Corporation Law Cases G.R. No.

L-23145 November 29, 1968

certificates in question; appellant opposed the petition of the ancillary administrator because the said stock certificates are in existence, they are today in the possession of the domiciliary administrator, the County Trust Company, in New York, U.S.A...."4 It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as lost. Moreover, it would allege that there was a failure to observe certain requirements of its by-laws before new stock certificates could be issued. Hence, its appeal. As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes an emphatic affirmation of judicial authority sought to be emasculated by the wilful conduct of the domiciliary administrator in refusing to accord obedience to a court decree. How, then, can this order be stigmatized as illegal? As is true of many problems confronting the judiciary, such a response was called for by the realities of the situation. What cannot be ignored is that conduct bordering on wilful defiance, if it had not actually reached it, cannot without undue loss of judicial prestige, be condoned or tolerated. For the law is not so lacking in flexibility and resourcefulness as to preclude such a solution, the more so as deeper reflection would make clear its being buttressed by indisputable principles and supported by the strongest policy considerations. It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less than that of the country. Through this challenged order, there is thus dispelled the atmosphere of contingent frustration brought about by the persistence of the domiciliary administrator to hold on to the stock certificates after it had, as admitted, voluntarily submitted itself to the jurisdiction of the lower court by entering its appearance through counsel on June 27, 1963, and filing a petition for relief from a previous order of March 15, 1963. Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed. For without it, what it had been decided would be set at naught and nullified. Unless such a blatant disregard by the domiciliary administrator, with residence abroad, of what was previously ordained by a court order could be thus remedied, it would have entailed, insofar as this matter was concerned, not a partial but a well-nigh complete paralysis of judicial authority. 1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to gain control and possession of all assets of the decedent within the jurisdiction of the Philippines. Nor could it. Such a power is inherent in his duty to settle her estate and satisfy the claims of local creditors.5 As Justice Tuason speaking for this Court made clear, it is a "general rule universally recognized" that administration, whether principal or ancillary, certainly "extends to the assets of a decedent found within the state or country where it was granted," the corollary being "that an administrator appointed in one state or country has no power over property in another state or country."6 It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by Justice Malcolm. Thus: "It is often necessary to have more than one administration of an estate. When a person dies intestate owning property in the country of his domicile as well as in a foreign country, administration is had in both countries. That which is granted in the jurisdiction of decedent's last domicile is termed the principal administration, while any other administration is termed the ancillary administration. The reason for the latter is because a grant of administration does not ex proprio vigore have any effect beyond the

TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary administrator-appellee, vs. BENGUET CONSOLIDATED, INC., oppositor-appellant. FERNANDO, J.: Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company of New York, United States of America, of the estate of the deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to surrender to the ancillary administrator in the Philippines the stock certificates owned by her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims of local creditors, the lower court, then presided by the Honorable Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor: "After considering the motion of the ancillary administrator, dated February 11, 1964, as well as the opposition filed by the Benguet Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in connection with the administration and liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates covering the 33,002 shares of stock standing in her name in the books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs said corporation to issue new certificates in lieu thereof, the same to be delivered by said corporation to either the incumbent ancillary administrator or to the Probate Division of this Court."1 From such an order, an appeal was taken to this Court not by the domiciliary administrator, the County Trust Company of New York, but by the Philippine corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The challenged order represents a response and expresses a policy, to paraphrase Frankfurter, arising out of a specific problem, addressed to the attainment of specific ends by the use of specific remedies, with full and ample support from legal doctrines of weight and significance. The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade Perkins, who died on March 27, 1960 in New York City, left among others, two stock certificates covering 33,002 shares of appellant, the certificates being in the possession of the County Trust Company of New York, which as noted, is the domiciliary administrator of the estate of the deceased.2 Then came this portion of the appellant's brief: "On August 12, 1960, Prospero Sanidad instituted ancillary administration proceedings in the Court of First Instance of Manila; Lazaro A. Marquez was appointed ancillary administrator, and on January 22, 1963, he was substituted by the appellee Renato D. Tayag. A dispute arose between the domiciary administrator in New York and the ancillary administrator in the Philippines as to which of them was entitled to the possession of the stock certificates in question. On January 27, 1964, the Court of First Instance of Manila ordered the domiciliary administrator, County Trust Company, to "produce and deposit" them with the ancillary administrator or with the Clerk of Court. The domiciliary administrator did not comply with the order, and on February 11, 1964, the ancillary administrator petitioned the court to "issue an order declaring the certificate or certificates of stocks covering the 33,002 shares issued in the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost."3 It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it is concerned as to "who is entitled to the possession of the stock

limits of the country in which it is granted. Hence, an administrator appointed in a foreign state has no authority in the [Philippines]. The ancillary administration is proper, whenever a person dies, leaving in a country other than that of his last domicile, property to be administered in the nature of assets of the deceased liable for his individual debts or to be distributed among his heirs."7 It would follow then that the authority of the probate court to require that ancillary administrator's right to "the stock certificates covering the 33,002 shares ... standing in her name in the books of [appellant] Benguet Consolidated, Inc...." be respected is equally beyond question. For appellant is a Philippine corporation owing full allegiance and subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as immune from lawful court orders. Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8 finds application. "In the instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled [here]." To the force of the above undeniable proposition, not even appellant is insensible. It does not dispute it. Nor could it successfully do so even if it were so minded. 2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the challenged order, how does appellant, Benguet Consolidated, Inc. propose to carry the extremely heavy burden of persuasion of precisely demonstrating the contrary? It would assign as the basic error allegedly committed by the lower court its "considering as lost the stock certificates covering 33,002 shares of Benguet belonging to the deceased Idonah Slade Perkins, ..."9 More specifically, appellant would stress that the "lower court could not "consider as lost" the stock certificates in question when, as a matter of fact, his Honor the trial Judge knew, and does know, and it is admitted by the appellee, that the said stock certificates are in existence and are today in the possession of the domiciliary administrator in New York."10 There may be an element of fiction in the above view of the lower court. That certainly does not suffice to call for the reversal of the appealed order. Since there is a refusal, persistently adhered to by the domiciliary administrator in New York, to deliver the shares of stocks of appellant corporation owned by the decedent to the ancillary administrator in the Philippines, there was nothing unreasonable or arbitrary in considering them as lost and requiring the appellant to issue new certificates in lieu thereof. Thereby, the task incumbent under the law on the ancillary administrator could be discharged and his responsibility fulfilled. Any other view would result in the compliance to a valid judicial order being made to depend on the uncontrolled discretion of the party or entity, in this case domiciled abroad, which thus far has shown the utmost persistence in refusing to yield obedience. Certainly, appellant would not be heard to contend in all seriousness that a judicial decree could be treated as a mere scrap of paper, the court issuing it being powerless to remedy its flagrant disregard. It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the facts. To be more blunt, the quality of truth may be lacking in such a conclusion arrived at. It is to be remembered however, again to borrow from Frankfurter, "that fictions which the law may rely upon in the pursuit of legitimate ends have played an important part in its development."11 Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance the ends of justice, [even if] clumsy and at times offensive."12 Some of them have persisted even to the present, that eminent jurist, noting "the quasi contract, the adopted

child, the constructive trust, all of flourishing vitality, to attest the empire of "as if" today."13 He likewise noted "a class of fictions of another order, the fiction which is a working tool of thought, but which at times hides itself from view till reflection and analysis have brought it to the light."14 What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the law. There should be then on the part of the appellant a further refinement in the catholicity of its condemnation of such judicial technique. If ever an occasion did call for the employment of a legal fiction to put an end to the anomalous situation of a valid judicial order being disregarded with apparent impunity, this is it. What is thus most obvious is that this particular alleged error does not carry persuasion. 3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one of the provisions of its by-laws which would set forth the procedure to be followed in case of a lost, stolen or destroyed stock certificate; it would stress that in the event of a contest or the pendency of an action regarding ownership of such certificate or certificates of stock allegedly lost, stolen or destroyed, the issuance of a new certificate or certificates would await the "final decision by [a] court regarding the ownership [thereof]."15 Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is admitted that the foreign domiciliary administrator did not appeal from the order now in question. Moreover, there is likewise the express admission of appellant that as far as it is concerned, "it is immaterial ... who is entitled to the possession of the stock certificates ..." Even if such were not the case, it would be a legal absurdity to impart to such a provision conclusiveness and finality. Assuming that a contrariety exists between the above by-law and the command of a court decree, the latter is to be followed. It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which, however, the judiciary must yield deference, when appropriately invoked and deemed applicable. It would be most highly unorthodox, however, if a corporate by-law would be accorded such a high estate in the jural order that a court must not only take note of it but yield to its alleged controlling force. The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be set aside for its inconsistency with one of its by-laws does not impress us. Its obedience to a lawful court order certainly constitutes a valid defense, assuming that such apprehension of a possible court action against it could possibly materialize. Thus far, nothing in the circumstances as they have developed gives substance to such a fear. Gossamer possibilities of a future prejudice to appellant do not suffice to nullify the lawful exercise of judicial authority. 4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with the basic postulates of corporate theory. We start with the undeniable premise that, "a corporation is an artificial being created by operation of law...."16 It owes its life to the state, its birth being purely dependent on its will. As Berle so aptly stated: "Classically, a corporation was conceived as an artificial person, owing its existence through creation by a sovereign power."17As a matter of fact, the statutory language employed owes much to Chief Justice Marshall, who in the Dartmouth College decision defined a corporation precisely as "an artificial being, invisible, intangible, and existing only in contemplation of law."18

The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality a person, but the law treats it as though it were a person by process of fiction, or by regarding it as an artificial person distinct and separate from its individual stockholders.... It owes its existence to law. It is an artificial person created by law for certain specific purposes, the extent of whose existence, powers and liberties is fixed by its charter."19 Dean Pound's terse summary, a juristic person, resulting from an association of human beings granted legal personality by the state, puts the matter neatly.20 There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is the reality of the group as a social and legal entity, independent of state recognition and concession."21 A corporation as known to Philippine jurisprudence is a creature without any existence until it has received the imprimatur of the state according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than that of its creator. More than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary, whenever called upon to do so. As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in our jurisdiction, comes more often within the ken of the judiciary than the other two coordinate branches. It institutes the appropriate court action to enforce its right. Correlatively, it is not immune from judicial control in those instances, where a duty under the law as ascertained in an appropriate legal proceeding is cast upon it. To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which may be conceded but license which cannot be tolerated. It is to argue that it may, when so minded, overrule the state, the source of its very existence; it is to contend that what any of its governmental organs may lawfully require could be ignored at will. So extravagant a claim cannot possibly merit approval. 5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown that in a guardianship proceedings then pending in a lower court, the United States Veterans Administration filed a motion for the refund of a certain sum of money paid to the minor under guardianship, alleging that the lower court had previously granted its petition to consider the deceased father as not entitled to guerilla benefits according to a determination arrived at by its main office in the United States. The motion was denied. In seeking a reconsideration of such order, the Administrator relied on an American federal statute making his decisions "final and conclusive on all questions of law or fact" precluding any other American official to examine the matter anew, "except a judge or judges of the United States court."23 Reconsideration was denied, and the Administrator appealed. In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that the appeal should be rejected. The provisions of the U.S. Code, invoked by the appellant, make the decisions of the U.S. Veterans' Administrator final and conclusive when made on claims property submitted to him for resolution; but they are not applicable to the present case, where the Administrator is not acting as a judge but as a litigant. There is a great difference between actions against the Administrator (which must be filed strictly in accordance with the conditions that are imposed by the Veterans' Act, including the exclusive review by United States courts), and those actions where the Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction by filing actions therein. Our attention has not been called to any law or treaty that would make the findings of the Veterans' Administrator, in actions where he is a party, conclusive on our courts. That, in effect, would deprive our tribunals of judicial discretion and render them mere subordinate instrumentalities of the Veterans' Administrator."

It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive, determinations made by foreign governmental agencies. It is infinitely worse if through the absence of any coercive power by our courts over juridical persons within our jurisdiction, the force and effectivity of their orders could be made to depend on the whim or caprice of alien entities. It is difficult to imagine of a situation more offensive to the dignity of the bench or the honor of the country. Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet Consolidated seems to be firmly committed as shown by its failure to accept the validity of the order complained of; it seeks its reversal. Certainly we must at all pains see to it that it does not succeed. The deplorable consequences attendant on appellant prevailing attest to the necessity of negative response from us. That is what appellant will get. That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to conjure extreme and even oppressive possibilities. That is not decisive. It does not settle the issue. What carries weight and conviction is the result arrived at, the just solution obtained, grounded in the soundest of legal doctrines and distinguished by its correspondence with what a sense of realism requires. For through the appealed order, the imperative requirement of justice according to law is satisfied and national dignity and honor maintained. WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First Instance, dated May 18, 1964, is affirmed. With costs against oppositor-appelant Benguet Consolidated, Inc. Makalintal, Zaldivar and Capistrano, JJ., concur. Concepcion, C.J., Reyes, J.B.L., Dizon, Sanchez and Castro, JJ., concur in the result. Stonehill v. Diokno, 20 SCRA 383 (1967) F: Upon application of the officers of the govt (resp. prosecutors), several judges (resp. judges) issued a total of 42 search warrants against petitioners &/ or the corporations of w/c they were officers, directed to any peace officer, to search the perons named and/ or the premises of their offices, warehouses, and/ or residences, and to seize several personal prop. as the "subject of the offense; stolen or embezelled or the fruits of the offense," or "used or intended to be used as the means of committing the offense" as violation of CB Laws, Tariff and Customs Laws (TCC), NIRC and the RPC." Alleging that the aforementioned search warrants are null & void, said petitioners filed w/ the SC this orig. action for certiorari, prohibition, mandamus & injunction. The writ was partially lifted or dissolved, insofar as the papers, documents, and things seized from the officers of the corporations; but the injunction was maintained as regards those found & seized in the residences of petitioners. ISSUES: (1) With respect to those found & seized in the offices of the corporations, w/n petitioners have cause of action to assail the validity of the contested warrants. (2) In connection w/ those found & seized in the residences of petitioners, w/n the search warrants in question and the searches and seizures made under the authority thereof are valid. (3) If the answer in no. 2 is no, w/n said documents, papers and things may be used in evidence against petitioners. HELD: (1) No. Petitioners have no cause of action to assail the legality of the contested warrants and the seizure made in pursuance thereof bec. said corporations have their respective personalities, separate and distinct from the personality of petitioners. The legality of a seizure can be contested only by the party whose rights have been impaired thereby and that the objection to an unlawful search and seizure is purely personal and cannot be avalied of by 3rd parties.

(2) No. Two points must be stressed in connection w/ Art. III, Sec. 2 of the Consti: (a) that no warrant shall issue but upon probable cause to be determined by the judge in the manner set forth therein; & (b) that the warrant shall particularly describe the things to be seized. None of these requirements has been complied w/. It was stated that the natural and juridical persons has committed a violation of CB laws, TCC, NIRC & RPC. No specific offense had been alleged in said applications. The averments thereof w/ 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 a probable cause, for the same presupposes the introduction of competent proof that the party against whom it is sought has performed particular acts, or committed specific omissions, violating a given provision of our criminal laws. General search warrants are outlawed bec. they place the sanctity of the domicile and the privacy of communication and correspondence at the mercy of the whims, caprice or passion of peace officers. 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 se G.R. No. L-19550 June 19, 1967

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 belongsexclusively 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

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. 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

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 RespondentsProsecutors 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 Constitution13 provides: The right of the people to be secure in their persons, houses, papers, and effects against unreasonable searches and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be determined by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched, and the persons or things to be seized. Two points must be stressed in connection with this constitutional mandate, namely: (1) that no warrant shall issue but upon probable cause, to be determined by the judge in the manner set forth in said provision; and (2) that the warrant shall particularly describe the things to be seized. 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, nospecific 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, notin 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. BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, petitioners, vs. HON. JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his capacity as Commissioner of Internal Revenue, ARTURO LOGRONIO, RODOLFO DE LEON, GAVINO VELASQUEZ, MIMIR DELLOSA, NICANOR ALCORDO, JO G.R. No. L-32409 VILLAMOR, J: This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of preliminary mandatory and prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a corporation duly organized and existing under the laws of the Philippines, and its President, Frederick E. Seggerman, pray this Court to declare null and void Search Warrant No. 2-M-70 issued by respondent Judge on February 25, 1970; to order respondents to desist from enforcing the same and/or keeping the documents, papers and effects seized by virtue thereof, as well as from enforcing the tax assessments on petitioner corporation alleged by petitioners to have been made on the basis of the said documents, papers and effects, and to order the return of the latter to petitioners. We gave due course to the petition but did not issue the writ of preliminary injunction prayed for therein. The pertinent facts of this case, as gathered from record, are as follows: On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed to respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against petitioners for violation of Section 46(a) of the National Internal Revenue Code, in relation to all other pertinent provisions thereof, particularly Sections 53, 72, 73, 208 and 209, and authorizing Revenue Examiner Rodolfo de Leon, one of herein respondents, to make and file the application for search warrant which was attached to the letter.

In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness, respondent Arturo Logronio, went to the Court of First Instance of Rizal. They brought with them the following papers: respondent Veras aforesaid letter-request; an application for search warrant already filled up but still unsigned by respondent De Leon; an affidavit of respondent Logronio subscribed before respondent De Leon; a deposition in printed form of respondent Logronio already accomplished and signed by him but not yet subscribed; and a search warrant already accomplished but still unsigned by respondent Judge. At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed his Deputy Clerk of Court to take the depositions of respondents De Leon and Logronio. After the session had adjourned, respondent Judge was informed that the depositions had already been taken. The stenographer, upon request of respondent Judge, read to him her stenographic notes; and thereafter, respondent Judge asked respondent Logronio to take the oath and warned him that if his deposition was found to be false and without legal basis, he could be charged for perjury. Respondent Judge signed respondent de Leons application for search warrant and respondent Logronios deposition, Search Warrant No. 2-M-70 was then sign by respondent Judge and accordingly issued. Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the search warrant petitioners at the offices of petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners lawyers protested the search on the ground that no formal complaint or transcript of testimony was attached to the warrant. The agents nevertheless proceeded with their search which yielded six boxes of documents. On March 3, 1970, petitioners filed a petition with the Court of First Instance of Rizal praying that the search warrant be quashed, dissolved or recalled, that preliminary prohibitory and mandatory writs of injunction be issued, that the search warrant be declared null and void, and that the respondents be ordered to pay petitioners, jointly and severally, damages and attorneys fees. On March 18, 1970, the respondents, thru the Solicitor General, filed an answer to the petition. After hearing, the court, presided over by respondent Judge, issued on July 29, 1970, an order dismissing the petition for dissolution of the search warrant. In the meantime, or on April 16, 1970, the Bureau of Internal Revenue made tax assessments on petitioner corporation in the total sum of P2,594,729.97, partly, if not entirely, based on the documents thus seized. Petitioners came to this Court. The petition should be granted for the following reasons: 1. Respondent Judge failed to personally examine the complainant and his witness. The pertinent provisions of the Constitution of the Philippines and of the Revised Rules of Court are: (3) The right of the people to be secure in their persons, houses, papers and effects against unreasonable searches and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be determined by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched, and the persons or things to be seized. (Art. III, Sec. 1, Constitution.) SEC. 3. Requisites for issuing search warrant. A search warrant shall not issue but upon probable cause in connection with one specific offense to be determined by the judge or justice of the peace after examination under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched and the persons or things to be seized.

No search warrant shall issue for more than one specific offense. SEC. 4. Examination of the applicant. The judge or justice of the peace must, before issuing the warrant, personally examine on oath or affirmation the complainant and any witnesses he may produce and take their depositions in writing, and attach them to the record, in addition to any affidavits presented to him. (Rule 126, Revised Rules of Court.) The examination of the complainant and the witnesses he may produce, required by Art. III, Sec. 1, par. 3, of the Constitution, and by Secs. 3 and 4, Rule 126 of the Revised Rules of Court, should be conducted by the judge himself and not by others. The phrase which shall be determined by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce, appearing in the said constitutional provision, was introduced by Delegate Francisco as an amendment to the draft submitted by the Sub-Committee of Seven. The following discussion in the Constitutional Convention (Laurel, Proceedings of the Philippine Constitutional Convention, Vol. III, pp. 755-757) is enlightening: SR. ORENSE. Vamos a dejar compaero los piropos y vamos al grano. En los casos de una necesidad de actuar inmediatamente para que no se frusten los fines de la justicia mediante el registro inmediato y la incautacion del cuerpo del delito, no cree Su Seoria que causaria cierta demora el procedimiento apuntado en su enmienda en tal forma que podria frustrar los fines de la justicia o si Su Seoria encuentra un remedio para esto casos con el fin de compaginar los fines de la justicia con los derechos del individuo en su persona, bienes etcetera, etcetera. SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su Seoria pregunta por la siguiente razon: el que solicita un mandamiento de registro tiene que hacerlo por escrito y ese escrito no aparecer en la Mesa del Juez sin que alguien vaya el juez a presentar ese escrito o peticion de sucuestro. Esa persona que presenta el registro puede ser el mismo denunciante o alguna persona que solicita dicho mandamiento de registro. Ahora toda la enmienda en esos casos consiste en que haya peticion de registro y el juez no se atendra solamente a sea peticion sino que el juez examiner a ese denunciante y si tiene testigos tambin examiner a los testigos. SR. ORENSE. No cree Su Seoria que el tomar le declaracion de ese denunciante por escrito siempre requeriria algun tiempo?. SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en todo lo posible las vejaciones injustas con la expedicion arbitraria de los mandamientos de registro. Creo que entre dos males debemos escoger. el menor. xxx xxx xxx

Personal examination by the judge of the complainant and his witnesses is necessary to enable him to determine the existence or non-existence of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the Constitution, and Sec. 3, Rule 126 of the Revised Rules of Court, both of which prohibit the issuance of warrants except upon probable cause. The determination of whether or not a probable cause exists calls for the exercise of judgment after a judicial appraisal of facts and should not be allowed to be delegated in the absence of any rule to the contrary. In the case at bar, no personal examination at all was conducted by respondent Judge of the complainant (respondent De Leon) and his witness (respondent Logronio). While it is true that the complainants application for search warrant and the witness printed-form deposition were subscribed and sworn to before respondent Judge, the latter did not ask either of the two any question the answer to which could possibly be the basis for determining whether or not there was probable cause against herein petitioners. Indeed, the participants seem to have attached so little significance to the matter that notes of the proceedings before respondent Judge were not even taken. At this juncture it may be well to recall the salient facts. The transcript of stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition) taken at the hearing of this case in the court below shows that per instruction of respondent Judge, Mr. Eleodoro V. Gonzales, Special Deputy Clerk of Court, took the depositions of the complainant and his witness, and that stenographic notes thereof were taken by Mrs. Gaspar. At that time respondent Judge was at the sala hearing a case. After respondent Judge was through with the hearing, Deputy Clerk Gonzales, stenographer Gaspar, complainant De Leon and witness Logronio went to respondent Judges chamber and informed the Judge that they had finished the depositions. Respondent Judge then requested the stenographer to read to him her stenographic notes. Special Deputy Clerk Gonzales testified as follows: A And after finishing reading the stenographic notes, the Honorable Judge requested or instructed them, requested Mr. Logronio to raise his hand and warned him if his deposition will be found to be false and without legal basis, he can be charged criminally for perjury. The Honorable Court told Mr. Logronio whether he affirms the facts contained in his deposition and the affidavit executed before Mr. Rodolfo de Leon. Q And thereafter? A And thereafter, he signed the deposition of Mr. Logronio. Q Who is this he? A The Honorable Judge. Q The deposition or the affidavit? A The affidavit, Your Honor.

