upon, by the parties. How then could this
court compel the parties to sign Exhibit C when the provisions thereof were not previously agreed upon?

SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14 films. The
complaint in fact prays for delivery of 14 films. But Exhibit C mentions 53 films as its subject matter. Which is
which? If Exhibit C reflected the true intent of the parties, then ABS-CBNs claim for 14 films in its complaint is
false or if what it alleged in the complaint is true, then Exhibit C did not reflect what was agreed upon by the
parties. This underscores the fact that there was no meeting of the minds as to the subject matter of the contract,
so as to preclude perfection thereof. For settled is the rule that there can be no contract where there is no object
certain which is its subject matter (Art. 1318, NCC).

THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. D) States:

We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14) films, and
we agreed to pay Viva the amount of P16,050,000.00 as well as grant Viva commercial slots
worth P19,950,000.00. We had already earmarked this P16,050,000.00.

which gives a total consideration of P36 million (P19,951,000.00 plus P16,050,000.00 equals P36,000,000.00).

On cross-examination Mr. Lopez testified:

Q What was written in this napkin?

 A The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7 Viva
movies because the price was broken down accordingly. The none [sic] Viva and the seven other Viva
movies and the sharing between the cash portion and the concerned spot portion in the total amount of P35
million pesos.

Now, which is which? P36 million or P35 million? This weakens ABS-CBNs claim.

FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit C to Mr. Del Rosario with a
handwritten note, describing said Exhibit C as a draft. (Exh. 5 Viva; tsn pp. 23-24, June 08, 1992). The said draft
has a well defined meaning.

Since Exhibit C is only a draft, or a tentative, provisional or preparatory writing prepared for discussion, the terms
and conditions thereof could not have been previously agreed upon by ABS-CBN and Viva. Exhibit C could not
therefore legally bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the terms and conditions
embodied in Exhibit C were prepared by ABS-CBNs lawyers and there was no discussion on said terms and
conditions.

As the parties had not yet discussed the proposed terms and conditions in Exhibit C, and there was no evidence
whatsoever that Viva agreed to the terms and conditions thereof, said document cannot be a binding contract. The
fact that Viva refused to sign Exhibit C reveals only two [sic] well that it did not agree on its terms and conditions,
and this court has no authority to compel Viva to agree thereto.

FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill was only
provisional, in the sense that it was subject to approval by the Board of Directors of Viva. He testified:

Q Now, Mr. Witness, and after that Tamarinf meeting the second meeting wherein you claimed that you have
the meeting of the minds between you and Mr. Vic del Rosario, what happened?
A Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the Board
of Directors.
Q And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?
A Yes, sir.
Q So, he was going to forward that to the board of Directors for approval?
A Yes, sir (Tsn, pp. 42-43, June 8, 1992)
Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).

The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority to bind
Viva to a contract with ABS-CBN until and unless its Board of Directors approved it. The complaint, in fact,
alleges that Mr. Del Rosario is the Executive Producer of defendant Viva which is a corporation. (par. 2,
complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what he did is ratified by its
Directors. (Vicente vs.Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent,
recognized as such by plaintiff, Del Rosario could not be held liable jointly and severally with Viva and his
inclusion as party defendant has no legal basis. (Salonga vs. Warner Barnes [sic],COLTA, 88 Phil. 125; Salmon
vs. Tan, 36 Phil. 556).

The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed to
have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It
is as it should be because corporate power to enter into a contract is lodged in the Board of Directors. (Sec. 23,
Corporation Code). Without such board approval by the Viva board, whatever agreement Lopez and Del Rosario
arrived at could not ripen into a valid binding upon Viva (Yao Ka Sin Trading vs. Court of Appeals, 209 SCRA
763). The evidence adduced shows that the Board of Directors of Viva rejected Exhibit C and insisted that the
film package for 104 films be maintained (Exh. 7-1 Cica).[49]

The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under
the 1990 Film Exhibition Agreement and that the meeting between Lopez and Del Rosario was a continuation of
said previous contract is untenable. As observed by the trial court, ABS-CBNs right of first refusal had already
been exercised when Ms. Concio wrote to Viva ticking off ten films. Thus:

[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an entirely
different package. Ms. Concio herself admitted on cross-examination to having used or exercised the right
of first refusal. She stated that the list was not acceptable and was indeed not accepted by ABS-CBN, (Tsn,
June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of first refusal may have been already
exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and
understand [sic] that ABS-CBN has lost its right of first refusal when his list of 36 titles were rejected (Tsn,
June 9, 1992, pp. 10-11).[50]

II
However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2,
Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided
by law or by stipulation, one is entitled to compensation for actual damages only for such pecuniary loss suffered
by him as he has duly proved.[51] The indemnification shall comprehend not only the value of the loss suffered,
but also that of the profits that the obligee failed to obtain.[52] In contracts and quasi-contracts the damages which
may be awarded are dependent on whether the obligor acted with good faith or otherwise. In case of good faith,
the damages recoverable are those which are the natural and probable consequences of the breach of the obligation
and which the parties have foreseen or could have reasonably foreseen at the time of the constitution of the
obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation.[53] In crimes and quasi-
delicts, the defendants shall be liable for all damages which are the natural and probable consequences of the act
or omission complained of, whether or not such damages have been foreseen or could have reasonably been
foreseen by the defendant.[54]
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary
or permanent personal injury, or for injury to the plaintiffs business standing or commercial credit.[55]
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It
arose from the fact of filing of the complaint despite ABS-CBNs alleged knowledge of lack of cause of
action. Thus paragraph 12 of RBSs Answer with Counterclaim and Cross-claim under the heading
COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action against RBS. As a
result thereof, RBS suffered actual damages in the amount of P6,621,195.32.[56]
Needless to state the award of actual damages cannot be comprehended under the above law on actual
damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as
follows:

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

ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to another shall indemnify
the latter for the same.
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.

It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which
the defendant may suffer by reason of the writ are recoverable from the injunctive bond.[57] In this case, ABS-
CBN had not yet filed the required bond; as a matter of fact, it asked for reduction of the bond and even went to
the Court of Appeals to challenge the order on the matter. Clearly then, it was not necessary for RBS to file a
counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for Maging Sino Ka Man for lack of sufficient
legal basis. The RTC issued a temporary restraining order and later, a writ of preliminary injunction on the basis
of its determination that there existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve
the injunction on the ground of lack of legal and factual basis, but because of the plea of RBS that it be allowed
to put up a counterbond.
As regards attorneys fees, the law is clear that in the absence of stipulation, attorneys fees may be recovered
as actual or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil
Code.[58]
The general rule is that attorneys fees cannot be recovered as part of damages because of the policy that no
premium should be placed on the right to litigate.[59] They are not to be awarded every time a party wins a suit. The
power of the court t award attorneys fees under Article 2208 demands factual, legal, and equitable
justification.[60] Even when a claimant is compelled to litigate with third persons or to incur expenses to protect
his rights, still attorneys fees may not be awarded where no sufficient showing of bad faith could be reflected in
a partys persistence in a case other than an erroneous conviction of the righteousness of his cause.[61]
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217
thereof defines what are included in moral damages, while Article 2219 enumerates the cases where they may be
recovered. Article 2220 provides that moral damages may be recovered in breaches of contract where the
defendant acted fraudulently or in bad faith. RBSs claim for moral damages could possibly fall only under item
(10) of Article 2219, thereof which reads:

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.

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

[G.R. No. 128066. June 19, 2000] JARDINE DAVIES INC., petitioner, vs. COURT OF APPEALS and FAR
EAST MILLS SUPPLY CORPORATION, respondents.

[G.R. No. 128069 June 19, 2000] PURE FOODS CORPORATION, petitioner, vs. COURT OF APPEALS
and FAR EAST MILLS SUPPLY CORPORATION, respondents.

DECISION

BELLOSILLO, J.:

This is rather a simple case for specific performance with damages which could have been resolved through
mediation and conciliation during its infancy stage had the parties been earnest in expediting the disposal of this
case. They opted however to resort to full court proceedings and denied themselves the benefits of alternative
dispute resolution, thus making the process more arduous and long-drawn.

The controversy started in 1992 at the height of the power crisis which the country was then experiencing. To
remedy and curtail further losses due to the series of power failures, petitioner PURE FOODS CORPORATION
(hereafter PUREFOODS) decided to install two (2) 1500 KW generators in its food processing plant in San
Roque, Marikina City.

Sometime in November 1992 a bidding for the supply and installation of the generators was held. Several
suppliers and dealers were invited to attend a pre-bidding conference to discuss the conditions, propose scheme
and specifications that would best suit the needs of PUREFOODS. Out of the eight (8) prospective bidders who
attended the pre-bidding conference, only three (3) bidders, namely, respondent FAR EAST MILLS SUPPLY
CORPORATION (hereafter FEMSCO), MONARK and ADVANCE POWER submitted bid proposals and gave
bid bonds equivalent to 5% of their respective bids, as required.

Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS
confirmed the award of the contract to FEMSCO -

Gentlemen:

This will confirm that Pure Foods Corporation has awarded to your firm the project: Supply and
Installation of two (2) units of 1500 KW/unit Generator Sets at the Processed Meats Plant, Bo. San
Roque, Marikina, based on your proposal number PC 28-92 dated November 20, 1992, subject to
the following basic terms and conditions:

1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of materials and labor for
the local portion and the labor for the imported materials, payable by progress billing twice a
month, with ten percent (10%) retention. The retained amount shall be released thirty (30) days
after acceptance of the completed project and upon posting of Guarantee Bond in an amount
equivalent to twenty percent (20%) of the contract price. The Guarantee Bond shall be valid for
one (1) year from completion and acceptance of project. The contract price includes future
increase/s in costs of materials and labor;

2. The project shall be undertaken pursuant to the attached specifications. It is understood that any
item required to complete the project, and those not included in the list of items shall be deemed
included and covered and shall be performed;

3. All materials shall be brand new;

4. The project shall commence immediately and must be completed within twenty (20) working
days after the delivery of Generator Set to Marikina Plant, penalty equivalent to 1/10 of 1% of the
purchase price for every day of delay;

5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the contract price,
and shall procure All Risk Insurance equivalent to the contract price upon commencement of the
project. The All Risk Insurance Policy shall be endorsed in favor of and shall be delivered to Pure
Foods Corporation;

6. Warranty of one (1) year against defective material and/or workmanship.

Once finalized, we shall ask you to sign the formal contract embodying the foregoing terms and
conditions.

Immediately, FEMSCO submitted the required performance bond in the amount of P1,841,187.90 and contractors
all-risk insurance policy in the amount of P6,137,293.00 which PUREFOODS through its Vice President
Benedicto G. Tope acknowledged in a letter dated 18 December 1992. FEMSCO also made arrangements with
its principal and started the PUREFOODS project by purchasing the necessary materials. PUREFOODS on the
other hand returned FEMSCOs Bidders Bond in the amount of P1,000,000.00, as requested.

Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President Teodoro L.
Dimayuga unilaterally canceled the award as "significant factors were uncovered and brought to (their) attention
which dictate (the) cancellation and warrant a total review and re-bid of (the) project." Consequently, FEMSCO
protested the cancellation of the award and sought a meeting with PUREFOODS. However, on 26 March 1993,
before the matter could be resolved, PUREFOODS already awarded the project and entered into a contract with
JARDINE NELL, a division of Jardine Davies, Inc. (hereafter JARDINE), which incidentally was not one of the
bidders.

FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and desist
from delivering and installing the two (2) generators at PUREFOODS. Its demand letters unheeded, FEMSCO
sued both PUREFOODS and JARDINE: PUREFOODS for reneging on its contract, and JARDINE for its
unwarranted interference and inducement. Trial ensued. After FEMSCO presented its evidence, JARDINE filed
a Demurrer to Evidence.

On 27 June 1994 the Regional Trial Court of Pasig, Br. 68,[1] granted JARDINEs Demurrer to Evidence. The trial
court concluded that "[w]hile it may seem to the plaintiff that by the actions of the two defendants there is
something underhanded going on, this is all a matter of perception, and unsupported by hard evidence, mere
suspicions and suppositions would not stand up very well in a court of law."[2] Meanwhile trial proceeded as
regards the case against PUREFOODS.

On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the sum
of P2,300,000.00 representing the value of engineering services it rendered; (b) to pay FEMSCO the sum of
US$14,000.00 or its peso equivalent, and P900,000.00 representing contractor's mark-up on installation work,
considering that it would be impossible to compel PUREFOODS to honor, perform and fulfill its contractual
obligations in view of PUREFOOD's contract with JARDINE and noting that construction had already started
thereon; (c) to pay attorneys fees in an amount equivalent to 20% of the total amount due; and, (d) to pay the
costs. The trial court dismissed the counterclaim filed by PUREFOODS for lack of factual and legal basis.

Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994
Resolution of the trial court which granted the Demurrer to Evidence filed by JARDINE resulting in the dismissal
of the complaint against it, while PUREFOODS appealed the 28 July 1994 Decision of the same court which
ordered it to pay FEMSCO.

On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial court.[3] It also
reversed the 27 June 1994 Resolution of the lower court and ordered JARDINE to pay FEMSCO damages for
inducing PUREFOODS to violate the latters contract with FEMSCO. As such, JARDINE was ordered to pay
FEMSCO P2,000,000.00 for moral damages. In addition, PUREFOODS was also directed to pay
FEMSCO P2,000,000.00 as moral damages and P1,000,000.00 as exemplary damages as well as 20% of the total
amount due as attorney's fees.

On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for reconsideration filed
by PUREFOODS and JARDINE. Hence, these two (2) petitions for review filed by PUREFOODS and JARDINE
which were subsequently consolidated.

PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised on a
misapprehension of facts. It argues that its 12 December 1992 letter to FEMSCO was not an acceptance of the
latter's bid proposal and award of the project but more of a qualified acceptance constituting a counter-offer which
required FEMSCO's express conforme. Since PUREFOODS never received FEMSCOs conforme, PUREFOODS
was very well within reason to revoke its qualified acceptance or counter-offer. Hence, no contract was perfected
between PUREFOODS and FEMSCO. PUREFOODS also contends that it was never in bad faith when it dealt
with FEMSCO. Hence moral and exemplary damages should not have been awarded.

Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the
supposed contract between PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the latters
alleged contract with FEMSCO. Moreover, JARDINE reasons that FEMSCO, an artificial person, is not entitled
to moral damages. But granting arguendo that the award of moral damages is proper, P2,000,000.00 is extremely
excessive.

In the main, these consolidated cases present two (2) issues: first, whether there existed a perfected contract
between PUREFOODS and FEMSCO; and second, granting there existed a perfected contract, whether there is
any showing that JARDINE induced or connived with PUREFOODS to violate the latter's contract with
FEMSCO.

A contract is defined as "a juridical convention manifested in legal form, by virtue of which one or more persons
bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or
not to do."[4]There can be no contract unless the following requisites concur: (a) consent of the contracting parties;
(b) object certain which is the subject matter of the contract; and, (c) cause of the obligation which is
established.[5] A contract binds both contracting parties and has the force of law between them.

Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror.
From that moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also
to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.[6] To
produce a contract, the acceptance must not qualify the terms of the offer. However, the acceptance may be
express or implied.[7]For a contract to arise, the acceptance must be made known to the offeror. Accordingly, the
acceptance can be withdrawn or revoked before it is made known to the offeror.

In the instant case, there is no issue as regards the subject matter of the contract and the cause of the obligation.
The controversy lies in the consent - whether there was an acceptance of the offer, and if so, if it was
communicated, thereby perfecting the contract.

To resolve the dispute, there is a need to determine what constituted the offer and the acceptance. Since petitioner
PUREFOODS started the process of entering into the contract by conducting a bidding, Art. 1326 of the Civil
Code, which provides that "[a]dvertisements for bidders are simply invitations to make proposals," applies.
Accordingly, the Terms and Conditions of the Bidding disseminated by petitioner PUREFOODS constitutes the
"advertisement" to bid on the project. The bid proposals or quotations submitted by the prospective suppliers
including respondent FEMSCO, are the offers. And, the reply of petitioner PUREFOODS, the acceptance or
rejection of the respective offers.

Quite obviously, the 12 December 1992 letter of petitioner PUREFOODS to FEMSCO constituted acceptance of
respondent FEMSCOs offer as contemplated by law. The tenor of the letter, i.e., "This will confirm that Pure
Foods has awarded to your firm (FEMSCO) the project," could not be more categorical. While the same letter
enumerated certain "basic terms and conditions," these conditions were imposed on the performance of the
obligation rather than on the perfection of the contract. Thus, the first "condition" was merely a reiteration of the
contract price and billing scheme based on the Terms and Conditions of Bidding and the bid or previous offer of
respondent FEMSCO. The second and third "conditions" were nothing more than general statements that all items
and materials including those excluded in the list but necessary to complete the project shall be deemed included
and should be brand new. The fourth "condition" concerned the completion of the work to be done, i.e., within
twenty (20) days from the delivery of the generator set, the purchase of which was part of the contract. The fifth
"condition" had to do with the putting up of a performance bond and an all-risk insurance, both of which should
be given upon commencement of the project. The sixth "condition" related to the standard warranty of one (1)
year. In fine, the enumerated "basic terms and conditions" were prescriptions on how the obligation was to be
performed and implemented. They were far from being conditions imposed on the perfection of the contract.

In Babasa v. Court of Appeals[8] we distinguished between a condition imposed on the perfection of a contract
and a condition imposed merely on the performance of an obligation. While failure to comply with the first
condition results in the failure of a contract, failure to comply with the second merely gives the other party options
and/or remedies to protect his interests.
We thus agree with the conclusion of respondent appellate court which affirmed the trial court -

As can be inferred from the actual phrase used in the first portion of the letter, the decision to
award the contract has already been made. The letter only serves as a confirmation of such
decision. Hence, to the Courts mind, there is already an acceptance made of the offer received by
Purefoods. Notwithstanding the terms and conditions enumerated therein, the offer has been
accepted and/or amplified the details of the terms and conditions contained in the Terms and
Conditions of Bidding given out by Purefoods to prospective bidders.[9]

But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a
"conditional counter-offer," respondent FEMCO's submission of the performance bond and contractor's all-risk
insurance was an implied acceptance, if not a clear indication of its acquiescence to, the "conditional counter-
offer," which expressly stated that the performance bond and the contractor's all-risk insurance should be given
upon the commencement of the contract. Corollarily, the acknowledgment thereof by petitioner PUREFOODS,
not to mention its return of FEMSCO's bidder's bond, was a concrete manifestation of its knowledge that
respondent FEMSCO indeed consented to the "conditional counter-offer." After all, as earlier adverted to, an
acceptance may either be express or implied,[10] and this can be inferred from the contemporaneous and
subsequent acts of the contracting parties.

Accordingly, for all intents and purposes, the contract at that point has been perfected, and respondent
FEMSCO's conforme would only be a mere surplusage. The discussion of the price of the project two (2) months
after the 12 December 1992 letter can be deemed as nothing more than a pressure being exerted by petitioner
PUREFOODS on respondent FEMSCO to lower the price even after the contract had been perfected. Indeed from
the facts, it can easily be surmised that petitioner PUREFOODS was haggling for a lower price even after agreeing
to the earlier quotation, and was threatening to unilaterally cancel the contract, which it eventually did. Petitioner
PUREFOODS also makes an issue out of the absence of a purchase order (PO). Suffice it to say that purchase
orders or POs do not make or break a contract. Thus, even the tenor of the subsequent letter of petitioner
PUREFOODS, i.e., "Pure Foods Corporation is hereby canceling the award to your company of the project,"
presupposes that the contract has been perfected. For, there can be no cancellation if the contract was not perfected
in the first place.