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

Thereafter, respondent Judge signed the search warrant. The participation of respondent Judge in the proceedings which led to the issuance of Search Warrant No. 2-M-70 was thus limited to listening to the stenographers readings of her notes, to a few words of warning against the commission of perjury, and to administering the oath to the complainant and his witness. This cannot be consider a personal examination. If there was an examination at all of the complainant and his witness, it was the one conducted by the Deputy Clerk of Court. But, as stated, the Constitution and the rules require a personal examination by the judge. It was precisely on account of the intention of the delegates to the

Constitutional Convention to make it a duty of the issuing judge to personally examine the complainant and his witnesses that the question of how much time would be consumed by the judge in examining them came up before the Convention, as can be seen from the record of the proceedings quoted above. The reading of the stenographic notes to respondent Judge did not constitute sufficient compliance with the constitutional mandate and the rule; for by that manner respondent Judge did not have the opportunity to observe the demeanor of the complainant and his witness, and to propound initial and follow-up questions which the judicial mind, on account of its training, was in the best position to conceive. These were important in arriving at a sound inference on the all-important question of whether or not there was probable cause. 2. The search warrant was issued for more than one specific offense. Search Warrant No. 2-M-70 was issued for [v]iolation of Sec. 46(a) of the National Internal Revenue Code in relation to all other pertinent provisions thereof particularly Secs. 53, 72, 73, 208 and 209. The question is: Was the said search warrant issued in connection with one specific offense, as required by Sec. 3, Rule 126? To arrive at the correct answer it is essential to examine closely the provisions of the Tax Code referred to above. Thus we find the following: Sec. 46(a) requires the filing of income tax returns by corporations. Sec. 53 requires the withholding of income taxes at source. Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false and fraudulent returns. Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply the information required under the Tax Code. Sec. 208 penalizes [a]ny person who distills, rectifies, repacks, compounds, or manufactures any article subject to a specific tax, without having paid the privilege tax therefore, or who aids or abets in the conduct of illicit distilling, rectifying, compounding, or illicit manufacture of any article subject to specific tax . . ., and provides that in the case of a corporation, partnership, or association, the official and/or employee who caused the violation shall be responsible. Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of output removed, or to pay the tax due thereon. The search warrant in question was issued for at least four distinct offenses under the Tax Code. The first is the violation of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax returns), which are interrelated. The second is the violation of Sec. 53 (withholding of income taxes at source). The third is the violation of Sec. 208 (unlawful pursuit of business or occupation); and the fourth is the violation of Sec. 209 (failure to make a return of receipts, sales, business or gross value of output actually removed or to pay the tax due thereon). Even in their classification the six above-mentioned provisions are embraced in two different titles: Secs. 46(a), 53, 72 and 73 are under Title II (Income Tax); while Secs. 208 and 209 are under Title V (Privilege Tax on Business and Occupation). Respondents argue that Stonehill, et al. vs. Diokno, et al., L-19550, June 19, 1967 (20 SCRA 383), is not applicable, because there the search warrants were issued for violation of Central

Bank Laws, Internal Revenue (Code) and Revised Penal Code; whereas, here Search Warrant No 2-M-70 was issued for violation of only one code, i.e., the National Internal Revenue Code. The distinction more apparent than real, because it was precisely on account of the Stonehill incident, which occurred sometime before the present Rules of Court took effect on January 1, 1964, that this Court amended the former rule by inserting therein the phrase in connection with one specific offense, and adding the sentence No search warrant shall issue for more than one specific offense, in what is now Sec. 3, Rule 126. Thus we said in Stonehill: Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that this Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court that a search warrant shall not issue but upon probable cause in connection with one specific offense. Not satisfied with this qualification, the Court added thereto a paragraph, directing that no search warrant shall issue for more than one specific offense. 3. The search warrant does not particularly describe the things to be seized. The documents, papers and effects sought to be seized are described in Search Warrant No. 2M-70 in this manner: Unregistered and private books of accounts (ledgers, journals, columnars, receipts and disbursements books, customers ledgers); receipts for payments received; certificates of stocks and securities; contracts, promissory notes and deeds of sale; telex and coded messages; business communications, accounting and business records; checks and check stubs; records of bank deposits and withdrawals; and records of foreign remittances, covering the years 1966 to 1970. The description does not meet the requirement in Art III, Sec. 1, of the Constitution, and of Sec. 3, Rule 126 of the Revised Rules of Court, that the warrant should particularly describe the things to be seized. In Stonehill, this Court, speaking thru Mr. Chief Justice Roberto Concepcion, said: 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 paper showing all business transactions including disbursement receipts, balance sheets and related profit and loss statements. Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of petitioners herein, regardless of whether the transactions were legal or illegal. The warrants sanctioned the seizure of all records of the petitioners and the aforementioned corporations, whatever their nature, thus openly contravening the explicit command of our Bill of Rights that the things to be seized be particularly described as well as tending to defeat its major objective: the elimination of general warrants. While the term all business transactions does not appear in Search Warrant No. 2-M-70, the said warrant nevertheless tends to defeat the major objective of the Bill of Rights, i.e., the elimination of general warrants, for the language used therein is so all-embracing as to include all conceivable records of petitioner corporation, which, if seized, could possibly render its business inoperative.

In Uy Kheytin, et al. vs. Villareal, etc., et al., 42 Phil. 886, 896, this Court had occasion to explain the purpose of the requirement that the warrant should particularly describe the place to be searched and the things to be seized, to wit: . . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require that a search warrant should particularly describe the place to be searched and the things to be seized. The evident purpose and intent of this requirement is to limit the things to be seized to those, and only those, particularly described in the search warrant to leave the officers of the law with no discretion regarding what articles they shall seize, to the end that unreasonable searches and seizures may not be made, that abuses may not be committed. That this is the correct interpretation of this constitutional provision is borne out by American authorities. The purpose as thus explained could, surely and effectively, be defeated under the search warrant issued in this case. A search warrant may be said to particularly describe the things to be seized when the description therein is as specific as the circumstances will ordinarily allow (People vs. Rubio; 57 Phil. 384); or when the description expresses a conclusion of fact not of law by which the warrant officer may be guided in making the search and seizure (idem., dissent of Abad Santos, J.,); or when the things described are limited to those which bear direct relation to the offense for which the warrant is being issued (Sec. 2, Rule 126, Revised Rules of Court). The herein search warrant does not conform to any of the foregoing tests. If the articles desired to be seized have any direct relation to an offense committed, the applicant must necessarily have some evidence, other than those articles, to prove the said offense; and the articles subject of search and seizure should come in handy merely to strengthen such evidence. In this event, the description contained in the herein disputed warrant should have mentioned, at least, the dates, amounts, persons, and other pertinent data regarding the receipts of payments, certificates of stocks and securities, contracts, promissory notes, deeds of sale, messages and communications, checks, bank deposits and withdrawals, records of foreign remittances, among others, enumerated in the warrant. Respondents contend that certiorari does not lie because petitioners failed to file a motion for reconsideration of respondent Judges order of July 29, 1970. The contention is without merit. In the first place, when the questions raised before this Court are the same as those which were squarely raised in and passed upon by the court below, the filing of a motion for reconsideration in said court before certiorari can be instituted in this Court is no longer a prerequisite. (Pajo, etc., et al. vs. Ago, et al., 108 Phil., 905). In the second place, the rule requiring the filing of a motion for reconsideration before an application for a writ of certiorari can be entertained was never intended to be applied without considering the circumstances. (Matutina vs. Buslon, et al., 109 Phil., 140.) In the case at bar time is of the essence in view of the tax assessments sought to be enforced by respondent officers of the Bureau of Internal Revenue against petitioner corporation, On account of which immediate and more direct action becomes necessary. (Matute vs. Court of Appeals, et al., 26 SCRA 768.) Lastly, the rule does not apply where, as in this case, the deprivation of petitioners fundamental right to due process taints the proceeding against them in the court below not only with irregularity but also with nullity. (Matute vs. Court of Appeals, et al., supra.) It is next contended by respondents that a corporation is not entitled to protection against unreasonable search and seizures. Again, we find no merit in the contention. Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is charged with a violation of a statute of the state of its creation, or of an act of Congress passed in the exercise of its constitutional powers, cannot refuse to produce the

books and papers of such corporation, we do not wish to be understood as holding that a corporation is not entitled to immunity, under the 4th Amendment, against unreasonable searches and seizures. A corporation is, after all, but an association of individuals under an assumed name and with a distinct legal entity. In organizing itself as a collective body it waives no constitutional immunities appropriate to such body. Its property cannot be taken without compensation. It can only be proceeded against by due process of law, and is protected, under the 14th Amendment, against unlawful discrimination . . . (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.) In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied to a corporation, the ground that it was not privileged from producing its books and papers. But the rights of a corporation against unlawful search and seizure are to be protected even if the same result might have been achieved in a lawful way. (Silverthorne Lumber Company, et al. v. United States of America, 251 U.S. 385, 64 L. ed. 319.) In Stonehill, et al. vs. Diokno, et al., supra, this Court impliedly recognized the right of a corporation to object against unreasonable searches and seizures, thus: As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations have their respective personalities, separate and distinct from the personality of herein petitioners, regardless of the amount of shares of stock or the interest of each of them in said corporations, whatever, the offices they hold therein may be. Indeed, it is well settled that the legality of a seizure can be contested only by the party whose rights have been impaired thereby, and that the objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties. Consequently, petitioners herein may not validly object to the use in evidence against them of the documents, papers and things seized from the offices and premises of the corporations adverted to above, since the right to object to the admission of said papers in evidence belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the corporate officers in proceedings against them in their individual capacity . . . In the Stonehill case only the officers of the various corporations in whose offices documents, papers and effects were searched and seized were the petitioners. In the case at bar, the corporation to whom the seized documents belong, and whose rights have thereby been impaired, is itself a petitioner. On that score, petitioner corporation here stands on a different footing from the corporations in Stonehill. The tax assessments referred to earlier in this opinion were, if not entirely as claimed by petitioners at least partly as in effect admitted by respondents based on the documents seized by virtue of Search Warrant No. 2-M-70. Furthermore, the fact that the assessments were made some one and one-half months after the search and seizure on February 25, 1970, is a strong indication that the documents thus seized served as basis for the assessments. Those assessments should therefore not be enforced. PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by respondent Judge is declared null and void; respondents are permanently enjoined from enforcing the said search warrant; the documents, papers and effects seized thereunder are ordered to be returned to petitioners; and respondent officials the Bureau of Internal Revenue and their representatives are permanently enjoined from enforcing the assessments mentioned in Annex G of the present petition, as well as other assessments based on the documents, papers and effects seized under the search warrant herein nullified, and from using the same against petitioners in any criminal or other proceeding. No pronouncement as to costs.

G.R. No. 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. NARVASA, J.: Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986 and March 12, 1986, respectively, and (2) the sequestration, takeover, and other orders issued, and acts done, in accordance with said executive orders by the Presidential Commission on Good Government and/or its Commissioners and agents, affecting said corporation. 1. The Sequestration, Takeover, and Other Orders Complained of a. The Basic Sequestration Order The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on April 14, 1986 by Commissioner Mary Concepcion Bautista. It was addressed to three of the agents of the Commission, hereafter simply referred to as PCGG. It reads as follows: RE: SEQUESTRATION ORDER By virtue of the powers vested in the Presidential Commission on Good Government, by authority of the President of the Philippines, you are hereby directed to sequester the following companies. 1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and Mariveles Shipyard) 2. Baseco Quarry 3. Philippine Jai-Alai Corporation 4. Fidelity Management Co., Inc. 5. Romson Realty, Inc. 6. Trident Management Co. 7. New Trident Management

8. Bay Transport 9. And all affiliate companies of Alfredo "Bejo" Romualdez You are hereby ordered: 1. To implement this sequestration order with a minimum disruption of these companies' business activities. 2. To ensure the continuity of these companies as going concerns, the care and maintenance of these assets until such time that the Office of the President through the Commission on Good Government should decide otherwise. 3. To report to the Commission on Good Government periodically. Further, you are authorized to request for Military/Security Support from the Military/Police authorities, and such other acts essential to the achievement of this sequestration order. 1 b. Order for Production of Documents On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to the President and other officers of petitioner firm, reiterating an earlier request for the production of certain documents, to wit: 1. Stock Transfer Book 2. Legal documents, such as: 2.1. Articles of Incorporation 2.2. By-Laws 2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986 2.4. Minutes of the Regular and Special Meetings of the Board of Directors from 1973 to 1986 2.5. Minutes of the Executive Committee Meetings from 1973 to 1986 2.6. Existing contracts with suppliers/contractors/others. 3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986 duly certified by the Corporate Secretary. 4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to December 31, 1985.

5. Monthly Financial Statements for the current year up to March 31, 1986. 6. Consolidated Cash Position Reports from January to April 15, 1986.

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

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

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;

The letter closed with the warning that if the documents were not submitted within five days, the officers would be cited for "contempt in pursuance with Presidential Executive Order Nos. 1 and 2." c. Orders Re Engineer Island (1) Termination of Contract for Security Services A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued on April 21, 1986 by a Capt. Flordelino B. Zabala, a member of the task force assigned to carry out the basic sequestration order. He sent a letter to BASECO's Vice-President for 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

6. Holds itself fully accountable to the Presidential Commission on Good Government on all aspects related to this take-over order. h. Termination of Services of BASECO Officers Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez, Gilberto Pasimanero, and Benito R. Cuesta I, advising of the termination of their services by the PCGG. 10 2. Petitioner's Plea and Postulates It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat, petitioner BASECO would have this Court nullify. More particularly, BASECO prays that this Court1) declare unconstitutional and void Executive Orders Numbered 1 and 2; 2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on the basis thereof, inclusive of the takeover order of July 14, 1986 and the termination of the services of the BASECO executives. 11 a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context of Executive Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under the principle that the law promulgated by the ruler under a revolutionary regime is the law of the land, it ceased to be acceptable when the same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the 1973 Constitution was adopted providing, among others, that "No person shall be deprived of life, liberty and property without due process of law." (Const., Art. I V, Sec. 1)." 12 It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order * * and Takeover Order * * issued purportedly under the authority of said Executive Orders, rests on four fundamental considerations: First, no notice and hearing was accorded * * (it) before its properties and business were taken over; Second, the PCGG is not a court, but a purely investigative agency and therefore not competent to act as prosecutor and judge in the same cause; Third, there is nothing in the issuances which envisions any proceeding, process or remedy by which petitioner may expeditiously challenge the validity of the takeover after the same has been effected; and Fourthly, being directed against specified persons, and in disregard of the constitutional presumption of innocence and general rules and procedures, they constitute a Bill of Attainder." 13 b. Re Order to Produce Documents It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied with, was issued without court authority and infringed its constitutional right against self-incrimination, and unreasonable search and seizure. 14

c. Re PCGG's Exercise of Right of Ownership and Management BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its business affairs by 1) terminating its contract for security services with Fairways & Anchor, without the consent and against the will of the contracting parties; and amending the mode of payment of entry fees stipulated in its Lease Contract with National Stevedoring & Lighterage Corporation, these acts being in violation of the non-impairment clause of the constitution; 15 2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated Port Services, Inc., giving the latter free use of BASECO premises; 16 3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at Sesiman, Mariveles; 17 4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other materials; 18 5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies; 6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM Moises M. Valdez; Finance Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19 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 b sophistry or intellectual dishonesty be quickly exposed and discarded. Towards this end, this opinion will essay an exposition of the law on the matter. In the process many of the objections raised by BASECO will be dealt with. 4. The Governing Law a. Proclamation No. 3

The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional 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 (r)ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of sequestration or freezing of assets or accounts." 24 b. Executive Order No. 1 Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast resources of the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and 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 thetakeover or sequestration of all business enterprises and entities owned or controlled by them, during his administration, directly or through nominees, by taking undue advantage of their public office and/or using their 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 enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make ineffectual the efforts of the Commission to carry out its task under this order. 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. 29 It 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

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 President1) froze "all assets and properties in the Philippines in which former President Marcos and/or his wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents, or nominees have any interest or participation; 2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives, subordinates, business associates, duties, agents, or nominees from transferring, conveying, encumbering, concealing or dissipating said assets or properties in the Philippines and abroad, pending the outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired by them through or as a result of improper or illegal use of or the conversion of funds belonging to the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their official position, authority, relationship, connection or influence to unjustly enrich themselves at the expense and to the grave damage and prejudice of the Filipino people and the Republic of the Philippines; 3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting or concealing such assets and properties or from assisting or taking part in their transfer, encumbrance, concealment or dissipation under pain of such penalties as are prescribed by law;" and 4) required "all persons in the Philippines holding such assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same to the Commission on Good Government within thirty (30) days from publication of * (the) Executive Order, * *. 32 d. Executive Order No. 14 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 Sandiganbayan which 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 "illgotten 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 "illgotten 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 "illgotten" means to place or cause to be placed under its possession or control said property, or any building or office wherein any such property and any records pertaining thereto may be found, including "business enterprises and entities,"-for the purpose of preventing the destruction, concealment or dissipation of, and otherwise conserving and preserving, the same-until it can be determined, through appropriate judicial proceedings, whether the property was in truth 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 alleged to constitute "ill-gotten wealth" "from transferring, conveying, encumbering or otherwise depleting or concealing such property, or from assisting or taking part in its transfer, encumbrance, concealment, or dissipation." 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 the apparent owner was attended by some vitiating anomaly. None of the remedies is meant to deprive the owner or possessor of his title or any right to the property sequestered, frozen or taken over and vest it in the sequestering agency, the Government or other person. This can be done only for the causes and by the processes laid down by law. That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and exercised, the language of the executive orders in question leaves no doubt. Executive Order No. 1 declares that the sequestration of property the acquisition of which is suspect shall last "until the transactions leading to such acquisition * * can be disposed of by the appropriate authorities." 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 "illgotten," 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 thaneighteen months after the ratification of this Constitution. However, in the national interest, as certified by the President, the Congress may extend said period. A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order and the list of the sequestered or frozen properties shall forthwith be registered with the proper court. For orders issued before the ratification of this Constitution, the corresponding judicial action or proceeding shall be filed within six months from its ratification. For those issued after such ratification, the judicial action or proceeding shall be commenced within six months from the issuance thereof. The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is commenced as 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

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 "illgotten" 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

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 replevinsuits, 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

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 Constitution67 treats of, and ratifies the "authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986." The institution of these provisional remedies is also premised upon the State's inherent police power, regarded, as t lie power of promoting the public welfare by restraining 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 coextensive 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 evidenceestablishing instances of "ill-gotten wealth;" issue sequestration, and such orders as may be warranted by the evidence thus collected and as may be necessary to preserve and conserve the assets of which it takes custody and control and prevent their disappearance, loss or dissipation; and eventually file and prosecute in the proper court of competent jurisdiction all cases investigated by it as may be warranted by its findings. It does not try and decide, or hear and determine, or adjudicate with any character of finality or compulsion, cases involving the essential issue of whether or not property should be forfeited and transferred to the State because "ill-gotten" within the meaning of the Constitution and the executive orders. This function is reserved to the designated court, in 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 shiprepair and shipbuilding company * * incorporated as a domestic private corporation * * (on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping executives. Its main office is at Engineer Island, Port Area, Manila, where its Engineer Island Shipyard is housed, and its main shipyard 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. 74The same articles Identify the incorporators, numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo Torres. By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders, namely: (1) Generoso Tanseco, (2) Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6) Rodolfo Torres. As of this year, 1986, there were twenty (20)

stockholders listed in BASECO's Stock and Transfer Book. 75 Their names and the number of shares respectively held by them are as follows: 1. Jose A. Rojas 2. Severino G. de la Cruz 3. Emilio T. Yap 4. Jose Fernandez 5. Jose Francisco 6. Manuel S. Mendoza 7. Anthony P. Lee 8. Hilario M. Ruiz 9. Constante L. Farias 10. Fidelity Management, Inc. 11. Trident Management 12. United Phil. Lines 13. Renato M. Tanseco 14. Fidel Ventura 15. Metro Bay Drydock 16. Manuel Jacela 17. Jonathan G. Lu 18. Jose J. Tanchanco 19. Dioscoro Papa 20. Edward T. Marcelo TOTAL 13 Acquisition of NASSCO by BASECO 1,248 shares 1,248 shares 2,508 shares 1,248 shares 128 shares 96 shares 1,248 shares 32 shares 8 shares 65,882 shares 7,412 shares 1,240 shares 8 shares 8 shares 136,370 shares 1 share 1 share 1 share 128 shares 4 shares 218,819 shares.

Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel Corporation, or NASSCO, a government-owned or controlled corporation, the latter's shipyard at Mariveles, Bataan, known as the Bataan National Shipyard (BNS), and except for NASSCO's Engineer Island Shops and certain equipment of the BNS, consigned for future negotiation all its structures, buildings, shops, quarters, houses, plants, equipment and facilities, in stock or in transit. This it did in virtue of a "Contract of Purchase and Sale with Chattel Mortgage" executed on February 13, 1973. The price was P52,000,000.00. As partial payment thereof, BASECO delivered to NASSCO a cash bond of P11,400,000.00, convertible into cash within twenty-four (24) hours from completion of the inventory undertaken pursuant to the contract. The balance of P41,600,000.00, with interest at seven percent (7%) per annum, compounded 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," 79which, 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

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"

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

89

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

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 PREINCORPORATION 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 President Marcos of BASECO has been sufficiently shown. Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised control over BASECO, but also that he actually owns well nigh one hundred percent of its outstanding stock. It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock outstanding, ostensibly owned by twenty (20) 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. 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." 102On the same day he filed another motion praying that he be allowed "to secure copies of the Certificates of Stock in the name of Metro Bay Drydock, Inc., and of all other Certificates, of Stock of petitioner's stockholders in possession of respondents." 103 In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that counsel's aforestated motion to secure copies of the stock certificates "confirms the fact that stockholders of petitioner corporation are not in possession of * * (their) certificates of stock," and the reason, according to him, was "that 95% of said shares * * have been endorsed in blank and found in 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, 107BASECO's counsel made the statement, quite surprising in the premises, that "it will negotiate with the owners (of the BASECO stock in question) to allow petitioner to borrow from them, if available, the certificates referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's counsel however eventually had to confess inability to produce the originals of the stock certificates, putting up the feeble excuse that while he had "requested the stockholders to allow * * (him) to borrow said certificates, * * some of * * (them) claimed that they had delivered the certificates to third parties by way of pledge and/or to secure performance of obligations, while others allegedly have entrusted them to third parties in view of last national emergency." 108 He has conveniently omitted, nor has he offered to give the details of the transactions adverted to by him, or to explain why he had not impressed on the supposed stockholders the primordial importance of convincing this Court of their present custody of the

originals of the stock, or if he had done so, why the stockholders are unwilling to agree to some sort of arrangement so that the originals of their certificates might at the very least be exhibited to the Court. Under the circumstances, the Court can only conclude that he could not get the originals from the stockholders for the simple reason that, as the Solicitor General maintains, said stockholders in truth no longer have them in their possession, these having already been assigned in blank to then President Marcos. 21. Facts Justify Issuance of Sequestration and Takeover Orders In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors of BASECO as of April, 1986 109 were mere "dummies," nominees or alter egos of President Marcos; at any rate, that they are no longer owners of any shares of stock in the corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no standing whatever to cause the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the petition, would in effect be to restore the assets, properties and business sequestered and taken over by the PCGG to persons who are "dummies," nominees or alter egos of the former president. From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private corporation known as BASECO was "owned or controlled by former President Ferdinand E. Marcos * * during his administration, * * through nominees, by taking advantage of * * (his) public office and/or using * * (his) powers, authority, influence * *," and that NASSCO and other property of the government had been taken over by BASECO; and the situation justified the sequestration as well as the provisional takeover of the corporation in the public interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the filing of the requisite actions with the Sandiganbayan to cause divestment of title thereto from Marcos, and its adjudication in favor of the Republic pursuant to Executive Order No. 14. As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it sustains the acts of sequestration and takeover by the PCGG as being in accord with the law, and, in view of what has thus far been set out in this opinion, pronounces to be without merit the theory that said acts, and the executive orders pursuant to which they were done, are fatally defective in not according to the parties affected prior notice and hearing, or an adequate remedy to impugn, set aside or otherwise obtain relief therefrom, or that the PCGG had acted as prosecutor and judge at the same time. 22. Executive Orders Not a Bill of Attainder Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A bill of attainder is a legislative act which inflicts punishment without judicial trial." 111 "Its essence is the substitution of a legislative for a judicial determination of guilt." 112 In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of guilt. On the contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the second place, no punishment is inflicted by the executive orders, as the merest glance at their provisions will immediately make apparent. In no sense, therefore, may the executive orders be regarded as a bill of attainder.

23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been transgressed by the Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the Commission if it fails to do so." The order was issued upon the authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue subpoenas requiring * * the production of such books, papers, contracts, records, statements of accounts and other documents as may be material to the investigation conducted by the Commission, " and paragraph (3), Executive Order No. 2 dealing with its power to "require all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same * *." The contention lacks merit. It is elementary that the right against self-incrimination has no application to juridical persons. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse ofsuchprivileges * * 113 Relevant jurisprudence is also cited by the Solicitor General. 114 * * corporations are not entitled to all of the constitutional protections which private individuals have. * * They are not at all within the privilege against selfincrimination, although this court more than once has said that the privilege runs very closely with the 4th Amendment's Search and Seizure provisions.It is also settled that an officer of the company cannot refuse to produce its records in its possession upon the plea that they will either incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186; emphasis, the Solicitor General's). * * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts and find out whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose. The defense amounts to this, that an officer of the corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a refusal to produce its books. To state this proposition is to answer it. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises may refuse to show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780 [emphasis, the Solicitor General's]) At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals required to produce evidence before the PCGG against any possible violation of his right against self-incrimination. It gives them immunity from prosecution on the basis of testimony or information he is compelled to present. As amended, said Section 4 now provides that

xxx xxx xxx The witness may not refuse to comply with the order on the basis of his privilege against selfincrimination; but no testimony or other information compelled under the order (or any information directly or indirectly derived from such testimony, or other information) may be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise failing to comply with the order. The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has been no search undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof. 24. Scope and Extent of Powers of the PCGG One other question remains to be disposed of, that respecting the scope and extent of the powers that may be wielded by the PCGG with regard to the properties or businesses placed under sequestration or provisionally taken over. Obviously, it is not a question to which an answer can be easily given, much less one which will suffice for every conceivable situation. a. PCGG May Not Exercise Acts of Ownership One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally taken over. AS already earlier stressed with no little insistence, the act of sequestration; freezing or provisional takeover of property does not import or bring about a divestment of title over said property; does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict ownership; and this is specially true in the situations contemplated by the sequestration rules where, unlike cases of receivership, for example, no court exercises effective supervision or can upon due application and hearing, grant authority for the performance of acts of dominion. Equally evident is that the resort to the provisional remedies in question should entail the least possible interference with business operations or activities so that, in the event that the accusation of the business enterprise being "ill gotten" be not proven, it may be returned to its rightful owner as far as possible in the same condition as it was at the time of sequestration. b. PCGG Has Only Powers of Administration The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over, much like a court-appointed receiver, 115 such as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and administrator. In this context, it may in addition enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for direct or indirect contempt in accordance with the Rules of Court; and seek and secure the assistance of any office, agency or instrumentality of the government. 116 In the case of sequestered businesses generally (i.e., going concerns, businesses in current operation), as in the case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not that of manager, or innovator, much less an owner.

c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him; Limitations Thereon Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos," 117 the PCGG is given power and authority, as already adverted to, to "provisionally take (it) over in the public interest or to prevent * * (its) disposal or dissipation;" and since the term is obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody is connoted; the PCGG may in this case exercise some measure of control in the operation, running, or management of the business itself. But even in this special situation, the intrusion into management should be restricted to the minimum degree necessary to accomplish the legislative will, which is "to prevent the disposal or dissipation" of the business enterprise. There should be no hasty, indiscriminate, unreasoned replacement or substitution of management officials or change of policies, particularly in respect of viable establishments. In fact, such a replacement or substitution should be avoided if at all possible, and undertaken only when justified by demonstrably tenable grounds and in line with the stated objectives of the PCGG. And it goes without saying that where replacement of management officers may be called for, the greatest prudence, circumspection, care and attention - should accompany that undertaking to the end that truly competent, experienced and honest managers may be recruited. There should be no role to be played in this area by rank amateurs, no matter how wen meaning. The road to hell, it has been said, is paved with good intentions. The business is not to be experimented or played around with, not run into the ground, not driven to bankruptcy, not fleeced, not ruined. Sight should never be lost sight of the ultimate objective of the whole exercise, which is to turn over the business to the Republic, once judicially established to be "ill-gotten." Reason dictates that it is only under these conditions and circumstances that the supervision, administration and control of business enterprises provisionally taken over may legitimately be exercised. d. Voting of Sequestered Stock; Conditions Therefor So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the prerogative to vote sequestered stock of corporations, granted to it by the President of the Philippines through a Memorandum dated June 26, 1986. That Memorandum authorizes the PCGG, "pending the outcome of proceedings to determine the ownership of * * (sequestered) shares of stock," "to vote such shares of stock as it may have sequestered in corporations at all stockholders' meetings called for the election of directors, declaration of dividends, amendment of the Articles of Incorporation, etc." The Memorandum should be construed in such a manner as to be consistent with, and not contradictory of the Executive Orders earlier promulgated on the same matter. There should be no exercise of the right to vote simply because the right exists, or because the stocks sequestered constitute the controlling or a substantial part of the corporate voting power. The stock is not to be voted to replace directors, or revise the articles or by-laws, or otherwise bring about substantial changes in policy, program or practice of the corporation except for demonstrably weighty and defensible grounds, and always in the context of the stated purposes of sequestration or provisional takeover, i.e., to prevent the dispersion or undue disposal of the corporate assets. Directors are not to be voted out simply because the power to do so exists. Substitution of directors is not to be done without reason or rhyme, should indeed be shunned if at an possible, and undertaken only when essential to prevent disappearance or wastage of corporate property, and always under such circumstances as assure that the replacements are truly possessed of competence, experience and probity. In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in their stead because the evidence showed prima facie that the

former were just tools of President Marcos and were no longer owners of any stock in the firm, if they ever were at all. This is why, in its Resolution of October 28, 1986; 118 this Court declared that Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and holding of a stockholders' meeting for the election of directors as authorized by the Memorandum of the President * * (to the PCGG) dated June 26, 1986, particularly, where as in this case, the government can, through its designated directors, properly exercise control and management over what appear to be properties and assets owned and belonging to the government itself and over which the persons who appear in this case on behalf of BASECO have failed to show any right or even any shareholding in said corporation. It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of the company's affairs should henceforth be guided and governed by the norms herein laid down. They should never for a moment allow themselves to forget that they are conservators, not owners of the business; they are fiduciaries, trustees, of whom the highest degree of diligence and rectitude is, in the premises, required. 25. No Sufficient Showing of Other Irregularities As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution of certain contracts, inclusive of the termination of the employment of some of its executives, 119 this Court cannot, in the present state of the evidence on record, pass upon them. It is not necessary to do so. The issues arising therefrom may and will be left for initial determination in the appropriate action. But the Court will state that absent any showing of any important cause therefor, it will not normally substitute its judgment for that of the PCGG in these individual transactions. It is clear however, that as things now stand, the petitioner cannot be said to have established the correctness of its submission that the acts of the PCGG in question were done without or in excess of its powers, or with grave abuse of discretion. WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted. [G.R. Nos. 84132-33 : December 10, 1990.] 192 SCRA 257 NATIONAL DEVELOPMENT COMPANY AND NEW AGRIX, INC., Petitioners, vs. PHILIPPINE VETERANS BANK, THE EX-OFFICIO SHERIFF and GODOFREDO QUILING, in his capacity as Deputy Sheriff of Calamba, Laguna, Respondents.

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

DECISION

CRUZ, J.:

This case involves the constitutionality of a presidential decree which, like all other issuances of President Marcos during his regime, was at that time regarded as sacrosanct. It is only now, in a freer atmosphere, that his acts are being tested by the touchstone of the fundamental law that even then was supposed to limit presidential action.: rd

It is not denied that the private respondent did file a claim with the AGRIX Claims Committee pursuant to this decree. It must be noted, however, that this was done in 1980, when President Marcos was the absolute ruler of this country and his decrees were the absolute law. Any judicial challenge to them would have been futile, not to say foolhardy. The private

respondent, no less than the rest of the nation, was aware of that reality and knew it had no choice under the circumstances but to conform.: nad It is true that there were a few venturesome souls who dared to question the dictator's decisions before the courts of justice then. The record will show, however, that not a single act or issuance of President Marcos was ever declared unconstitutional, not even by the highest court, as long as he was in power. To rule now that the private respondent is estopped for having abided with the decree instead of boldly assailing it is to close our eyes to a cynical fact of life during that repressive time. This case must be distinguished from Mendoza, where the petitioners, after filing their claims with the AGRIX Claims Committee, received in settlement thereof shares of stock valued at P40,000.00 without protest or reservation. The herein private respondent has not been paid a single centavo on its claim, which was kept pending for more than seven years for alleged lack of supporting papers. Significantly, the validity of that claim was not questioned by the petitioner when it sought to restrain the extrajudicial foreclosure of the mortgage by the private respondent. The petitioner limited itself to the argument that the private respondent was estopped from questioning the decree because of its earlier compliance with its provisions. Independently of these observations, there is the consideration that an affront to the Constitution cannot be allowed to continue existing simply because of procedural inhibitions that exalt form over substance. The Court is especially disturbed by Section 4(1) of the decree, quoted above, extinguishing all mortgages and other liens attaching to the assets of AGRIX. It also notes, with equal concern, the restriction in Subsection (ii) thereof that all "unsecured obligations shall not bear interest" and in Subsection (iii) that "all accrued interests, penalties or charges as of date hereof pertaining to the obligations, whether secured or unsecured, shall not be recognized." These provisions must be read with the Bill of Rights, where it is clearly provided in Section 1 that "no person shall be deprived of life, liberty or property without due course of law nor shall any person be denied the equal protection of the law" and in Section 10 that "no law impairing the obligation of contracts shall be passed." In defending the decree, the petitioners argue that property rights, like all rights, are subject to regulation under the police power for the promotion of the common welfare. The contention is that this inherent power of the state may be exercised at any time for this purpose so long as the taking of the property right, even if based on contract, is done with due process of law. This argument is an over-simplification of the problem before us. The police power is not a panacea for all constitutional maladies. Neither does its mere invocation conjure an instant and automatic justification for every act of the government depriving a person of his life, liberty or property. A legislative act based on the police power requires the concurrence of a lawful subject and a lawful method. In more familiar words, a) the interests of the public generally, as distinguished from those of a particular class, should justify the interference of the state; and b) the means employed are reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals. 2 Applying these criteria to the case at bar, the Court finds first of all that the interests of the public are not sufficiently involved to warrant the interference of the government with the private contracts of AGRIX. The decree speaks vaguely of the "public, particularly the small investors," who would be prejudiced if the corporation were not to be assisted. However, the record does not state how many there are of such investors, and who they are, and why they are being preferred to the private respondent and other creditors of AGRIX with vested property rights.:-cralaw

The public interest supposedly involved is not identified or explained. It has not been shown that by the creation of the New Agrix, Inc. and the extinction of the property rights of the creditors of AGRIX, the interests of the public as a whole, as distinguished from those of a particular class, would be promoted or protected. The indispensable link to the welfare of the greater number has not been established. On the contrary, it would appear that the decree was issued only to favor a special group of investors who, for reasons not given, have been preferred to the legitimate creditors of AGRIX. Assuming there is a valid public interest involved, the Court still finds that the means employed to rehabilitate AGRIX fall far short of the requirement that they shall not be unduly oppressive. The oppressiveness is patent on the face of the decree. The right to property in all mortgages, liens, interests, penalties and charges owing to the creditors of AGRIX is arbitrarily destroyed. No consideration is paid for the extinction of the mortgage rights. The accrued interests and other charges are simply rejected by the decree. The right to property is dissolved by legislative fiat without regard to the private interest violated and, worse, in favor of another private interest. A mortgage lien is a property right derived from contract and so comes under the protection of the Bill of Rights. So do interests on loans, as well as penalties and charges, which are also vested rights once they accrue. Private property cannot simply be taken by law from one person and given to another without compensation and any known public purpose. This is plain arbitrariness and is not permitted under the Constitution. And not only is there arbitrary taking, there is discrimination as well. In extinguishing the mortgage and other liens, the decree lumps the secured creditors with the unsecured creditors and places them on the same level in the prosecution of their respective claims. In this respect, all of them are considered unsecured creditors. The only concession given to the secured creditors is that their loans are allowed to earn interest from the date of the decree, but that still does not justify the cancellation of the interests earned before that date. Such interests, whether due to the secured or the unsecured creditors, are all extinguished by the decree. Even assuming such cancellation to be valid, we still cannot see why all kinds of creditors, regardless of security, are treated alike. Under the equal protection clause, all persons or things similarly situated must be treated alike, both in the privileges conferred and the obligations imposed. Conversely, all persons or things differently situated should be treated differently. In the case at bar, persons differently situated are similarly treated, in disregard of the principle that there should be equality only among equals.- nad One may also well wonder why AGRIX was singled out for government help, among other corporations where the stockholders or investors were also swindled. It is not clear why other companies entitled to similar concern were not similarly treated. And surely, the stockholders of the private respondent, whose mortgage lien had been cancelled and legitimate claims to accrued interests rejected, were no less deserving of protection, which they did not get. The decree operated, to use the words of a celebrated case, 3 "with an evil eye and an uneven hand." On top of all this, New Agrix, Inc. was created by special decree notwithstanding the provision of Article XIV, Section 4 of the 1973 Constitution, then in force, that: SEC. 4. The Batasang Pambansa shall not, except by general law, provide for the formation, organization, or regulation of private corporations, unless such corporations are owned or controlled by the Government or any subdivision or instrumentality thereof. 4 The new corporation is neither owned nor controlled by the government. The National Development Corporation was merely required to extend a loan of not more than P10,000,000.00 to New Agrix, Inc. Pending payment thereof, NDC would undertake the management of the corporation, but with the obligation of making periodic reports to the Agrix board of directors. After payment of the loan, the said board can then appoint its own

management. The stocks of the new corporation are to be issued to the old investors and stockholders of AGRIX upon proof of their claims against the abolished corporation. They shall then be the owners of the new corporation. New Agrix, Inc. is entirely private and so should have been organized under the Corporation Law in accordance with the above-cited constitutional provision. The Court also feels that the decree impairs the obligation of the contract between AGRIX and the private respondent without justification. While it is true that the police power is superior to the impairment clause, the principle will apply only where the contract is so related to the public welfare that it will be considered congenitally susceptible to change by the legislature in the interest of the greater number. 5 Most present-day contracts are of that nature. But as already observed, the contracts of loan and mortgage executed by AGRIX are purely private transactions and have not been shown to be affected with public interest. There was therefore no warrant to amend their provisions and deprive the private respondent of its vested property rights. It is worth noting that only recently in the case of the Development Bank of the Philippines v. NLRC, 6 we sustained the preference in payment of a mortgage creditor as against the argument that the claims of laborers should take precedence over all other claims, including those of the government. In arriving at this ruling, the Court recognized the mortgage lien as a property right protected by the due process and contract clauses notwithstanding the argument that the amendment in Section 110 of the Labor Code was a proper exercise of the police power.: nad The Court reaffirms and applies that ruling in the case at bar. Our finding, in sum, is that Pres. Decree No. 1717 is an invalid exercise of the police power, not being in conformity with the traditional requirements of a lawful subject and a lawful method. The extinction of the mortgage and other liens and of the interest and other charges pertaining to the legitimate creditors of AGRIX constitutes taking without due process of law, and this is compounded by the reduction of the secured creditors to the category of unsecured creditors in violation of the equal protection clause. Moreover, the new corporation, being neither owned nor controlled by the Government, should have been created only by general and not special law. And insofar as the decree also interferes with purely private agreements without any demonstrated connection with the public interest, there is likewise an impairment of the obligation of the contract. With the above pronouncements, we feel there is no more need to rule on the authority of President Marcos to promulgate Pres. Decree No. 1717 under Amendment No. 6 of the 1973 Constitution. Even if he had such authority, the decree must fall just the same because of its violation of the Bill of Rights. WHEREFORE, the petition is DISMISSED. Pres. Decree No. 1717 is declared UNCONSTITUTIONAL. The temporary restraining order dated August 30, 1988, is LIFTED. Costs against the petitioners.- nad SO ORDERED. G.R. No. 152542 July 8, 2004

G.R. No. 155472

July 8, 2004

ANTONIO B. MONFORT III, MA. LUISA MONFORT ASCALON, ILDEFONSO B. MONFORT, ALFREDO B. MONFORT, CARLOS M. RODRIGUEZ, EMILY FRANCISCA R. DOLIQUEZ, ENCARNACION CECILIA R. PAYLADO, JOSE MARTIN M. RODRIGUEZ, petitioners, vs. HON. COURT OF APPEALS, MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION, as represented by MA. ANTONIA M. SALVATIERRA, and RAMON H. MONFORT, respondents.

NARES-SANTIAGO, J.: Before the Court are consolidated petitions for review of the decisions of the Court of Appeals in the complaints for forcible entry and replevin filed by Monfort Hermanos Agricultural Development Corporation (Corporation) and Ramon H. Monfort against the children, nephews, and nieces of its original incorporators (collectively known as "the group of Antonio Monfort III"). The petition in G.R. No. 152542, assails the October 5, 2001 Decision1 of the Special Tenth Division of the Court of Appeals in CA-G.R. SP No. 53652, which ruled that Ma. Antonia M. Salvatierra has no legal capacity to represent the Corporation in the forcible entry case docketed as Civil Case No. 534-C, before the Municipal Trial Court of Cadiz City. On the other hand, the petition in G.R. No. 155472, seeks to set aside the June 7, 2002 Decision2 rendered by the Special Former Thirteenth Division of the Court of Appeals in CA-G.R. SP No. 49251, where it refused to address, on jurisdictional considerations, the issue of Ma. Antonia M. Salvatierra's capacity to file a complaint for replevin on behalf of the Corporation in Civil Case No. 506-C before the Regional Trial Court of Cadiz City, Branch 60. Monfort Hermanos Agricultural Development Corporation, a domestic private corporation, is the registered owner of a farm, fishpond and sugar cane plantation known as Haciendas San Antonio II, Marapara, Pinanoag and Tinampa-an, all situated in Cadiz City.3 It also owns one unit of motor vehicle and two units of tractors.4 The same allowed Ramon H. Monfort, its Executive Vice President, to breed and maintain fighting cocks in his personal capacity at Hacienda San Antonio.5 In 1997, the group of Antonio Monfort III, through force and intimidation, allegedly took possession of the 4 Haciendas, the produce thereon and the motor vehicle and tractors, as well as the fighting cocks of Ramon H. Monfort. In G.R. No. 155472: On April 10, 1997, the Corporation, represented by its President, Ma. Antonia M. Salvatierra, and Ramon H. Monfort, in his personal capacity, filed against the group of Antonio Monfort III, a complaint6 for delivery of motor vehicle, tractors and 378 fighting cocks, with prayer for injunction and damages, docketed as Civil Case No. 506-C, before the Regional Trial Court of Negros Occidental, Branch 60. The group of Antonio Monfort III filed a motion to dismiss contending, inter alia, that Ma. Antonia M. Salvatierra has no capacity to sue on behalf of the Corporation because the March 31, 1997 Board Resolution7 authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to

MONFORT HERMANOS AGRICULTURAL DEVELOPMENT CORPORATION, as represented by MA. ANTONIA M. SALVATIERRA, petitioner, vs. ANTONIO B. MONFORT III, MA. LUISA MONFORT ASCALON, ILDEFONSO B. MONFORT, ALFREDO B. MONFORT, CARLOS M. RODRIGUEZ, EMILY FRANCISCA R. DOLIQUEZ, ENCARNACION CECILIA R. PAYLADO, JOSE MARTIN M. RODRIGUEZ and COURT OF APPEALS, respondents.

represent the Corporation is void as the purported Members of the Board who passed the same were not validly elected officers of the Corporation. On May 4, 1998, the trial court denied the motion to dismiss.8 The group of Antonio Monfort III filed a petition for certiorari with the Court of Appeals but the same was dismissed on June 7, 2002.9 The Special Former Thirteenth Division of the appellate court did not resolve the validity of the March 31, 1997 Board Resolution and the election of the officers who signed it, ratiocinating that the determination of said question is within the competence of the trial court. The motion for reconsideration filed by the group of Antonio Monfort III was denied.10 Hence, they instituted a petition for review with this Court, docketed as G.R. No. 155472. In G.R. No. 152542: On April 21, 1997, Ma. Antonia M. Salvatierra filed on behalf of the Corporation a complaint for forcible entry, preliminary mandatory injunction with temporary restraining order and damages against the group of Antonio Monfort III, before the Municipal Trial Court (MTC) of Cadiz City.11 It contended that the latter through force and intimidation, unlawfully took possession of the 4 Haciendas and deprived the Corporation of the produce thereon. In their answer,12 the group of Antonio Monfort III alleged that they are possessing and controlling the Haciendas and harvesting the produce therein on behalf of the corporation and not for themselves. They likewise raised the affirmative defense of lack of legal capacity of Ma. Antonia M. Salvatierra to sue on behalf of the Corporation. On February 18, 1998, the MTC of Cadiz City rendered a decision dismissing the complaint.13 On appeal, the Regional Trial Court of Negros Occidental, Branch 60, reversed the Decision of the MTCC and remanded the case for further proceedings.14 Aggrieved, the group of Antonio Monfort III filed a petition for review with the Court of Appeals. On October 5, 2001, the Special Tenth Division set aside the judgment of the RTC and dismissed the complaint for forcible entry for lack of capacity of Ma. Antonia M. Salvatierra to represent the Corporation.15 The motion for reconsideration filed by the latter was denied by the appellate court.16 Unfazed, the Corporation filed a petition for review with this Court, docketed as G.R. No. 152542 which was consolidated with G.R. No. 155472 per Resolution dated January 21, 2004.17 The focal issue in these consolidated petitions is whether or not Ma. Antonia M. Salvatierra has the legal capacity to sue on behalf of the Corporation. The group of Antonio Monfort III claims that the March 31, 1997 Board Resolution authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to represent the Corporation is void because the purported Members of the Board who passed the same were not validly elected officers of the Corporation. A corporation has no power except those expressly conferred on it by the Corporation Code and those that are implied or incidental to its existence. In turn, a corporation exercises said powers through its board of directors and/or its duly authorized officers and agents. Thus, it

has been observed that the power of a corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. In turn, physical acts of the corporation, like the signing of documents, can be performed only by natural persons duly authorized for the purpose by corporate by-laws or by a specific act of the board of directors.18 Corollary thereto, corporations are required under Section 26 of the Corporation Code to submit to the SEC within thirty (30) days after the election the names, nationalities and residences of the elected directors, trustees and officers of the Corporation. In order to keep stockholders and the public transacting business with domestic corporations properly informed of their organizational operational status, the SEC issued the following rules: xxx xxx xxx

2. A General Information Sheet shall be filed with this Commission within thirty (30) days following the date of the annual stockholders' meeting. No extension of said period shall be allowed, except for very justifiable reasons stated in writing by the President, Secretary, Treasurer or other officers, upon which the Commission may grant an extension for not more than ten (10) days. 2.A. Should a director, trustee or officer die, resign or in any manner, cease to hold office, the corporation shall report such fact to the Commission with fifteen (15) days after such death, resignation or cessation of office. 3. If for any justifiable reason, the annual meeting has to be postponed, the company should notify the Commission in writing of such postponement. The General Information Sheet shall state, among others, the names of the elected directors and officers, together with their corresponding position title (Emphasis supplied) In the instant case, the six signatories to the March 31, 1997 Board Resolution authorizing Ma. Antonia M. Salvatierra and/or Ramon H. Monfort to represent the Corporation, were: Ma. Antonia M. Salvatierra, President; Ramon H. Monfort, Executive Vice President; Directors Paul M. Monfort, Yvete M. Benedicto and Jaqueline M. Yusay; and Ester S. Monfort, Secretary.19 However, the names of the last four (4) signatories to the said Board Resolution do not appear in the 1996 General Information Sheet submitted by the Corporation with the SEC. Under said General Information Sheet the composition of the Board is as follows: 1. Ma. Antonia M. Salvatierra (Chairman); 2. Ramon H. Monfort (Member); 3. Antonio H. Monfort, Jr., (Member); 4. Joaquin H. Monfort (Member); 5. Francisco H. Monfort (Member) and 6. Jesus Antonio H. Monfort (Member).20

There is thus a doubt as to whether Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and Ester S. Monfort, were indeed duly elected Members of the Board legally constituted to bring suit in behalf of the Corporation.21 In Premium Marble Resources, Inc. v. Court of Appeals,22 the Court was confronted with the similar issue of capacity to sue of the officers of the corporation who filed a complaint for damages. In the said case, we sustained the dismissal of the complaint because it was not established that the Members of the Board who authorized the filing of the complaint were the lawfully elected officers of the corporation. Thus The only issue in this case is whether or not the filing of the case for damages against private respondent was authorized by a duly constituted Board of Directors of the petitioner corporation. Petitioner, through the first set of officers, viz., Mario Zavalla, Oscar Gan, Lionel Pengson, Jose Ma. Silva, Aderito Yujuico and Rodolfo Millare, presented the Minutes of the meeting of its Board of Directors held on April 1, 1982, as proof that the filing of the case against private respondent was authorized by the Board. On the other hand, the second set of officers, viz., Saturnino G. Belen, Jr., Alberto C. Nograles and Jose L.R. Reyes, presented a Resolution dated July 30, 1986, to show that Premium did not authorize the filing in its behalf of any suit against the private respondent International Corporate Bank. Later on, petitioner submitted its Articles of Incorporation dated November 6, 1979 with the following as Directors: Mario C. Zavalla, Pedro C. Celso, Oscar B. Gan, Lionel Pengson, and Jose Ma. Silva. However, it appears from the general information sheet and the Certification issued by the SEC on August 19, 1986 that as of March 4, 1981, the officers and members of the board of directors of the Premium Marble Resources, Inc. were: Alberto C. Nograles President/Director Fernando D. Hilario Vice President/Director Augusto I. Galace Treasurer Jose L.R. Reyes Secretary/Director Pido E. Aguilar Director Saturnino G. Belen, Jr. Chairman of the Board. While the Minutes of the Meeting of the Board on April 1, 1982 states that the newly elected officers for the year 1982 were Oscar Gan, Mario Zavalla, Aderito Yujuico and Rodolfo Millare, petitioner failed to show proof that this election was reported to the SEC. In fact, the last entry in their General Information Sheet with the SEC, as of 1986 appears to be the set of officers elected in March 1981.