Petitioner PUREFOODS also argues that it was never in bad faith. On the contrary, it believed in good faith that
no such contract was perfected. We are not convinced. We subscribe to the factual findings and conclusions of
the trial court which were affirmed by the appellate court -

Hence, by the unilateral cancellation of the contract, the defendant (petitioner PURE FOODS) has
acted with bad faith and this was further aggravated by the subsequent inking of a contract between
defendant Purefoods and erstwhile co-defendant Jardine. It is very evident that Purefoods thought
that by the expedient means of merely writing a letter would automatically cancel or nullify the
existing contract entered into by both parties after a process of bidding. This, to the Courts mind,
is a flagrant violation of the express provisions of the law and is contrary to fair and just dealings
to which every man is due.[11]

This Court has awarded in the past moral damages to a corporation whose reputation has been besmirched.[12] In
the instant case, respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately
ordered equipment from its suppliers on account of the urgency of the project, only to be canceled later. We thus
sustain respondent appellate court's award of moral damages. We however reduce the award from P2,000,000.00
to P1,000,000.00, as moral damages are never intended to enrich the recipient. Likewise, the award of exemplary
damages by way of example for the public good is excessive and should be reduced to P100,000.00.

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

WHEREFORE, judgment is hereby rendered as follows:

(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of Appeals reversing the
27 June 1994 resolution of the trial court and ordering petitioner JARDINE DAVIES, INC., to pay private
respondent FAR EAST MILLS SUPPLY CORPORATION P2,000,000.00 as moral damages is REVERSED and
SET ASIDE for insufficiency of evidence; and

(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of Appeals ordering petitioner
PURE FOODS CORPORATION to pay private respondent FAR EAST MILLS SUPPLY CORPORATION the
sum of P2,300,000.00 representing the value of engineering services it rendered, US$14,000.00 or its peso
equivalent, and P900,000.00 representing the contractor's mark-up on installation work, as well as attorney's fees
equivalent to twenty percent (20%) of the total amount due, is AFFIRMED. In addtion, petitioner PURE FOODS
CORPORATION is ordered to pay private respondent FAR EAST MILLS SUPPLY CORPORATION moral
damages in the amount of P1,000,000.00 and exemplary damages in the amount of P1,000,000.00. Costs against
petitioner.

Manila Electric Company v TEAM Electronics & Management Pacific & Ultra Electronics

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

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

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

On September 28, 1987, a team of petitioners inspectors conducted a surprise inspection of the electric
meters installed at the DCIM building, witnessed by Ultras[6] representative, Mr. Willie Abangan. The two meters
covered by account numbers 09341-1322-16 and 09341-1812-13, were found to be allegedly tampered with and
did not register the actual power consumption in the building. The results of the inspection were reflected in the
Service Inspection Reports[7] prepared by the team.

In a letter dated November 25, 1987, petitioner informed TEC of the results of the inspection and
demanded from the latter the payment of P7,040,401.01 representing its unregistered consumption from February
10, 1986 until September 28, 1987, as a result of the alleged tampering of the meters.[8] TEC received the letters
on January 7, 1988. Since Ultra was in possession of the subject building during the covered period, TECs
Managing Director, Mr. Bobby Tan, referred the demand letter to Ultra[9] which, in turn, informed TEC that its
Executive Vice-President had met with petitioners representative. Ultra further intimated that assuming that there
was tampering of the meters, petitioners assessment was excessive.[10] For failure of TEC to pay the differential
billing, petitioner disconnected the electricity supply to the DCIM building on April 29, 1988.

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

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

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

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

2. Whether or not the plaintiff is liable for (sic) the defendant for the differential billings in
the amount of P7,040,401.01.

3. Whether or not the plaintiff is liable to defendant for exemplary damages.[19]

For failure of the parties to reach an amicable settlement, trial on the merits ensued. On June 17, 1992, the trial
court rendered a Decision in favor of respondents TEC and TPC, and against respondent Ultra and petitioner.The
pertinent portion of the decision reads:

WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiffs and against the
defendants as follows:

(1) Ordering both defendants Meralco and ULTRA Electronics

Instruments, Inc. to jointly and severally reimburse plaintiff TEC actual damages
in the amount of ONE MILLION PESOS with legal rate of interest from the date
of the filing of this case on January 19, 1989 until the said amount shall have been
fully paid;
(2) Ordering defendant Meralco to pay to plaintiff TEC the amount
of P280,813.72 as actual damages with legal rate of interest also from January 19,
1989;
(3) Ordering defendant Meralco to pay to plaintiff TPC the amount
of P150,000.00 as actual damages with interest at legal rate from January 19,
1989;
(4) Condemning defendant Meralco to pay both plaintiffs moral damages in
the amount pf P500,000.00;
(5) Condemning defendant Meralco to pay both plaintiffs corrective and/or
exemplary damages in the amount of P200,000.00;
(6) Ordering defendant Meralco to pay attorneys fees in the amount
of P200,000.00

Costs against defendant Meralco.

 SO ORDERED.[20]

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

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

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

SO ORDERED.[24]

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

Petitioner now comes before this Court in this petition for review on certiorari contending that:
The Court of Appeals committed grievous errors and decided matters of substance contrary to law
and the rulings of this Honorable Court:

1. In finding that the issue in the case is whether there was deliberate tampering of the metering
installations at the building owned by TEC.

2. In not finding that the issue is: whether or not, based on the tampered meters, whether or not
petitioner is entitled to differential billing, and if so, how much.
 3. In declaring that petitioner ME RALCO had the burden of proof to show by clear and convincing
evidence that with respect to the tampered meters that TEC and/or TPC authored their tampering.

4. In finding that petitioner Meralco should not have held TEC and/or TPC responsible for the acts
of Ultra.

5. In finding that TEC should not be held liable for the tampering of this electric meter in
its DCIM Building.

6. In finding that there was no notice of disconnection.

7. In finding that petitioner MERALCO was negligent in informing TEC of the alleged tampering.

8. In making the finding that it is difficult to believe that when petitioner MERALCO inspected
on June 7, 1988 the meter installations, they were found to be tampered.

9. In declaring that petitioner MERALCO estopped from claiming any

tampering of the meters.

10. In finding that the method employed by MERALCO to as certain (sic) the correct
amount of electricity consumed is questionable;

11. In declaring that MERALCO all throughout its dealings with TEC took on an attitude
which is oppressive, wanton and reckless.

12. In declaring that MERALCO acted arbitrarily in inspecting TECs DCIM building and
the NS building.

13. In declaring that respondents TEC and TPC are entitled to the damages which it
awarded.

14. In not declaring that petitioner is entitled to the differential bill.

15. In not declaring that respondents are liable to petitioner for exemplary damages,
attorneys fee and expenses for litigation.[25]

The petition must fail.

The issues for resolution can be summarized as follows: 1) whether or not TEC tampered with the electric meters
installed at its DCIM and NS buildings; 2) If so, whether or not it is liable for the differential billing as computed
by petitioner; and 3) whether or not petitioner was justified in disconnecting the electric power supply in TECs
DCIM building.
Petitioner insists that the tampering of the electric meters installed at the DCIM and NS buildings owned by
respondent TEC has been established by overwhelming evidence, as specifically shown by the shorting devices
found during the inspection. Thus, says petitioner, tampering of the meter is no longer an issue.

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

Looking at the record, we note that petitioner claims to have discovered three incidences of meter-tampering;
twice in the DCIM building on September 28, 1987 and June 7, 1988; and once in the NS building on April 24,
1988.
The first instance was supposedly discovered on September 28, 1987. The inspector allegedly found the presence
of a short circuiting device and saw that the meter seal was deformed. In addition, petitioner, through the
Supervising Engineer of its Special Billing Analysis Department,[27] claimed that there was a sudden and
unexplainable drop in TECs electrical consumption starting February 10, 1986. On the basis of the
foregoing,petitioner concluded that the electric meters were tampered with.
However, contrary to petitioners claim that there was a drastic and unexplainable drop in TECs electric
consumption during the affected period, the Pattern of TECs Electrical Consumption [28] shows that the sudden
drop is not peculiar to the said period. Noteworthy is the observation of the RTC in this wise:

In fact, in Account No. 09341-1812-13 (heretofore referred as Account/Meter No. 2), as evidenced
by Exhibits 35 and 35-A, there was likewise a sudden drop of electrical consumption from the year
1984 which recorded an average 141,300 kwh/month to 1985 which recorded an
average kwh/month at 87,600 or a difference-drop of 53,700 kwh/month; from 1985s 87,600
recorded consumption, the same dropped to 18,600 kwh/month or a difference-drop of 69,000
kwh/month.Surely, a drop of 53,700 could be equally categorized as a sudden drop amounting to
69,000 which, incidentally, the Meralco claimed as unexplainable. x x x.[29]

The witnesses for petitioner who testified on the alleged tampering of the electric meters, declared that
tampering is committed by consumers to prevent the meter from registering the correct amount of electric
consumption, and result in a reduced monthly electric bill, while continuing to enjoy the same power supply. Only
the registration of actual electric energy consumption, not the supply of electricity, is affected when a meter is
tampered with.[30] The witnesses claimed that after the inspection, the tampered electric meters were corrected,
so that they would register the correct consumption of TEC. Logically, then, after the correction of the allegedly
tampered meters, the customers registered consumption would go up.

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

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

Petitioner likewise claimed that when the subject meters were again inspected on June 7, 1988, they were
found to have been tampered anew. The Court notes that prior to the inspection, TEC was informed about it; and
months before the inspection, there was an unsettled controversy between TEC and petitioner, brought about by
the disconnection of electric power and the non-payment of differential billing. We are more disposed to accept
the trial courts conclusion that it is hard to believe that a customer previously apprehended for tampered meters
and assessed P7 million would further jeopardize itself in the eyes of petitioner.[34] If it is true that there was
evidence of tampering found on September 28, 1987 and again on June 7, 1988, the better view would be that the
defective meters were not actually corrected after the first inspection. If so, then Manila Electric Company v.
Macro Textile Mills Corporation[35] would apply, where we said that we cannot sanction a situation wherein the
defects in the electric meter are allowed to continue indefinitely until suddenly, the public utilities demand
payment for the unrecorded electricity utilized when they could have remedied the situation
immediately. Petitioners failure to do so may encourage neglect of public utilities to the detriment of the
consuming public. Corollarily, it must be underscored that petitioner has the imperative duty to make a reasonable
and proper inspection of its apparatus and equipment to ensure that they do not malfunction, and the due diligence
to discover and repair defects therein. Failure to perform such duties constitutes negligence.[36] By reason of said
negligence, public utilities run the risk of forfeiting amounts originally due from their customers.[37]
As to the alleged tampering of the electric meter in TECs NS building, suffice it to state that the allegation was
not proven, considering that the meters therein were enclosed in a metal cabinet the metal seal of which was
unbroken, with petitioner having sole access to the said meters.[38]

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

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

Petitioner, in the instant case, resorted to the remedy of disconnection without prior notice. While it is true that
petitioner sent a demand letter to TEC for the payment of differential billing, it did not include any notice that the
electric supply would be disconnected. In fine, petitioner abused the remedies granted to it under P.D. 401 and
Revised General Order No. 1 by outrightly depriving TEC of electrical services without first notifying it of the
impending disconnection. Accordingly, the CA did not err in affirming the RTC decision.

As to the damages awarded by the CA, we deem it proper to modify the same. Actual damages are compensation
for an injury that will put the injured party in the position where it was before the injury. They pertain to such
injuries or losses that are actually sustained and susceptible of measurement. Except as provided by law or by
stipulation, a party is entitled to adequate compensation only for such pecuniary loss as is duly proven. Basic is
the rule that to recover actual damages, not only must the amount of loss be capable of proof; it must also be
actually proven with a reasonable degree of certainty, premised upon competent proof or the best evidence
obtainable.[45]
Respondent TEC sufficiently established, and petitioner in fact admitted, that the former paid P1,000,000.00
and P280,813.72 under protest, the amounts representing a portion of the latters claim of differential billing. With
the finding that no tampering was committed and, thus, no differential billing due, the aforesaid amounts should
be returned by petitioner, with interest, as ordered by the Court of Appeals and pursuant to the guidelines set forth
by the Court.[46]

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

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

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

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

REPUBLIC ACT NO. 8179. AN ACT TO FURTHER LIBERALIZE FOREIGN INVESTMENTS,

AMENDING FOR THE PURPOSE REPUBLIC ACT NO. 7042, AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

SECTION 1. Section 3, paragraph (a), of Republic Act No. 7042, otherwise known as the "Foreign Investment
Act of 1991," is hereby amended to read as follows: "Section 3. Definitions. - As used in this Act:

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

SEC. 2. Sec. 7 of Republic Act No. 7042 is hereby amended to read as follows:

"Sec. 7. Foreign Investments in Domestic Market Enterprises. - Non-Philippine nationals may own up to one
hundred percent (100%) of domestic market enterprises unless foreign ownership therein is prohibited or limited
by the Constitution and existing law or the Foreign Investment Negative List under Section 8 hereof."

SEC. 3. Section 8 of the Foreign Investments Act of 1991 is hereby amended to read as follows:

"Sec. 8. List of Investment Areas Reserved to Philippine Nationals (Foreign Investment Negative List). - The
Foreign Investment Negative List shall have two (2) component lists: A and B:
 a. List A shall enumerate the areas of activities reserved to Philippine nationals by mandate of the
Constitution and specific laws.
b. List B shall contain the areas of activities and enterprises regulated pursuant to law:
1. which are defense-related activities, requiring prior clearance and authorization from Department
of National Defense (DND) to engage in such activity, such as the manufacture, repair, storage
and/or distribution of firearms, ammunition, lethal weapons, military ordinance, explosives,
pyrotechnics and similar materials; unless such manufacturing or repair activity is specifically
authorized, with a substantial export component, to a non- Philippine national by the Secretary of
National Defense; or
2. which have implications on public health and morals, such as manufacture and distribution of
dangerous drugs; all forms of gambling; nightclubs, bars, beer houses, dance halls, sauna and
steam bathhouses and massage clinics.

"Small and medium-sized domestic market enterprises with paid in equity capital less than the equivalent of Two
hundred thousands US dollars (US$200,000.00), are reserved to Philippines nationals: Provided, That if (1) they
involve advance technology as determined by the Department of Science and Technology, or (2) they employ at
least fifty (50) direct employees, then a minimum paid-in capital of One hundred thousand US dollars
(US$100,000.00) shall be allowed to non-Philippines nationals.

Amendments to List B may be made upon recommendation of the Secretary of National Defense, or the Secretary
of Health, or the Secretary of Education, Culture and Sports, indorsed by the NEDA, or upon recommendation
motu propio, of NEDA, approved by the President, and promulgated by a Presidential Proclamation.

The transitory Foreign Investment Negative List established in Section 15 hereof shall be replaced at the end of
the transitory period by the First Regular Negative Lists to be formulated and recommended by NEDA following
the process and criteria provided in Section 8 and 9 of this Act. The First Regular Negative List shall be published
not later than sixty (60) days before the end of the transitory period. Subsequent Foreign Investment Negative
List shall become effective fifteen (15) days after publication in a newspaper of general circulation in the
Philippines: Provided, however, That each foreign Investment Negative List shall be prospective in operation and
shall in no way affect foreign investment existing on the date of its publication.

"Amendments to List B after promulgation and publication of the First Regular Foreign Investment Negative List
at the end of the transitory period shall not be made more often than once very two (2) years."

"SEC.9. Investment Rights of Former Natural-born Filipinos. - For purposes of this Act, former natural born
citizens of the Philippines shall have the same investment rights of Philippine citizen in Cooperatives under
Republic Act No. 6938, Rural Banks under Republic Act No. 7353, Thrift Banks and Private Development Banks
under Republic Act No. 7906, and Financing Companies under Republic Act No. 5980. These rights shall not
extend to activities reserved by the Constitution including (1) the exercise of profession; (2) in defense-related
activities under Section 8 (b) hereof, unless specifically authorized by the Secretary of National Defense; and (3)
activities covered by Republic Act No. 1180 (Retail Trade Act), Republic Act No. 5487 (Security Agency Act),
Republic Act No. 7076 (Small Scale Mining Act), Republic Act No. 3018, as amended (Rice and Corn Industry
Act), and P.D. 449 (Cockpits Operation and Management)".

SEC. 5 The Foreign Investment Act is further amended by inserting a new section designated as Section 10 to
read as follows:

SEC. 10. Other Rights of natural Born Citizen Pursuant to the Provisions of Article XII, Section 8 of the
Constitution. - Any natural born citizen who has lost his Philippine citizenship and who has the legal capacity to
enter into a contract under Philippine Laws may be a transferee of a private land up to maximum area of five
thousand (5,000) square meters in the case of urban land or three (3) hectares in the case of rural land to be used
by him for business or other purposes. In the case of married couples, one of them may avail of the privilege
herein granted: Provided, That If both shall avail of the same, the total are acquired shall not exceed the maximum
herein fixed.

In case the transferee already owns urban or rural land for business or other purposes, he shall be entitled to be a
transferee of additional urban or rural land for business or other purposes which when added to those already
owned by him shall not exceed the maximum areas herein authorized.

A transferee under this Act may acquire not more than two (2) lots which should be situated in different
municipalities or cities anywhere in the Philippines: Provided, That the Total land area thereof shall not exceed
five thousand (5,000) square meters in the case of urban land or three(3) hectares in the case of rural land for use
by him for business or other purposes. A transferee who has already acquired urban land shall be disqualified
form acquiring rural land and vice versa.

SEC. 6. The National Economic and Development Authority, in consultation with the Board of Investments, the
Department of Trade and Industry and Security and Exchange Commission, shall prepare and issue the necessary
primer and other information campaign materials regarding the Foreign Investment Act and the amendments
introduced thereto, with copies of said materials furnished all the Philippine embassies, consulates and other
diplomatic office abroad and disseminated to Filipino nationals, former natural born Filipino citizens, and foreign
investors, within sixty (60) days after the effectivity hereof.

SEC. 7. The NEDA is hereby directed to make the necessary amendments to the implementing rules and
regulations of Republic Act No. 7042 in order to reflect the changes embodied in the Act.

SEC. 8. Section 9 and 10 Republic Act no. 7042 and all references thereto in said law are hereby repealed or
modified accordingly. All other laws, rules and regulation and/or parts thereof inconsistent with the provisions of
this Act are hereby repealed or modified accordingly.

SEC.9. If any part or section of this Act is declared unconstitutional for any reason whatsoever, such declaration
shall not in any way affect the other parts or section of this Act.

SEC. 10. This Act shall take effect fifteen (15) days after publication in two (2) newspaper of general circulation
in the Philippines.

Approved:
Passed by Senate and House of Representatives: March 25, 1996
Approved by the President of the Republic of the Philippines: March 28, 1996

Republic Act No. 7042 (June 13, 1991) AN ACT TO PROMOTE FOREIGN INVESTMENTS,
PRESCRIBE THE PROCEDURES FOR REGISTERING ENTERPRISES DOING BUSINESS IN THE
PHILIPPINES, AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled::

Section 1. Title. - This Act shall be known as the, "Foreign Investments Act of 1991".

Section 2. Declaration of Policy. - It is the policy of the State to attract, promote and welcome productive
investments from foreign individuals, partnerships, corporations, and governments, including their political
subdivisions, in activities which significantly contribute to national industrialization and socioeconomic
development to the extent that foreign investment is allowed in such activity by the Constitution and relevant
laws. Foreign investments shall be encouraged in enterprises that significantly expand livelihood and employment
opportunities for Filipinos; enhance economic value of farm products; promote the welfare of Filipino consumers;
expand the scope, quality and volume of exports and their access to foreign markets; and/or transfer relevant
technologies in agriculture, industry and support services. Foreign investments shall be welcome as a supplement
to Filipino capital and technology in those enterprises serving mainly the domestic market.

As a general rule, there are no restrictions on extent of foreign ownership of export enterprises. In domestic market
enterprises, foreigners can invest as much as one hundred percent (100%) equity except in areas included in the
negative list. Foreign owned firms catering mainly to the domestic market shall be encouraged to undertake
measures that will gradually increase Filipino participation in their businesses by taking in Filipino partners,
electing Filipinos to the board of directors, implementing transfer of technology to Filipinos, generating more
employment for the economy and enhancing skills of Filipino workers.