We agree with the finding of public respondent Court of Appeals, that "in the absence of any board resolution from its board of directors the [sic] authority to act for and in behalf of the corporation, the present action must necessarily fail. The power of the corporation to sue and be sued in any court is lodged with the board of directors that exercises its corporate powers. Thus, the issue of authority and the invalidity of plaintiff-appellant's subscription which is still pending, is a matter that is also addressed, considering the premises, to the sound judgment of the Securities & Exchange Commission." By the express mandate of the Corporation Code (Section 26), all corporations duly organized pursuant thereto are required to submit within the period therein stated (30 days) to the Securities and Exchange Commission the names, nationalities and residences of the directors, trustees and officers elected. Sec. 26 of the Corporation Code provides, thus: "Sec. 26. Report of election of directors, trustees and officers. Within thirty (30) days after the election of the directors, trustees and officers of the corporation, the secretary, or any other officer of the corporation, shall submit to the Securities and Exchange Commission, the names, nationalities and residences of the directors, trustees and officers elected. xxx" Evidently, the objective sought to be achieved by Section 26 is to give the public information, under sanction of oath of responsible officers, of the nature of business, financial condition and operational status of the company together with information on its key officers or managers so that those dealing with it and those who intend to do business with it may know or have the means of knowing facts concerning the corporation's financial resources and business responsibility. The claim, therefore, of petitioners as represented by Atty. Dumadag, that Zaballa, et al., are the incumbent officers of Premium has not been fully substantiated. In the absence of an authority from the board of directors, no person, not even the officers of the corporation, can validly bind the corporation. In the case at bar, the fact that four of the six Members of the Board listed in the 1996 General Information Sheet23 are already dead24 at the time the March 31, 1997 Board Resolution was issued, does not automatically make the four signatories (i.e., Paul M. Monfort, Yvete M. Benedicto, Jaqueline M. Yusay and Ester S. Monfort) to the said Board Resolution (whose name do not appear in the 1996 General Information Sheet) as among the incumbent Members of the Board. This is because it was not established that they were duly elected to replace the said deceased Board Members. To correct the alleged error in the General Information Sheet, the retained accountant of the Corporation informed the SEC in its November 11, 1998 letter that the non-inclusion of the lawfully elected directors in the 1996 General Information Sheet was attributable to its oversight and not the fault of the Corporation.25 This belated attempt, however, did not erase the doubt as to whether an election was indeed held. As previously stated, a corporation is mandated to inform the SEC of the names and the change in the composition of its officers and board of directors within 30 days after election if one was held, or 15 days after the death, resignation or cessation of office of any of its director, trustee or officer if any of them died, resigned or in any manner, ceased to hold office. This, the Corporation failed to do. The alleged election of the directors and officers who signed the March 31, 1997 Board Resolution was held on October 16, 1996, but the SEC was informed thereof more than two years later, or on November 11, 1998. The 4 Directors appearing in the 1996 General Information Sheet died

between the years 1984 1987,26 but the records do not show if such demise was reported to the SEC. What further militates against the purported election of those who signed the March 31, 1997 Board Resolution was the belated submission of the alleged Minutes of the October 16, 1996 meeting where the questioned officers were elected. The issue of legal capacity of Ma. Antonia M. Salvatierra was raised before the lower court by the group of Antonio Monfort III as early as 1997, but the Minutes of said October 16, 1996 meeting was presented by the Corporation only in its September 29, 1999 Comment before the Court of Appeals.27 Moreover, the Corporation failed to prove that the same October 16, 1996 Minutes was submitted to the SEC. In fact, the 1997General Information Sheet28 submitted by the Corporation does not reflect the names of the 4 Directors claimed to be elected on October 16, 1996. Considering the foregoing, we find that Ma. Antonia M. Salvatierra failed to prove that four of those who authorized her to represent the Corporation were the lawfully elected Members of the Board of the Corporation. As such, they cannot confer valid authority for her to sue on behalf of the corporation. The Court notes that the complaint in Civil Case No. 506-C, for replevin before the Regional Trial Court of Negros Occidental, Branch 60, has 2 causes of action, i.e., unlawful detention of the Corporation's motor vehicle and tractors, and the unlawful detention of the of 387 fighting cocks of Ramon H. Monfort. Since Ramon sought redress of the latter cause of action in his personal capacity, the dismissal of the complaint for lack of capacity to sue on behalf of the corporation should be limited only to the corporation's cause of action for delivery of motor vehicle and tractors. In view, however, of the demise of Ramon on June 25, 1999,29 substitution by his heirs is proper. WHEREFORE, in view of all the foregoing, the petition in G.R. No. 152542 is DENIED. The October 5, 2001 Decision of the Special Tenth Division of the Court of Appeals in CA-G.R. SP No. 53652, which set aside the August 14, 1998 Decision of the Regional Trial Court of Negros Occidental, Branch 60 in Civil Case No. 822, is AFFIRMED. In G.R. No. 155472, the petition is GRANTED and the June 7, 2002 Decision rendered by the Special Former Thirteenth Division of the Court of Appeals in CA-G.R. SP No. 49251, dismissing the petition filed by the group of Antonio Monfort III, is REVERSED and SET ASIDE. The complaint for forcible entry docketed as Civil Case No. 822 before the Municipal Trial Court of Cadiz City is DISMISSED. In Civil Case No. 506-C with the Regional Trial Court of Negros Occidental, Branch 60, the action for delivery of personal property filed by Monfort Hermanos Agricultural Development Corporation is likewise DISMISSED. With respect to the action filed by Ramon H. Monfort for the delivery of 387 fighting cocks, the Regional Trial Court of Negros Occidental, Branch 60, is ordered to effect the corresponding substitution of parties. No costs. SO ORDERED. G.R. No. 163825 July 13, 2010

VIOLETA TUDTUD BANATE, MARY MELGRID M. CORTEL, BONIFACIO CORTEL, ROSENDO MAGLASANG, and PATROCINIA MONILAR, Petitioners, vs. PHILIPPINE COUNTRYSIDE RURAL BANK (LILOAN, CEBU), INC. and TEOFILO SOON, JR., Respondents. DECISION BRION, J.: Before the Court is a petition for review on certiorari1 assailing the December 19, 2003 decision2 and the May 5, 2004 resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 74332. The CA decision reversed the Regional Trial Court (RTC) decision4 of June 27, 2001 granting the petitioners complaint for specific performance and damages against the respondent Philippine Countryside Rural Bank, Inc. (PCRB).5 THE FACTUAL ANTECEDENTS On July 22, 1997, petitioner spouses Rosendo Maglasang and Patrocinia Monilar (spouses Maglasang) obtained a loan (subject loan) from PCRB for P1,070,000.00. The subject loan was evidenced by a promissory note and was payable on January 18, 1998. To secure the payment of the subject loan, the spouses Maglasang executed, in favor of PCRB a real estate mortgage over their property, Lot 12868-H-3-C, 6 including the house constructed thereon (collectively referred to as subject properties), owned by petitioners Mary Melgrid and Bonifacio Cortel (spouses Cortel), the spouses Maglasangs daughter and son-in-law, respectively. Aside from the subject loan, the spouses Maglasang obtained two other loans from PCRB which were covered by separate promissory notes7 and secured by mortgages on their other properties. Sometime in November 1997 (before the subject loan became due), the spouses Maglasang and the spouses Cortel asked PCRBs permission to sell the subject properties. They likewise requested that the subject properties be released from the mortgage since the two other loans were adequately secured by the other mortgages. The spouses Maglasang and the spouses Cortel claimed that the PCRB, acting through its Branch Manager, Pancrasio Mondigo, verbally agreed to their request but required first the full payment of the subject loan. The spouses Maglasang and the spouses Cortel thereafter sold to petitioner Violeta Banate the subject properties forP1,750,000.00. The spouses Magsalang and the spouses Cortel used the amount to pay the subject loan with PCRB. After settling the subject loan, PCRB gave the owners duplicate certificate of title of Lot 12868-H-3-C to Banate, who was able to secure a new title in her name. The title, however, carried the mortgage lien in favor of PCRB, prompting the petitioners to request from PCRB a Deed of Release of Mortgage. As PCRB refused to comply with the petitioners request, the petitioners instituted an action for specific performance before the RTC to compel PCRB to execute the release deed. The petitioners additionally sought payment of damages from PCRB, which, they claimed, caused the publication of a news report stating that they "surreptitiously" caused the transfer of ownership of Lot 12868-H-3-C. The petitioners considered the news report false and malicious, as PCRB knew of the sale of the subject properties and, in fact, consented thereto. PCRB countered the petitioners allegations by invoking the cross-collateral stipulation in the mortgage deed which states:

1. That as security for the payment of the loan or advance in principal sum of one million seventy thousand pesos only (P1,070,000.00) and such other loans or advances already obtained, or still to be obtained by the MORTGAGOR(s) as MAKER(s), CO-MAKER(s) or GUARANTOR(s) from the MORTGAGEE plus interest at the rate of _____ per annum and penalty and litigation charges payable on the dates mentioned in the corresponding promissory notes, the MORTGAGOR(s) hereby transfer(s) and convey(s) to MORTGAGEE by way of first mortgage the parcel(s) of land described hereunder, together with the improvements now existing for which may hereafter be made thereon, of which MORTGAGOR(s) represent(s) and warrant(s) that MORTGAGOR(s) is/are the absolute owner(s) and that the same is/are free from all liens and encumbrances; TRANSFER CERTIFICATE OF TITLE NO. 827468 Accordingly, PCRB claimed that full payment of the three loans, obtained by the spouses Maglasang, was necessary before any of the mortgages could be released; the settlement of the subject loan merely constituted partial payment of the total obligation. Thus, the payment does not authorize the release of the subject properties from the mortgage lien. PCRB considered Banate as a buyer in bad faith as she was fully aware of the existing mortgage in its favor when she purchased the subject properties from the spouses Maglasang and the spouses Cortel. It explained that it allowed the release of the owners duplicate certificate of title to Banate only to enable her to annotate the sale. PCRB claimed that the release of the title should not indicate the corresponding release of the subject properties from the mortgage constituted thereon. After trial, the RTC ruled in favor of the petitioners. It noted that the petitioners, as "necessitous men," could not have bargained on equal footing with PCRB in executing the mortgage, and concluded that it was a contract of adhesion. Therefore, any obscurity in the mortgage contract should not benefit PCRB.9 The RTC observed that the official receipt issued by PCRB stated that the amount owed by the spouses Maglasang under the subject loan was only about P1.2 million; that Mary Melgrid Cortel paid the subject loan using the check which Banate issued as payment of the purchase price; and that PCRB authorized the release of the title further indicated that the subject loan had already been settled. Since the subject loan had been fully paid, the RTC considered the petitioners as rightfully entitled to a deed of release of mortgage, pursuant to the verbal agreement that the petitioners made with PCRBs branch manager, Mondigo. Thus, the RTC ordered PCRB to execute a deed of release of mortgage over the subject properties, and to pay the petitioners moral damages and attorneys fees.10 On appeal, the CA reversed the RTCs decision. The CA did not consider as valid the petitioners new agreement with Mondigo, which would novate the original mortgage contract containing the cross-collateral stipulation. It ruled that Mondigo cannot orally amend the mortgage contract between PCRB, and the spouses Maglasang and the spouses Cortel; therefore, the claimed commitment allowing the release of the mortgage on the subject properties cannot bind PCRB. Since the cross-collateral stipulation in the mortgage contract (requiring full settlement of all three loans before the release of any of the mortgages) is clear, the parties must faithfully comply with its terms. The CA did not consider as material the release of the owners duplicate copy of the title, as it was done merely to allow the annotation of the sale of the subject properties to Banate.11

Dismayed with the reversal by the CA of the RTCs ruling, the petitioners filed the present appeal by certiorari, claiming that the CA ruling is not in accord with established jurisprudence. THE PETITION The petitioners argue that their claims are consistent with their agreement with PCRB; they complied with the required full payment of the subject loan to allow the release of the subject properties from the mortgage. Having carried out their part of the bargain, the petitioners maintain that PCRB must honor its commitment to release the mortgage over the subject properties. The petitioners disregard the cross-collateral stipulation in the mortgage contract, claiming that it had been novated by the subsequent agreement with Mondigo. Even assuming that the cross-collateral stipulation subsists for lack of authority on the part of Mondigo to novate the mortgage contract, the petitioners contend that PCRB should nevertheless return the amount paid to settle the subject loan since the new agreement should be deemed rescinded. The basic issues for the Court to resolve are as follows: 1. Whether the purported agreement between the petitioners and Mondigo novated the mortgage contract over the subject properties and is thus binding upon PCRB. 2. If the first issue is resolved negatively, whether Banate can demand restitution of the amount paid for the subject properties on the theory that the new agreement with Mondigo is deemed rescinded. THE COURTS RULING We resolve to deny the petition. The purported agreement did not novate the mortgage contract, particularly the crosscollateral stipulation thereon Before we resolve the issues directly posed, we first dwell on the determination of the nature of the cross-collateral stipulation in the mortgage contract. As a general rule, a mortgage liability is usually limited to the amount mentioned in the contract. However, the amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand as security if, from the four corners of the instrument, the intent to secure future and other indebtedness can be gathered. This stipulation is valid and binding between the parties and is known as the "blanket mortgage clause" (also known as the "dragnet clause)."12 In the present case, the mortgage contract indisputably provides that the subject properties serve as security, not only for the payment of the subject loan, but also for "such other loans or advances already obtained, or still to be obtained." The cross-collateral stipulation in the mortgage contract between the parties is thus simply a variety of a dragnet clause. After agreeing to such stipulation, the petitioners cannot insist that the subject properties be

released from mortgage since the security covers not only the subject loan but the two other loans as well. The petitioners, however, claim that their agreement with Mondigo must be deemed to have novated the mortgage contract. They posit that the full payment of the subject loan extinguished their obligation arising from the mortgage contract, including the stipulated cross-collateral provision. Consequently, consistent with their theory of a novated agreement, the petitioners maintain that it devolves upon PCRB to execute the corresponding Deed of Release of Mortgage. We find the petitioners argument unpersuasive. Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement. An extinctive novation results either by changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functions one to extinguish an existing obligation, the other to substitute a new one in its place requiring a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation.13 The second requisite is lacking in this case. Novation presupposes not only the extinguishment or modification of an existing obligation but, more importantly, the creation of a valid new obligation.14 For the consequent creation of a new contractual obligation, consent of both parties is, thus, required. As a general rule, no form of words or writing is necessary to give effect to a novation. Nevertheless, where either or both parties involved are juridical entities, proof that the second contract was executed by persons with the proper authority to bind their respective principals is necessary.15 Section 23 of the Corporation Code16 expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. The power and the responsibility to decide whether the corporation should enter into a contract that will bind the corporation are lodged in the board, subject to the articles of incorporation, bylaws, or relevant provisions of law. In the absence of authority from the board of directors, no person, not even its officers, can validly bind a corporation. However, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly delegate some of its functions and powers to its officers, committees or agents. The authority of these individuals to bind the corporation is generally derived from law, corporate bylaws or authorization from the board, either expressly or impliedly by habit, custom or acquiescence in the general course of business.17 The authority of a corporate officer or agent in dealing with third persons may be actual or apparent. Actual authority is either express or implied. The extent of an agents express authority is to be measured by the power delegated to him by the corporation, while the extent of his implied authority is measured by his prior acts which have been ratified or approved, or their benefits accepted by his principal.18 The doctrine of "apparent authority," on the other hand, with special reference to banks, had long been recognized in this jurisdiction. The existence of apparent authority may be ascertained through:

1) the general manner in which the corporation holds out an officer or agent as having the power to act, or in other words, the apparent authority to act in general, with which it clothes him; or 2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or beyond the scope of his ordinary powers. Accordingly, the authority to act for and to bind a corporation may be presumed from acts of recognition in other instances when the power was exercised without any objection from its board or shareholders.19 Notably, the petitioners action for specific performance is premised on the supposed actual or apparent authority of the branch manager, Mondigo, to release the subject properties from the mortgage, although the other obligations remain unpaid. In light of our discussion above, proof of the branch managers authority becomes indispensable to support the petitioners contention. The petitioners make no claim that Mondigo had actual authority from PCRB, whether express or implied. Rather, adopting the trial courts observation, the petitioners posited that PCRB should be held liable for Mondigos commitment, on the basis of the latters apparent authority. We disagree with this position. Under the doctrine of apparent authority, acts and contracts of the agent, as are within the apparent scope of the authority conferred on him, although no actual authority to do such acts or to make such contracts has been conferred, bind the principal.20 The principals liability, however, is limited only to third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none was given. In other words, apparent authority is determined only by the acts of the principal and not by the acts of the agent.21There can be no apparent authority of an agent without acts or conduct on the part of the principal; such acts or conduct must have been known and relied upon in good faith as a result of the exercise of reasonable prudence by a third party as claimant, and such acts or conduct must have produced a change of position to the third partys detriment.22 In the present case, the decision of the trial court was utterly silent on the manner by which PCRB, as supposed principal, has "clothed" or "held out" its branch manager as having the power to enter into an agreement, as claimed by petitioners. No proof of the course of business, usages and practices of the bank about, or knowledge that the board had or is presumed to have of, its responsible officers acts regarding bank branch affairs, was ever adduced to establish the branch managers apparent authority to verbally alter the terms of mortgage contracts.23Neither was there any allegation, much less proof, that PCRB ratified Mondigos act or is estopped to make a contrary claim.24 Further, we would be unduly stretching the doctrine of apparent authority were we to consider the power to undo or nullify solemn agreements validly entered into as within the doctrines ambit. Although a branch manager, within his field and as to third persons, is the general agent and is in general charge of the corporation, with apparent authority commensurate with the ordinary business entrusted him and the usual course and conduct thereof,25 yet the power to modify or nullify corporate contracts remains generally in the board of directors.26 Being a mere branch manager alone is insufficient to support the conclusion that Mondigo has been clothed with "apparent authority" to verbally alter terms of written contracts, especially when viewed against the telling circumstances of this case: the unequivocal provision in the mortgage contract; PCRBs vigorous denial that any agreement to

release the mortgage was ever entered into by it; and, the fact that the purported agreement was not even reduced into writing considering its legal effects on the parties interests. To put it simply, the burden of proving the authority of Mondigo to alter or novate the mortgage contract has not been established.27 It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of the agents authority, and in case either is controverted, the burden of proof is upon them to establish it.28 As parties to the mortgage contract, the petitioners are expected to abide by its terms. The subsequent purported agreement is of no moment, and cannot prejudice PCRB, as it is beyond Mondigos actual or apparent authority, as above discussed. Rescission has no legal basis; there can be no restitution of the amount paid The petitioners, nonetheless, invoke equity and alternatively pray for the restitution of the amount paid, on the rationale that if PCRBs branch manager was not authorized to accept payment in consideration of separately releasing the mortgage, then the agreement should be deemed rescinded, and the amount paid by them returned. PCRB, on the other hand, counters that the petitioners alternative prayer has no legal and factual basis, and insists that the clear agreement of the parties was for the full payment of the subject loan, and in return, PCRB would deliver the title to the subject properties to the buyer, only to enable the latter to obtain a transfer of title in her own name. We agree with PCRB. Even if we were to assume that the purported agreement has been sufficiently established, since it is not binding on the bank for lack of authority of PCRBs branch manager, then the prayer for restitution of the amount paid would have no legal basis. Of course, it will be asked: what then is the legal significance of the payment made by Banate? Article 2154 of the Civil Code reads: Art 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.1avvphi1 Notwithstanding the payment made by Banate, she is not entitled to recover anything from PCRB under Article 2154. There could not have been any payment by mistake to PCRB, as the check which Banate issued as payment was to her co-petitioner Mary Melgrid Cortel (the payee), and not to PCRB. The same check was simply endorsed by the payee to PCRB in payment of the subject loan that the Maglasangs owed PCRB.29 The mistake, if any, was in the perception of the authority of Mondigo, as branch manager, to verbally alter the mortgage contract, and not as to whether the Cortels, as sellers, were entitled to payment. This mistake (on Mondigos lack of authority to alter the mortgage) did not affect the validity of the payment made to the bank as the existence of the loan was never disputed. The dispute was merely on the effect of the payment on the security given.30 Consequently, no right to recover accrues in Banates favor as PCRB never dealt with her. The borrowers-mortgagors, on the other hand, merely paid what was really owed. Parenthetically, the subject loan was due on January 18, 1998, but was paid sometime in November 1997. It appears, however, that at the time the complaint was filed, the subject loan had already matured. Consequently, recovery of the amount paid, even under a claim of premature payment, will not prosper.

In light of these conclusions, the claim for moral damages must necessarily fail. On the alleged injurious publication, we quote with approval the CAs ruling on the matter, viz: Consequently, there is no reason to hold [respondent] PCRB liable to [petitioners] for damages. x x x [Petitioner] Maglasang cannot hold [respondent] PCRB liable for the publication of the extra-judicial sale. There was no evidence submitted to prove that [respondent] PCRB authored the words "Mortgagors surreptitiously caused the transfer of ownership of Lot 12868H-3-C x x x" contained in the publication since at the bottom was x x x Sheriff Teofilo C. Soon, Jr.s name. Moreover, there was not even an iota of proof which shows damage on the part of [petitioner] Mary Melgrid M. Cortel.31 WHEREFORE, we DENY the petitioners petition for review on certiorari for lack of merit, and AFFIRM the decision of the Court of Appeals dated December 19, 2003 and its resolution dated May 5, 2004 in CA-G.R. CV No. 74332. No pronouncement as to costs. SO ORDERED. G.R. No. 186738 September 27, 2010

PRUDENTIAL BANK AND TRUST COMPANY (now BANK OF THE PHILIPPINE ISLANDS,1) Petitioner, vs. LIWAYWAY ABASOLO, Respondent. CARPIO MORALES, J.: Leonor Valenzuela-Rosales inherited two parcels of land situated in Palanan, Sta. Cruz, Laguna (the properties), registered as Original Certificates of Title Nos. RO-527 and RO-528. After she passed away, her heirs executed on June 14, 1993 a Special Power of Attorney (SPA) in favor of Liwayway Abasolo (respondent) empowering her to sell the properties.2 Sometime in 1995, Corazon Marasigan (Corazon) wanted to buy the properties which were being sold forP2,448,960, but as she had no available cash, she broached the idea of first mortgaging the properties to petitioner Prudential Bank and Trust Company (PBTC), the proceeds of which would be paid directly to respondent. Respondent agreed to the proposal. On Corazon and respondents consultation with PBTCs Head Office, its employee, Norberto Mendiola (Mendiola), allegedly advised respondent to issue an authorization for Corazon to mortgage the properties, and for her (respondent) to act as one of the co-makers so that the proceeds could be released to both of them. To guarantee the payment of the property, Corazon executed on August 25, 1995 a Promissory Note forP2,448,960 in favor of respondent. By respondents claim, in October 1995, Mendiola advised her to transfer the properties first to Corazon for the immediate processing of Corazons loan application with assurance that the proceeds thereof would be paid directly to her (respondent), and the obligation would be reflected in a bank guarantee.