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

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

b) The term "investment" shall mean equity participation in any enterprise organized or existing under the
laws of the Philippines;

c) The term "foreign investment" shall mean as equity investment made by a non-Philippine national in
the form of foreign exchange and/or other assets actually transferred to the Philippines and duly registered
with the Central Bank which shall assess and appraise the value of such assets other than foreign exchange;

d) The praise "doing business" shall include soliciting orders, service contracts, opening offices, whether
called "liaison" offices or branches; appointing representatives or distributors domiciled in the Philippines
or who in any calendar year stay in the country for a period or periods totalling one hundred eighty (180)
days or more; participating in the management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial
dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise
of some of the functions normally incident to, and in progressive prosecution of, commercial gain or of
the purpose and object of the business organization: Provided, however, That the phrase "doing business:
shall not be deemed to include mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights as such investor; nor having a
nominee director or officer to represent its interests in such corporation; nor appointing a representative
or distributor domiciled in the Philippines which transacts business in its own name and for its own
account;
 e) The term "export enterprise" shall mean an enterprise which produces goods for sale, or renders services
to the domestic market entirely or if exporting a portion of its output fails to consistently export at least
sixty percent (60%) thereof; and

g) The term "Foreign Investments Negative List" or "Negative List" shall mean a list of areas of economic
activity whose foreign ownership is limited to a maximum of forty ownership is limited to a maximum of
forty percent (40%) of the equity capital of the enterprise engaged therein.

Section 4. Scope. - This Act shall not apply to banking and other financial institutions which are governed and
regulated by the General Banking Act and other laws under the supervision of the Central Bank.

Section 5. Registration of Investments of Non-Philippine Nationals. - Without need of prior approval, a non-
Philippine national, as that term is defined in Section 3 a), and not otherwise disqualified by law may upon
registration with the Securities and Exchange Commission (SEC), or with the Bureau of Trade Regulation and
Consumer Protection (BTRCP) of the Department of Trade and Industry in the case of single proprietorships, do
business as defined in Section 3 (d) of this Act or invest in a domestic enterprise up to one hundred percent (100%)
of its capital, unless participation of non-Philippine nationals in the enterprise is prohibited or limited to a smaller
percentage by existing law and/or limited to a smaller percentage by existing law and/or under the provisions of
this Act. The SEC or BTRCP, as the case may be, shall not impose any limitations on the extent of foreign
ownership in an enterprise additional to those provided in this Act: Provided, however, That any enterprise
seeking to avail of incentives under the Omnibus Investment Code of 1987 must apply for registration with the
Board of Investments (BOI), which shall process such application for registration in accordance with the criteria
for evaluation prescribed in said Code: Provided, finally, That a non-Philippine national intending to engage in
the same line of business as an existing joint venture in his application for registration with SEC. During the
transitory period as provided in Section 15 hereof, SEC shall disallow registration of the applying non-Philippine
national if the existing joint venture enterprise, particularly the Filipino partners therein, can reasonably prove
they are capable to make the investment needed for they are competing applicant. Upon effectivity of this Act,
SEC shall effect registration of any enterprise applying under this Act within fifteen (15) days upon submission
of completed requirements.

Section 6. Foreign Investments in Export Enterprises. - Foreign investment in export enterprises whose
products and services do not fall within Lists A and B of the Foreign Investment Negative List provided under
Section 8 hereof is allowed up to one hundred percent (100%) ownership.

Export enterprises which are non-Philippine nationals shall register with BOI and submit the reports that may be
required to ensure continuing compliance of the export enterprise with its export requirement. BOI shall advise
SEC or BTRCP, as the case may be, of any export enterprise that fails to meet the export ratio requirement. The
SEC or BTRCP shall thereupon order the non-complying export enterprise to reduce its sales to the domestic
market to not more than forty percent (40%) of its total production; failure to comply with such SEC or BTRCP
order, without justifiable reason, shall subject the enterprise to cancellation of SEC or BTRCP registration, and/or
the penalties provided in Section 14 hereof.

Section 7. Foreign Investments in Domestic Market Enterprises. - Non-Philippine nationals may own up to one
hundred percent (100%) of domestic market enterprises unless foreign ownership therein is prohibited or limited
by existing law or the Foreign Investment Negative List under Section 8 hereof.

A domestic market enterprise may change its status to export enterprise if over a three (3) year period it
consistently exports in each year thereof sixty per cent (60%) or more of its output.

Section 8. List of Investment Areas Reserved to Philippine Nationals (Foreign Investment Negative List). - The
Foreign Investment Negative List shall have three (3) component lists: A, B, and C:
 a) List A shall enumerate the areas of activities reserved to Philippine nationals by mandate of the
Constitution and specific laws.

b) List B shall contain the areas of activities and enterprises pursuant to law:

1) Which are defense-related activities, requiring prior clearance and authorization from
Department of National Defense (DND) to engage in such activity, such as the manufacture, repair,
storage and/or distribution of firearms, ammunition, lethal weapons, military ordnance, explosives,
pyrotechnics and similar materials; unless such manufacturing or repair activity is specifically
authorized, with a substantial export component, to a non-Philippine national by the Secretary of
National Defense; or

2) Which have implications on public health and morals, such as the manufacture and distribution
of dangerous drugs; all forms of gambling; nightclubs, bars, beerhouses, dance halls; sauna and
steambath houses and massage clinics.

Small and medium-sized domestic market enterprises with paid-in equity capital less than the
equivalent of five hundred thousand US dollars (US$500,000) are reserved to Philippine nationals,
unless they involve advanced technology as determined by the Department of Science and
Technology. Export enterprises which utilize raw materials from depleting natural resources, with
paid-in equity capital of less than the equivalent of five hundred thousand US dollars
(US$500,000) are likewise reserved to Philippine nationals.

Amendments to List B may be made upon recommendation of the Secretary of National Defense, or the
Secretary of Health, or the Secretary of Education, Culture and Sports, indorsed by the NEDA, or upon
recommendation motu propio of NEDA, approved by the President, and promulgated by Presidential
Proclamation.

c) List C shall contain the areas of investment in which existing enterprises already serve adequately the
needs of the economy and the consumer and do not require further foreign investments, as determined by
NEDA applying the criteria provided in Section 9 of this Act, approved by the President and promulgated
in a Presidential Proclamation.

The Transitory Foreign Investment Negative List established in Sec. 15 hereof shall be replaced at the end
of the transitory period by the first Regular Negative List to the formulated and recommended by the
NEDA, following the process and criteria provided in Section 8 and 9 of this Act. The first Regular
Negative List shall be published not later than sixty (60) days before the end of the transitory period
provided in said section, and shall become immediately effective at the end of the transitory period.
Subsequent Foreign Investment Negative Lists shall become effective fifteen (15) days after publication
in two (2) newspapers of general circulation in the Philippines: Provided, however, That each Foreign
Investment Negative List shall be prospective in operation and shall in no way affect foreign investments
existing on the date of its publication.

Amendments to List B and C after promulgation and publication of the first Regular Foreign Investment
Negative List at the end of the transitory period shall not be made more often than once every two (2)
years.

Section 9. Determination of Areas of Investment for Inclusion in List C of the Foreign Investment Negative
List. - Upon petition by a Philippine national engage therein, an area of investment may be recommended by
NEDA for inclusion in List C of the Foreign Investment Negative List upon determining that it complies with all
the following criteria:
 a) The industry is controlled by firms owned at least sixty percent (60%) by Filipinos;

b) Industry capacity is ample to meet domestic demand;

c) Sufficient competition exists within the industry;

d) Industry products comply with Philippine standards of health and safety or, in the absence of such, with
international standards, and are reasonably competitive in quality with similar products in the same price
range imported into the country;

e) Quantitative restrictions are not applied on imports of directly competing products;

f) The leading firms of the industry substantially comply with environmental standards; and

g) The prices of industry products are reasonable.

The petition shall be subjected to a public hearing at which affected parties will have the opportunity to show
whether the petitioner industry adequately serves the economy and the consumer, in general, and meets the above
stated criteria in particular. NEDA may delegate evaluation of the petition and conduct of the public hearing to
any government agency having cognizance of the petitioner industry. The delegated agency shall make its
evaluation report and recommendations to NEDA which retains the right and sole responsibility to determine
whether to recommend to the President to promulgate the area of investment in List C of the Negative List. An
industry or area of investment included in List C of the Negative List by Presidential Proclamation shall remain
in the said List C for two (2) years, without prejudice to re-inclusion upon new petition, and due process.

Section 10. Strategic Industries. - Within eighteen (18) months after the effectivity of this Act, the NEDA Board
shall formulate and publish a list of industries strategic to the development of the economy. The list shall specify,
as a matter of policy and not as a legal requirement, the desired equity participation by Government and/or private
Filipino investors in each strategic industry. Said list of strategic industries, as well as the corresponding desired
equity participation of government and/or private Filipino investors, may be amended by NEDA to reflect changes
in economic needs and policy directions of Government. The amended list of strategic industries shall be
published concurrently with publication of the Foreign Investment Negative List.

The term "strategic industries" shall mean industries that are characterized by all of the following:

a) Crucial to the accelerated industrialization of the country,

b) Require massive capital investments to achieve economies of scale for efficient operations;

c) Require highly specialized or advanced technology which necessitates technology transfer and proven
production techniques in operations;

d) Characterized by strong backward and forward linkages with most industries existing in the country,
and

e) Generate substantial foreign exchange savings through import substitution and collateral foreign
exchange earnings through export of part of the output that will result with the establishment, expansion
or development of the industry.
Section 11. Compliance with Environmental Standards. - All industrial enterprises regardless of nationality of
ownership shall comply with existing rules and regulations to protect and conserve the environment and meet
applicable environmental standards.

Section 12. Consistent Government Action. - No agency, instrumentality or political subdivision of the
Government shall take any action on conflict with or which will nullify the provisions of this Act, or any certificate
or authority granted hereunder.

Section 13. Implementing Rules and Regulations. - NEDA, in consultation with BOI, SEC and other
government agencies concerned, shall issue the rules and regulations to implement this Act within one hundred
and twenty (120) days after its effectivity. A copy of such rules and regulations shall be furnished the Congress
of the Republic of the Philippines.

Section 14. Administrative Sanctions. - A person who violates any provision of this Act or of the terms and
conditions of registration or of the rules and regulations issued pursuant thereto, or aids or abets in any manner
any violation shall be subject to a fine not exceeding One hundred thousand pesos (P100,000).

If the offense is committed by a juridical entity, it shall be subject to a fine in an amount not exceeding of 1%
of total paid-in capital but not more than Five million pesos (P5,000,000). The president and/or officials
responsible therefor shall also be subject to a fine not exceeding Two hundred thousand pesos (P200,000).

In addition to the foregoing, any person, firm or juridical entity involved shall be subject to forfeiture of all
benefits granted under this Act.

SEC shall have the power to impose administrative sanctions as provided herein for any violation of this Act or
its implementing rules and regulations.

Section 15. Transitory Provisions. - Prior to effectivity of the implementing rules and regulations of this Act, the
provisions of Book II of Executive Order 226 and its implementing rules and regulations shall remain in force.

During the initial transitory period of thirty-six (36) months after issuance of the Rules and Regulations to
implement this Act, the Transitory Foreign Investment Negative List shall consist of the following:

A. List A:

1. All areas of investment in which foreign ownership is limited by mandate of Constitution and
specific laws.

B. List B:

1. Manufacture, repair, storage and/or distribution of firearms, ammunitions, lethal weapons,

military ordinance, explosives, pyrotechnics and similar materials required by law to be licensed
by and under the continuing regulation of the Department of National Defense; unless such
manufacturing or repair activity is specifically authorized with a substantial export component, to
a non-Philippine national by the Secretary of National Defense;

2. Manufacture and distribution of dangerous drugs; all forms of gambling; nightclubs, bars,
beerhouses, dance halls; sauna and steam bathhouses, massage clinic and other like activities
regulated by law because of risks they may pose to public health and morals;
 3. Small and medium-size domestic market enterprises with paid-in equity capital or less than the
equivalent of US$500,000, unless they involve advanced technology as determined by the
Department of Science and Technology, and

4. Export enterprises which utilize raw materials from depleting natural resources, and with paid-
in equity capital of less than the equivalent US$500,000.

C. List C:

1. Import and wholesale activities not integrated with production or manufacture of goods;

2. Services requiring a license or specific authorization, and subject to continuing regulations by

national government agencies other than BOI and SEC which at the time of effectivity of this Act
are restricted to Philippine nationals by existing administrative regulations and practice of the
regulatory agencies concerned: Provided, That after effectivity of this Act, no other services shall
be additionally subjected to such restrictions on nationality of ownership by the corresponding
regulatory agencies, and such restrictions once removed shall not be reimposed; and

3. Enterprises owned in the majority by a foreign licensor and/or its affiliates for the assembly,
processing or manufacture of goods for the domestic market which are being produced by a
Philippine national as of the date of effectivity of this Act under a technology, know-how and/or
brand name license from such licensor during the term of the license agreement: Provided, That,
the license is duly registered with the Central Bank and/or the Technology Transfer Board and is
operatively in force as of the date of effectivity of this Act.

NEDA shall make the enumeration as appropriate of the areas of the investment covered in this Transitory Foreign
Investment Negative List and publish the Negative List in full at the same time as, or prior to, the publication of
the rules and regulations to implement this Act.

The areas of investment contained in List C above shall be reserved to Philippine nationals only during the
transitory period. The inclusion of any of them in the regular Negative List will require determination by NEDA
after due public hearings that such inclusion is warranted under the criteria set forth in Section 8 and 9 hereof.

Section 16. Repealing Clause. - Articles forty-four (44) to fifty-six (56) of Book II of Executive Order No. 226
are hereby repealed.

All other laws or parts of laws inconsistent with the provisions of this Act are hereby repealed or modified
accordingly.

Section 17. Separability. - If any part or section of this Act is declared unconstitutional for any reason whatsoever,
such declaration shall not in any way affect the other parts or sections of this Act.

Section 18. Effectivity. - This Act shall take effect fifteen (15) days after approval and publication in two (2)
newspaper of general circulation in the Philippines.

G.R. No. L-6776 May 21, 1955

THE REGISTER OF DEEDS OF RIZAL, petitioner-appellee,
vs.
UNG SIU SI TEMPLE, respondent-appellant.

Alejo F. Candido for appellant.

Office of the Solicitor General Querube C. Makalintal and Solicitor Felix V. Makasiar for appellee.

REYES, J.B.L., J.:

The Register of Deeds for the province of Rizal refused to accept for record a deed of donation executed in due
form on January 22, 1953, by Jesus Dy, a Filipino citizen, conveying a parcel of residential land, in Caloocan,
Rizal, known as lot No. 2, block 48-D, PSD-4212, G.L.R.O. Record No. 11267, in favor of the unregistered
religious organization "Ung Siu Si Temple", operating through three trustees all of Chinese nationality. The
donation was duly accepted by Yu Juan, of Chinese nationality, founder and deaconess of the Temple, acting in
representation and in behalf of the latter and its trustees.

The refusal of the Registrar was elevated en Consultato the IVth Branch of the Court of First Instance of Manila.
On March 14, 1953, the Court upheld the action of the Rizal Register of Deeds, saying:

The question raised by the Register of Deeds in the above transcribed consulta is whether a deed of
donation of a parcel of land executed in favor of a religious organization whose founder, trustees and
administrator are Chinese citizens should be registered or not.

It appearing from the record of the Consulta that UNG SIU SI TEMPLE is a religious organization whose
deaconess, founder, trustees and administrator are all Chinese citizens, this Court is of the opinion and so
hold that in view of the provisions of the sections 1 and 5 of Article XIII of the Constitution of the
Philippines limiting the acquisition of land in the Philippines to its citizens, or to corporations or
associations at least sixty per centum of the capital stock of which is owned by such citizens adopted after
the enactment of said Act No. 271, and the decision of the Supreme Court in the case of Krivenko vs. the
Register of Deeds of Manila, the deed of donation in question should not be admitted for admitted for
registration. (Printed Rec. App. pp 17-18).

Not satisfied with the ruling of the Court of First Instance, counsel for the donee Uy Siu Si Temple has appealed
to this Court, claiming: (1) that the acquisition of the land in question, for religious purposes, is authorized and
permitted by Act No. 271 of the old Philippine Commission, providing as follows:

SECTION 1. It shall be lawful for all religious associations, of whatever sort or denomination, whether
incorporated in the Philippine Islands or in the name of other country, or not incorporated at all, to hold
land in the Philippine Islands upon which to build churches, parsonages, or educational or charitable
institutions.

SEC. 2. Such religious institutions, if not incorporated, shall hold the land in the name of three Trustees
for the use of such associations; . . .. (Printed Rec. App. p. 5.)

and (2) that the refusal of the Register of Deeds violates the freedom of religion clause of our Constitution [Art.
III, Sec. 1(7)].

We are of the opinion that the Court below has correctly held that in view of the absolute terms of section 5, Title
XIII, of the Constitution, the provisions of Act No. 271 of the old Philippine Commission must be deemed
repealed since the Constitution was enacted, in so far as incompatible therewith. In providing that,
 Save in cases of hereditary succession, no private agricultural land shall be transferred or assigned except
to individuals, corporations or associations qualified to acquire or hold lands of the public domain in the
Philippines,

the Constitution makes no exception in favor of religious associations. Neither is there any such saving found in
sections 1 and 2 of Article XIII, restricting the acquisition of public agricultural lands and other natural resources
to "corporations or associations at least sixty per centum of the capital of which is owned by such citizens" (of
the Philippines).

The fact that the appellant religious organization has no capital stock does not suffice to escape the Constitutional
inhibition, since it is admitted that its members are of foreign nationality. The purpose of the sixty per centum
requirement is obviously to ensure that corporations or associations allowed to acquire agricultural land or to
exploit natural resources shall be controlled by Filipinos; and the spirit of the Constitution demands that in the
absence of capital stock, the controlling membership should be composed of Filipino citizens.

To permit religious associations controlled by non-Filipinos to acquire agricultural lands would be to drive the
opening wedge to revive alien religious land holdings in this country. We can not ignore the historical fact that
complaints against land holdings of that kind were among the factors that sparked the revolution of 1896.

As to the complaint that the disqualification under article XIII is violative of the freedom of religion guaranteed
by Article III of the Constitution, we are by no means convinced (nor has it been shown) that land tenure is
indispensable to the free exercise and enjoyment of religious profession or worship; or that one may not worship
the Deity according to the dictates of his own conscience unless upon land held in fee simple.

The resolution appealed from is affirmed, with costs against appellant.

G.R. No. L-8451 December 20, 1957

THE ROMAN CATHOLIC APOSTOLIC ADMINISTRATOR OF DAVAO, INC., petitioner,

vs.
THE LAND REGISTRATION COMMISSION and THE REGISTER OF DEEDS OF DAVAO
CITY, respondents.

Teodoro Padilla, for petitioner.

Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Jose G. Bautista and Troadio T.
Quianzon, Jr., for respondents.

FELIX, J.:

This is a petition for mandamus filed by the Roman Catholic Apostolic Administrator of Davao seeking the
reversal of a resolution by the Land Registration Commissioner in L.R.C. Consulta No. 14. The facts of the case
are as follows:

On October 4, 1954, Mateo L. Rodis, a Filipino citizen and resident of the City of Davao, executed a deed of sale
of a parcel of land located in the same city covered by Transfer Certificate No. 2263, in favor of the Roman
Catholic Apostolic Administrator of Davao Inc., s corporation sole organized and existing in accordance with
Philippine Laws, with Msgr. Clovis Thibault, a Canadian citizen, as actual incumbent. When the deed of sale was
presented to Register of Deeds of Davao for registration, the latter.

having in mind a previous resolution of the Fourth Branch of the Court of First Instance of Manila wherein
the Carmelite Nuns of Davao were made to prepare an affidavit to the effect that 60 per cent of the
members of their corporation were Filipino citizens when they sought to register in favor of their
congregation of deed of donation of a parcel of land

required said corporation sole to submit a similar affidavit declaring that 60 per cent of the members thereof were
Filipino citizens.

The vendee in the letter dated June 28, 1954, expressed willingness to submit an affidavit, both not in the same
tenor as that made the Progress of the Carmelite Nuns because the two cases were not similar, for whereas the
congregation of the Carmelite Nuns had five incorporators, the corporation sole has only one; that according to
their articles of incorporation, the organization of the Carmelite Nuns became the owner of properties donated to
it, whereas the case at bar, the totality of the Catholic population of Davao would become the owner of the
property bought to be registered.

As the Register of Deeds entertained some doubts as to the registerability if the document, the matter was referred
to the Land Registration Commissioner en consulta for resolution in accordance with section 4 of Republic Act
No. 1151. Proper hearing on the matter was conducted by the Commissioner and after the petitioner corporation
had filed its memorandum, a resolution was rendered on September 21, 1954, holding that in view of the
provisions of Section 1 and 5 of Article XIII of the Philippine Constitution, the vendee was not qualified to acquire
private lands in the Philippines in the absence of proof that at least 60 per centum of the capital, property, or assets
of the Roman Catholic Apostolic Administrator of Davao, Inc., was actually owned or controlled by Filipino
citizens, there being no question that the present incumbent of the corporation sole was a Canadian citizen. It was
also the opinion of the Land Registration Commissioner that section 159 of the corporation Law relied upon by
the vendee was rendered operative by the aforementioned provisions of the Constitution with respect to real estate,
unless the precise condition set therein that at least 60 per cent of its capital is owned by Filipino citizens
be present, and, therefore, ordered the Registered Deeds of Davao to deny registration of the deed of sale in the
absence of proof of compliance with such condition.

After the motion to reconsider said resolution was denied, an action for mandamus was instituted with this Court
by said corporation sole, alleging that under the Corporation Law as well as the settled jurisprudence on the
matter, the deed of sale executed by Mateo L. Rodis in favor of petitioner is actually a deed of sale in favor of the
Catholic Church which is qualified to acquire private agricultural lands for the establishment and maintenance of
places of worship, and prayed that judgment be rendered reserving and setting aside the resolution of the Land
Registration Commissioner in question. In its resolution of November 15, 1954, this Court gave due course to
this petition providing that the procedure prescribed for appeals from the Public Service Commission of the
Securities and Exchange Commissions (Rule 43), be followed.

Section 5 of Article XIII of the Philippine Constitution reads as follows:

SEC. 5. Save in cases of hereditary succession, no private agricultural land shall be transferred or
assigned except to individuals, corporations, or associations qualified to acquire or hold lands of the
public domain in the Philippines.

Section 1 of the same Article also provides the following:

SECTION 1. All agricultural, timber, and mineral lands of the public domain, water, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, and other natural resources of the Philippines belong to the
State, and their disposition, exploitation, development, or utilization shall be limited to cititzens of the Philippines,
or to corporations or associations at least sixty per centum of the capital of which is owned by such citizens,
SUBJECT TO ANY EXISTING RIGHT, grant, lease, or concession AT THE TIME OF THE INAUGURATION
OF THE GOVERNMENT ESTABLISHED UNDER CONSTITUTION. Natural resources, with the exception
of public agricultural land, shall not be alienated, and no license, concession, or leases for the exploitation,
development, or utilization of any of the natural resources shall be granted for a period exceeding twenty-five
years, renewable for another twenty-five years, except as to water rights for irrigation, water supply, fisheries, or
industrial uses other than the development of water power, in which cases other than the development and limit
of the grant.

In virtue of the foregoing mandates of the Constitution, who are considered "qualified" to acquire and hold
agricultural lands in the Philippines? What is the effect of these constitutional prohibition of the right of a religious
corporation recognized by our Corporation Law and registered as a corporation sole, to possess, acquire and
register real estates in its name when the Head, Manager, Administrator or actual incumbent is an alien?

Petitioner consistently maintained that a corporation sole, irrespective of the citizenship of its incumbent, is not
prohibited or disqualified to acquire and hold real properties. The Corporation Law and the Canon Law are explicit
in their provisions that a corporation sole or "ordinary" is not the owner of the of the properties that he may
acquire but merely the administrator thereof. The Canon Law also specified that church temporalities are owned
by the Catholic Church as a "moral person" or by the diocess as minor "moral persons" with the ordinary or bishop
as administrator.

And elaborating on the composition of the Catholic Church in the Philippines, petitioner explained that as a
religious society or organization, it is made up of 2 elements or divisions the clergy or religious members and
the faithful or lay members. The 1948 figures of the Bureau of Census showed that there were 277,551 Catholics
in Davao and aliens residing therein numbered 3,465. Ever granting that all these foreigners are Catholics,
petitioner contends that Filipino citizens form more than 80 per cent of the entire Catholics population of that
area. As to its clergy and religious composition, counsel for petitioner presented the Catholic Directory of the
Philippines for 1954 (Annex A) which revealed that as of that year, Filipino clergy and women novices comprise
already 60.5 per cent of the group. It was, therefore, allowed that the constitutional requirement was fully met
and satisfied.

Respondents, on the other hand, averred that although it might be true that petitioner is not the owner of the land
purchased, yet he has control over the same, with full power to administer, take possession of, alienate, transfer,
encumber, sell or dispose of any or all lands and their improvements registered in the name of the corporation
sole and can collect, receive, demand or sue for all money or values of any kind that may be kind that may become
due or owing to said corporation, and vested with authority to enter into agreements with any persons, concerns
or entities in connection with said real properties, or in other words, actually exercising all rights of ownership
over the properties. It was their stand that the theory that properties registered in the name of the corporation sole
are held in true for the benefit of the Catholic population of a place, as of Davao in the case at bar should be
sustained because a conglomeration of persons cannot just be pointed out as the cestui que trust or recipient of
the benefits from the property allegedly administered in their behalf. Neither can it be said that the mass of people
referred to as such beneficiary exercise ant right of ownership over the same. This set-up, respondents argued,
falls short of a trust. The respondents instead tried to prove that in reality, the beneficiary of ecclesiastical
properties are not members or faithful of the church but someone else, by quoting a portion a portion of the ought
of fidelity subscribed by a bishop upon his elevation to the episcopacy wherein he promises to render to the
Pontificial Father or his successors an account of his pastoral office and of all things appertaining to the state of
this church.

Respondents likewise advanced the opinion that in construing the constitutional provision calling for 60 per cent
of Filipino citizenship, the criterion of the properties or assets thereof.
In solving the problem thus submitted to our consideration, We can say the following: A corporation sole is a
special form of corporation usually associated with the clergy. Conceived and introduced into the common law
by sheer necessity, this legal creation which was referred to as "that unhappy freak of English law" was designed
to facilitate the exercise of the functions of ownership carried on by the clerics for and on behalf of the church
which was regarded as the property owner (See I Couvier's Law Dictionary, p. 682-683).

A corporation sole consists of one person only, and his successors (who will always be one at a time), in some
particular station, who are incorporated by law in order to give them some legal capacities and advantages,
particularly that of perpetuity, which in their natural persons they could not have had. In this sense, the king is a
sole corporation; so is a bishop, or dens, distinct from their several chapters (Reid vs. Barry, 93 Fla. 849, 112 So.
846).

The provisions of our Corporation law on religious corporations are illuminating and sustain the stand of
petitioner. Section 154 thereof provides:

SEC. 154. For the administration of the temporalities of any religious denomination, society or church
and the management of the estates and the properties thereof, it shall be lawful for the bishop, chief priest,
or presiding either of any such religious denomination, society or church to become a corporation sole,
unless inconsistent wit the rules, regulations or discipline of his religious denomination, society or church
or forbidden by competent authority thereof.

See also the pertinent provisions of the succeeding sections of the same Corporation Law copied hereunder:

SEC. 155. In order to become a corporation sole the bishop, chief priest, or presiding elder of any religious
denomination, society or church must file with the Securities and Exchange Commissioner articles of
incorporation setting forth the following facts:

xxx xxx xxx.

(3) That as such bishop, chief priest, or presiding elder he is charged with the administration of the
temporalities and the management of the estates and properties of his religious denomination, society, or
church within its territorial jurisdiction, describing it;

xxx xxx xxx.

(As amended by Commonwealth Act No. 287).

SEC. 157. From and after the filing with the Securities and Exchange Commissioner of the said articles
of incorporation, which verified by affidavit or affirmation as aforesaid and accompanied by the copy of
the commission, certificate of election, or letters of appointment of the bishop, chief priest, or presiding
elder, duly certified as prescribed in the section immediately preceding such the bishop, chief priest, or
presiding elder, as the case may be, shall become a corporation sole and all temporalities, estates, and
properties the religious denomination, society, or church therefore administered or managed by him as
such bishop, chief priest, or presiding elder, shall be held in trust by him as a corporation sole, for the
use, purpose, behalf, and sole benefit of his religious denomination, society, or church, including
hospitals, schools, colleges, orphan, asylums, parsonages, and cemeteries thereof. For the filing of such
articles of incorporation, the Securities and Exchange Commissioner shall collect twenty-five pesos. (As
amended by Commonwealth Act. No. 287); and.

SEC. 163. The right to administer all temporalities and all property held or owned by a religious order or
society, or by the diocese, synod, or district organization of any religious denomination or church shall,
on its incorporation, pass to the corporation and shall be held in trust for the use, purpose behalf, and
 benefit of the religious society, or order so incorporated or of the church of which the diocese, or district
organization is an organized and constituent part.

The Cannon Law contains similar provisions regarding the duties of the corporation sole or ordinary as
administrator of the church properties, as follows:

Al Ordinario local pertenence vigilar diligentemente sobre la administracion de todos los bienes
eclesiasticos que se hallan en su territorio y no estuvieren sustraidos de su jurisdiccion, salvs las
prescriciones legitimas que le concedan mas aamplios derechos.

Teniendo en cuenta los derechos y las legitimas costumbres y circunstancias, procuraran los Ordinarios
regular todo lo concerniente a la administracion de los bienes eclesciasticos, dando las oportunas
instucciones particularles dentro del narco del derecho comun. (Title XXVIII, Codigo de Derecho
Canonico, Lib. III, Canon 1519).1

That leaves no room for doubt that the bishops or archbishops, as the case may be, as corporation's sole are
merely administrators of the church properties that come to their possession, in which they hold in trust for the
church. It can also be said that while it is true that church properties could be administered by a natural persons,
problems regarding succession to said properties can not be avoided to rise upon his death. Through this legal
fiction, however, church properties acquired by the incumbent of a corporation sole pass, by operation of law,
upon his death not his personal heirs but to his successor in office. It could be seen, therefore, that a corporation
sole is created not only to administer the temporalities of the church or religious society where he belongs but
also to hold and transmit the same to his successor in said office. If the ownership or title to the properties do not
pass to the administrators, who are the owners of church properties?.

Bouscaren and Elis, S.J., authorities on cannon law, on their treatise comment:

In matters regarding property belonging to the Universal Church and to the Apostolic See, the Supreme
Pontiff exercises his office of supreme administrator through the Roman Curia; in matters regarding other
church property, through the administrators of the individual moral persons in the Church according to
that norms, laid down in the Code of Cannon Law. This does not mean, however, that the Roman Pontiff
is the owner of all the church property; but merely that he is the supreme guardian (Bouscaren and Ellis,
Cannon Law, A Text and Commentary, p. 764).

and this Court, citing Campes y Pulido, Legislacion y Jurisprudencia Canonica, ruled in the case of Trinidad vs.
Roman Catholic Archbishop of Manila, 63 Phil. 881, that:

The second question to be decided is in whom the ownership of the properties constituting the endowment
of the ecclesiastical or collative chaplaincies is vested.

Canonists entertain different opinions as to the persons in whom the ownership of the ecclesiastical
properties is vested, with respect to which we shall, for our purpose, confine ourselves to stating with
Donoso that, while many doctors cited by Fagnano believe that it resides in the Roman Pontiff as Head of
the Universal Church, it is more probable that ownership, strictly speaking, does not reside in the latter,
and, consequently, ecclesiastical properties are owned by the churches, institutions and canonically
established private corporations to which said properties have been donated.

Considering that nowhere can We find any provision conferring ownership of church properties on the Pope
although he appears to be the supreme administrator or guardian of his flock, nor on the corporation sole or heads
of dioceses as they are admittedly mere administrators of said properties, ownership of these temporalities
logically fall and develop upon the church, diocese or congregation acquiring the same. Although this question
of ownership of ecclesiastical properties has off and on been mentioned in several decisions of the Court yet in
no instance was the subject of citizenship of this religious society been passed upon.

We are not unaware of the opinion expressed by the late Justice Perfecto in his dissent in the case of Agustines
vs. Court of First Instance of Bulacan, 80 Phil. 565, to the effect that "the Roman Catholic Archbishop of Manila
is only a branch of a universal church by the Pope, with permanent residence in Rome, Italy". There is no question
that the Roman Catholic Church existing in the Philippines is a tributary and part of the international religious
organization, for the word "Roman" clearly expresses its unity with and recognizes the authority of the Pope in
Rome. However, lest We become hasty in drawing conclusions, We have to analyze and take note of the nature
of the government established in the Vatican City, of which it was said:

GOVERNMENT. In the Roman Catholic Church supreme authority and jurisdiction over clergy and laity
alike as held by the pope who (since the Middle Ages) is elected by the cardinals assembled in conclave,
and holds office until his death or legitimate abdication. . . While the pope is obviously independent of
the laws made, and the officials appointed, by himself or his predecessors, he usually exercises his
administrative authority according to the code of canon law and through the congregations, tribunals and
offices of the Curia Romana. In their respective territories (called generally dioceses) and over their
respective subjects, the patriarchs, metropolitans or archbishops and bishops exercise a jurisdiction which
is called ordinary (as attached by law to an office given to a person. . . (Collier's Encyclopedia, Vol. 17,
p. 93).

While it is true and We have to concede that in the profession of their faith, the Roman Pontiff is the supreme
head; that in the religious matters, in the exercise of their belief, the Catholic congregation of the faithful
throughout the world seeks the guidance and direction of their Spiritual Father in the Vatican, yet it cannot be
said that there is a merger of personalities resultant therein. Neither can it be said that the political and civil rights
of the faithful, inherent or acquired under the laws of their country, are affected by that relationship with the Pope.
The fact that the Roman Catholic Church in almost every country springs from that society that saw its beginning
in Europe and the fact that the clergy of this faith derive their authorities and receive orders from the Holy See do
not give or bestow the citizenship of the Pope upon these branches. Citizenship is a political right which cannot
be acquired by a sort of "radiation". We have to realize that although there is a fraternity among all the catholic
countries and the dioceses therein all over the globe, the universality that the word "catholic" implies, merely
characterize their faith, a uniformity in the practice and the interpretation of their dogma and in the exercise of
their belief, but certainly they are separate and independent from one another in jurisdiction, governed by different
laws under which they are incorporated, and entirely independent on the others in the management and ownership
of their temporalities. To allow theory that the Roman Catholic Churches all over the world follow the citizenship
of their Supreme Head, the Pontifical Father, would lead to the absurdity of finding the citizens of a country who
embrace the Catholic faith and become members of that religious society, likewise citizens of the Vatican or of
Italy. And this is more so if We consider that the Pope himself may be an Italian or national of any other country
of the world. The same thing be said with regard to the nationality or citizenship of the corporation sole created
under the laws of the Philippines, which is not altered by the change of citizenship of the incumbent bishops or
head of said corporation sole.

We must therefore, declare that although a branch of the Universal Roman Catholic Apostolic Church, every
Roman Catholic Church in different countries, if it exercises its mission and is lawfully incorporated in
accordance with the laws of the country where it is located, is considered an entity or person with all the rights
and privileges granted to such artificial being under the laws of that country, separate and distinct from the
personality of the Roman Pontiff or the Holy See, without prejudice to its religious relations with the latter which
are governed by the Canon Law or their rules and regulations.

We certainly are conscious of the fact that whatever conclusion We may draw on this matter will have a far
reaching influence, nor can We overlook the pages of history that arouse indignation and criticisms against church
landholdings. This nurtured feeling that snowbailed into a strong nationalistic sentiment manifested itself when
the provisions on natural to be embodied in the Philippine Constitution were framed, but all that has been said on
this regard referred more particularly to landholdings of religious corporations known as "Friar Estates" which
have already bee acquired by our government, and not to properties held by corporations sole which, We repeat,
are properties held in trust for the benefit of the faithful residing within its territorial jurisdiction. Though that
same feeling probably precipitated and influenced to a large extent the doctrine laid down in the celebrated
Krivenco decision, We have to take this matter in the light of legal provisions and jurisprudence actually
obtaining, irrespective of sentiments.

The question now left for our determination is whether the Universal Roman Catholic Apostolic Church in the
Philippines, or better still, the corporation sole named the Roman Catholic Apostolic Administrator of Davao,
Inc., is qualified to acquire private agricultural lands in the Philippines pursuant to the provisions of Article XIII
of the Constitution.

We see from sections 1 and 5 of said Article quoted before, that only persons or corporations qualified to acquire
hold lands of the public domain in the Philippines may acquire or be assigned and hold private agricultural lands.
Consequently, the decisive factor in the present controversy hinges on the proposition or whether or not the
petitioner in this case can acquire agricultural lands of the public domain.

From the data secured from the Securities and Exchange Commission, We find that the Roman Catholic Bishop
of Zamboanga was incorporated (as a corporation sole) in September, 1912, principally to administer its
temporalities and manage its properties. Probably due to the ravages of the last war, its articles of incorporation
were reconstructed in the Securities and Exchange Commission on April 8, 1948. At first, this corporation sole
administered all the temporalities of the church existing or located in the island of Mindanao. Later on, however,
new dioceses were formed and new corporations sole were created to correspond with the territorial jurisdiction
of the new dioceses, one of them being petitioner herein, the Roman Catholic Apostolic Administrator of Davao,
Inc., which was registered with the Securities and Exchange Commission on September 12, 1950, and succeeded
in the administrative for all the "temporalities" of the Roman Catholic Church existing in Davao.

According to our Corporation Law, Public Act No. 1549, approved April 1, 1906, a corporation sole.

is organized and composed of a single individual, the head of any religious society or church, for the
ADMINISTRATION of the temporalities of such society or church. By "temporalities" is meant estate
and properties not used exclusively for religious worship. The successor in office of such religious head
or chief priest incorporated as a corporation sole shall become the corporation sole on ascension to office,
and shall be permitted to transact business as such on filing with the Securities and Exchange Commission
a copy of his commission, certificate of election or letter of appointment duly certified by any notary
public or clerk of court of record (Guevara's The Philippine Corporation Law, p. 223).

The Corporation Law also contains the following provisions:

SECTION 159. Any corporation sole may purchase and hold real estate and personal; property for its
church, charitable, benevolent, or educational purposes, and may receive bequests or gifts of such
purposes. Such corporation may mortgage or sell real property held by it upon obtaining an order for that
purpose from the Court of First Instance of the province in which the property is situated; but before
making the order proof must be made to the satisfaction of the Court that notice of the application for
leave to mortgage or sell has been given by publication or otherwise in such manner and for such time as
said Court or the Judge thereof may have directed, and that it is to the interest of the corporation that leave
to mortgage or sell must be made by petition, duly verified by the bishop, chief priest, or presiding elder
acting as corporation sole, and may be opposed by any member of the religious denomination, society or
church represented by the corporation sole: Provided, however, That in cases where the rules, regulations,
and discipline of the religious denomination, society or church concerned represented by such corporation
sole regulate the methods of acquiring, holding, selling and mortgaging real estate and personal property,
 such rules, regulations, and discipline shall control and the intervention of the Courts shall not be
necessary.