Heeding Mendiolas advice, respondent executed a Deed of Absolute Sale over the properties in favor of Corazon following which or on December 4, 1995, Transfer Certificates of Title Nos. 164159 and 164160 were issued in the name of Corazon. Corazons application for a loan with PBTCs Tondo Branch was approved on December 1995. She thereupon executed a real estate mortgage covering the properties to secure the payment of the loan. In the absence of a written request for a bank guarantee, the PBTC released the proceeds of the loan to Corazon. Respondent later got wind of the approval of Corazons loan application and the release of its proceeds to Corazon who, despite repeated demands, failed to pay the purchase price of the properties. Respondent eventually accepted from Corazon partial payment in kind consisting of one owner type jeepney and four passenger jeepneys,3 plus installment payments, which, by the trial courts computation, totaled P665,000. In view of Corazons failure to fully pay the purchase price, respondent filed a complaint for collection of sum of money and annulment of sale and mortgage with damages, against Corazon and PBTC (hereafter petitioner), before the Regional Trial Court (RTC) of Sta. Cruz, Laguna.4 In her Answer,5 Corazon denied that there was an agreement that the proceeds of the loan would be paid directly to respondent. And she claimed that the vehicles represented full payment of the properties, and had in fact overpaid P76,040. Petitioner also denied that there was any arrangement between it and respondent that the proceeds of the loan would be released to her.6 It claimed that it "may process a loan application of the registered owner of the real property who requests that proceeds of the loan or part thereof be payable directly to a third party [but] the applicant must submit a letter request to the Bank."7 On pre-trial, the parties stipulated that petitioner was not a party to the contract of sale between respondent and Corazon; that there was no written request that the proceeds of the loan should be paid to respondent; and that respondent received five vehicles as partial payment of the properties.8 Despite notice, Corazon failed to appear during the trial to substantiate her claims. By Decision of March 12, 2004,9 Branch 91 of the Sta. Cruz, Laguna RTC rendered judgment in favor of respondent and against Corazon who was made directly liable to respondent, and against petitioner who was made subsidiarily liable in the event that Corazon fails to pay. Thus the trial court disposed: WHEREFORE, premises considered, finding the plaintiff has established her claim against the defendants, Corazon Marasigan and Prudential Bank and Trust Company, judgment is hereby rendered in favor of the plaintiff ordering: Defendant Corazon Marasigan to pay the plaintiff the amount of P1,783,960.00 plus three percent (3%) monthly interest per month from August 25, 1995 until fully paid. Further, to pay

the plaintiff the sum equivalent to twenty percent five [sic] (25%) of P1,783,960.00 as attorneys fees. Defendant Prudential Bank and Trust Company to pay the plaintiff the amount of P1,783,960.00 or a portion thereof plus the legal rate of interest per annum until fully paid in the event that Defendant Corazon Marasigan fails to pay the said amount or a portion thereof. Other damages claimed not duly proved are hereby dismissed. So Ordered.10 (emphasis in the original; underscoring partly in the original, partly supplied) In finding petitioner subsidiarily liable, the trial court held that petitioner breached its understanding to release the proceeds of the loan to respondent: Liwayway claims that the bank should also be held responsible for breach of its obligation to directly release to her the proceeds of the loan or part thereof as payment for the subject lots. The evidence shows that her claim is valid. The Bank had such an obligation as proven by evidence. It failed to rebut the credible testimony of Liwayway which was given in a frank, spontaneous, and straightforward manner and withstood the test of rigorous cross-examination conducted by the counsel of the Bank. Her credibility is further strengthened by the corroborative testimony of Miguela delos Reyes who testified that she went with Liwayway to the bank for several times. In her presence, Norberto Mendiola, the head of the loan department, instructed Liwayway to transfer the title over the subject lots to Corazon to facilitate the release of the loan with the guarantee that Liwayway will be paid upon the release of the proceeds. Further, Liwayway would not have executed the deed of sale in favor of Corazon had Norberto Mendiola did not promise and guarantee that the proceeds of the loan would be directly paid to her. Based on ordinary human experience, she would not have readily transferred the title over the subject lots had there been no strong and reliable guarantee. In this case, what caused her to transfer title is the promise and guarantee made by Norberto Mendiola that the proceeds of the loan would be directly paid to her. 11 (emphasis underscoring supplied) On appeal, the Court of Appeals by Decision of January 14, 200812, affirmed the trial courts decision with modification on the amount of the balance of the purchase price which was reduced from P1,783,960 toP1,753,960. It disposed: WHEREFORE, premises considered, the assailed Decision dated March 12, 2004 of the Regional Trial Court of Sta. Cruz, Laguna, Branch 91, is AFFIRMED WITH MODIFICATION as to the amount to be paid which isP1,753,960.00. SO ORDERED.13 (emphasis in the original; underscoring supplied) Petitioners motion for reconsideration having been denied by the appellate court by Resolution of February 23, 2009, the present petition for review was filed. The only issue petitioner raises is whether it is subsidiarily liable. The petition is meritorious.

In the absence of a lender-borrower relationship between petitioner and Liwayway, there is no inherent obligation of petitioner to release the proceeds of the loan to her. To a banking institution, well-defined lending policies and sound lending practices are essential to perform its lending function effectively and minimize the risk inherent in any extension of credit. Thus, Section X302 of the Manual of Regulations for Banks provides: X-302. To ensure that timely and adequate management action is taken to maintain the quality of the loan portfolio and other risk assets and that adequate loss reserves are set up and maintained at a level sufficient to absorb the loss inherent in the loan portfolio and other risk assets, each bank shall establish a system of identifying and monitoring existing or potential problem loans and other risk assets and of evaluating credit policies vis--vis prevailing circumstances and emerging portfolio trends. Management must also recognize that loss reserve is a stabilizing factor and that failure to account appropriately for losses or make adequate provisions for estimated future losses may result in misrepresentation of the banks financial condition. In order to identify and monitor loans that a bank has extended, a system of documentation is necessary. Under this fold falls the issuance by a bank of a guarantee which is essentially a promise to repay the liabilities of a debtor, in this case Corazon. It would be contrary to established banking practice if Mendiola issued a bank guarantee, even if no request to that effect was made. The principle of relativity of contracts in Article 1311 of the Civil Code supports petitioners cause: Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. (underscoring supplied) For Liwayway to prove her claim against petitioner, a clear and deliberate act of conferring a favor upon her must be present. A written request would have sufficed to prove this, given the nature of a banking business, not to mention the amount involved. Since it has not been established that petitioner had an obligation to Liwayway, there is no breach to speak of. Liwayways claim should only be directed against Corazon. Petitioner cannot thus be held subisidiarily liable. To the Court, Liwayway did not rely on Mendiolas representations, even if he indeed made them. The contract for Liwayway to sell to Corazon was perfected from the moment there was a meeting of minds upon the properties-object of the contract and upon the price. Only the source of the funds to pay the purchase price was yet to be resolved at the time the two inquired from Mendiola. Consider Liwayways testimony:

Q: We are referring to the promissory note which you aforementioned a while ago, why did this promissory note come about? A: Because the negotiation was already completed, sir, and the deed of sale will have to be executed, I asked the defendant (Corazon) to execute the promissory note first before I could execute a deed of absolute sale, for assurance that she really pay me, sir.14 (emphasis and underscoring supplied) That it was on Corazons execution of a promissory note that prompted Liwayway to finally execute the Deed of Sale is thus clear. The trial Courts reliance on the doctrine of apparent authority that the principal, in this case petitioner, is liable for the obligations contracted by its agent, in this case Mendiola, does not lie. Prudential Bank v. Court of Appeals15 instructs: [A] banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetuate fraud upon his principal or some person, for his own ultimate benefit.16 (underscoring supplied) The onus probandi that attempt to commit fraud attended petitioners employee Mendiolas acts and that he abused his authority lies on Liwayway. She, however, failed to discharge the onus. It bears noting that Mendiola was not privy to the approval or disallowance of Corazons application for a loan nor that he would benefit by the approval thereof. Aside from Liwayways bare allegations, evidence is wanting to show that there was collusion between Corazon and Mendiola to defraud her. Even in Liwayways Complaint, the allegation of fraud is specifically directed against Corazon.17 IN FINE, Liwayways cause of action lies against only Corazon. WHEREFORE, the Decision of January 14, 2008 of the Court of Appeals, in so far as it holds petitioner, Prudential Bank and Trust Company (now Bank of the Philippine Islands), subsidiary liable in case its co-defendant Corazon Marasigan, who did not appeal the trial courts decision, fails to pay the judgment debt, is REVERSED and SET ASIDE. The complaint against petitioner is accordingly DISMISSED. SO ORDERED. G.R. No. 159352 April 14 ,2004

PREMIERE DEVELOPMENT BANK, petitioner, vs. COURT OF APPEALS, PANACOR MARKETING CORPORATION and ARIZONA TRANSPORT CORPORATION,respondents. YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the 1997 Rules on Civil Procedure seeking the annulment of the Decision dated June 18, 2003 of the Court of Appeals1 which affirmed the Decision of the Regional Trial Court2 in Civil Case No. 65577. The undisputed facts show that on or about October 1994, Panacor Marketing Corporation (Panacor for brevity), a newly formed corporation, acquired an exclusive distributorship of products manufactured by Colgate Palmolive Philippines, Inc. (Colgate for short). To meet the capital requirements of the exclusive distributorship, which required an initial inventory level of P7.5 million, Panacor applied for a loan of P4.1 million with Premiere Development Bank. After an extensive study of Panacors creditworthiness, Premiere Bank rejected the loan application and suggested that its affiliate company, Arizona Transport Corporation (Arizona for short),3 should instead apply for the loan on condition that the proceeds thereof shall be made available to Panacor. Eventually, Panacor was granted a P4.1 million credit line as evidenced by a Credit Line Agreement.4 As suggested, Arizona, which was an existing loan client, applied for and was granted a loan of P6.1 million, P3.4 million of which would be used to pay-off its existing loan accounts and the remaining P2.7 million as credit line of Panacor. As security for the P6.1 million loan, Arizona, represented by its Chief Executive Officer Pedro Panaligan and spouses Pedro and Marietta Panaligan in their personal capacities, executed a Real Estate Mortgage against a parcel of land covered by TCT No. T-3475 as per Entry No. 49507 dated October 2, 1995.5 Since the P2.7 million released by Premiere Bank fell short of the P4.1 million credit line which was previously approved, Panacor negotiated for a take-out loan with Iba Finance Corporation (hereinafter referred to as Iba-Finance) in the sum of P10 million, P7.5 million of which will be released outright in order to take-out the loan from Premiere Bank and the balance of P2.5 million (to complete the needed capital of P4.1 million with Colgate) to be released after the cancellation by Premiere of the collateral mortgage on the property covered by TCT No. T-3475. Pursuant to the said take-out agreement, Iba-Finance was authorized to pay Premiere Bank the prior existing loan obligations of Arizona in an amount not to exceed P6 million. On October 5, 1995, Iba-Finance sent a letter to Ms. Arlene R. Martillano, officer-in-charge of Premiere Banks San Juan Branch, informing her of the approved loan in favor of Panacor and Arizona, and requesting for the release of TCT No. T-3475. Martillano, after reading the letter, affixed her signature of conformity thereto and sent the original copy to Premiere Banks legal office. The full text of the letter reads:6 Please be informed that we have approved the loan application of ARIZONA TRANSPORT CORP. and PANACOR MARKETING CORPORATION. Both represented by MR. PEDRO P. PANALIGAN (hereinafter the BORROWERS) in the principal amount of PESOS: SEVEN MILLION FIVE HUNDRED THOUSAND ONLY (P7,500,000.00) Philippine Currency. The loan shall be secured by a Real Estate Mortgage over a parcel of land located at #777 Nueve de Pebrero St. Bo. Mauway, Mandaluyong City, Metro Manila covered by TCT No. 3475 and registered under the name of Arizona Haulers, Inc. which is presently mortgaged with your bank. The borrowers have authorized IBA FINANCE CORP. to pay Premiere Bank from the proceeds of their loan. The disbursement of the loan, however is subject to the annotation of our mortgage lien on the said property and final verification that said title is free from any other lien or encumbrance other than that of your company and IBA Finance Corporation. In order to register the mortgage, please entrust to us the owners duplicate copy of TCT No. 3475, current tax declaration, realty tax receipts for the current year and other documents necessary to affect annotation thereof.

Upon registration of our mortgage, we undertake to remit directly to you or your authorized representative the amount equivalent to the Borrowers outstanding indebtedness to Premiere Bank as duly certified by your goodselves provided such an amount shall not exceed PESOS: SIX MILLION ONLY (P6,000,000.00) and any amount in excess of the aforestated shall be for the account of the borrowers. It is understood that upon receipt of payment, you will release to us the corresponding cancellation of your mortgage within five (5) banking days therefrom. If the foregoing terms and conditions are acceptable to you, please affix your signature provided below and furnish us a copy of the Statement of Account of said borrowers. On October 12, 1995, Premiere Bank sent a letter-reply7 to Iba-Finance, informing the latter of its refusal to turn over the requested documents on the ground that Arizona had existing unpaid loan obligations and that it was the banks policy to require full payment of all outstanding loan obligations prior to the release of mortgage documents. Thereafter, Premiere Bank issued to Iba-Finance a Final Statement of Account8 showing Arizonas total loan indebtedness. On October 19, 1995, Panacor and Arizona executed in favor of Iba-Finance a promissory note in the amount of 7.5 million. Thereafter, Iba-Finance paid to Premiere Bank the amount of P6,235,754.79 representing the full outstanding loan account of Arizona. Despite such payment, Premiere Bank still refused to release the requested mortgage documents specifically, the owners duplicate copy of TCT No. T-3475.9 On November 2, 1995, Panacor requested Iba-Finance for the immediate approval and release of the remaining P2.5 million loan to meet the required monthly purchases from Colgate. IbaFinance explained however, that the processing of the P2.5 million loan application was conditioned, among others, on the submission of the owners duplicate copy of TCT No. 3475 and the cancellation by Premiere Bank of Arizonas mortgage. Occasioned by Premiere Banks adamant refusal to release the mortgage cancellation document, Panacor failed to generate the required capital to meet its distribution and sales targets. On December 7, 1995, Colgate informed Panacor of its decision to terminate their distribution agreement. On March 13, 1996, Panacor and Arizona filed a complaint for specific performance and damages against Premiere Bank before the Regional Trial Court of Pasig City, docketed as Civil Case No. 65577. On June 11, 1996, Iba-Finance filed a complaint-in-intervention praying that judgment be rendered ordering Premiere Bank to pay damages in its favor. On May 26, 1998, the trial court rendered a decision in favor of Panacor and Iba-Finance, the decretal portion of which reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff Panacor Marketing Corporation and against the defendant Premiere Bank, ordering the latter to pay the former the following sums, namely: 1) P4,520,000.00 in addition to legal interest from the time of filing of the complaint until full payment; 2) P1,000,000.00 as and for exemplary damages; 3) P100,000.00 as and for reasonable attorneys fees; and

4) Costs of suit. Similarly, judgment is hereby rendered in favor of plaintiff-in-intervention IBA-Finance Corporation as against defendant Premiere bank, as follows, namely: 1) Ordering defendant Premiere Bank to release to plaintiff-intervenor IBA-Finance Corporation the owners duplicate copy of Transfer Certificate of Title No. 3475 registered in the name of Arizona Haulers, Inc. including the deed of cancellation of the mortgage constituted thereon; 2) Ordering the defendant Premiere Bank to pay to Intervenor IBA-Finance, the following sums, to wit: 3) P1,000,000.00 as and by way of exemplary damages; and 4) P100,000.00 as and for reasonable attorneys fees; and 5) Costs of suit. For lack of sufficient legal and factual basis, the counterclaim of defendant Premiere Bank is DISMISSED. SO ORDERED.

Hence the present petition for review, which raises the following issues:11 I WHETHER OR NOT THE DECISION OF HONORABLE COURT OF APPEALS EXCEEDED AND WENT BEYOND THE FACTS, THE ISSUES AND EVIDENCE PRESENTED IN THE APPEAL TAKING INTO CONSIDERATION THE ARGUMENT OF PETITIONER BANK AND ADVENT OF THE DULY APPROVED COMPROMISE AGREEMENT BETWEEN THE PETITIONER BANK AND IBA FINANCE CORPORATION. II WHETHER OR NOT THE ISSUES THAT SHOULD HAVE BEEN RESOLVED BY THE HONORABLE COURT OF APPEALS, BY REASON OF THE EXISTENCE OF THE COMPROMISE AGREEMENT, IS LIMITED TO THE ISSUE OF ALLEGED BAD FAITH OF PETITIONER BANK IN THE DOWNGRADING OF THE LOAN AND SHOULD NOT INCLUDE THE RENDITION OF AN ADVERSE PRONOUNCEMENT TO AN ALREADY FAIT ACCOMPLI- ISSUE ON THE REFUSAL OF THE BANK TO RECOGNIZE THE TAKE-OUT OF THE LOAN AND THE RELEASE OF TCT NO. 3475. III WHETHER OR NOT PETITIONER ACTED IN BAD FAITH IN THE DOWNGRADING OF THE LOAN OF RESPONDENTS TO SUPPORT AN AWARD OF ACTUAL AND EXEMPLARY DAMAGES NOW REDUCED TO P500,000.00. IV

Premiere Bank appealed to the Court of Appeals contending that the trial court erred in finding, inter alia, that it had maliciously downgraded the credit-line of Panacor from P4.1 million to P2.7 million. In the meantime, a compromise agreement was entered into between Iba-Finance and Premiere Bank whereby the latter agreed to return without interest the amount of P6,235,754.79 which Iba-Finance earlier remitted to Premiere Bank to pay off the unpaid loans of Arizona. On March 11, 1999, the compromise agreement was approved. On June 18, 2003, a decision was rendered by the Court of Appeals which affirmed with modification the decision of the trial court, the dispositive portion of which reads: WHEREFORE, premises considered, the present appeal is hereby DISMISSED, and the decision appealed from in Civil Case No. 65577 is hereby AFFIRMED with MODIFICATION in that the award of exemplary damages in favor of the appellees is hereby reduced to P500,000.00. Needless to add, in view of the Compromise Agreement plaintiff-intervenor IBA-Finance and defendant-appellant PREMIERE between plaintiff-intervenor IBA-Finance and defendantappellant PREMIERE as approved by this Court per Resolution dated March 11, 1999, Our dispositive of the present appeal is only with respect to the liability of appellant PREMIERE to the plaintiff-appellees. With costs against the defendant-appellant. SO ORDERED.10

WHETHER OR NOT THERE IS BASIS OR COMPETENT PIECE OF EVIDENCE PRESENTED DURING THE TRIAL TO SUPPORT AN AWARD OF ACTUAL DAMAGES OF P4,520,000.00. Firstly, Premiere Bank argues that considering the compromise agreement it entered with IbaFinance, the Court of Appeals should have ruled only on the issue of its alleged bad faith in downgrading Panacors credit line. It further contends that the Court of Appeals should have refrained from making any adverse pronouncement on the refusal of Premiere Bank to recognize the take-out and its subsequent failure to release the cancellation of the mortgage because they were rendered fait accompli by the compromise agreement. We are not persuaded. In a letter-agreement12 dated October 5, 1995, Iba-Finance informed Premiere Bank of its approval of Panacors loan application in the amount of P10 million to be secured by a real estate mortgage over a parcel of land covered by TCT No. T-3475. It was agreed that Premiere Bank shall entrust to Iba-Finance the owners duplicate copy of TCT No. T-3475 in order to register its mortgage, after which Iba-Finance shall pay off Arizonas outstanding indebtedness. Accordingly, Iba-Finance remitted P6,235,754.79 to Premiere Bank on the understanding that said amount represented the full payment of Arizonas loan obligations. Despite performance by Iba-Finance of its end of the bargain, Premiere Bank refused to deliver the mortgage document. As a consequence, Iba-Finance failed to release the remaining P2.5 million loan it earlier pledged to Panacor, which finally led to the revocation of its distributorship agreement with Colgate.

Undeniably, the not-so-forthright conduct of Premiere Bank in its dealings with respondent corporations caused damage to Panacor and Iba-Finance. It is error for Premiere Bank to assume that the compromise agreement it entered with Iba-Finance extinguished all direct and collateral incidents to the aborted take-out such that it also cancelled its obligations to Panacor. The unjustified refusal by Premiere Bank to release the mortgage document prompted Iba-Finance to withhold the release of the P2.5 million earmarked for Panacor which eventually terminated the distributorship agreement. Both Iba-Finance and Panacor, which are two separate and distinct juridical entities, suffered damages due to the fault of Premiere Bank. Hence, it should be held liable to each of them. While the compromise agreement may have resulted in the satisfaction of Iba-Finances legal claims, Premiere Banks liability to Panacor remains. We agree with the Court of Appeals that the "present appeal is only with respect to the liability of appellant Premiere Bank to the plaintiffs-appellees (Panacor and Arizona)"13 taking into account the compromise agreement. For the foregoing reasons, we find that the Court of Appeals did not err in discussing in the assailed decision the abortive take-out and the refusal by Premiere Bank to release the cancellation of the mortgage document. Secondly, Premiere Bank asserts that it acted in good faith when it downgraded the credit line of Panacor from P4.1 million to P2.7 million. It cites the decision of the trial court which, albeit inconsistent with its final disposition, expressly recognized that the downgrading of the loan was not the proximate cause of the damages suffered by respondents. Under the Credit Line Agreement14 dated September 1995, Premiere Bank agreed to extend a loan of P4.1 million to Arizona to be used by its affiliate, Panacor, in its operations. Eventually, Premiere approved in favor of Arizona a loan equivalent to P6.1 million, P3.4 million of which was allotted for the payment of Arizonas existing loan obligations and P2.7 million as credit line of Panacor. Since only P2.7 million was made available to Panacor, instead of P4.1 million as previously approved, Panacor applied for a P2.5 loan from IbaFinance, which, as earlier mentioned, was not released because of Premiere Banks refusal to issue the mortgage cancellation. It is clear that Premiere Bank deviated from the terms of the credit line agreement when it unilaterally and arbitrarily downgraded the credit line of Panacor from P4.1 million to P2.7 million. Having entered into a well-defined contractual relationship, it is imperative that the parties should honor and adhere to their respective rights and obligations thereunder. Law and jurisprudence dictate that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.15 The appellate court correctly observed, and we agree, that: Appellants actuations, considering the actual knowledge of its officers of the tight financial situation of appellee PANACOR brought about primarily by the appellant banks considerable reduction of the credit line portion of the loan, in relation to the "bail-out" efforts of IBA Finance, whose payment of the outstanding loan account of appellee ARIZONA with appellant was readily accepted by the appellant, were truly marked by bad faith and lack of due regard to the urgency of its compliance by immediately releasing the mortgage cancellation document and delivery of the title to IBA Finance. That time is of the essence in the requested release of the mortgage cancellation and delivery of the subject title was only too well-known to appellant, having only belatedly invoked the cross-default provision in the Real Estate Mortgage executed in its favor by appellee ARIZONA to resist the plain valid and just demand of IBA Finance for such compliance by appellant bank.16

Premiere Bank cannot justify its arbitrary act of downgrading the credit line on the alleged finding by its project analyst that the distributorship was not financially feasible. Notwithstanding the alleged forewarning, Premiere Bank still extended Arizona the loan of P6.1 million, albeit in contravention of the credit line agreement. This indubitably indicates that Premiere Bank had deliberately and voluntarily granted the said loan despite its claim that the distributorship contract was not viable. Neither can Premiere Bank rely on the puerile excuse that it was the banks policy not to release the mortgage cancellation prior to the settlement of outstanding loan obligations. Needless to say, the Final Statement of Account dated October 17, 1995 showing in no uncertain terms Arizonas outstanding indebtedness, which was subsequently paid by IbaFinance, was the full payment of Arizonas loan obligations. Equity demands that a party cannot disown it previous declaration to the prejudice of the other party who relied reasonably and justifiably on such declaration. Thirdly, Premiere Bank avers that the appellate courts reliance on the credit line agreement as the basis of bad faith on its part was inadmissible or self-serving for not being duly notarized, being unsigned in all of its left margins, and undated. According to Premiere Bank, the irregularities in the execution of the credit line agreement bolsters the theory that the same was the product of manipulation orchestrated by respondent corporations through undue influence and pressure exerted by its officers on Martillano. Premiere Banks posture deserves scant consideration. As found by the lower court, there are sufficient indicia that demonstrate that the alleged unjust pressure exerted on Martillano was more imagined than real. In her testimony, Martillano claims that she was persuaded and coaxed by Caday of Iba-Finance and Panaligan of Panacor to sign the letter. It was she who provided Iba-Finance with the Final Statement of Account and accepted its payment without objection or qualification. These acts show that she was vested by Premiere Bank with sufficient authority to enter into the said transactions. If a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be estopped to deny that the apparent authority is real as to innocent third persons dealing in good faith with such officers or agents.17 As testified to by Martillano, after she received a copy of the credit line agreement and affixed her signature in conformity thereto, she forwarded the same to the legal department of the Bank at its Head Office. Despite its knowledge, Premiere Bank failed to disaffirm the contract. When the officers or agents of a corporation exceed their powers in entering into contracts or doing other acts, the corporation, when it has knowledge thereof, must promptly disaffirm the contract or act and allow the other party or third persons to act in the belief that it was authorized or has been ratified. If it acquiesces, with knowledge of the facts, or fails to disaffirm, ratification will be implied or else it will be estopped to deny ratification.18 Finally, Premiere Bank argues that the finding by the appellate court that it was liable for actual damages in the amount of P4,520,000.00 is without basis. It contends that the evidence presented by Panacor in support of its claim for actual damages are not official receipts but self-serving declarations. To justify an award for actual damages, there must be competent proof of the actual amount of loss. Credence can be given only to claims, which are duly supported by receipts.19 The burden of proof is on the party who will be defeated if no evidence is presented on either side. He must establish his case by a preponderance of evidence which means that the evidence, as a whole, adduced by one side is superior to that of the other. In other words, damages cannot

be presumed and courts, in making an award, must point out specific facts that can afford a basis for measuring whatever compensatory or actual damages are borne. Under Article 2199 of the Civil Code, actual or compensatory damages are those awarded in satisfaction of, or in recompense for, loss or injury sustained. They proceed from a sense of natural justice and are designed to repair the wrong that has been done, to compensate for the injury inflicted and not to impose a penalty. In the instant case, the actual damages were proven through the sole testimony of Themistocles Ruguero, the vice president for administration of Panacor. In his testimony, the witness affirmed that Panacor incurred losses, specifically, in terms of training and seminars, leasehold acquisition, procurement of vehicles and office equipment without, however, adducing receipts to substantiate the same. The documentary evidence marked as exhibit "W", which was an ordinary private writing allegedly itemizing the capital expenditures and losses from the failed operation of Panacor, was not testified to by any witness to ascertain the veracity of its contents. Although the lower court fixed the sum of P4,520,000.00 as the total expenditures incurred by Panacor, it failed to show how and in what manner the same were substantiated by the claimant with reasonable certainty. Hence, the claim for actual damages should be admitted with extreme caution since it is only based on bare assertion without support from independent evidence. Premieres failure to prove actual expenditure consequently conduces to a failure of its claim. In determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss.20 Even if not recoverable as compensatory damages, Panacor may still be awarded damages in the concept of temperate or moderate damages. When the court finds that some pecuniary loss has been suffered but the amount cannot, from the nature of the case, be proved with certainty, temperate damages may be recovered. Temperate damages may be allowed in cases where from the nature of the case, definite proof of pecuniary loss cannot be adduced, although the court is convinced that the aggrieved party suffered some pecuniary loss. The Code Commission, in explaining the concept of temperate damages under Article 2224, makes the following comment:21 In some States of the American Union, temperate damages are allowed. There are cases where from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is convinced that there has been such loss. For instance, injury to ones commercial credit or to the goodwill of a business firm is often hard to show with certainty in terms of money. Should damages be denied for that reason? The judge should be empowered to calculate moderate damages in such cases, rather than that the plaintiff should suffer, without redress from the defendant's wrongful act. It is obvious that the wrongful acts of Premiere Bank adversely affected, in one way or another, the commercial credit22 of Panacor, greatly contributed to, if not, decisively caused the premature stoppage of its business operations and the consequent loss of business opportunity. Since these losses are not susceptible to pecuniary estimation, temperate damages may be awarded. Article 2216 of the Civil Code: No proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or exemplary damages may be adjudicated. The assessment of such damages, except liquidated ones, is left to the discretion of the Court, according to the circumstances of each case.