It can, therefore, be noticed that the power of a corporation sole to purchase real property, like the power exercised
in the case at bar, it is not restricted although the power to sell or mortgage sometimes is, depending upon the
rules, regulations, and discipline of the church concerned represented by said corporation sole. If corporations
sole can purchase and sell real estate for its church, charitable, benevolent, or educational purposes, can they
register said real properties? As provided by law, lands held in trust for specific purposes me be subject of
registration (section 69, Act 496), and the capacity of a corporation sole, like petitioner herein, to register lands
belonging to it is acknowledged, and title thereto may be issued in its name (Bishop of Nueva Segovia vs. Insular
Government, 26 Phil. 300-1913). Indeed it is absurd that while the corporations sole that might be in need of
acquiring lands for the erection of temples where the faithful can pray, or schools and cemeteries which they are
expressly authorized by law to acquire in connection with the propagation of the Roman Catholic Apostolic faith
or in furtherance of their freedom of religion they could not register said properties in their name. As professor
Javier J. Nepomuceno very well says "Man in his search for the immortal and imponderable, has, even before the
dawn of recorded history, erected temples to the Unknown God, and there is no doubt that he will continue to do
so for all time to come, as long as he continues 'imploring the aid of Divine Providence'" (Nepomuceno's
Corporation Sole, VI Ateneo Law Journal, No. 1, p. 41, September, 1956). Under the circumstances of this case,
We might safely state that even before the establishment of the Philippine Commonwealth and of the Republic of
the Philippines every corporation sole then organized and registered had by express provision of law the
necessary power and qualification to purchase in its name private lands located in the territory in which it
exercised its functions or ministry and for which it was created, independently of the nationality of its incumbent
unique and single member and head, the bishop of the dioceses. It can be also maintained without fear of being
gainsaid that the Roman Catholic Apostolic Church in the Philippines has no nationality and that the framers of
the Constitution, as will be hereunder explained, did not have in mind the religious corporations sole when they
provided that 60 per centum of the capital thereof be owned by Filipino citizens.

There could be no controversy as to the fact that a duly registered corporation sole is an artificial being having
the right of succession and the power, attributes, and properties expressly authorized by law or incident to its
existence (section 1, Corporation Law). In outlining the general powers of a corporation. Public Act. No. 1459
provides among others:

SEC. 13. Every corporation has the power:

(5) To purchase, hold, convey, sell, lease, lot, mortgage, encumber, and otherwise deal with such real and
personal property as the purpose for which the corporation was formed may permit, and the transaction of
the lawful business of the corporation may reasonably and necessarily require, unless otherwise prescribed
in this Act: . . .

In implementation of the same and specially made applicable to a form of corporation recognized by the same
law, Section 159 aforequoted expressly allowed the corporation sole to purchase and hold real as well as personal
properties necessary for the promotion of the objects for which said corporation sole is created. Respondent Land
Registration Commissioner, however, maintained that since the Philippine Constitution is a later enactment than
public Act No. 1459, the provisions of Section 159 in amplification of Section 13 thereof, as regard real properties,
should be considered repealed by the former.

There is a reason to believe that when the specific provision of the Constitution invoked by respondent
Commissioner was under consideration, the framers of the same did not have in mind or overlooked this particular
form of corporation. It is undeniable that the naturalization and conservation of our national resources was one of
the dominating objectives of the Convention and in drafting the present Article XII of the Constitution, the
delegates were goaded by the desire (1) to insure their conservation for Filipino posterity; (2) to serve as an
instrument of national defense, helping prevent the extension into the country of foreign control through peaceful
economic penetration; and (3) to prevent making the Philippines a source of international conflicts with the
consequent danger to its internal security and independence (See The Framing of the Philippine Constitution by
Professor Jose M. Aruego, a Delegate to the Constitutional Convention, Vol. II. P. 592-604). In the same book
Delegate Aruego, explaining the reason behind the first consideration, wrote:

At the time of the framing of Philippine Constitution, Filipino capital had been to be rather shy. Filipinos
hesitated s a general rule to invest a considerable sum of their capital for the development, exploitation
and utilization of the natural resources of the country. They had not as yet been so used to corporate as
the peoples of the west. This general apathy, the delegates knew, would mean the retardation of the
development of the natural resources, unless foreign capital would be encouraged to come and help in that
development. They knew that the naturalization of the natural resources would certainly not encourage
the INVESTMENT OF FOREIGN CAPITAL into them. But there was a general feeling in the Convention
that it was better to have such a development retarded or even postpone together until such time when the
Filipinos would be ready and willing to undertake it rather than permit the natural resources to be placed
under the ownership or control of foreigners in order that they might be immediately be developed, with
the Filipinos of the future serving not as owners but utmost as tenants or workers under foreign masters.
By all means, the delegates believed, the natural resources should be conserved for Filipino posterity.

It could be distilled from the foregoing that the farmers of the Constitution intended said provisions as barrier for
foreigners or corporations financed by such foreigners to acquire, exploit and develop our natural resources,
saving these undeveloped wealth for our people to clear and enrich when they are already prepared and capable
of doing so. But that is not the case of corporations sole in the Philippines, for, We repeat, they are mere
administrators of the "temporalities" or properties titled in their name and for the benefit of the members of their
respective religion composed of an overwhelming majority of Filipinos. No mention nor allusion whatsoever is
made in the Constitution as to the prohibition against or the liability of the Roman Catholic Church in the
Philippines to acquire and hold agricultural lands. Although there were some discussions on landholdings, they
were mostly confined in the inclusion of the provision allowing the Government to break big landed estates to
put an end to absentee landlordism.

But let us suppose, for the sake of argument, that the above referred to inhibitory clause of Section 1 of Article
XIII of the constitution does have bearing on the petitioner's case; even so the clause requiring that at least 60 per
centum of the capital of the corporation be owned by Filipinos is subordinated to the petitioner's aforesaid right
already existing at the time of the inauguration of the Commonwealth and the Republic of the Philippines. In the
language of Mr. Justice Jose P. Laurel (a delegate to the Constitutional Convention), in his concurring opinion of
the case of Gold Creek mining Corporation, petitioner vs. Eulogio Rodriguez, Secretary of Agriculture and
Commerce, and Quirico Abadilla, Director of the Bureau of Mines, respondent, 66 Phil. 259:

The saving clause in the section involved of the Constitution was originally embodied in the report
submitted by the Committee on Naturalization and Preservation of Land and Other Natural Resources to
the Constitutional Convention on September 17, 1954. It was later inserted in the first draft of the
Constitution as section 13 of Article XIII thereof, and finally incorporated as we find it now. Slight have
been the changes undergone by the proviso from the time when it comes out of the committee until it was
finally adopted. When first submitted and as inserted to the first draft of the Constitution it reads: 'subject
to any right, grant, lease, or concession existing in respect thereto on the date of the adoption of the
Constitution'. As finally adopted, the proviso reads: 'subject to any existing right, grant, lease, or
concession at the time of the inauguration of the Government established under this Constitution'. This
recognition is not mere graciousness but springs form the just character of the government established.
The framers of the Constitution were not obscured by the rhetoric of democracy or swayed to hostility by
an intense spirit of nationalism. They well knew that conservation of our natural resources did not mean
destruction or annihilation of acquired property rights. Withal, they erected a government neither episodic
nor stationary but well-nigh conservative in the protection of property rights. This notwithstanding
 nationalistic and socialistic traits discoverable upon even a sudden dip into a variety of the provisions
embodied in the instrument.

The writer of this decision wishes to state at this juncture that during the deliberation of this case he submitted to
the consideration of the Court the question that may be termed the "vested right saving clause" contained in
Section 1, Article XII of the Constitution, but some of the members of this Court either did not agree with the
theory of the writer, or were not ready to take a definite stand on the particular point I am now to discuss deferring
our ruling on such debatable question for a better occasion, inasmuch as the determination thereof is not absolutely
necessary for the solution of the problem involved in this case. In his desire to face the issues squarely, the writer
will endeavor, at least as a disgression, to explain and develop his theory, not as a lucubration of the Court, but
of his own, for he deems it better and convenient to go over the cycle of reasons that are linked to one another
and that step by step lead Us to conclude as We do in the dispositive part of this decision.

It will be noticed that Section 1 of Article XIII of the Constitution provides, among other things, that "all
agricultural lands of the public domain and their disposition shall be limited to citizens of the Philippines or
to corporations at least 60 per centum of the capital of which is owned by such citizens, SUBJECT TO ANY
EXISTING RIGHT AT THE TIME OF THE INAUGURATION OF THE GOVERNMENT ESTABLISHED
UNDER THIS CONSTITUTION."

As recounted by Mr. Justice Laurel in the aforementioned case of Gold Creek Mining Corporation vs. Rodriguez
et al., 66 Phil. 259, "this recognition (in the clause already quoted), is not mere graciousness but springs from the
just character of the government established. The farmers of the Constitution were not obscured by the rhetoric
of democracy or swayed to hostility by an intense spirit of nationalism. They well knew that conservation of our
natural resources did not mean destruction or annihilation of ACQUIRED PROPERTY RIGHTS".

But respondents' counsel may argue that the preexisting right of acquisition of public or private lands by a
corporation which does not fulfill this 60 per cent requisite, refers to purchases of the Constitution and not to later
transactions. This argument would imply that even assuming that petitioner had at the time of the enactment of
the Constitution the right to purchase real property or right could not be exercised after the effectivity of our
Constitution, because said power or right of corporations sole, like the herein petitioner, conferred in virtue of the
aforequoted provisions of the Corporation Law, could no longer be exercised in view of the requisite therein
prescribed that at least 60 per centum of the capital of the corporation had to be Filipino. It has been shown before
that: (1) the corporation sole, unlike the ordinary corporations which are formed by no less than 5 incorporators,
is composed of only one persons, usually the head or bishop of the diocese, a unit which is not subject to expansion
for the purpose of determining any percentage whatsoever; (2) the corporation sole is only the administrator and
not the owner of the temporalities located in the territory comprised by said corporation sole; (3) such
temporalities are administered for and on behalf of the faithful residing in the diocese or territory of the
corporation sole; and (4) the latter, as such, has no nationality and the citizenship of the incumbent Ordinary has
nothing to do with the operation, management or administration of the corporation sole, nor effects the citizenship
of the faithful connected with their respective dioceses or corporation sole.

In view of these peculiarities of the corporation sole, it would seem obvious that when the specific provision of
the Constitution invoked by respondent Commissioner (section 1, Art. XIII), was under consideration, the framers
of the same did not have in mind or overlooked this particular form of corporation. If this were so, as the facts
and circumstances already indicated tend to prove it to be so, then the inescapable conclusion would be that this
requirement of at least 60 per cent of Filipino capital was never intended to apply to corporations sole, and the
existence or not a vested right becomes unquestionably immaterial.

But let us assumed that the questioned proviso is material. yet We might say that a reading of said Section 1 will
show that it does not refer to any actual acquisition of land up to the right, qualification or power to acquire and
hold private real property. The population of the Philippines, Catholic to a high percentage, is ever increasing. In
the practice of religion of their faithful the corporation sole may be in need of more temples where to pray, more
schools where the children of the congregation could be taught in the principles of their religion, more hospitals
where their sick could be treated, more hallow or consecrated grounds or cemeteries where Catholics could be
buried, many more than those actually existing at the time of the enactment of our Constitution. This being the
case, could it be logically maintained that because the corporation sole which, by express provision of law, has
the power to hold and acquire real estate and personal property of its churches, charitable benevolent, or
educational purposes (section 159, Corporation Law) it has to stop its growth and restrain its necessities just
because the corporation sole is a non-stock corporation composed of only one person who in his unity does not
admit of any percentage, especially when that person is not the owner but merely an administrator of the
temporalities of the corporation sole? The writer leaves the answer to whoever may read and consider this portion
of the decision.

Anyway, as stated before, this question is not a decisive factor in disposing the case, for even if We were to
disregard such saving clause of the Constitution, which reads: subject to any existing right, grant, etc., at the same
time of the inauguration of the Government established under this Constitution, yet We would have, under the
evidence on record, sufficient grounds to uphold petitioner's contention on this matter.

In this case of the Register of Deeds of Rizal vs. Ung Sui Si Temple, 2 G.R. No. L-6776, promulgated May 21,
1955, wherein this question was considered from a different angle, this Court through Mr. Justice J.B.L. Reyes,
said:

The fact that the appellant religious organization has no capital stock does not suffice to escape the
Constitutional inhibition, since it is admitted that its members are of foreign nationality. The purpose of
the sixty per centum requirement is obviously to ensure that corporation or associations allowed to acquire
agricultural land or to exploit natural resources shall be controlled by Filipinos; and the spirit of the
Constitution demands that in the absence of capital stock, the controlling membership should be composed
of Filipino citizens.

In that case respondent-appellant Ung Siu Si Temple was not a corporation sole but a corporation aggregate, i.e.,
an unregistered organization operating through 3 trustees, all of Chinese nationality, and that is why this Court
laid down the doctrine just quoted. With regard to petitioner, which likewise is a non-stock corporation, the case
is different, because it is a registered corporation sole, evidently of no nationality and registered mainly to
administer the temporalities and manage the properties belonging to the faithful of said church residing in Davao.
But even if we were to go over the record to inquire into the composing membership to determine whether the
citizenship requirement is satisfied or not, we would find undeniable proof that the members of the Roman
Catholic Apostolic faith within the territory of Davao are predominantly Filipino citizens. As indicated before,
petitioner has presented evidence to establish that the clergy and lay members of this religion fully covers the
percentage of Filipino citizens required by the Constitution. These facts are not controverted by respondents and
our conclusion in this point is sensibly obvious.

Dissenting OpinionDiscussed. After having developed our theory in the case and arrived at the findings and
conclusions already expressed in this decision. We now deem it proper to analyze and delve into the basic
foundation on which the dissenting opinion stands up. Being aware of the transcendental and far-reaching effects
that Our ruling on the matter might have, this case was thoroughly considered from all points of view, the Court
sparing no effort to solve the delicate problems involved herein.

At the deliberations had to attain this end, two ways were open to a prompt dispatch of the case: (1) the reversal
of the doctrine We laid down in the celebrated Krivenko case by excluding urban lots and properties from the
group of the term "private agricultural lands" use in this section 5, Article XIII of the Constitution; and (2) by
driving Our reasons to a point that might indirectly cause the appointment of Filipino bishops or Ordinary to head
the corporations sole created to administer the temporalities of the Roman Catholic Church in the Philippines.
With regard to the first way, a great majority of the members of this Court were not yet prepared nor agreeable to
follow that course, for reasons that are obvious. As to the second way, it seems to be misleading because the
nationality of the head of a diocese constituted as a corporation sole has no material bearing on the functions of
the latter, which are limited to the administration of the temporalities of the Roman Catholic Apostolic Church in
the Philippines.

Upon going over the grounds on which the dissenting opinion is based, it may be noticed that its author lingered
on the outskirts of the issues, thus throwing the main points in controversy out of focus. Of course We fully agree,
as stated by Professor Aruego, that the framers of our Constitution had at heart to insure the conservation of the
natural resources of Our motherland of Filipino posterity; to serve them as an instrument of national defense,
helping prevent the extension into the country of foreign control through peaceful economic penetration; and to
prevent making the Philippines a source of international conflicts with the consequent danger to its internal
security and independence. But all these precautions adopted by the Delegates to Our Constitutional Assembly
could have not been intended for or directed against cases like the one at bar. The emphasis and wonderings on
the statement that once the capacity of a corporation sole to acquire private agricultural lands is admitted there
will be no limit to the areas that it may hold and that this will pave the way for the "revival or revitalization of
religious landholdings that proved so troublesome in our past", cannot even furnish the "penumbra" of a threat to
the future of the Filipino people. In the first place, the right of Filipino citizens, including those of foreign
extraction, and Philippine corporations, to acquire private lands is not subject to any restriction or limit as to
quantity or area, and We certainly do not see any wrong in that. The right of Filipino citizens and corporations to
acquire public agricultural lands is already limited by law. In the second place, corporations sole cannot be
considered as aliens because they have no nationality at all. Corporations sole are, under the law, mere
administrators of the temporalities of the Roman Catholic Church in the Philippines. In the third place, every
corporation, be it aggregate or sole, is only entitled to purchase, convey, sell, lease, let, mortgage, encumber and
otherwise deal with real properties when it is pursuant to or in consonance with the purposes for which the
corporation was formed, and when the transactions of the lawful business of the corporation reasonably and
necessarily require such dealing section 13-(5) of the Corporation Law, Public Act No. 1459 and
considering these provisions in conjunction with Section 159 of the same law which provides that a corporation
sole may only "purchase and hold real estate and personal properties for its church, charitable, benevolent or
educational purposes", the above mentioned fear of revitalization of religious landholdings in the Philippines is
absolutely dispelled. The fact that the law thus expressly authorizes the corporations sole to receive bequests or
gifts of real properties (which were the main source that the friars had to acquire their big haciendas during the
Spanish regime), is a clear indication that the requisite that bequests or gifts of real estate be for charitable,
benevolent, or educational purposes, was, in the opinion of the legislators, considered sufficient and adequate
protection against the revitalization of religious landholdings.

Finally, and as previously stated, We have reason to believe that when the Delegates to the Constitutional
Convention drafted and approved Article XIII of the Constitution they do not have in mind the corporation sole.
We come to this finding because the Constitutional Assembly, composed as it was by a great number of eminent
lawyers and jurists, was like any other legislative body empowered to enact either the Constitution of the country
or any public statute, presumed to know the conditions existing as to particular subject matter when it enacted a
statute (Board of Commerce of Orange Country vs. Bain, 92 S.E. 176; N. C. 377).

Immemorial customs are presumed to have been always in the mind of the Legislature in enacting
legislation. (In re Kruger's Estate, 121 A. 109; 277 P. 326).

The Legislative is presumed to have a knowledge of the state of the law on the subjects upon which it
legislates. (Clover Valley Land and Stock Co. vs. Lamb et al., 187, p. 723,726.)

The Court in construing a statute, will assume that the legislature acted with full knowledge of the prior
legislation on the subject and its construction by the courts. (Johns vs. Town of Sheridan, 89 N. E. 899,
44 Ind. App. 620.).
 The Legislature is presumed to have been familiar with the subject with which it was dealing . . . . (Landers
vs. Commonwealth, 101 S. E. 778, 781.).

The Legislature is presumed to know principles of statutory construction. (People vs. Lowell, 230 N. W.
202, 250 Mich. 349, followed in P. vs. Woodworth, 230 N.W. 211, 250 Mich. 436.).

It is not to be presumed that a provision was inserted in a constitution or statute without reason, or that a
result was intended inconsistent with the judgment of men of common sense guided by reason" (Mitchell
vs. Lawden, 123 N.E. 566, 288 Ill. 326.) See City of Decatur vs. German, 142 N. E. 252, 310 Ill. 591, and
may other authorities that can be cited in support hereof.

Consequently, the Constitutional Assembly must have known:

1. That a corporation sole is organized by and composed of a single individual, the head of any religious
society or church operating within the zone, area or jurisdiction covered by said corporation sole (Article
155, Public Act No. 1459);

2. That a corporation sole is a non-stock corporation;

3. That the Ordinary ( the corporation sole proper) does not own the temporalities which he merely
administers;

4. That under the law the nationality of said Ordinary or of any administrator has absolutely no bearing
on the nationality of the person desiring to acquire real property in the Philippines by purchase or other
lawful means other than by hereditary succession, who according to the Constitution must be a Filipino
(sections 1 and 5, Article XIII).

5. That section 159 of the Corporation Law expressly authorized the corporation sole to purchase and
holdreal estate for its church, charitable, benevolent or educational purposes, and to receive bequests or
gifts for such purposes;

6. That in approving our Magna Carta the Delegates to the Constitutional Convention, almost all of whom
were Roman Catholics, could not have intended to curtail the propagation of the Roman Catholic faith or
the expansion of the activities of their church, knowing pretty well that with the growth of our population
more places of worship, more schools where our youth could be taught and trained; more hallow grounds
where to bury our dead would be needed in the course of time.

Long before the enactment of our Constitution the law authorized the corporations sole even to receive bequests
or gifts of real estates and this Court could not, without any clear and specific provision of the Constitution,
declare that any real property donated, let as say this year, could no longer be registered in the name of the
corporation sole to which it was conveyed. That would be an absurdity that should not receive our sanction on
the pretext that corporations sole which have no nationality and are non-stock corporations composed of only one
person in the capacity of administrator, have to establish first that at least sixty per centum of their capital belong
to Filipino citizens. The new Civil Code even provides:

ART. 10. In case of doubt in the interpretation or application of laws, it is presumed that the lawmaking
body intended right and justice to prevail.