Under the circumstances, the sum of P200,000.00 as temperate damages is reasonable. WHEREFORE, the petition is DENIED. The Decision dated June 18, 2003 of the Court of Appeals in CA-G.R. CV No. 60750, ordering Premiere Bank to pay Panacor Marketing Corporation P500,000.00 as exemplary damages, P100,000.00 as attorneys fees, and costs, is AFFIRMED, with the MODIFICATION that the award of P4,520,000.00 as actual damages is DELETED for lack of factual basis. In lieu thereof, Premiere Bank is ordered to pay Panacor P200,000.00 as temperate damages. SO ORDERED. G.R. No. 171805 May 30, 2011

PHILIPPINE NATIONAL BANK, Petitioner, vs. MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE L. AZNAR (deceased), represented by his heirs; RAMON A. BARCENILLA; ROSARIO T. BARCENILLA; JOSE B. ENAD (deceased), represented by his heirs; and RICARDO GABUYA (deceased), represented by his heirs, Respondents. G.R. No. 172021 MERELO B. AZNAR and MATIAS B. AZNAR III, Petitioners, vs. PHILIPPINE NATIONAL BANK, Respondent. LEONARDO-DE CASTRO, J.: Before the Court are two petitions for review on certiorari under Rule 45 of the Rules of Court both seeking to annul and set aside the Decision1 dated September 29, 2005 as well as the Resolution2 dated March 6, 2006 of the Court of Appeals in CA-G.R. CV No. 75744, entitled "Merelo B. Aznar, Matias B. Aznar III, Jose L. Aznar (deceased) represented by his heirs, Ramon A. Barcenilla (deceased) represented by his heirs, Rosario T. Barcenilla, Jose B. Enad (deceased) represented by his heirs, and Ricardo Gabuya (deceased) represented by his heirs v. Philippine National Bank, Jose Garrido and Register of Deeds of Cebu City." The September 29, 2005 Decision of the Court of Appeals set aside the Decision3 dated November 18, 1998 of the Regional Trial Court (RTC) of Cebu City, Branch 17, in Civil Case No. CEB-21511. Furthermore, it ordered the Philippine National Bank (PNB) to pay Merelo B. Aznar; Matias B. Aznar III; Jose L. Aznar (deceased), represented by his heirs; Ramon A. Barcenilla (deceased), represented by his heirs; Rosario T. Barcenilla; Jose B. Enad (deceased), represented by his heirs; and Ricardo Gabuya (deceased), represented by his heirs (Aznar, et al.), the amount of their lien based on the Minutes of the Special Meeting of the Board of Directors4 (Minutes) of the defunct Rural Insurance and Surety Company, Inc. (RISCO) duly annotated on the titles of three parcels of land, plus legal interests from the time of PNBs acquisition of the subject properties until the finality of the judgment but dismissing all other claims of Aznar, et al. On the other hand, the March 6, 2006 Resolution of the Court of Appeals denied the Motion for Reconsideration subsequently filed by each party. The facts of this case, as stated in the Decision dated September 29, 2005 of the Court of Appeals, are as follows:

In 1958, RISCO ceased operation due to business reverses. In plaintiffs desire to rehabilitate RISCO, they contributed a total amount of P212,720.00 which was used in the purchase of the three (3) parcels of land described as follows: "A parcel of land (Lot No. 3597 of the Talisay-Minglanilla Estate, G.L.R.O. Record No. 3732) situated in the Municipality of Talisay, Province of Cebu, Island of Cebu. xxx containing an area of SEVENTY[-]EIGHT THOUSAND ONE HUNDRED EIGHTY[-]FIVE SQUARE METERS (78,185) more or less. x x x" covered by Transfer Certificate of Title No. 8921 in the name of Rural Insurance & Surety Co., Inc."; "A parcel of land (Lot 7380 of the Talisay Minglanilla Estate, G.L.R.O. Record No. 3732), situated in the Municipality of Talisay, Province of Cebu, Island of Cebu. xxx containing an area of THREE HUNDRED TWENTY[-]NINE THOUSAND FIVE HUNDRED FORTY[-]SEVEN SQUARE METERS (329,547), more or less. xxx" covered by Transfer Certificate of Title No. 8922 in the name of Rural Insurance & Surety Co., Inc." and "A parcel of land (Lot 1323 of the subdivision plan Psd-No. 5988), situated in the District of Lahug, City of Cebu, Island of Cebu. xxx containing an area of FIFTY[-]FIVE THOUSAND SIX HUNDRED FIFTY[-]THREE (55,653) SQUARE METERS, more or less." covered by Transfer Certificate of Title No. 24576 in the name of Rural Insurance & Surety Co., Inc." After the purchase of the above lots, titles were issued in the name of RISCO. The amount contributed by plaintiffs constituted as liens and encumbrances on the aforementioned properties as annotated in the titles of said lots. Such annotation was made pursuant to the Minutes of the Special Meeting of the Board of Directors of RISCO (hereinafter referred to as the "Minutes") on March 14, 1961, pertinent portion of which states: xxxx 3. The President then explained that in a special meeting of the stockholders previously called for the purpose of putting up certain amount of P212,720.00 for the rehabilitation of the Company, the following stockholders contributed the amounts indicated opposite their names: CONTRIBUTED SURPLUS MERELO B. AZNAR MATIAS B. AZNAR JOSE L. AZNAR RAMON A. BARCENILLA ROSARIO T. BARCENILLA JOSE B. ENAD RICARDO GABUYA P50,000.00 50,000.00 27,720.00 25,000.00 25,000.00 17,500.00 17,500.00 212,720.00

And that the respective contributions above-mentioned shall constitute as their lien or interest on the property described above, if and when said property are titled in the name of RURAL INSURANCE & SURETY CO., INC., subject to registration as their adverse claim in pursuance of the Provisions of Land Registration Act, (Act No. 496, as amended) until such time their respective contributions are refunded to them completely. x x x x" Thereafter, various subsequent annotations were made on the same titles, including the Notice of Attachment and Writ of Execution both dated August 3, 1962 in favor of herein defendant PNB, to wit: On TCT No. 8921 for Lot 3597: Entry No. 7416-V-4-D.B. Notice of Attachment By the Provincial Sheriff of Cebu, Civil Case No. 47725, Court of First Instance of Manila, entitled "Philippine National Bank, Plaintiff, versus Iluminada Gonzales, et al., Defendants", attaching all rights, interest and participation of the defendant Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of the two parcels of land covered by T.C.T. Nos. 8921, Attachment No. 330 and 185. Date of Instrument August 3, 1962. Date of Inscription August 3, 1962, 3:00 P.M. Entry No. 7417-V-4-D.B. Writ of Execution By the Court of First Instance of Manila, commanding the Provincial Sheriff of Cebu, of the lands and buildings of the defendants, to make the sum of Seventy[-]One Thousand Three Hundred Pesos (P71,300.00) plus interest etc., in connection with Civil Case No. 47725, File No. T-8021. Date of Instrument July 21, 1962. Date of Inscription August 3, 1962, 3:00 P.M. Entry No. 7512-V-4-D.B. Notice of Attachment By the Provincial Sheriff of Cebu, Civil Case Nos. IV-74065, 73929, 74129, 72818, in the Municipal Court of the City of Manila, entitled "Jose Garrido, Plaintiff, versus Rural Insurance & Surety Co., Inc., et als., Defendants", attaching all rights, interests and participation of the defendants, to the parcels of land covered by T.C.T. Nos. 8921 & 8922 Attachment No. 186, File No. T-8921. Date of the Instrument August 16, 1962. Date of Inscription August 16, 1962, 2:50 P.M. Entry No. 7513-V-4-D.B. Writ of Execution By the Municipal Court of the City of Manila, commanding the Provincial Sheriff of Cebu, of the lands and buildings of the defendants, to make the sum of Three Thousand Pesos (P3,000.00), with interest at 12% per annum from July 20, 1959, in connection with Civil Case Nos. IV-74065, 73929, 74613 annotated above. File No. T-8921

Date of the Instrument August 11, 1962. Date of the Inscription August 16, 1962, 2:50 P.M. On TCT No. 8922 for Lot 7380: (Same as the annotations on TCT 8921) On TCT No. 24576 for Lot 1328 (Corrected to Lot 1323-c per court order): Entry No. 1660-V-7-D.B. Notice of Attachment by the Provincial Sheriff of Cebu, Civil Case No. 47725, Court of First Instance of Manila, entitled "Philippine National Bank, Plaintiff, versus, Iluminada Gonzales, et al., Defendants", attaching all rights, interest, and participation of the defendants Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of the parcel of land herein described. Attachment No. 330 & 185. Date of Instrument August 3, 1962. Date of Inscription August 3, 1962, 3:00 P.M. Entry No. 1661-V-7-D.B. Writ of Execution by the Court of First Instance of Manila commanding the Provincial Sheriff of Cebu, of the lands and buildings of the defendants to make the sum of Seventy[-]One Thousand Three Hundred Pesos (P71,300.00), plus interest, etc., in connection with Civil Case No. 47725. File No. T-8921. Date of the Instrument July 21, 1962. Date of the Inscription August 3, 1962 3:00 P.M. Entry No. 1861-V-7-D.B. - Notice of Attachment By the Provincial Sheriff of Cebu, Civil Case Nos. IV-74065, 73929, 74129, 72613 & 72871, in the Municipal Court of the City of Manila, entitled "Jose Garrido, Plaintiff, versus Rural Insurance & Surety Co., Inc., et als., Defendants", attaching all rights, interest and participation of the defendants, to the parcel of land herein described. Attachment No. 186. File No. T-8921. Date of the Instrument August 16, 1962. Date of the Instription August 16, 1962 2:50 P.M.

Entry No. 1862-V-7-D.B. Writ of Execution by the Municipal Court of Manila, commanding the Provincial Sheriff of Cebu, of the lands and buildings of the Defendants, to make the sum of Three Thousand Pesos (P3,000.00), with interest at 12% per annum from July 20, 1959, in connection with Civil Case Nos. IV-74065, 73929, 74129, 72613 & 72871 annotated above. File No. T-8921. Date of the Instrument August 11, 1962. Date of the Inscription August 16, 1962 at 2:50 P.M. As a result, a Certificate of Sale was issued in favor of Philippine National Bank, being the lone and highest bidder of the three (3) parcels of land known as Lot Nos. 3597 and 7380, covered by T.C.T. Nos. 8921 and 8922, respectively, both situated at Talisay, Cebu, and Lot No. 1328-C covered by T.C.T. No. 24576 situated at Cebu City, for the amount of Thirty-One Thousand Four Hundred Thirty Pesos (P31,430.00). Thereafter, a Final Deed of Sale dated May 27, 1991 in favor of the Philippine National Bank was also issued and Transfer Certificate of Title No. 24576 for Lot 1328-C (corrected to 1323-C) was cancelled and a new certificate of title, TCT 119848 was issued in the name of PNB on August 26, 1991. This prompted plaintiffs-appellees to file the instant complaint seeking the quieting of their supposed title to the subject properties, declaratory relief, cancellation of TCT and reconveyance with temporary restraining order and preliminary injunction. Plaintiffs alleged that the subsequent annotations on the titles are subject to the prior annotation of their liens and encumbrances. Plaintiffs further contended that the subsequent writs and processes annotated on the titles are all null and void for want of valid service upon RISCO and on them, as stockholders. They argued that the Final Deed of Sale and TCT No. 119848 are null and void as these were issued only after 28 years and that any right which PNB may have over the properties had long become stale. Defendant PNB on the other hand countered that plaintiffs have no right of action for quieting of title since the order of the court directing the issuance of titles to PNB had already become final and executory and their validity cannot be attacked except in a direct proceeding for their annulment. Defendant further asserted that plaintiffs, as mere stockholders of RISCO do not have any legal or equitable right over the properties of the corporation. PNB posited that even if plaintiffs monetary lien had not expired, their only recourse was to require the reimbursement or refund of their contribution.51awphi1 Aznar, et al., filed a Manifestation and Motion for Judgment on the Pleadings6 on October 5, 1998. Thus, the trial court rendered the November 18, 1998 Decision, which ruled against PNB on the basis that there was an express trust created over the subject properties whereby RISCO was the trustee and the stockholders, Aznar, et al., were the beneficiaries or the cestui que trust. The dispositive portion of the said ruling reads: WHEREFORE, judgment is hereby rendered as follows: a) Declaring the Minutes of the Special Meeting of the Board of Directors of RISCO approved on March 14, 1961 (Annex "E," Complaint) annotated on the titles to subject properties on May 15, 1962 as an express trust whereby RISCO was a mere trustee and the above-mentioned stockholders as beneficiaries being the true and lawful owners of Lots 3597, 7380 and 1323;

b) Declaring all the subsequent annotations of court writs and processes, to wit: Entry No. 7416-V-4-D.B., 7417-V-4-D.B., 7512-V-4-D.B., and 7513-V-4-D.B. in TCT No. 8921 for Lot 3597 and TCT No. 8922 for Lot 7380; Entry No. 1660-V-7-D.B., Entry No. 1661-V-7-D.B., Entry No. 1861-V-7-D.B., Entry No. 1862-V-7-D.B., Entry No. 4329-V-7-D.B., Entry No. 3761-V-7-D.B. and Entry No. 26522 v. 34, D.B. on TCT No. 24576 for Lot 1323-C, and all other subsequent annotations thereon in favor of third persons, as null and void; c) Directing the Register of Deeds of the Province of Cebu and/or the Register of Deeds of Cebu City, as the case may be, to cancel all these annotations mentioned in paragraph b) above the titles; d) Directing the Register of Deeds of the Province of Cebu to cancel and/or annul TCTs Nos. 8921 and 8922 in the name of RISCO, and to issue another titles in the names of the plaintiffs; and e) Directing Philippine National Bank to reconvey TCT No. 119848 in favor of the plaintiffs.7 PNB appealed the adverse ruling to the Court of Appeals which, in its September 29, 2005 Decision, set aside the judgment of the trial court. Although the Court of Appeals agreed with the trial court that a judgment on the pleadings was proper, the appellate court opined that the monetary contributions made by Aznar, et al., to RISCO can only be characterized as a loan secured by a lien on the subject lots, rather than an express trust. Thus, it directed PNB to pay Aznar, et al., the amount of their contributions plus legal interest from the time of acquisition of the property until finality of judgment.lawphil The dispositive portion of the decision reads: WHEREFORE, premises considered, the assailed Judgment is hereby SET ASIDE. A new judgment is rendered ordering Philippine National Bank to pay plaintiffs-appellees the amount of their lien based on the Minutes of the Special Meeting of the Board of Directors duly annotated on the titles, plus legal interests from the time of appellants acquisition of the subject properties until the finality of this judgment. All other claims of the plaintiffs-appellees are hereby DISMISSED.8 Both parties moved for reconsideration but these were denied by the Court of Appeals. Hence, each party filed with this Court their respective petitions for review on certiorari under Rule 45 of the Rules of Court, which were consolidated in a Resolution9 dated October 2, 2006. In PNBs petition, docketed as G.R. No. 171805, the following assignment of errors were raised: I THE COURT OF APPEALS ERRED IN AFFIRMING THE FINDINGS OF THE TRIAL COURT THAT A JUDGMENT ON THE PLEADINGS WAS WARRANTED DESPITE THE EXISTENCE OF GENUINE ISSUES OF FACTS ALLEGED IN PETITIONER PNBS ANSWER. II

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE RIGHT OF RESPONDENTS TO REFUND OR REPAYMENT OF THEIR CONTRIBUTIONS HAD NOT PRESCRIBED AND/OR THAT THE MINUTES OF THE SPECIAL MEETING OF THE BOARD OF DIRECTORS OF RISCO CONSTITUTED AS AN EFFECTIVE ADVERSE CLAIM. III THE COURT OF APPEALS ERRED IN NOT CONSIDERING THE DISMISSAL OF THE COMPLAINT ON GROUNDS OF RES JUDICATA AND LACK OF CAUSE OF ACTION ALLEGED BY PETITIONER IN ITS ANSWER.10 On the other hand, Aznar, et al.s petition, docketed as G.R. No. 172021, raised the following issue: THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE CONTRIBUTIONS MADE BY THE STOCKHOLDERS OF RISCO WERE MERELY A LOAN SECURED BY THEIR LIEN OVER THE PROPERTIES, SUBJECT TO REIMBURSEMENT OR REFUND, RATHER THAN AN EXPRESS TRUST.11 Anent the first issue raised in G.R. No. 171805, PNB argues that a judgment on the pleadings was not proper because its Answer,12 which it filed during the trial court proceedings of this case, tendered genuine issues of fact since it did not only deny material allegations in Aznar, et al.s Complaint13 but also set up special and affirmative defenses. Furthermore, PNB maintains that, by virtue of the trial courts judgment on the pleadings, it was denied its right to present evidence and, therefore, it was denied due process. The contention is meritorious. The legal basis for rendering a judgment on the pleadings can be found in Section 1, Rule 34 of the Rules of Court which states that "[w]here an answer fails to tender an issue, or otherwise admits the material allegations of the adverse partys pleading, the court may, on motion of that party, direct judgment on such pleading. x x x." Judgment on the pleadings is, therefore, based exclusively upon the allegations appearing in the pleadings of the parties and the annexes, if any, without consideration of any evidence aliunde.14 However, when it appears that not all the material allegations of the complaint were admitted in the answer for some of them were either denied or disputed, and the defendant has set up certain special defenses which, if proven, would have the effect of nullifying plaintiffs main cause of action, judgment on the pleadings cannot be rendered.15 In the case at bar, the Court of Appeals justified the trial courts resort to a judgment on the pleadings in the following manner: Perusal of the complaint, particularly, Paragraph 7 thereof reveals: "7. That in their desire to rehabilitate RISCO, the above-named stockholders contributed a total amount of PhP212,720.00 which was used in the purchase of the above-described parcels of land, which amount constituted liens and encumbrances on subject properties in favor of the above-named stockholders as annotated in the titles adverted to above, pursuant to the Minutes of the Special Meeting of the Board of Directors of RISCO approved on March 14, 1961, a copy of which is hereto attached as Annex "E".

On the other hand, defendant in its Answer, admitted the aforequoted allegation with the qualification that the amount put up by the stockholders was "used as part payment" for the properties. Defendant further averred that plaintiffs liens and encumbrances annotated on the titles issued to RISCO constituted as "loan from the stockholders to pay part of the purchase price of the properties" and "was a personal obligation of RISCO and was thus not a claim adverse to the ownership rights of the corporation." With these averments, We do not find error on the part of the trial court in rendering a judgment on the pleadings. For one, the qualification made by defendant in its answer is not sufficient to controvert the allegations raised in the complaint. As to defendants contention that the money contributed by plaintiffs was in fact a "loan" from the stockholders, reference can be made to the Minutes of the Special Meeting of the Board of Directors, from which plaintiffs-appellees anchored their complaint, in order to ascertain the true nature of their claim over the properties. Thus, the issues raised by the parties can be resolved on the basis of their respective pleadings and the annexes attached thereto and do not require further presentation of evidence aliunde.16 However, a careful reading of Aznar, et al.s Complaint and of PNBs Answer would reveal that both parties raised several claims and defenses, respectively, other than what was cited by the Court of Appeals, which requires the presentation of evidence for resolution, to wit: Complaint (Aznar, et al.) 11. That these subsequent annotations on the titles of the properties in question are subject to the prior annotation of liens and encumbrances of the above-named stockholders per Entry No. 458-V-7-D.B. inscribed on TCT No. 24576 on May 15, 1962 and per Entry No. 6966-V-4-D.B. on TCT No. 8921 and TCT No. 8922 on May 15, 1962; 12. That these writs and processes annotated on the titles are all null and void for total want of valid service upon RISCO and the above-named stockholders considering that as early as sometime in 1958, RISCO ceased operations as earlier stated, and as early as May 15, 1962, the liens and encumbrances of the above-named stockholders were annotated in the titles of subject properties; 13. That more particularly, the Final Deed of Sale (Annex "G") and TCT No. 119848 are null and void as these were issued only after 28 years and 5 months (in the case of the Final Deed of Sale) and 28 years, 6 months and 29 days (in the case of TCT 119848) from the invalid auction sale on December 27, 1962, hence, any right, if any, which PNB had over subject properties had long become stale;

res judicata; (c) Aznar, et al., having no right of action for quieting of title; (d) Aznar, et al.s lien being ineffective and not binding to PNB; and (e) Aznar, et al.s having no personality to file the suit.19 From the foregoing, it is indubitably clear that it was error for the trial court to render a judgment on the pleadings and, in effect, resulted in a denial of due process on the part of PNB because it was denied its right to present evidence. A remand of this case would ordinarily be the appropriate course of action. However, in the interest of justice and in order to expedite the resolution of this case which was filed with the trial court way back in 1998, the Court finds it proper to already resolve the present controversy in light of the existence of legal grounds that would dispose of the case at bar without necessity of presentation of further evidence on the other disputed factual claims and defenses of the parties. A thorough and comprehensive scrutiny of the records would reveal that this case should be dismissed because Aznar, et al., have no title to quiet over the subject properties and their true cause of action is already barred by prescription.