Moreover, under the laws of the Philippines, the administrator of the properties of a Filipino can acquire, in the
name of the latter, private lands without any limitation whatsoever, and that is so because the properties thus
acquired are not for and would not belong to the administrator but to the Filipino whom he represents. But the
dissenting Justice inquires: If the Ordinary is only the administrator, for whom does he administer? And who can
alter or overrule his acts? We will forthwith proceed to answer these questions. The corporations sole by reason
of their peculiar constitution and form of operation have no designed owner of its temporalities, although by the
terms of the law it can be safely implied that the Ordinary holds them in trust for the benefit of the Roman Catholic
faithful to their respective locality or diocese. Borrowing the very words of the law, We may say that the
temporalities of every corporation sole are held in trust for the use, purpose, behalf and benefit of the religious
society, or order so incorporated or of the church to which the diocese, synod, or district organization is an
organized and constituent part (section 163 of the Corporation Law).

In connection with the powers of the Ordinary over the temporalities of the corporation sole, let us see now what
is the meaning and scope of the word "control". According to the Merriam-Webster's New International
Dictionary, 2nd ed., p. 580, on of the acceptations of the word "control" is:

4. To exercise restraining or directing influence over; to dominate; regulate; hence, to hold from action;
to curb; subject; also, Obs. to overpower.

SYN: restrain, rule, govern, guide, direct; check, subdue.

It is true that under section 159 of the Corporation Law, the intervention of the courts is not necessary,
to mortgageor sell real property held by the corporation sole where the rules, regulations and discipline of the
religious denomination, society or church concerned presented by such corporation sole regulates the methods of
acquiring, holding, selling and mortgaging real estate, and that the Roman Catholic faithful residing in the
jurisdiction of the corporation sole has no say either in the manner of acquiring or of selling real property. It may
be also admitted that the faithful of the diocese cannot govern or overrule the acts of the Ordinary, but all this
does not mean that the latter can administer the temporalities of the corporation sole without check or restraint.
We must not forget that when a corporation sole is incorporated under Philippine laws, the head and only member
thereof subjects himself to the jurisdiction of the Philippine courts of justice and these tribunals can thus entertain
grievances arising out of or with respect to the temporalities of the church which came into the possession of the
corporation sole as administrator. It may be alleged that the courts cannot intervene as to the matters of doctrine
or teachings of the Roman Catholic Church. That is correct, but the courts may step in, at the instance of the
faithful for whom the temporalities are being held in trust, to check undue exercise by the corporation sole of its
power as administrator to insure that they are used for the purpose or purposes for which the corporation sole was
created.

American authorities have these to say:

It has been held that the courts have jurisdiction over an action brought by persons claiming to be
members of a church, who allege a wrongful and fraudulent diversion of the church property to uses
foreign to the purposes of the church, since no ecclesiastical question is involved and equity will protect
from wrongful diversion of the property (Hendryx vs. Peoples United Church, 42 Wash. 336, 4 L.R.A.
n.s. 1154).

The courts of the State have no general jurisdiction and control over the officers of such corporations in
respect to the performance of their official duties; but as in respect to the property which they hold for the
corporation, they stand in position of TRUSTEES and the courts may exercise the same supervision as in
other cases of trust (Ramsey vs. Hicks, 174 Ind. 428, 91 N.E. 344, 92 N.E. 164, 30 L.R.A. n.s. 665;
Hendryx vs. Peoples United Church, supra.).

Courts of the state do not interfere with the administration of church rules or discipline unless civil rights
become involved and which must be protected (Morris St., Baptist Church vs. Dart, 67 S.C. 338, 45 S.E.
753, and others). (All cited in Vol. II, Cooley's Constitutional Limitations, p. 960-964.).
If the Constitutional Assembly was aware of all the facts above enumerated and of the provisions of law relative
to existing conditions as to management and operation of corporations sole in the Philippines, and if, on the other
hand, almost all of the Delegates thereto embraced the Roman Catholic faith, can it be imagined even for an
instant that when Article XIII of the Constitution was approved the framers thereof intended to prevent or curtail
from then on the acquisition sole, either by purchase or donation, of real properties that they might need for the
propagation of the faith and for there religious and Christian activities such as the moral education of the youth,
the care, attention and treatment of the sick and the burial of the dead of the Roman Catholic faithful residing in
the jurisdiction of the respective corporations sole? The mere indulgence in said thought would impress upon Us
a feeling of apprehension and absurdity. And that is precisely the leit motiv that permeates the whole fabric of the
dissenting opinion.

It seems from the foregoing that the main problem We are confronted with in this appeal, hinges around the
necessity of a proper and adequate interpretation of sections 1 and 5 of Article XIII of the Constitution. Let Us
then be guided by the principles of statutory construction laid down by the authorities on the matter:

The most important single factor in determining the intention of the people from whom the constitution
emanated is the language in which it is expressed. The words employed are to be taken in their natural
sense, except that legal or technical terms are to be given their technical meaning. The imperfections of
language as a vehicle for conveying meanings result in ambiguities that must be resolved by result to
extraneous aids for discovering the intent of the framers. Among the more important of these are a
consideration of the history of the times when the provision was adopted and of the purposes aimed at in
its adoption. The debates of constitutional convention, contemporaneous construction, and practical
construction by the legislative and executive departments, especially if long continued, may be resorted
to resolve, but not to create, ambiguities. . . . Consideration of the consequences flowing from alternative
constructions of doubtful provisions constitutes an important interpretative device. . . . The purposes of
many of the broadly phrased constitutional limitations were the promotion of policies that do not lend
themselves to definite and specific formulation. The courts have had to define those policies and have
often drawn on natural law and natural rights theories in doing so. The interpretation of constitutions tends
to respond to changing conceptions of political and social values. The extent to which these extraneous
aids affect the judicial construction of constitutions cannot be formulated in precise rules, but their
influence cannot be ignored in describing the essentials of the process (Rottschaeffer on Constitutional
Law, 1939 ed., p. 18-19).

There are times that when even the literal expression of legislation may be inconsistent with the general
objectives of policy behind it, and on the basis of equity or spirit of the statute the courts rationalize a
restricted meaning of the latter. A restricted interpretation is usually applied where the effect of literal
interpretation will make for injustice and absurdity or, in the words of one court, the language must be so
unreasonable 'as to shock general common sense'. (Vol. 3, Sutherland on Statutory Construction, 3rd ed.,
150.).

A constitution is not intended to be a limitation on the development of a country nor an obstruction to its
progress and foreign relations (Moscow Fire Ins. Co. of Moscow, Russia vs. Bank of New York and Trust
Co., 294 N. Y. S.648; 56 N.E. 2d. 745, 293 N.Y. 749).

Although the meaning or principles of a constitution remain fixed and unchanged from the time of its
adoption, a constitution must be construed as if intended to stand for a great length of time, and it is
progressive and not static. Accordingly, it should not receive too narrow or literal an interpretation but
rather the meaning given it should be applied in such manner as to meet new or changed conditions as
they arise (U.S. vs. Lassic, 313 U.S. 299, 85 L. Ed., 1368).

Effect should be given to the purpose indicated by a fair interpretation of the language used and that
construction which effectuates, rather than that which destroys a plain intent or purpose of a constitutional
 provision, is not only favored but will be adopted (State ex rel. Randolph Country vs. Walden, 206 S.W.
2d 979).

It is quite generally held that in arriving at the intent and purpose the construction should be broad or
liberal or equitable, as the better method of ascertaining that intent, rather than technical (Great Southern
Life Ins. Co. vs. City of Austin, 243 S.W. 778).

All these authorities uphold our conviction that the framers of the Constitution had not in mind the corporations
sole, nor intended to apply them the provisions of section 1 and 5 of said Article XIII when they passed and
approved the same. And if it were so as We think it is, herein petitioner, the Roman Catholic Apostolic
Administrator of Davao, Inc., could not be deprived of the right to acquire by purchase or donation real properties
for charitable, benevolent and educational purposes, nor of the right to register the same in its name with the
Register of Deeds of Davao, an indispensable requisite prescribed by the Land Registration Act for lands covered
by the Torrens system.

We leave as the last theme for discussion the much debated question above referred to as "the vested right saving
clause" contained in section 1, Article XIII of the Constitution. The dissenting Justice hurls upon the personal
opinion expressed on the matter by the writer of the decision the most pointed darts of his severe criticism. We
think, however, that this strong dissent should have been spared, because as clearly indicated before, some
members of this Court either did not agree with the theory of the writer or were not ready to take a definite stand
on that particular point, so that there being no majority opinion thereon there was no need of any dissension
therefrom. But as the criticism has been made the writer deems it necessary to say a few words of explanation.

The writer fully agrees with the dissenting Justice that ordinarily "a capacity to acquire (property) in futuro, is not
in itself a vested or existing property right that the Constitution protects from impairment. For a property right to
be vested (or acquired) there must be a transition from the potential or contingent to the actual, and the proprietary
interest must have attached to a thing; it must have become 'fixed and established'" (Balboa vs. Farrales, 51 Phil.
498). But the case at bar has to be considered as an exception to the rule because among the rights granted by
section 159 of the Corporation Law was the right to receive bequests or gifts of real properties for charitable,
benevolent and educational purposes. And this right to receive such bequests or gifts (which implies donations in
futuro), is not a mere potentiality that could be impaired without any specific provision in the Constitution to that
effect, especially when the impairment would disturbingly affect the propagation of the religious faith of the
immense majority of the Filipino people and the curtailment of the activities of their Church. That is why the
writer gave us a basis of his contention what Professor Aruego said in his book "The Framing of the Philippine
Constitution" and the enlightening opinion of Mr. Justice Jose P. Laurel, another Delegate to the Constitutional
Convention, in his concurring opinion in the case of Goldcreek Mining Co. vs. Eulogio Rodriguez et al., 66 Phil.
259. Anyway the majority of the Court did not deem necessary to pass upon said "vested right saving clause" for
the final determination of this case.

JUDGMENT

Wherefore, the resolution of the respondent Land Registration Commission of September 21, 1954, holding that
in view of the provisions of sections 1 and 5 of Article XIII of the Philippine Constitution the vendee (petitioner)
is not qualified to acquire lands in the Philippines in the absence of proof that at least 60 per centum of the capital,
properties or assets of the Roman Catholic Apostolic Administrator of Davao, Inc. is actually owned or controlled
by Filipino citizens, and denying the registration of the deed of sale in the absence of proof of compliance with
such requisite, is hereby reversed. Consequently, the respondent Register of Deeds of the City of Davao is ordered
to register the deed of sale executed by Mateo L. Rodis in favor of the Roman Catholic Apostolic Administrator
of Davao, Inc., which is the subject of the present litigation. No pronouncement is made as to costs. It is so
ordered.

Bautista Angelo and Endencia, JJ., concur.

G.R. No. L-6055 June 12, 1953

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
WILLIAM H. QUASHA, defendant-appellant.

Jose P. Laurel for appellant and William H. Quasha in his own behalf.
Office of the Solicitor General Juan R. Liwag and Assistant Solicitor General Francisco Carreon for appellee.

REYES, J.:

William H. Quasha, a member of the Philippine bar, was charged in the Court of First Instance of Manila with
the crime of falsification of a public and commercial document in that, having been entrusted with the preparation
and registration of the article of incorporation of the Pacific Airways Corporation, a domestic corporation
organized for the purpose of engaging in business as a common carrier, he caused it to appear in said article of
incorporation that one Arsenio Baylon, a Filipino citizen, had subscribed to and was the owner of 60.005 per cent
of the subscribed capital stock of the corporation when in reality, as the accused well knew, such was not the case,
the truth being that the owner of the portion of the capital stock subscribed to by Baylon and the money paid
thereon were American citizen whose name did not appear in the article of incorporation, and that the purpose for
making this false statement was to circumvent the constitutional mandate that no corporation shall be authorize
to operate as a public utility in the Philippines unless 60 per cent of its capital stock is owned by Filipinos.

Found guilty after trial and sentenced to a term of imprisonment and a fine, the accused has appealed to this Court.

The essential facts are not in dispute. On November 4,1946, the Pacific Airways Corporation registered its articles
of incorporation with the Securities and Exchanged Commission. The article were prepared and the registration
was effected by the accused, who was in fact the organizer of the corporation. The article stated that the primary
purpose of the corporation was to carry on the business of a common carrier by air, land or water; that its capital
stock was P1,000,000, represented by 9,000 preferred and 100,000 common shares, each preferred share being of
the par value of p100 and entitled to 1/3 vote and each common share, of the par value of P1 and entitled to one
vote; that the amount capital stock actually subscribed was P200,000, and the names of the subscribers were
Arsenio Baylon, Eruin E. Shannahan, Albert W. Onstott, James O'Bannon, Denzel J. Cavin, and William H.
Quasha, the first being a Filipino and the other five all Americans; that Baylon's subscription was for 1,145
preferred shares, of the total value of P114,500, and for 6,500 common shares, of the total par value of P6,500,
while the aggregate subscriptions of the American subscribers were for 200 preferred shares, of the total par value
of P20,000, and 59,000 common shares, of the total par value of P59,000; and that Baylon and the American
subscribers had already paid 25 per cent of their respective subscriptions. Ostensibly the owner of, or subscriber
to, 60.005 per cent of the subscribed capital stock of the corporation, Baylon nevertheless did not have the
controlling vote because of the difference in voting power between the preferred shares and the common shares.
Still, with the capital structure as it was, the article of incorporation were accepted for registration and a certificate
of incorporation was issued by the Securities and Exchange Commission.

There is no question that Baylon actually subscribed to 60.005 per cent of the subscribed capital stock of the
corporation. But it is admitted that the money paid on his subscription did not belong to him but to the Americans
subscribers to the corporate stock. In explanation, the accused testified, without contradiction, that in the process
of organization Baylon was made a trustee for the American incorporators, and that the reason for making Baylon
such trustee was as follows:

Q. According to this article of incorporation Arsenio Baylon subscribed to 1,135 preferred shares with a
total value of P1,135. Do you know how that came to be?
 A. Yes.

The people who were desirous of forming the corporation, whose names are listed on page 7 of this certified copy
came to my house, Messrs. Shannahan, Onstott, O'Bannon, Caven, Perry and Anastasakas one evening. There
was considerable difficulty to get them all together at one time because they were pilots. They had difficulty in
deciding what their respective share holdings would be. Onstott had invested a certain amount of money in
airplane surplus property and they had obtained a considerable amount of money on those planes and as I recall
they were desirous of getting a corporation formed right away. And they wanted to have their respective shares
holdings resolved at a latter date. They stated that they could get together that they feel that they had no time to
settle their respective share holdings. We discussed the matter and finally it was decided that the best way to
handle the things was not to put the shares in the name of anyone of the interested parties and to have someone
act as trustee for their respective shares holdings. So we looked around for a trustee. And he said "There are a lot
of people whom I trust." He said, "Is there someone around whom we could get right away?" I said, "There is
Arsenio. He was my boy during the liberation and he cared for me when i was sick and i said i consider him my
friend." I said. They all knew Arsenio. He is a very kind man and that was what was done. That is how it came
about.

Defendant is accused under article 172 paragraph 1, in connection with article 171, paragraph 4, of the Revised
Penal Code, which read:

ART. 171. Falsification by public officer, employee, or notary or ecclesiastic minister. The penalty
of prision mayor and a fine not to exceed 5,000 pesos shall be imposed upon any public officer, employee,
or notary who, taking advantage of his official position, shall falsify a document by committing any of the
following acts:

xxx xxx xxx

4. Making untruthful statements in a narration of facts.

ART. 172. Falsification by private individuals and use of falsified documents. The penalty of prision
correccional in its medium and maximum period and a fine of not more than 5,000 pesos shall be imposed
upon:

xxx xxx xxx

1. Any private individual who shall commit any of the falsifications enumerated in the next preceding
article in any public or official document or letter of exchange or any other kind of commercial document.

Commenting on the above provision, Justice Albert, in his well-known work on the Revised Penal Code ( new
edition, pp. 407-408), observes, on the authority of U.S. vs. Reyes, (1 Phil., 341), that the perversion of truth in
the narration of facts must be made with the wrongful intent of injuring a third person; and on the authority of U.S.
vs. Lopez (15 Phil., 515), the same author further maintains that even if such wrongful intent is proven, still the
untruthful statement will not constitute the crime of falsification if there is no legal obligation on the part of the
narrator to disclose the truth. Wrongful intent to injure a third person and obligation on the part of the narrator to
disclose the truth are thus essential to a conviction for a crime of falsification under the above article of the
Revised Penal Code.

Now, as we see it, the falsification imputed in the accused in the present case consists in not disclosing in the
articles of incorporation that Baylon was a mere trustee ( or dummy as the prosecution chooses to call him) of his
American co-incorporators, thus giving the impression that Baylon was the owner of the shares subscribed to by
him which, as above stated, amount to 60.005 per cent of the sub-scribed capital stock. This, in the opinion of the
trial court, is a malicious perversion of the truth made with the wrongful intent circumventing section 8, Article
XIV of the Constitution, which provides that " no franchise, certificate, or any other form of authorization for the
operation of a public utility shall be granted except to citizens of the Philippines or to corporation or other entities
organized under the law of the Philippines, sixty per centum of the capital of which is owned by citizens of the
Philippines . . . ." Plausible though it may appear at first glance, this opinion loses validity once it is noted that it
is predicated on the erroneous assumption that the constitutional provision just quoted was meant to prohibit the
mere formation of a public utility corporation without 60 per cent of its capital being owned by the Filipinos, a
mistaken belief which has induced the lower court to that the accused was under obligation to disclose the whole
truth about the nationality of the subscribed capital stock of the corporation by revealing that Baylon was a mere
trustee or dummy of his American co-incorporators, and that in not making such disclosure defendant's intention
was to circumvent the Constitution to the detriment of the public interests. Contrary to the lower court's
assumption, the Constitution does not prohibit the mere formation of a public utility corporation without the
required formation of Filipino capital. What it does prohibit is the granting of a franchise or other form of
authorization for the operation of a public utility to a corporation already in existence but without the requisite
proportion of Filipino capital. This is obvious from the context, for the constitutional provision in question
qualifies the terms " franchise", "certificate", or "any other form of authorization" with the phrase "for the
operation of a public utility," thereby making it clear that the franchise meant is not the "primary franchise" that
invest a body of men with corporate existence but the "secondary franchise" or the privilege to operate as a public
utility after the corporation has already come into being.

If the Constitution does not prohibit the mere formation of a public utility corporation with the alien capital, then
how can the accused be charged with having wrongfully intended to circumvent that fundamental law by not
revealing in the articles of incorporation that Baylon was a mere trustee of his American co-incorporation and
that for that reason the subscribed capital stock of the corporation was wholly American? For the mere formation
of the corporation such revelation was not essential, and the Corporation Law does not require it. Defendant was,
therefore, under no obligation to make it. In the absence of such obligation and of the allege wrongful intent,
defendant cannot be legally convicted of the crime with which he is charged.

It is urged, however, that the formation of the corporation with 60 per cent of its subscribed capital stock appearing
in the name of Baylon was an indispensable preparatory step to the subversion of the constitutional prohibition
and the laws implementing the policy expressed therein. This view is not correct. For a corporation to be entitled
to operate a public utility it is not necessary that it be organized with 60 per cent of its capital owned by Filipinos
from the start. A corporation formed with capital that is entirely alien may subsequently change the nationality of
its capital through transfer of shares to Filipino citizens. conversely, a corporation originally formed with Filipino
capital may subsequently change the national status of said capital through transfer of shares to foreigners. What
need is there then for a corporation that intends to operate a public utility to have, at the time of its formation, 60
per cent of its capital owned by Filipinos alone? That condition may anytime be attained thru the necessary
transfer of stocks. The moment for determining whether a corporation is entitled to operate as a public utility is
when it applies for a franchise, certificate, or any other form of authorization for that purpose. And that can be
done after the corporation has already come into being and not while it is still being formed. And at that moment,
the corporation must show that it has complied not only with the requirement of the Constitution as to the
nationality of its capital, but also with the requirements of the Civil Aviation Law if it is a common carrier by air,
the Revised Administrative Code if it is a common carrier by water, and the Public Service Law if it is a common
carrier by land or other kind of public service.