At the outset, the Court agrees with the Court of Appeals that the agreement contained in the Minutes of the Special Meeting of the RISCO Board of Directors held on March 14, 1961 was a loan by the therein named stockholders to RISCO. We quote with approval the following discussion from the Court of Appeals Decision dated September 29, 2005: 10) Par. 11 is denied as the loan from the stockholders to pay part of the purchase price of the properties was a Careful perusal of the Minutes relied upon by plaintiffs-appellees in their claim, showed that personal obligation of RISCO and was thus nottheir contributions shall constitute as "lien or interest on the property" if and when said a claim adverse to the ownership rights of the properties are titled in the name of RISCO, subject to registration of their adverse claim under corporation; the Land Registration Act, until such time their respective contributions are refunded to them 11) Par. 12 is denied as completely. to RISCO in fact notice had been sent to its last known address at Plaza Goite, Manila; It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. When the language of the contract is explicit leaving no doubt as to the intention of the drafters thereof, the courts may not read into it any other intention that would contradict its 12) Par. 13 is denied for no law requires theplain import.

final deed of sale to be executed immediately after the end of the redemption period. used in the Minutes is defined as "a discharge on property usually for the The term lien as Moreover, another court of competent debt or obligation. A lien is a qualified right or a proprietary interest which payment of some jurisdiction has alreadymay be exercised over the property of another. It is a right which the law gives to have a debt ruled that PNB was entitled to a final deed satisfied out of a particular thing. It signifies a legal claim or charge on property; whether real of sale; or personal, as a collateral or security for the payment of some debt or obligation." Hence, 14. That plaintiffs continue to have possession of subject properties and of 13) Par. 14 is denied as from the use of the word "lien" in the Minutes, We find that the money contributed by plaintiffs are not in their corresponding titles, but they never received any process concerning actual possession of theplaintiffs-appellees was in the nature of a loan, secured by their liens and interests duly land and if they were, the petition filed by PNB to have TCT 24576 over Lot 1323-C surrendered their possession was as annotated on the titles. The annotation of their lien serves only as collateral and does not in trustee for the creditors and/or cancelled; of RISCO like PNB; any way vest ownership of property to plaintiffs.20(Emphases supplied.) 15. That there is a cloud created on the aforementioned titles of RISCO by reason of the annotate writs, processes and proceedings caused by Jose Garrido and PNB which were apparently valid or effective, but which are in truth and in fact invalid and ineffective, and prejudicial to said titles and to the rights of the plaintiffs, which should be removed and the titles quieted.17 14) Par. 15 is denied as the court orders directing the issuance of titles not persuadedof the contention of Aznar, et al., that the language of the subject We are to PNB in lieu by TCT 24576 and TCT 8922 are valid judgments Minutes created an express trust. which cannot be set aside in a collateral proceeding like the instant case. Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in another. It is a fiduciary relationship that obliges the trustee to deal with the property for the benefit of the beneficiary. Trust relations between parties may either be express or implied. An express trust is created by the intention of the trustor or of the parties. An implied trust Furthermore, apart from refuting the aforecited material allegations made by Aznar, et al., comes into being by operation of law.21 PNB also indicated in its Answer the special and affirmative defenses of (a) prescription; (b)

Express trusts, sometimes referred to as direct trusts, are intentionally created by the direct and positive acts of the settlor or the trustor - by some writing, deed, or will or oral declaration. It is created not necessarily by some written words, but by the direct and positive acts of the parties.22 This is in consonance with Article 1444 of the Civil Code, which states that "[n]o particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended." In other words, the creation of an express trust must be manifested with reasonable certainty and cannot be inferred from loose and vague declarations or from ambiguous circumstances susceptible of other interpretations.23 No such reasonable certitude in the creation of an express trust obtains in the case at bar. In fact, a careful scrutiny of the plain and ordinary meaning of the terms used in the Minutes does not offer any indication that the parties thereto intended that Aznar, et al., become beneficiaries under an express trust and that RISCO serve as trustor. Indeed, we find that Aznar, et al., have no right to ask for the quieting of title of the properties at issue because they have no legal and/or equitable rights over the properties that are derived from the previous registered owner which is RISCO, the pertinent provision of the law is Section 2 of the Corporation Code (Batas Pambansa Blg. 68), which states that "[a] corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence." As a consequence thereof, a corporation has a personality separate and distinct from those of its stockholders and other corporations to which it may be connected.24 Thus, we had previously ruled in Magsaysay-Labrador v. Court of Appeals25 that the interest of the stockholders over the properties of the corporation is merely inchoate and therefore does not entitle them to intervene in litigation involving corporate property, to wit: Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote, conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in sheer expectancy of a right in the management of the corporation and to share in the profits thereof and in the properties and assets thereof on dissolution, after payment of the corporate debts and obligations. While a share of stock represents a proportionate or aliquot interest in the property of the corporation, it does not vest the owner thereof with any legal right or title to any of the property, his interest in the corporate property being equitable or beneficial in nature. Shareholders are in no legal sense the owners of corporate property, which is owned by the corporation as a distinct legal person.26 In the case at bar, there is no allegation, much less any proof, that the corporate existence of RISCO has ceased and the corporate property has been liquidated and distributed to the stockholders. The records only indicate that, as per Securities and Exchange Commission (SEC) Certification27 dated June 18, 1997, the SEC merely suspended RISCOs Certificate of Registration beginning on September 5, 1988 due to its non-submission of SEC required reports and its failure to operate for a continuous period of at least five years. Verily, Aznar, et al., who are stockholders of RISCO, cannot claim ownership over the properties at issue in this case on the strength of the Minutes which, at most, is merely evidence of a loan agreement between them and the company. There is no indication or even

a suggestion that the ownership of said properties were transferred to them which would require no less that the said properties be registered under their names. For this reason, the complaint should be dismissed since Aznar, et al., have no cause to seek a quieting of title over the subject properties. At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to RISCO. Unfortunately, the right to seek repayment or reimbursement of their contributions used to purchase the subject properties is already barred by prescription. Section 1, Rule 9 of the Rules of Court provides that when it appears from the pleadings or the evidence on record that the action is already barred by the statute of limitations, the court shall dismiss the claim, to wit: Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived. However, when it appears from the pleadings or the evidence on record that the court has no jurisdiction over the subject matter, that there is another action pending between the same parties for the same cause, or that the action is barred by a prior judgment or by statute of limitations, the court shall dismiss the claim. (Emphasis supplied.) In Feliciano v. Canoza,28 we held: We have ruled that trial courts have authority and discretion to dismiss an action on the ground of prescription when the parties pleadings or other facts on record show it to be indeed time-barred x x x; and it may do so on the basis of a motion to dismiss, or an answer which sets up such ground as an affirmative defense; or even if the ground is alleged after judgment on the merits, as in a motion for reconsideration; or even if the defense has not been asserted at all, as where no statement thereof is found in the pleadings, or where a defendant has been declared in default. What is essential only, to repeat, is that the facts demonstrating the lapse of the prescriptive period, be otherwise sufficiently and satisfactorily apparent on the record; either in the averments of the plaintiffs complaint, or otherwise established by the evidence.29 (Emphasis supplied.) The pertinent Civil Code provision on prescription which is applicable to the issue at hand is Article 1144(1), to wit: The following actions must be brought within ten years from the time the right of action accrues: 1. Upon a written contract; 2. Upon an obligation created by law; 3. Upon a judgment. (Emphasis supplied.) Moreover, in Nielson & Co., Inc. v. Lepanto Consolidated Mining Co.,30 we held that the term "written contract" includes the minutes of the meeting of the board of directors of a corporation, which minutes were adopted by the parties although not signed by them, to wit: Coming now to the question of prescription raised by defendant Lepanto, it is contended by the latter that the period to be considered for the prescription of the claim regarding

participation in the profits is only four years, because the modification of the sharing embodied in the management contract is merely verbal, no written document to that effect having been presented. This contention is untenable. The modification appears in the minutes of the special meeting of the Board of Directors of Lepanto held on August 21, 1940, it having been made upon the authority of its President, and in said minutes the terms of modification had been specified. This is sufficient to have the agreement considered, for the purpose of applying the statute of limitations, as a written contract even if the minutes were not signed by the parties (3 A.L.R., 2d, p. 831). It has been held that a writing containing the terms of a contract if adopted by two persons may constitute a contract in writing even if the same is not signed by either of the parties (3 A.L.R., 2d, pp. 812-813). Another authority says that an unsigned agreement the terms of which are embodied in a document unconditionally accepted by both parties is a written contract (Corbin on Contracts, Vol. I, p. 85).31 Applied to the case at bar, the Minutes which was approved on March 14, 1961 is considered as a written contract between Aznar, et al., and RISCO for the reimbursement of the contributions of the former. As such, the former had a period of ten (10) years from 1961 within which to enforce the said written contract. However, it does not appear that Aznar, et al., filed any action for reimbursement or refund of their contributions against RISCO or even against PNB. Instead the suit that Aznar, et al., brought before the trial court only on January 28, 1998 was one to quiet title over the properties purchased by RISCO with their contributions. It is unmistakable that their right of action to claim for refund or payment of their contributions had long prescribed. Thus, it was reversible error for the Court of Appeals to order PNB to pay Aznar, et al., the amount of their liens based on the Minutes with legal interests from the time of PNBs acquisition of the subject properties. In view of the foregoing, it is unnecessary for the Court to pass upon the other issues raised by the parties. WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021 is DENIED for lack of merit. The petition of PNB in G.R. No. 171805 is GRANTED. The Complaint, docketed as Civil Case No. CEB-21511, filed by Aznar, et al., is hereby DISMISSED. No costs. SO ORDERED. G.R. No. 104175 June 25, 1993 YOUNG AUTO SUPPLY CO. AND NEMESIO GARCIA, petitioners, vs. THE HONORABLE COURT OF APPEALS (THIRTEENTH DIVISION) AND GEORGE CHIONG ROXAS,respondents. QUIASON, J.: Petitioners seek to set aside the decision of respondent Court of Appeals in CA-G.R. SP No. 25237, which reversed the Order dated February 8, 1991 issued by the Regional Trial Court, Branch 11, Cebu City in Civil Case No. CEB 6967. The order of the trial court denied the motion to dismiss filed by respondent George C. Roxas of the complaint for collection filed by petitioners. It appears that sometime on October 28, 1987, Young Auto Supply Co. Inc. (YASCO) represented by Nemesio Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their

shares of stock in Consolidated Marketing & Development Corporation (CMDC) to Roxas. The purchase price was P8,000,000.00 payable as follows: a downpayment of P4,000,000.00 and the balance of P4,000,000.00 in four post dated checks of P1,000,000.00 each. Immediately after the execution of the agreement, Roxas took full control of the four markets of CMDC. However, the vendors held on to the stock certificates of CMDC as security pending full payment of the balance of the purchase price. The first check of P4,000,000.00, representing the down-payment, was honored by the drawee bank but the four other checks representing the balance of P4,000,000.00 were dishonored. In the meantime, Roxas sold one of the markets to a third party. Out of the proceeds of the sale, YASCO received P600,000.00, leaving a balance of P3,400,000.00 (Rollo, p. 176). Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds of the sale of the CMDC shares to Nemesio Garcia. On June 10, 1988, petitioners filed a complaint against Roxas in the Regional Trial Court, Branch 11, Cebu City, praying that Roxas be ordered to pay petitioners the sum of P3,400,00.00 or that full control of the three markets be turned over to YASCO and Garcia. The complaint also prayed for the forfeiture of the partial payment of P4,600,000.00 and the payment of attorney's fees and costs (Rollo, p. 290). Roxas filed two motions for extension of time to submit his answer. But despite said motion, he failed to do so causing petitioners to file a motion to have him declared in default. Roxas then filed, through a new counsel, a third motion for extension of time to submit a responsive pleading. On August 19, 1988, the trial court declared Roxas in default. The order of default was, however, lifted upon motion of Roxas. On August 22, 1988, Roxas filed a motion to dismiss on the grounds that: 1. The complaint did not state a cause of action due to non-joinder of indispensable parties; 2. The claim or demand set forth in the complaint had been waived, abandoned or otherwise extinguished; and 3. The venue was improperly laid (Rollo, p. 299). After a hearing, wherein testimonial and documentary evidence were presented by both parties, the trial court in an Order dated February 8, 1991 denied Roxas' motion to dismiss. After receiving said order, Roxas filed another motion for extension of time to submit his answer. He also filed a motion for reconsideration, which the trial court denied in its Order dated April 10, 1991 for being pro-forma (Rollo, p. 17). Roxas was again declared in default, on the ground that his motion for reconsideration did not toll the running of the period to file his answer. On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not accompanied with the required affidavit or merit. But without waiting for the resolution of the motion, he filed a petition for certiorari with the Court of Appeals.

The Court of Appeals sustained the findings of the trial court with regard to the first two grounds raised in the motion to dismiss but ordered the dismissal of the complaint on the ground of improper venue (Rollo, p. 49). A subsequent motion for reconsideration by petitioner was to no avail. Petitioners now come before us, alleging that the Court of Appeals erred in: 1. holding the venue should be in Pasay City, and not in Cebu City (where both petitioners/plaintiffs are residents; 2. not finding that Roxas is estopped from questioning the choice of venue (Rollo, p. 19). The petition is meritorious. In holding that the venue was improperly laid in Cebu City, the Court of Appeals relied on the address of YASCO, as appearing in the Deed of Sale dated October 28, 1987, which is "No. 1708 Dominga Street, Pasay City." This was the same address written in YASCO's letters and several commercial documents in the possession of Roxas (Decision, p. 12; Rollo, p. 48). In the case of Garcia, the Court of Appeals said that he gave Pasay City as his address in three letters which he sent to Roxas' brothers and sisters (Decision, p. 12; Rollo, p. 47). The appellate court held that Roxas was led by petitioners to believe that their residence is in Pasay City and that he had relied upon those representations (Decision, p. 12, Rollo, p. 47). The Court of Appeals erred in holding that the venue was improperly laid in Cebu City. In the Regional Trial Courts, all personal actions are commenced and tried in the province or city where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff [Sec. 2(b) Rule 4, Revised Rules of Court]. There are two plaintiffs in the case at bench: a natural person and a domestic corporation. Both plaintiffs aver in their complaint that they are residents of Cebu City, thus: 1.1. Plaintiff Young Auto Supply Co., Inc., ("YASCO") is a domestic corporation duly organized and existing under Philippine laws with principal place of business at M. J. Cuenco Avenue, Cebu City. It also has a branch office at 1708 Dominga Street, Pasay City, Metro Manila. Plaintiff Nemesio Garcia is of legal age, married, Filipino citizen and with business address at Young Auto Supply Co., Inc., M. J. Cuenco Avenue, Cebu City. . . . (Complaint, p. 1; Rollo, p. 81). The Article of Incorporation of YASCO (SEC Reg. No. 22083) states: THIRD That the place where the principal office of the corporation is to be established or located is at Cebu City, Philippines (as amended on December 20, 1980 and further amended on December 20, 1984) (Rollo, p. 273).

A corporation has no residence in the same sense in which this term is applied to a natural person. But for practical purposes, a corporation is in a metaphysical sense a resident of the place where its principal office is located as stated in the articles of incorporation (Cohen v. Benguet Commercial Co., Ltd., 34 Phil. 256 [1916] Clavecilla Radio System v. Antillon, 19 SCRA 379 [1967]). The Corporation Code precisely requires each corporation to specify in its articles of incorporation the "place where the principal office of the corporation is to be located which must be within the Philippines" (Sec. 14 [3]). The purpose of this requirement is to fix the residence of a corporation in a definite place, instead of allowing it to be ambulatory. In Clavencilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court explained why actions cannot be filed against a corporation in any place where the corporation maintains its branch offices. The Court ruled that to allow an action to be instituted in any place where the corporation has branch offices, would create confusion and work untold inconvenience to said entity. By the same token, a corporation cannot be allowed to file personal actions in a place other than its principal place of business unless such a place is also the residence of a coplaintiff or a defendant. If it was Roxas who sued YASCO in Pasay City and the latter questioned the venue on the ground that its principal place of business was in Cebu City, Roxas could argue that YASCO was in estoppel because it misled Roxas to believe that Pasay City was its principal place of business. But this is not the case before us. With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its principal place of business is located, it becomes unnecessary to decide whether Garcia is also a resident of Cebu City and whether Roxas was in estoppel from questioning the choice of Cebu City as the venue. WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals appealed from is SET ASIDE and the Order dated February 8, 1991 of the Regional Trial Court is REINSTATED. SO ORDERED. G.R. No. L-22238 February 18, 1967

CLAVECILLIA RADIO SYSTEM, petitioner-appellant, vs. HON. AGUSTIN ANTILLON, as City Judge of the Municipal Court of Cagayan de Oro City and NEW CAGAYAN GROCERY, respondents-appellees. REGALA, J.: This is an appeal from an order of the Court of First Instance of Misamis Oriental dismissing the petition of the Clavecilla Radio System to prohibit the City Judge of Cagayan de Oro from taking cognizance of Civil Case No. 1048 for damages. It appears that on June 22, 1963, the New Cagayan Grocery filed a complaint against the Clavecilla Radio System alleging, in effect, that on March 12, 1963, the following message, addressed to the former, was filed at the latter's Bacolod Branch Office for transmittal thru its branch office at Cagayan de Oro:

NECAGRO CAGAYAN DE ORO (CLAVECILLA) REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE SHALL SHIP LATER REPLY POHANG The Cagayan de Oro branch office having received the said message omitted, in delivering the same to the New Cagayan Grocery, the word "NOT" between the words "WASHED" and "AVAILABLE," thus changing entirely the contents and purport of the same and causing the said addressee to suffer damages. After service of summons, the Clavecilla Radio System filed a motion to dismiss the complaint on the grounds that it states no cause of action and that the venue is improperly laid. The New Cagayan Grocery interposed an opposition to which the Clavecilla Radio System filed its rejoinder. Thereafter, the City Judge, on September 18, 1963, denied the motion to dismiss for lack of merit and set the case for hearing.1wph1.t Hence, the Clavecilla Radio System filed a petition for prohibition with preliminary injunction with the Court of First Instance praying that the City Judge, Honorable Agustin Antillon, be enjoined from further proceeding with the case on the ground of improper venue. The respondents filed a motion to dismiss the petition but this was opposed by the petitioner. Later, the motion was submitted for resolution on the pleadings. In dismissing the case, the lower court held that the Clavecilla Radio System may be sued either in Manila where it has its principal office or in Cagayan de Oro City where it may be served, as in fact it was served, with summons through the Manager of its branch office in said city. In other words, the court upheld the authority of the city court to take cognizance of the case.1wph1.t In appealing, the Clavecilla Radio System contends that the suit against it should be filed in Manila where it holds its principal office. It is clear that the case for damages filed with the city court is based upon tort and not upon a written contract. Section 1 of Rule 4 of the New Rules of Court, governing venue of actions in inferior courts, provides in its paragraph (b) (3) that when "the action is not upon a written contract, then in the municipality where the defendant or any of the defendants resides or may be served with summons." (Emphasis supplied) Settled is the principle in corporation law that the residence of a corporation is the place where its principal office is established. Since it is not disputed that the Clavecilla Radio System has its principal office in Manila, it follows that the suit against it may properly be filed in the City of Manila. The appellee maintain, however, that with the filing of the action in Cagayan de Oro City, venue was properly laid on the principle that the appellant may also be served with summons in that city where it maintains a branch office. This Court has already held in the case of Cohen vs. Benguet Commercial Co., Ltd., 34 Phil. 526; that the term "may be served with summons" does not apply when the defendant resides in the Philippines for, in such case, he may be sued only in the municipality of his residence, regardless of the place where he may be found and served with summons. As any other corporation, the Clavecilla Radio System maintains a residence which is Manila in this case, and a person can have only one residence at a time (See Alcantara vs. Secretary of the Interior, 61 Phil. 459; Evangelists vs. Santos, 86 Phil. 387). The fact that it maintains branch offices in some parts of the country does not mean that it can be sued in any of these places. To allow an action to be instituted in any place where a

corporate entity has its branch offices would create confusion and work untold inconvenience to the corporation. It is important to remember, as was stated by this Court in Evangelista vs. Santos, et al., supra, that the laying of the venue of an action is not left to plaintiff's caprice because the matter is regulated by the Rules of Court. Applying the provision of the Rules of Court, the venue in this case was improperly laid. The order appealed from is therefore reversed, but without prejudice to the filing of the action in Which the venue shall be laid properly. With costs against the respondents-appellees. G.R. No. L-56763 December 15, 1982 JOHN SY and UNIVERSAL PARTS SUPPLY CORPORATION, petitioners, vs. TYSON ENTERPRISES, INC., JUDGE GREGORIO G. PINEDA of the Court of First Instance of Rizal, Pasig Branch XXI and COURT OF APPEALS, respondents. AQUINO, J: This is a case about the venue of a collection suit. On August 29, 1979, Tyson Enterprises, Inc. filed against John Sy and Universal Parts Supply Corporation in the Court of First Instance of Rizal, Pasig Branch XXI, a complaint for the collection of P288,534.58 plus interest, attorney's fees and litigation expenses (Civil Case No. 34302). It is alleged in the complaint that John Sy, doing business under the trade name, Universal Parts Supply, is a resident of Fuentebella Subdivision, Bacolod City and that his co-defendant, Universal Parts Supply Corporation, allegedly controlled by Sy, is doing business in Bacolod City. Curiously enough, there is no allegation in the complaint as to the office or place of business of plaintiff Tyson Enterprises, Inc., a firm actually doing business at 1024 Magdalena, now G. Masangkay Street, Binondo, Manila (p. 59, Rollo). What is alleged is the postal address or residence of Dominador Ti, the president and general manager of plaintiff firm, which is at 26 Xavier Street, Greenhills Subdivision, San Juan, Rizal. The evident purpose of alleging that address and not mentioning the place of business of plaintiff firm was to justify the filing of the suit in Pasig, Rizal instead of in Manila. Defendant Sy and Universal Parts Supply Corporation first filed a motion for extension of time to file their answer and later a motion for a bill of particulars. The latter motion was denied. Then, they filed a motion to dismiss on the ground of improper venue. They invoked the provision of section 2(b), Rule 4 of the Rules of Court that personal actions "may be commenced and tried where the defendant or any of the defendants resides or may be found, or where the plaintiffs or any of the plaintiffs resides, at the election of the plaintiff." To strengthen that ground, they also cited the stipulation in the sales invoice that "the parties expressly submit to the jurisdiction of the Courts of the City of Manila for any legal action

arising out of" the transaction which stipulation is quoted in paragraph 4 of plaintiff's complaint. The plaintiff opposed the motion to dismiss on the ground that the defendants had waived the objection based on improper venue because they had previously filed a motion for a bill of particulars which was not granted. The trial court denied the motion to dismiss on the ground that by filing a motion for a bill of particulars the defendants waived their objection to the venue. That denial order was assailed in a petition for certiorari and prohibition in the Court of Appeals which issued on July 29, 1980 a restraining order, enjoining respondent judge from acting on the case. He disregarded the restraining order (p. 133, Rollo). The Appellate Court in its decision of October 6, 1980 dismissed the petition. It ruled that the parties did not intend Manila as the exclusive venue of the actions arising under their transactions and that since the action was filed in Pasig, which is near Manila, no useful purpose would be served by dismissing the same and ordering that it be filed in Manila (Sy vs. Pineda, CA-G.R. No. SP-10775). That decision was appealed to this Court. There is no question that the venue was improperly laid in this case. The place of business of plaintiff Tyson Enterprises, Inc., which for purposes of venue is considered as its residence (18 C.J.S 583; Clavecilla Radio system vs. Antillon, L-22238, February 18, 1967, 19 SCRA 379), because a corporation has a personality separate and distinct from that of its officers and stockholders. Consequently, the collection suit should have been filed in Manila, the residence of plaintiff corporation and the place designated in its sales invoice, or it could have been filed also in Bacolod City, the residence of defendant Sy. We hold that the trial court and the Court of Appeals erred in ruling that the defendants, now the petitioners, waived their objection to the improper venue. As the trial court proceeded in defiance of the Rules of Court in not dismissing the case, prohibition lies to restrain it from acting in the case (Enriquez vs. Macadaeg, 84 Phil. 674). Section 4, Rule 4 of the Rules of Court provides that, "when improper venue is not objected to in a motion to dismiss it is deemed waived" and it can no longer be pleaded as an affirmative defense in the answer (Sec. 5, Rule 16). In this case, the petitioners, before filing their answer, filed a motion to dismiss based on improper venue. That motion was seasonably filed (Republic vs. Court of First Instance of Manila, L-30839, November 28, 1975, 68 SCRA 231, 239). The fact that they filed a motion for a bill of particulars before they filed their motion to dismiss did not constitute a waiver of their objection to the venue. It should be noted that the provision of Section 377 of the Code of Civil Procedure that "the failure of a defendant to object to the venue of the action at the time of entering his appearance in the action shall be deemed a waiver on his part of all objection to the place or tribunal in which the action is brought" is not found in the Rules of Court. And the provision of section 4, Rule 5 of the 1940 Rules of Court that "when improper venue is not objected to prior to the trial, it is deemed waived" is not reproduced in the present Rules of Court.