Equally untenable is the suggestion that defendant should at least be held guilty of an "impossible crime" under
article 59 of the Revised Penal Code. It not being possible to suppose that defendant had intended to commit a
crime for the simple reason that the alleged constitutional prohibition which he is charged for having tried to
circumvent does not exist, conviction under that article is out of the question.

The foregoing consideration can not but lead to the conclusion that the defendant can not be held guilty of the
crime charged. The majority of the court, however, are also of the opinion that, even supposing that the act
imputed to the defendant constituted falsification at the time it was perpetrated, still with the approval of the Party
Amendment to the Constitution in March, 1947, which placed Americans on the same footing as Filipino citizens
with respect to the right to operate public utilities in the Philippines, thus doing away with the prohibition in
section 8, Article XIV of the Constitution in so far as American citizens are concerned, the said act has ceased to
be an offense within the meaning of the law, so that defendant can no longer be held criminally liable therefor.

In view of the foregoing, the judgment appealed from is reversed and the defendant William H. Quasha acquitted,
with costs de oficio.

G.R. No. L-2294 May 25, 1951

FILIPINAS COMPAIA DE SEGUROS, petitioner,

vs.
CHRISTERN, HUENEFELD and CO., INC., respondent.

Ramirez and Ortigas for petitioner.

Ewald Huenefeld for respondent.

PARAS, C.J.:

On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., Inc., after payment of corresponding
premium, obtained from the petitioner ,Filipinas Cia. de Seguros, fire policy No. 29333 in the sum of P1000,000,
covering merchandise contained in a building located at No. 711 Roman Street, Binondo Manila. On February
27, 1942, or during the Japanese military occupation, the building and insured merchandise were burned. In due
time the respondent submitted to the petitioner its claim under the policy. The salvage goods were sold at public
auction and, after deducting their value, the total loss suffered by the respondent was fixed at P92,650. The
petitioner refused to pay the claim on the ground that the policy in favor of the respondent had ceased to be in
force on the date the United States declared war against Germany, the respondent Corporation (though organized
under and by virtue of the laws of the Philippines) being controlled by the German subjects and the petitioner
being a company under American jurisdiction when said policy was issued on October 1, 1941. The petitioner,
however, in pursuance of the order of the Director of Bureau of Financing, Philippine Executive Commission,
dated April 9, 1943, paid to the respondent the sum of P92,650 on April 19, 1943.

The present action was filed on August 6, 1946, in the Court of First Instance of Manila for the purpose of
recovering from the respondent the sum of P92,650 above mentioned. The theory of the petitioner is that the
insured merchandise were burned up after the policy issued in 1941 in favor of the respondent corporation has
ceased to be effective because of the outbreak of the war between the United States and Germany on December
10, 1941, and that the payment made by the petitioner to the respondent corporation during the Japanese military
occupation was under pressure. After trial, the Court of First Instance of Manila dismissed the action without
pronouncement as to costs. Upon appeal to the Court of Appeals, the judgment of the Court of First Instance of
Manila was affirmed, with costs. The case is now before us on appeal by certiorari from the decision of the Court
of Appeals.

The Court of Appeals overruled the contention of the petitioner that the respondent corporation became an enemy
when the United States declared war against Germany, relying on English and American cases which held that a
corporation is a citizen of the country or state by and under the laws of which it was created or organized. It
rejected the theory that nationality of private corporation is determine by the character or citizenship of its
controlling stockholders.

There is no question that majority of the stockholders of the respondent corporation were German subjects. This
being so, we have to rule that said respondent became an enemy corporation upon the outbreak of the war between
the United States and Germany. The English and American cases relied upon by the Court of Appeals have lost
their force in view of the latest decision of the Supreme Court of the United States in Clark vs. Uebersee Finanz
Korporation, decided on December 8, 1947, 92 Law. Ed. Advance Opinions, No. 4, pp. 148-153, in which the
controls test has been adopted. In "Enemy Corporation" by Martin Domke, a paper presented to the Second
International Conference of the Legal Profession held at the Hague (Netherlands) in August. 1948 the following
enlightening passages appear:

Since World War I, the determination of enemy nationality of corporations has been discussion in many
countries, belligerent and neutral. A corporation was subject to enemy legislation when it was controlled
by enemies, namely managed under the influence of individuals or corporations, themselves considered
as enemies. It was the English courts which first the Daimler case applied this new concept of "piercing
the corporate veil," which was adopted by the peace of Treaties of 1919 and the Mixed Arbitral established
after the First World War.

The United States of America did not adopt the control test during the First World War. Courts refused to
recognized the concept whereby American-registered corporations could be considered as enemies and
thus subject to domestic legislation and administrative measures regarding enemy property.

World War II revived the problem again. It was known that German and other enemy interests were
cloaked by domestic corporation structure. It was not only by legal ownership of shares that a material
influence could be exercised on the management of the corporation but also by long term loans and other
factual situations. For that reason, legislation on enemy property enacted in various countries during
World War II adopted by statutory provisions to the control test and determined, to various degrees, the
incidents of control. Court decisions were rendered on the basis of such newly enacted statutory provisions
in determining enemy character of domestic corporation.

The United States did not, in the amendments of the Trading with the Enemy Act during the last war,
include as did other legislations the applications of the control test and again, as in World War I, courts
refused to apply this concept whereby the enemy character of an American or neutral-registered
corporation is determined by the enemy nationality of the controlling stockholders.

Measures of blocking foreign funds, the so called freezing regulations, and other administrative practice
in the treatment of foreign-owned property in the United States allowed to large degree the determination
of enemy interest in domestic corporations and thus the application of the control test. Court decisions
sanctioned such administrative practice enacted under the First War Powers Act of 1941, and more
recently, on December 8, 1947, the Supreme Court of the United States definitely approved of the control
theory. In Clark vs. Uebersee Finanz Korporation, A. G., dealing with a Swiss corporation allegedly
controlled by German interest, the Court: "The property of all foreign interest was placed within the reach
of the vesting power (of the Alien Property Custodian) not to appropriate friendly or neutral assets but to
reach enemy interest which masqueraded under those innocent fronts. . . . The power of seizure and vesting
was extended to all property of any foreign country or national so that no innocent appearing device could
become a Trojan horse."

It becomes unnecessary, therefore, to dwell at length on the authorities cited in support of the appealed decision.
However, we may add that, in Haw Pia vs. China Banking Corporation,* 45 Off Gaz., (Supp. 9) 299, we already
held that China Banking Corporation came within the meaning of the word "enemy" as used in the Trading with
the Enemy Acts of civilized countries not only because it was incorporated under the laws of an enemy country
but because it was controlled by enemies.

The Philippine Insurance Law (Act No. 2427, as amended,) in section 8, provides that "anyone except a public
enemy may be insured." It stands to reason that an insurance policy ceases to be allowable as soon as an insured
becomes a public enemy.
 Effect of war, generally. All intercourse between citizens of belligerent powers which is inconsistent
with a state of war is prohibited by the law of nations. Such prohibition includes all negotiations,
commerce, or trading with the enemy; all acts which will increase, or tend to increase, its income or
resources; all acts of voluntary submission to it; or receiving its protection; also all acts concerning the
transmission of money or goods; and all contracts relating thereto are thereby nullified. It further prohibits
insurance upon trade with or by the enemy, upon the life or lives of aliens engaged in service with the
enemy; this for the reason that the subjects of one country cannot be permitted to lend their assistance to
protect by insurance the commerce or property of belligerent, alien subjects, or to do anything detrimental
too their country's interest. The purpose of war is to cripple the power and exhaust the resources of the
enemy, and it is inconsistent that one country should destroy its enemy's property and repay in insurance
the value of what has been so destroyed, or that it should in such manner increase the resources of the
enemy, or render it aid, and the commencement of war determines, for like reasons, all trading intercourse
with the enemy, which prior thereto may have been lawful. All individuals therefore, who compose the
belligerent powers, exist, as to each other, in a state of utter exclusion, and are public enemies. (6 Couch,
Cyc. of Ins. Law, pp. 5352-5353.)

In the case of an ordinary fire policy, which grants insurance only from year, or for some other specified
term it is plain that when the parties become alien enemies, the contractual tie is broken and the contractual
rights of the parties, so far as not vested. lost. (Vance, the Law on Insurance, Sec. 44, p. 112.)

The respondent having become an enemy corporation on December 10, 1941, the insurance policy issued in its
favor on October 1, 1941, by the petitioner (a Philippine corporation) had ceased to be valid and enforcible, and
since the insured goods were burned after December 10, 1941, and during the war, the respondent was not entitled
to any indemnity under said policy from the petitioner. However, elementary rules of justice (in the absence of
specific provision in the Insurance Law) require that the premium paid by the respondent for the period covered
by its policy from December 11, 1941, should be returned by the petitioner.

The Court of Appeals, in deciding the case, stated that the main issue hinges on the question of whether the policy
in question became null and void upon the declaration of war between the United States and Germany on
December 10, 1941, and its judgment in favor of the respondent corporation was predicated on its conclusion that
the policy did not cease to be in force. The Court of Appeals necessarily assumed that, even if the payment by the
petitioner to the respondent was involuntary, its action is not tenable in view of the ruling on the validity of the
policy. As a matter of fact, the Court of Appeals held that "any intimidation resorted to by the appellee was not
unjust but the exercise of its lawful right to claim for and received the payment of the insurance policy," and that
the ruling of the Bureau of Financing to the effect that "the appellee was entitled to payment from the appellant
was, well founded." Factually, there can be no doubt that the Director of the Bureau of Financing, in ordering the
petitioner to pay the claim of the respondent, merely obeyed the instruction of the Japanese Military
Administration, as may be seen from the following: "In view of the findings and conclusion of this office
contained in its decision on Administrative Case dated February 9, 1943 copy of which was sent to your office
and the concurrence therein of the Financial Department of the Japanese Military Administration, and following
the instruction of said authority, you are hereby ordered to pay the claim of Messrs. Christern, Huenefeld & Co.,
Inc. The payment of said claim, however, should be made by means of crossed check." (Emphasis supplied.)

It results that the petitioner is entitled to recover what paid to the respondent under the circumstances on this case.
However, the petitioner will be entitled to recover only the equivalent, in actual Philippines currency of P92,650
paid on April 19, 1943, in accordance with the rate fixed in the Ballantyne scale.

Wherefore, the appealed decision is hereby reversed and the respondent corporation is ordered to pay to the
petitioner the sum of P77,208.33, Philippine currency, less the amount of the premium, in Philippine currency,
that should be returned by the petitioner for the unexpired term of the policy in question, beginning December
11, 1941. Without costs. So ordered.
G.R. No. L-14441 December 17, 1966

PEDRO R. PALTING, petitioner,

vs.
SAN JOSE PETROLEUM INCORPORATED, respondent.

BARRERA, J.:

This is a petition for review of the order of August 29, 1958, later supplemented and amplified by another dated
September 9, 1958, of the Securities and Exchange Commission denying the opposition to, and instead, granting
the registration, and licensing the sale in the Philippines, of 5,000,000 shares of the capital stock of the respondent-
appellee San Jose Petroleum, Inc. (hereafter referred to as SAN JOSE PETROLEUM), a corporation organized
and existing in the Republic of Panama.

On September 7, 1956, SAN JOSE PETROLEUM filed with the Philippine Securities and Exchange Commission
a sworn registration statement, for the registration and licensing for sale in the Philippines Voting Trust
Certificates representing 2,000,000 shares of its capital stock of a par value of $0.35 a share, at P1.00 per share.
It was alleged that the entire proceeds of the sale of said securities will be devoted or used exclusively to finance
the operations of San Jose Oil Company, Inc. (a domestic mining corporation hereafter to be referred to as SAN
JOSE OIL) which has 14 petroleum exploration concessions covering an area of a little less than 1,000,000
hectares, located in the provinces of Pangasinan, Tarlac, Nueva Ecija, La Union, Iloilo, Cotabato, Davao and
Agusan. It was the express condition of the sale that every purchaser of the securities shall not receive a stock
certificate, but a registered or bearer-voting-trust certificate from the voting trustees named therein James L.
Buckley and Austin G.E. Taylor, the first residing in Connecticut, U.S.A., and the second in New York City.
While this application for registration was pending consideration by the Securities and Exchange Commission,
SAN JOSE PETROLEUM filed an amended Statement on June 20, 1958, for registration of the sale in the
Philippines of its shares of capital stock, which was increased from 2,000,000 to 5,000,000, at a reduced offering
price of from P1.00 to P0.70 per share. At this time the par value of the shares has also been reduced from $.35
to $.01 per share.1

Pedro R. Palting and others, allegedly prospective investors in the shares of SAN JOSE PETROLEUM, filed with
the Securities and Exchange Commission an opposition to registration and licensing of the securities on the
grounds that (1) the tie-up between the issuer, SAN JOSE PETROLEUM, a Panamanian corporation and SAN
JOSE OIL, a domestic corporation, violates the Constitution of the Philippines, the Corporation Law and the
Petroleum Act of 1949; (2) the issuer has not been licensed to transact business in the Philippines; (3) the sale of
the shares of the issuer is fraudulent, and works or tends to work a fraud upon Philippine purchasers; and (4) the
issuer as an enterprise, as well as its business, is based upon unsound business principles. Answering the foregoing
opposition of Palting, et al., the registrant SAN JOSE PETROLEUM claimed that it was a "business enterprise"
enjoying parity rights under the Ordinance appended to the Constitution, which parity right, with respect to
mineral resources in the Philippines, may be exercised, pursuant to the Laurel-Langley Agreement, only through
the medium of a corporation organized under the laws of the Philippines. Thus, registrant which is allegedly
qualified to exercise rights under the Parity Amendment, had to do so through the medium of a domestic
corporation, which is the SAN JOSE OIL. It refused the contention that the Corporation Law was being violated,
by alleging that Section 13 thereof applies only to foreign corporations doing business in the Philippines, and
registrant was not doing business here. The mere fact that it was a holding company of SAN JOSE OIL and that
registrant undertook the financing of and giving technical assistance to said corporation did not constitute
transaction of business in the Philippines. Registrant also denied that the offering for sale in the Philippines of its
shares of capital stock was fraudulent or would work or tend to work fraud on the investors. On August 29, 1958,
and on September 9, 1958 the Securities and Exchange Commissioner issued the orders object of the present
appeal.
The issues raised by the parties in this appeal are as follows:

1. Whether or not petitioner Pedro R. Palting, as a "prospective investor" in respondent's securities, has
personality to file the present petition for review of the order of the Securities and Exchange Commission;

2. Whether or not the issue raised herein is already moot and academic;

3. Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, a foreign corporation,
and SAN JOSE OIL COMPANY, INC., a domestic mining corporation, is violative of the Constitution,
the Laurel-Langley Agreement, the Petroleum Act of 1949, and the Corporation Law; and

4. Whether or not the sale of respondent's securities is fraudulent, or would work or tend to work fraud to
purchasers of such securities in the Philippines.

1. In answer to the notice and order of the Securities and Exchange Commissioner, published in 2 newspapers of
general circulation in the Philippines, for "any person who is opposed" to the petition for registration and licensing
of respondent's securities, to file his opposition in 7 days, herein petitioner so filed an opposition. And, the
Commissioner, having denied his opposition and instead, directed the registration of the securities to be offered
for sale, oppositor Palting instituted the present proceeding for review of said order.

Respondent raises the question of the personality of petitioner to bring this appeal, contending that as a mere
"prospective investor", he is not an "Aggrieved" or "interested" person who may properly maintain the suit. Citing
a 1931 ruling of Utah State Supreme Court2 it is claimed that the phrase "party aggrieved" used in the Securities
Act3and the Rules of Court4 as having the right to appeal should refer only to issuers, dealers and salesmen of
securities.

It is true that in the cited case, it was ruled that the phrase "person aggrieved" is that party "aggrieved by the
judgment or decree where it operates on his rights of property or bears directly upon his interest", that the word
"aggrieved" refers to "a substantial grievance, a denial of some personal property right or the imposition upon a
party of a burden or obligation." But a careful reading of the case would show that the appeal therein was
dismissed because the court held that an order of registration was not final and therefore not appealable. The
foregoing pronouncement relied upon by herein respondent was made in construing the provision regarding an
order of revocation which the court held was the one appealable. And since the law provides that in revoking the
registration of any security, only the issuer and every registered dealer of the security are notified, excluding any
person or group of persons having no such interest in the securities, said court concluded that the phrase
"interested person" refers only to issuers, dealers or salesmen of securities.

We cannot consider the foregoing ruling by the Utah State Court as controlling on the issue in this case. Our
Securities Act in Section 7(c) thereof, requires the publication and notice of the registration statement. Pursuant
thereto, the Securities and Exchange Commissioner caused the publication of an order in part reading as follows:

. . . Any person who is opposed with this petition must file his written opposition with this Commission
within said period (2 weeks). . . .

In other words, as construed by the administrative office entrusted with the enforcement of the Securities Act,
any person (who may not be "aggrieved" or "interested" within the legal acceptation of the word) is allowed or
permitted to file an opposition to the registration of securities for sale in the Philippines. And this is in consonance
with the generally accepted principle that Blue Sky Laws are enacted to protect investors and prospective
purchasers and to prevent fraud and preclude the sale of securities which are in fact worthless or worth
substantially less than the asking price. It is for this purpose that herein petitioner duly filed his opposition giving
grounds therefor. Respondent SAN JOSE PETROLEUM was required to reply to the opposition. Subsequently
both the petition and the opposition were set for hearing during which the petitioner was allowed to actively
participate and did so by cross-examining the respondent's witnesses and filing his memorandum in support of
his opposition. He therefore to all intents and purposes became a party to the proceedings. And under the New
Rules of Court,5 such a party can appeal from a final order, ruling or decision of the Securities and Exchange
Commission. This new Rule eliminating the word "aggrieved" appearing in the old Rule, being procedural in
nature,6 and in view of the express provision of Rule 144 that the new rules made effective on January 1, 1964
shall govern not only cases brought after they took effect but all further proceedings in cases then pending, except
to the extent that in the opinion of the Court their application would not be feasible or would work injustice, in
which event the former procedure shall apply, we hold that the present appeal is properly within the appellate
jurisdiction of this Court.

The order allowing the registration and sale of respondent's securities is clearly a final order that is appealable.
The mere fact that such authority may be later suspended or revoked, depending on future developments, does
not give it the character of an interlocutory or provisional ruling. And the fact that seven days after the publication
of the order, the securities are deemed registered (Sec. 7, Com. Act 83, as amended), points to the finality of the
order. Rights and obligations necessarily arise therefrom if not reviewed on appeal.

Our position on this procedural matter that the order is appealable and the appeal taken here is proper is
strengthened by the intervention of the Solicitor General, under Section 23 of Rule 3 of the Rules of Court, as the
constitutional issues herein presented affect the validity of Section 13 of the Corporation Law, which, according
to the respondent, conflicts with the Parity Ordinance and the Laurel-Langley Agreement recognizing, it is
claimed, its right to exploit our petroleum resources notwithstanding said provisions of the Corporation Law.

2. Respondent likewise contends that since the order of Registration/Licensing dated September 9, 1958 took
effect 30 days from September 3, 1958, and since no stay order has been issued by the Supreme Court,
respondent's shares became registered and licensed under the law as of October 3, 1958. Consequently, it is
asserted, the present appeal has become academic. Frankly we are unable to follow respondent's argumentation.
First it claims that the order of August 29 and that of September 9, 1958 are not final orders and therefor are not
appealable. Then when these orders, according to its theory became final and were implemented, it argues that
the orders can no longer be appealed as the question of registration and licensing became moot and academic.

But the fact is that because of the authority to sell, the securities are, in all probabilities, still being traded in the
open market. Consequently the issue is much alive as to whether respondent's securities should continue to be the
subject of sale. The purpose of the inquiry on this matter is not fully served just because the securities had passed
out of the hands of the issuer and its dealers. Obviously, so long as the securities are outstanding and are placed
in the channels of trade and commerce, members of the investing public are entitled to have the question of the
worth or legality of the securities resolved one way or another.

But more fundamental than this consideration, we agree with the late Senator Claro M. Recto, who appeared
as amicus curiae in this case, that while apparently the immediate issue in this appeal is the right of respondent
SAN JOSE PETROLEUM to dispose of and sell its securities to the Filipino public, the real and ultimate
controversy here would actually call for the construction of the constitutional provisions governing the
disposition, utilization, exploitation and development of our natural resources. And certainly this is neither moot
nor academic.

3. We now come to the meat of the controversy the "tie-up" between SAN JOSE OIL on the one hand, and the
respondent SAN JOSE PETROLEUM and its associates, on the other. The relationship of these corporations
involved or affected in this case is admitted and established through the papers and documents which are parts of
the records: SAN JOSE OIL, is a domestic mining corporation, 90% of the outstanding capital stock of which is
owned by respondent SAN JOSE PETROLEUM, a foreign (Panamanian) corporation, the majority interest of
which is owned by OIL INVESTMENTS, Inc., another foreign (Panamanian) company. This latter corporation
in turn is wholly (100%) owned by PANTEPEC OIL COMPANY, C.A., and PANCOASTAL PETROLEUM
COMPANY, C.A., both organized and existing under the laws of Venezuela. As of September 30, 1956, there
were 9,976 stockholders of PANCOASTAL PETROLEUM found in 49 American states and U.S. territories,
holding 3,476,988 shares of stock; whereas, as of November 30, 1956, PANTEPEC OIL COMPANY was said to
have 3,077,916 shares held by 12,373 stockholders scattered in 49 American state. In the two lists of stockholders,
there is no indication of the citizenship of these stockholders,7 or of the total number of authorized stocks of each
corporation, for the purpose of determining the corresponding percentage of these listed stockholders in relation
to the respective capital stock of said corporation.

Petitioner, as well as the amicus curiae and the Solicitor General8 contend that the relationship between herein
respondent SAN JOSE PETROLEUM and its subsidiary, SAN JOSE OIL, violates the Petroleum Law of 1949,
the Philippine Constitution, and Section 13 of the Corporation Law, which inhibits a mining corporation from
acquiring an interest in another mining corporation. It is respondent's theory, on the other hand, that far from
violating the Constitution; such relationship between the two corporations is in accordance with the Laurel-
Langley Agreement which implemented the Ordinance Appended to the Constitution, and that Section 13 of the
Corporation Law is not applicable because respondent is not licensed to do business, as it is not doing business,
in the Philippines.

Article XIII, Section 1 of the Philippine Constitution provides:

SEC. 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum,
and other mineral oils, all forces of potential energy, and other natural resources of the Philippines belong
to the State, and their disposition, exploitation, development, or utilization shall be limited to citizens of
the Philippines, or to corporations or associations at least sixty per centum of the capital of which is
owned by such citizens, subject to any existing right, grant, lease or concession at the time of the
inauguration of this Government established under this Constitution. . . . (Emphasis supplied)

In the 1946 Ordinance Appended to the Constitution, this right (to utilize and exploit our natural resources) was
extended to citizens of the United States, thus:

Notwithstanding the provisions of section one, Article Thirteen, and section eight, Article Fourteen, of the
foregoing Constitution, during the effectivity of the Executive Agreement entered into by the President of
the Philippines with the President of the United States on the fourth of July, nineteen hundred and forty-
six, pursuant to the provisions of Commonwealth Act Numbered Seven hundred and thirty-three, but in
no case to extend beyond the third of July, nineteen hundred and seventy-four, the disposition,
exploitation, development, and utilization of all agricultural, timber, and mineral lands of the public
domain, waters, minerals, coal, petroleum, and other mineral oils, all forces of potential energy, and other
natural resources of the Philippines, and the operation of public utilities shall, if open to any person, be
open to citizens of the United States, and to all forms of business enterprises owned or controlled, directly
or indirectly, by citizens of the United States in the same manner as to, and under the same conditions
imposed upon, citizens of the Philippines or corporations or associations owned or controlled by citizens
of the Philippines (Emphasis supplied.)

In the 1954 Revised Trade Agreement concluded between the United States and the Philippines, also known as
the Laurel-Langley Agreement, embodied in Republic Act 1355, the following provisions appear:

ARTICLE VI

1. The disposition, exploitation, development and utilization of all agricultural, timber, and mineral lands
of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces and sources of
potential energy, and other natural resources of either Party, and the operation of public utilities, shall, if
open to any person, be open to citizens of the other Party and to all forms of business enterprise owned or
controlled, directly or indirectly, by citizens of such other Party in the same manner as to and under the
 same conditions imposed upon citizens or corporations or associations owned or controlled by citizens of
the Party granting the right.

2. The rights provided for in Paragraph 1 may be exercised, . . . in the case of citizens of the United States,
with respect to natural resources in the public domain in the Philippines, only through the medium of a
corporation organized under the laws of the Philippines and at least 60% of the capital stock of which is
owned or controlled by citizens of the United States. . . .

3. The United States of America reserves the rights of the several States of the United States to limit the
extent to which citizens or corporations or associations owned or controlled by citizens of the Philippines
may engage in the activities specified in this Article. The Republic of the Philippines reserves the power
to deny any of the rights specified in this Article to citizens of the United States who are citizens of States,
or to corporations or associations at least 60% of whose capital stock or capital is owned or controlled
by citizens of States, which deny like rights to citizens of the Philippines, or to corporations or associations
which are owned or controlled by citizens of the Philippines. . . . (Emphasis supplied.)

Re-stated, the privilege to utilize, exploit, and develop the natural resources of this country was granted, by Article
XIII of the Constitution, to Filipino citizens or to corporations or associations 60% of the capital of which
is owned by such citizens. With the Parity Amendment to the Constitution, the same right was extended to citizens
of the United States and business enterprises owned or controlled directly or indirectly, by citizens of the United
States.

There could be no serious doubt as to the meaning of the word "citizens" used in the aforementioned provisions
of the Constitution. The right was granted to 2 types of persons: natural persons (Filipino or American citizens)
and juridical persons (corporations 60% of which capital is owned by Filipinos and business enterprises owned
or controlled directly or indirectly, by citizens of the United States). In American law, "citizen" has been defined
as "one who, under the constitution and laws of the United States, has a right to vote for representatives in congress
and other public officers, and who is qualified to fill offices in the gift of the people. (1 Bouvier's Law Dictionary,
p. 490.) A citizen is

One of the sovereign people. A constituent member of the sovereignty, synonymous with the people."
(Scott v. Sandford, 19 Ho. [U.S.] 404, 15 L. Ed. 691.)

A member of the civil state entitled to all its privileges. (Cooley, Const. Lim. 77. See U.S. v. Cruikshank
92 U.S. 542, 23 L. Ed. 588; Minor v. Happersett 21 Wall. [U.S.] 162, 22 L. Ed. 627.)

These concepts clarified, is herein respondent SAN JOSE PETROLEUM an American business enterprise entitled
to parity rights in the Philippines? The answer must be in the negative, for the following reasons:

Firstly It is not owned or controlled directly by citizens of the United States, because it is owned and controlled
by a corporation, the OIL INVESTMENTS, another foreign (Panamanian) corporation.

Secondly Neither can it be said that it is indirectly owned and controlled by American citizens through the OIL
INVESTMENTS, for this latter corporation is in turn owned and controlled, not by citizens of the United States,
but still by two foreign (Venezuelan) corporations, the PANTEPEC OIL COMPANY and PANCOASTAL
PETROLEUM.

Thirdly Although it is claimed that these two last corporations are owned and controlled respectively by 12,373
and 9,979 stockholders residing in the different American states, there is no showing in the certification furnished
by respondent that the stockholders of PANCOASTAL or those of them holding the controlling stock, are citizens
of the United States.
Fourthly Granting that these individual stockholders are American citizens, it is yet necessary to establish that
the different states of which they are citizens, allow Filipino citizens or corporations or associations owned or
controlled by Filipino citizens, to engage in the exploitation, etc. of the natural resources of these states (see
paragraph 3, Article VI of the Laurel-Langley Agreement, supra). Respondent has presented no proof to this
effect.

Fifthly But even if the requirements mentioned in the two immediately preceding paragraphs are satisfied,
nevertheless to hold that the set-up disclosed in this case, with a long chain of intervening foreign corporations,
comes within the purview of the Parity Amendment regarding business enterprises indirectly owned or controlled
by citizens of the United States, is to unduly stretch and strain the language and intent of the law. For, to what
extent must the word "indirectly" be carried? Must we trace the ownership or control of these various
corporations ad infinitum for the purpose of determining whether the American ownership-control-requirement
is satisfied? Add to this the admitted fact that the shares of stock of the PANTEPEC and PANCOASTAL which
are allegedly owned or controlled directly by citizens of the United States, are traded in the stock exchange in
New York, and you have a situation where it becomes a practical impossibility to determine at any given time,
the citizenship of the controlling stock required by the law. In the circumstances, we have to hold that the
respondent SAN JOSE PETROLEUM, as presently constituted, is not a business enterprise that is authorized to
exercise the parity privileges under the Parity Ordinance, the Laurel-Langley Agreement and the Petroleum Law.
Its tie-up with SAN JOSE OIL is, consequently, illegal.

What, then, would be the Status of SAN JOSE OIL, about 90% of whose stock is owned by SAN JOSE
PETROLEUM? This is a query which we need not resolve in this case as SAN JOSE OIL is not a party and it is
not necessary to do so to dispose of the present controversy. But it is a matter that probably the Solicitor General
would want to look into.

There is another issue which has been discussed extensively by the parties. This is whether or not an American
mining corporation may lawfully "be in anywise interested in any other corporation (domestic or foreign)
organized for the purpose of engaging in agriculture or in mining," in the Philippines or whether an American
citizen owning stock in more than one corporation organized for the purpose of engaging in agriculture or in
mining, may own more than 15% of the capital stock then outstanding and entitled to vote, of each of such
corporations, in view of the express prohibition contained in Section 13 of the Philippine Corporation Law. The
petitioner in this case contends that the provisions of the Corporation Law must be applied to American citizens
and business enterprise otherwise entitled to exercise the parity privileges, because both the Laurel-Langley
Agreement (Art. VI, par. 1) and the Petroleum Act of 1948 (Art. 31), specifically provide that the enjoyment by
them of the same rights and obligations granted under the provisions of both laws shall be "in the same manner
as to, and under the same conditions imposed upon, citizens of the Philippines or corporations or associations
owned or controlled by citizens of the Philippines." The petitioner further contends that, as the enjoyment of the
privilege of exploiting mineral resources in the Philippines by Filipino citizens or corporations owned or
controlled by citizens of the Philippines (which corporation must necessarily be organized under the Corporation
Law), is made subject to the limitations provided in Section 13 of the Corporation Law, so necessarily the exercise
of the parity rights by citizens of the United States or business enterprise owned or controlled, directly or
indirectly, by citizens of the United States, must equally be subject to the same limitations contained in the
aforesaid Section 13 of the Corporation Law.

In view of the conclusions we have already arrived at, we deem it not indispensable for us to pass upon this legal
question, especially taking into account the statement of the respondent (SAN JOSE PETROLEUM) that it is
essentially a holding company, and as found by the Securities and Exchange Commissioner, its principal activity
is limited to the financing and giving technical assistance to SAN JOSE OIL.

4. Respondent SAN JOSE PETROLEUM, whose shares of stock were allowed registration for sale in the
Philippines, was incorporated under the laws of Panama in April, 1956 with an authorized capital stock of
$500,000.00, American currency, divided into 50,000,000 shares at par value of $0.01 per share. By virtue of a
3-party Agreement of June 14, 1956, respondent was supposed to have received from OIL INVESTMENTS
8,000,000 shares of the capital stock of SAN JOSE OIL (at par value of $0.01 per share), plus a note for
$250,000.00 due in 6 months, for which respondent issued in favor of OIL INVESTMENTS 16,000,000 shares
of its capital stock, at $0.01 per share or with a value of $160,000.00, plus a note for $230,297.97 maturing in 2
years at 6% per annum interest,9 and the assumption of payment of the unpaid price of 7,500,000 (of the 8,000,000
shares of SAN JOSE OIL).

On June 27, 1956, the capitalization of SAN JOSE PETROLEUM was increased from $500,000.00 to
$17,500,000.00 by increasing the par value of the same 50,000,000 shares, from $0.01 to $0.35. Without any
additional consideration, the 16,000,000 shares of $0.01 previously issued to OIL INVESTMENTS with a total
value of $160,000.00 were changed with 16,000,000 shares of the recapitalized stock at $0.35 per share, or valued
at $5,600,000.00. And, to make it appear that cash was received for these re-issued 16,000,000 shares, the board
of directors of respondent corporation placed a valuation of $5,900,000.00 on the 8,000,000 shares of SAN JOSE
OIL (still having par value of $0.10 per share) which were received from OIL INVESTMENTS as part-
consideration for the 16,000,000 shares at $0.01 per share.

In the Balance Sheet of respondent, dated July 12, 1956, from the $5,900,000.00, supposedly the value of the
8,000,000 shares of SAN JOSE OIL, the sum of $5,100,000.00 was deducted, corresponding to the alleged
difference between the "value" of the said shares and the subscription price thereof which is $800,000.00 (at $0.10
per share). From this $800,000.00, the subscription price of the SAN JOSE OIL shares, the amount of $319,702.03
was deducted, as allegedly unpaid subscription price, thereby giving a difference of $480,297.97, which was
placed as the amount allegedly paid in on the subscription price of the 8,000,000 SAN JOSE OIL shares. Then,
by adding thereto the note receivable from OIL INVESTMENTS, for $250,000.00 (part-consideration for the
16,000,000 SAN JOSE PETROLEUM shares), and the sum of $6,516.21, as deferred expenses, SAN JOSE
PETROLEUM appeared to have assets in the sum of $736,814.18.

These figures are highly questionable. Take the item $5,900,000.00 the valuation placed on the 8,000,000 shares
of SAN JOSE OIL. There appears no basis for such valuation other than belief by the board of directors of
respondent that "should San Jose Oil Company be granted the bulk of the concessions applied for upon reasonable
terms, that it would have a reasonable value of approximately $10,000,000." 10 Then, of this amount, the
subscription price of $800,000.00 was deducted and called it "difference between the (above) valuation and the
subscription price for the 8,000,000 shares." Of this $800,000.00 subscription price, they deducted the sum of
$480,297.97 and the difference was placed as the unpaid portion of the subscription price. In other words, it was
made to appear that they paid in $480,297.97 for the 8,000,000 shares of SAN JOSE OIL. This amount
($480,297.97) was supposedly that $250,000.00 paid by OIL INVESMENTS for 7,500,000 shares of SAN JOSE
OIL, embodied in the June 14 Agreement, and a sum of $230,297.97 the amount expended or advanced by OIL
INVESTMENTS to SAN JOSE OIL. And yet, there is still an item among respondent's liabilities, for $230,297.97
appearing as note payable to Oil Investments, maturing in two (2) years at six percent (6%) per annum. 11 As far
as it appears from the records, for the 16,000,000 shares at $0.35 per share issued to OIL INVESTMENTS,
respondent SAN JOSE PETROLEUM received from OIL INVESTMENTS only the note for $250,000.00 plus
the 8,000,000 shares of SAN JOSE OIL, with par value of $0.10 per share or a total of $1,050,000.00 the only
assets of the corporation. In other words, respondent actually lost $4,550,000.00, which was received by OIL
INVESTMENTS.

But this is not all. Some of the provisions of the Articles of Incorporation of respondent SAN JOSE PETROLEUM
are noteworthy; viz:

(1) the directors of the Company need not be shareholders;

(2) that in the meetings of the board of directors, any director may be represented and may vote through a
proxy who also need not be a director or stockholder; and
 (3) that no contract or transaction between the corporation and any other association or partnership will
be affected, except in case of fraud, by the fact that any of the directors or officers of the corporation is
interested in, or is a director or officer of, such other association or partnership, and that no such contract
or transaction of the corporation with any other person or persons, firm, association or partnership shall
be affected by the fact that any director or officer of the corporation is a party to or has an interest in, such
contract or transaction, or has in anyway connected with such other person or persons, firm, association
or partnership; and finally, that all and any of the persons who may become director or officer of the
corporation shall be relieved from all responsibility for which they may otherwise be liable by reason of
any contract entered into with the corporation, whether it be for his benefit or for the benefit of any other
person, firm, association or partnership in which he may be interested.

These provisions are in direct opposition to our corporation law and corporate practices in this country. These
provisions alone would outlaw any corporation locally organized or doing business in this jurisdiction. Consider
the unique and unusual provision that no contract or transaction between the company and any other association
or corporation shall be affected except in case of fraud, by the fact that any of the directors or officers of the
company may be interested in or are directors or officers of such other association or corporation; and that none
of such contracts or transactions of this company with any person or persons, firms, associations or corporations
shall be affected by the fact that any director or officer of this company is a party to or has an interest in such
contract or transaction or has any connection with such person or persons, firms associations or corporations; and
that any and all persons who may become directors or officers of this company are hereby relieved of all
responsibility which they would otherwise incur by reason of any contract entered into which this company either
for their own benefit, or for the benefit of any person, firm, association or corporation in which they may be
interested.

The impact of these provisions upon the traditional judiciary relationship between the directors and the
stockholders of a corporation is too obvious to escape notice by those who are called upon to protect the interest
of investors. The directors and officers of the company can do anything, short of actual fraud, with the affairs of
the corporation even to benefit themselves directly or other persons or entities in which they are interested, and
with immunity because of the advance condonation or relief from responsibility by reason of such acts. This and
the other provision which authorizes the election of non-stockholders as directors, completely disassociate the
stockholders from the government and management of the business in which they have invested.

To cap it all on April 17, 1957, admittedly to assure continuity of the management and stability of SAN JOSE
PETROLEUM, OIL INVESTMENTS, as holder of the only subscribed stock of the former corporation and acting
"on behalf of all future holders of voting trust certificates," entered into a voting trust agreement12 with James L.
Buckley and Austin E. Taylor, whereby said Trustees were given authority to vote the shares represented by the
outstanding trust certificates (including those that may henceforth be issued) in the following manner:

(a) At all elections of directors, the Trustees will designate a suitable proxy or proxies to vote for the
election of directors designated by the Trustees in their own discretion, having in mind the best interests
of the holders of the voting trust certificates, it being understood that any and all of the Trustees shall be
eligible for election as directors;

(b) On any proposition for removal of a director, the Trustees shall designate a suitable proxy or proxies
to vote for or against such proposition as the Trustees in their own discretion may determine, having in
mind the best interest of the holders of the voting trust certificates;

(c) With respect to all other matters arising at any meeting of stockholders, the Trustees will instruct such
proxy or proxies attending such meetings to vote the shares of stock held by the Trustees in accordance
with the written instructions of each holder of voting trust certificates. (Emphasis supplied.)
It was also therein provided that the said Agreement shall be binding upon the parties thereto, their successors,
and upon all holders of voting trust certificates.

And these are the voting trust certificates that are offered to investors as authorized by Security and Exchange
Commissioner. It can not be doubted that the sale of respondent's securities would, to say the least, work or tend
to work fraud to Philippine investors.

FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to dismiss this appeal, is denied
and the orders of the Securities and Exchange Commissioner, allowing the registration of Respondent's securities
and licensing their sale in the Philippines are hereby set aside. The case is remanded to the Securities and
Exchange Commission for appropriate action in consonance with this decision. With costs. Let a copy of this
decision be furnished the Solicitor General for whatever action he may deem advisable to take in the premises.
So ordered.