To repeat, what section 4 of Rule 4 of the present Rules of court provides is that the objection to improper venue should be raised in a motion to dismiss seasonably filed and, if not so raised, then the said objection is waived. Section 4 does not provide that the objection based on improper venue should be interposed by means of a special appearance or before any pleading is filed. The rules on venue, like the other procedural rules, are designed to insure a just and orderly administration of justice or the impartial and evenhanded determination of every action and proceeding. Obviously, this objective will not be attained if the plaintiff is given unrestricted freedom to choose the court where he may file his complaint or petition. The choice of venue should not be left to the plaintiff's whim or caprice. He may be impelled by some ulterior motivation in choosing to file a case in a particular court even if not allowed by the rules on venue. As perspicaciously observed by Justice Moreland, the purpose of procedure is not to restrict the court's jurisdiction over the subject matter but to give it effective facility "in righteous action", "to facilitate and promote the administration of justice" or to insure "just judgments" by means of a fair hearing. If that objective is not achieved, then "the administration of justice becomes incomplete and unsatisfactory and lays itself open to grave criticism." (Manila Railroad Co. vs. Attorney General, 20 Phil. 523, 530.) The case of Marquez Lim Cay vs. Del Rosario, 55 Phil. 962, does not sustain the trial court's order of denial because in that case the defendants, before filing a motion to dismiss on the ground of improper venue, interposed a demurrer on the ground that the complaint does not state a cause of action. Then, they filed a motion for the dissolution of an attachment, posted a bond for its dissolution and later filed a motion for the assessment of the damages caused by the attachment. All those acts constituted a submission to the trial court's jurisdiction and a waiver of the objection based on improper venue under section 377 of the Code of Civil Procedure. The instant case is similar to Evangelista vs. Santos, 86 Phil. 387, where the plaintiffs sued the defendant in the Court of First Instance of Rizal on the assumption that he was a resident of Pasay City because he had a house there. Upon receipt of the summons, the defendant filed a motion to dismiss based on improper venue. He alleged under oath that he was a resident of Iloilo City. This Court sustained the dismissal of the complaint on the ground of improper venue, because the defendant was really a resident of Iloilo City. His Pasay City residence was used by his children who were studying in Manila. Same holding in Casilan vs. Tomassi, 90 Phil. 765; Corre vs. Corre, 100 Phil. 321; Calo vs. Bislig Industries, Inc., L-19703, January 30, 1967, 19 SCRA 173; Adamos vs. J. M. Tuason, Co., Inc.,. L-21957, October 14, 1968, 25 SCRA 529. Where one Cesar Ramirez, a resident of Quezon City, sued in the Court of First Instance of Manila Manuel F. Portillo, a resident of Caloocan City, for the recovery of a sum of money, the trial court erred in not granting Portillo's motion to dismiss the complaint on the ground of improper venue This Court issued the writ of prohibition to restrain the trial court from proceeding in the case (Portillo vs. Judge Reyes and Ramirez, 113 Phil. 288). WHEREFORE, the decision of the Court of Appeals and the order of respondent judge denying the motion to dismiss are reversed and set aside. The writ of prohibition is granted. Civil Case No. 34302 should be considered dismissed without prejudice to refiling - it in the Court of First

Instance of Manila or Bacolod City at the election of plaintiff which should be allowed to withdraw the documentary evidence submitted in that case. All the proceedings in said case, including the decision, are also set aside. Costs against Tyson Enterprises, Inc. SOORDERED. G.R. No. L-28882 May 31, 1971 TIME, INC., petitioner, vs. HON. ANDRES REYES, as Judge of the Court of First Instance of Rizal, ELISEO S. ZARI, as Deputy Clerk of Court, Branch VI, Court of First Instance of Rizal, ANTONIO J. VILLEGAS and JUAN PONCE ENRILE,respondents. REYES, J.B.L., J.: Petition for certiorari and prohibition, with preliminary injunction, to annul certain orders of the respondent Court of First Instance of Rizal, issued in its Civil Case No. 10403, entitled "Antonio J. Villegas and Juan Ponce Enrile vs. Time, Inc., and Time-Life International, Publisher of 'Time' Magazine (Asia Edition)", and to prohibit the said court from further proceeding with the said civil case. Upon petitioner's posting a bond of P1,000.00, this Court, as prayed for, ordered, on 15 April 1968, the issuance of a writ of preliminary injunction. The petition alleges that petitioner Time, Inc., 1 is an American corporation with principal offices at Rocketfeller Center, New York City, N. Y., and is the publisher of "Time", a weekly news magazine; the petition, however, does not allege the petitioner's legal capacity to sue in the courts of the Philippine. 2 In the aforesaid Civil Case No. 10403, therein plaintiffs (herein respondents) Antonio J. Villegas and Juan Ponce Enrile seek to recover from the herein petitioner damages upon an alleged libel arising from a publication of Time (Asia Edition) magazine, in its issue of 18 August 1967, of an essay, entitled "Corruption in Asia", which, in part, reads, as follows: The problem of Manila's mayor, ANTONIO VILLEGAS, is a case in point. When it was discovered last year that the mayor's coffers contained far more pesos than seemed reasonable in the light of his income, an investigation was launched. Witnesses who had helped him out under curious circumstance were asked to explain in court. One government official admitted lending Villegas P30,000 pesos ($7,700) without interest because he was the mayor's compadre. An assistant declared he had given Villegas loans without collateral because he regarded the boss as my own son. A wealthy Manila businessman testified that he had lent Villegas' wife 15,000 pesos because the mayor was like a brother to me. With that, Villegas denounced the investigation as an invasion of his family's privacy. The case was dismissed on a technicality, and Villegas is still mayor. 3 More specifically, the plaintiffs' complaint alleges, inter alia that: (4) Defendants, conspiring and confederating, published a libelous article, publicly, falsely and maliciously imputing to Plaintiffs the commission of the crimes of graft, corruption and

nepotism; that said publication particularly referred to Plaintiff Mayor Antonio J. Villegas as a case in point in connection with graft, corruption and nepotism in Asia; that said publication without any doubt referred to co-plaintiff Juan Ponce Enrile as the high government official who helped under curious circumstances Plaintiff Mayor Antonio J. Villegas in lending the latter approximately P30,000.00 ($7,700.00) without interest because he was the Mayor's compadre; that the purpose of said Publications is to cause the dishonor, discredit and put in public contempt the Plaintiffs, particularly Plaintiff Mayor Antonio J. Villegas. On motion of the respondents-plaintiffs, the respondent judge, on 25 November 1967, granted them leave to take the depositions "of Mr. Anthony Gonzales, Time-Life international", and "Mr. Cesar B. Enriquez, Muller & Phipps (Manila) Ltd.", in connection with the activities and operations in the Philippines of the petitioner, and, on 27 November 1967, issued a writ of attachment on the real and personal estate of Time, Inc. Petitioner received the summons and a copy of the complaint at its offices in New York on 13 December 1967 and, on 27 December 1967, it filed a motion to dismiss the complaint for lack of jurisdiction and improper venue, relying upon the provisions of Republic Act 4363. Private respondents opposed the motion. In an order dated 26 February 1968, respondent court deferred the determination of the motion to dismiss until after trial of the case on the merits, the court having considered that the grounds relied upon in the motion do not appear to be indubitable. Petitioner moved for reconsideration of the deferment private respondents again opposed. On 30 March 1968, respondent judge issued an order re-affirming the previous order of deferment for the reason that "the rule laid down under Republic Act. No. 4363, amending Article 360 of the Revised Penal Code, is not applicable to actions against non-resident defendants, and because questions involving harassment and inconvenience, as well as disruption of public service do not appear indubitable. ..." Failing in its efforts to discontinue the taking of the depositions, previously adverted to, and to have action taken, before trial, on its motion to dismiss, petitioner filed the instant petition for certiorari and prohibition. The orders for the taking of the said depositions, for deferring determination of the motion to dismiss, and for reaffirming the deferment, and the writ of attachment are sought to be annulled in the petition.. There is no dispute that at the time of the publication of the allegedly offending essay, private respondents Antonio Villegas and Juan Ponce Enrile were the Mayor Of the City of Manila and Undersecretary of Finance and concurrently Acting Commissioner of Customs, respectively, with offices in the City of Manila. The issues in this case are: 1. Whether or not, under the provisions of Republic Act No. 4363 the respondent Court of First Instance of Rizal has jurisdiction to take cognizance of the civil suit for damages arising from an allegedly libelous publication, considering that the action was instituted by public officers whose offices were in the City of Manila at the time of the publication; if it has no jurisdiction, whether or not its erroneous assumption of jurisdiction may be challenged by a foreign corporation by writ of certiorari or prohibition; and

2. Whether or not Republic Act 4363 is applicable to action against a foreign corporation or non-resident defendant. Provisions of Republic Act No. 4363, which are relevant to the resolution of the foregoing issues, read, as follows: Section 1. Article three hundred sixty of the Revised Penal Code, as amended by Republic Act Numbered Twelve hundred and eighty-nine, is further amended to read as follows: 'ART. 360. Persons responsible. Any person who shall publish, exhibit, or cause the publication or exhibition of any defamation in writing or by similar means, shall be responsible for the same. The author or editor of a book or pamphlet, or the editor or business manager of a daily newspaper, magazine or serial publication, shall be responsible for the defamations contained therein to the extent as if he were the author thereof. The criminal and civil action for damages in cases of written defamations as provided for in this chapter, shall be filed simultaneously or separately with the court of first instance of the province or city where the libelous article is printed and first published or where any of the offended parties actually resides at the time of the commission of the offense; Provided, however, That where one of the offended parties is a public officer whose office is in the City of Manila at the time of the commission of the offense, the action shall be filed in the Court of First Instance of the City of Manila or of the city or province where the libelous article is printed and first published, and in case such public officer does not hold office in the City of Manila, the action shall be filed in the Court of First Instance of the province or city where he held office at the time of the commission of the offense or where the libelous article is printed and first published and in case one of the offended parties is a private individual, the action shall be filed in the Court of First Instance of the province or city where he actually resides at the time of the commission of the offense or where the libelous matter is printed and first published; Provided, further, That the civil action shall be filed in the same court where the criminal action is filed and vice versa; Provided, furthermore, That the court where the criminal action or civil action for damages is first filed, shall acquire jurisdiction to the exclusion of other courts; And provided finally, That this amendment shall not apply to cases of written defamations, the civil and/or criminal actions which have been filed in court at the time of the effectivity of the law Sec. 3. This Act shall take effect only if and when, within thirty days from its approval, the newspapermen in the Philippines shall organize, and elect the members of, a Philippine Press Council, a private agency of the said newspapermen, whose function shall be to promulgate a Code of Ethics for them and the Philippine press investigate violations thereof, and censure any newspaperman or newspaper guilty of any violation of the said Code, and the fact that such Philippine Press Council has been organized and its members have been duly elected in accordance herewith shall be ascertained and proclaimed by the President of the Philippines. Under the first proviso in section 1, the venue of a civil action for damages in cases of written defamations is localized upon the basis of, first, whether the offended party or plaintiff is a public officer or a private individual; and second, if he is a public officer, whether his office is in Manila or not in Manila, at the time of the commission of the offense. If the offended party is a public officer in the office in the City of Manila, the proviso limits him to two (2) choices of venue, namely, in the Court of First instance of the City of Manila or in the city or province where the libelous article is printed and first published ..."

The complaint lodged in the court of Rizal by respondents does not allege that the libelous article was printed and first published in the province of Rizal and, since the respondentsplaintiffs are public officers with offices in Manila at the time of the commission of the alleged offense, it is clear that the only place left for them wherein to file their action, is the Court of First Instance of Manila. The limitation of the choices of venue, as introduced into the Penal Code through its amendments by Republic Act 4363, was intended "to minimize or limit the filing of out-of-town libel suits" to protect an alleged offender from "hardships, inconveniences and harassments" and, furthermore, to protect "the interest of the public service" where one of the offended parties is a public officer." 4 The intent, of the law is clear: a libeled public official might sue in the court of the locality where he holds office, in order that the prosecution of the action should interfere as little as possible with the discharge of his official duties and labors. The only alternative allowed him by law is to prosecute those responsible for the libel in the place where the offending article was printed and first published. Here, the law tolerates the interference with the libeled officer's duties only for the sake of avoiding unnecessary harassment of the accused. Since the offending publication was not printed in the Philippines, the alternative venue was not open to respondent Mayor Villegas of Manila and Undersecretary of Finance Enrile, who were the offended parties. But respondents-plaintiffs argue that Republic Act No. 4363 is not applicable where the action is against non-existent defendant, as petitioner Time, Inc., for several reasons. They urge that, in enacting Republic Act No. 4363, Congress did not intend to protect non-resident defendants as shown by Section 3, which provides for the effectivity of the statute only if and when the "newspapermen in the Philippines" have organized a "Philippine Press Council" whose function shall be to promulgate a Code of Ethics for "them" and "the Philippine press"; and since a non-resident defendant is not in a position to comply with the conditions imposed for the effectivity of the statute, such defendant may not invoke its provisions; that a foreign corporation is not inconvenienced by an out-of-town libel suit; that it would be absurd and incongruous, in the absence of an extradition treaty, for the law to give to public officers with office in Manila the second option of filing a criminal case in the court of the place where the libelous article is printed and first published if the defendant is a foreign corporation and that, under the "single publication" rule which originated in the United States and imported into the Philippines, the rule was understood to mean that publications in another state are not covered by venue statutes of the forum. The implication of respondents' argument is that the law would not take effect as to nonresident defendants or accused. We see nothing in the text of the law that would sustain such unequal protection to some of those who may be charged with libel. The official proclamation that a Philippine Press Council has been organized is made a pre-condition to the effectivity of the entire Republic Act No. 4363, and no terms are employed therein to indicate that the law can or will be effective only as to some, but not all, of those that may be charged with libeling our public officers. The assertion that a foreign corporation or a non-resident defendant is not inconvenienced by an out-of-town suit is irrelevant and untenable, for venue and jurisdiction are not dependent upon convenience or inconvenience to a party; and moreover, venue was fixed under Republic Act No. 4363, pursuant to the basic policy of the law that is, as previously stated, to protect the interest of the public service when the offended party is a public officer, by minimizing as much as possible any interference with the discharge of his duties. That respondents-plaintiffs could not file a criminal case for libel against a non-resident defendant does not make Republic Act No. 4363 incongruous of absurd, for such inability to

file a criminal case against a non-resident natural person equally exists in crimes other than libel. It is a fundamental rule of international jurisdiction that no state can by its laws, and no court which is only a creature of the state, can by its judgments or decrees, directly bind or affect property or persons beyond the limits of the state. 5 Not only this, but if the accused is a corporation, no criminal action can lie against it, 6 whether such corporation or resident or non-resident. At any rate, the case filed by respondents-plaintiffs is case for damages. 50 Am. Jur. 2d 659 differentiates the "multiple publication" and "single publication" rules (invoked by private respondents) to be as follows: The common law as to causes of action for tort arising out of a single publication was to the effect that each communication of written or printed matter was a distinct and separate publication of a libel contained therein, giving rise to a separate cause of action. This rule ('multiple publication' rule) is still followed in several American jurisdictions, and seems to be favored by the American Law Institute. Other jurisdictions have adopted the 'single publication' rule which originated in New York, under which any single integrated publication, such as one edition of a newspaper, book, or magazine, or one broadcast, is treated as a unit, giving rise to only one cause of action, regardless of the number of times it is exposed to different people. ... These rules are not pertinent in the present scheme because the number of causes of action that may be available to the respondents-plaintiffs is not here in issue. We are here confronted by a specific venue statute, conferring jurisdiction in cases of libel against Public officials to specified courts, and no other. The rule is that where a statute creates a right and provides a remedy for its enforcement, the remedy is exclusive; and where it confers jurisdiction upon a particular court, that jurisdiction is likewise exclusive, unless otherwise provided. Hence, the venue provisions of Republic Act No. 4363 should be deemed mandatory for the party bringing the action, unless the question of venue should be waived by the defendant, which was not the case here. Only thus can the policy of the Act be upheld and maintained. Nor is there any reason why the inapplicability of one alternative venue should result in rendering the other alternative, also inapplicable. The dismissal of the present petition is asked on the ground that the petitioner foreign corporation failed to allege its capacity to sue in the courts of the Philippines. Respondents rely on section 69 of the Corporation law, which provides: SEC. 69. No foreign corporation or corporations formed, organized, or existing under any laws other than those of the Philippines shall be permitted to ... maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed in the section immediately preceding. ..." ...; They also invoke the ruling in Marshall-Wells Co. vs. Elser & Co., Inc. 7 that no foreign corporation may be permitted to maintain any suit in the local courts unless it shall have the license required by the law, and the ruling in Atlantic Mutual Ins. Co., Inc. vs. Cebu Stevedoring Co., Inc. 8 that "where ... the law denies to a foreign corporation the right to maintain suit unless it has previously complied with a certain requirement, then such compliance or the fact that the suing corporation is exempt therefrom, becomes a necessary averment in the complaint." We fail to see how these doctrines can be a propos in the case at bar, since the petitioner is not "maintaining any suit" but is merely defending one against itself; it did not file any complaint but only a corollary defensive petition to prohibit the lower court from further proceeding with a suit that it had no jurisdiction to entertain.

Petitioner's failure to aver its legal capacity to institute the present petition is not fatal, for ... A foreign corporation may, by writ of prohibition, seek relief against the wrongful assumption of jurisdiction. And a foreign corporation seeking a writ of prohibition against further maintenance of a suit, on the ground of want of jurisdiction in which jurisdiction is not bound by the ruling of the court in which the suit was brought, on a motion to quash service of summons, that it has jurisdiction. 9 It is also advanced that the present petition is premature, since respondent court has not definitely ruled on the motion to dismiss, nor held that it has jurisdiction, but only argument is untenable. The motion to dismiss was predicated on the respondent court's lack of jurisdiction to entertain the action; and the rulings of this Court are that writs of certiorari or prohibition, or both, may issue in case of a denial or deferment of action on such a motion to dismiss for lack of jurisdiction. If the question of jurisdiction were not the main ground for this petition for review by certiorari, it would be premature because it seeks to have a review of an interlocutory order. But as it would be useless and futile to go ahead with the proceedings if the court below had no jurisdiction this petition was given due course.' (San Beda vs. CIR, 51 O.G. 5636, 5638). 'While it is true that action on a motion to dismiss may be deferred until the trial and an order to that effect is interlocutory, still where it clearly appears that the trial judge or court is proceeding in excess or outside of its jurisdiction, the remedy of prohibition would lie since it would be useless and a waste of time to go ahead with the proceedings. (Philippine International Fair, Inc., et al. vs. Ibaez, et al., 50 Off. Gaz. 1036; Enrique v. Macadaeg, et al., 47 Off. Gaz. 1207; see also San Beda College vs. CIR, 51 Off. Gaz. 5636.)' (University of Sto. Tomas v. Villanueva, L-13748, 30 October 1959.). Similarly, in Edward J. Nell Co. vs. Cubacub, L-20843, 23 June 1965, 14 SCRA 419, this Court held: '.......................................................... It is a settledrule that the jurisdiction of a court over the subject-matter is determined by the allegations in the complaint; and when a motion to dismiss is filed for lack of jurisdiction those allegations are deemed admitted for purposes of such motion, so that it may be resolved without waiting for the trial. Thus it has been held that the consideration thereof may not be postponed in the hope that the evidence may yield other qualifying or concurring data which would bring the case under the court's jurisdiction.' To the same effect are the rulings in: Ruperto vs. Fernando, 83 Phil. 943; Administrator of Hacienda Luisita Estate vs. Alberto, L-12133, 21 October 1958. Summing up, We hold: (1) The under Article 360 of the Revised Penal Code, as amended by Republic Act No. 4363, actions for damages by public officials for libelous publications against them can only be filed in the courts of first instance ofthe city or province where the offended functionary held office at the time ofthe commission of the offense, in case the libelous article was first printed or published outside the Philippines.

(2) That the action of a court in refusing to rule, or deferring its ruling, on a motion to dismiss for lack of jurisdiction over the subject matter, or for improper venue, is in excess of jurisdiction and correctable by writ of prohibition or certiorari sued out in the appellate Court, even before trial on the merits is had. WHEREFORE, the writs applied for are granted: the respondent Court of First Instance of Rizal is declared without jurisdiction to take cognizance of its Civil Case No. 10403; and its orders issued in connection therewith are hereby annulled and set aside,. Respondent court is further commanded to desist from further proceedings in Civil case No. 10403 aforesaid. Costs against private respondents, Antonio J. Villegas and Juan Ponce Enrile. The writ of preliminary injunction heretofore issued by this Supreme Court is made permanent. G.R. No. L-8527 March 30, 1914

To West Coast Life Insurance Co., John Northcott, and Manuel C. Grey, Manila. SUMMONS. You are hereby summoned to appear before the Court of First Instance of the city of Manila P.I., on the 18th day of December, 1912, at the hour of 8 a.m., to answer the charge made against you upon the information of F. H. Nesmith, assistant prosecuting attorney of the city of Manila, for libel, as set forth in the said information filed in this copurt on December 16, 1912, a copy of which is hereto attached and herewith served upon you. Dated at the city of Manila, P. I., this 17th day of December, 1912. (Sgd.) GEO N. HURD, Judge, Court of First Instance. The information upon which said process was issued is as follows: The undersigned accuses the West Coast Life Insurance Company, John Northcott, and Manuel C. Grey of the crime of libel, committed as follows: That on or about the 14th day of September, 1912, and continuously thereafter up to and including the date of this complaint, in the city of Manila, P. I., the said defendant West Coast Life Insurance Company was and has been a foreign corporation duly organized in the State of California, United States of America, and registered and doing business in the Philippine Islands; that the said defendant John Nortcott then and there was and has been the general agent and manager for the Philippine Islands of the said defendant corporation West Coast Life Insurance Company, and the said defendant Manuel C. Grey was and has been an agent and employee of the said defendant corporation West Coast Life Insurance Company, acting in the capacity of treasurer of the branch of the said defendant corporation in the Philippine Islands; that on or about the said 14th day of September, 1912, and for some time thereafter, to wit, during the months of September and October, 1912, in the city of Manila, P.I., the said defendants West Coast Life Insurance Company, John Northcott, and Manuel C. Grey, conspiring and confederating together, did then and there willfully, unlawfully, and maliciously, and to the damage of the Insular Life Insurance Company, a domestic corporation duly organized, registered, and doing business in the Philippine Islands, and with intent o cause such damage and to expose the said Insular Life Insurance Company to public hatred, contempt, and ridicule, compose and print, and cause to be printed a large number of circulars, and, in numerous printings in the form of said circulars, did publish and distribute, and cause to be published and distributed, among other persons, to policy holders and prospective policy holders of the said Insular Life Insurance Company, among other things, a malicious defamation and libel in the Spanish language, of the words and tenor following: "First. For some time past various rumors are current to the effect that the Insular Life Insurance Company is not in as good a condition as i should be at the present time, and that really it is in bad shape. Nevertheless, the investigations made by the representative of the "Bulletin" have failed fully to confirm these rumors. It is known that the Insular Auditor has examined the books of the company and has found that its capital has diminished, and that by direction of said official the company has decided to double the amount of its capital, and also to pay its reserve fund. All this is true."

WEST COAST LIFE INSURANCE CO., plaintiff, vs. GEO N. HURD, Judge of Court of First Instance, defendant. MORELAND, J.: This is an action for the issuance of a writ of prohibition against the defendant "commanding the defendant to desist or refrain from further proceedings in a criminal action pending in that court." The petitioner is a foreign life-insurance corporation, duly organized under and by virtue of the laws of the State of California, doing business regularly and legally in the Philippine Islands pursuant to its laws. On the 16th of December, 1912, the assistant prosecuting attorney of the city of Manila filed an information in a criminal action in the Court of First Instance of that city against the plaintiff, said corporation, and also against John Northcott and Manuel C. Grey, charging said corporation and said individuals with the crime of libel. On the 17th day of December the defendant in his official capacity as judge of the court of First Instance signed and issued a process directed to the plaintiff and the other accused in said criminal action, which said process reads as follows: UNITED STATES OF AMERICA, PHILIPPINE ISLANDS. In the Court of First Instance of the Judicial District of Manila. THE UNITED STATES No. 9661 versus Libel. WEST COAST LIFE INSURANCE CO., JOHN NORTHCOTT, AND MANUEL C. GREY.

That the said circulars, and the matters therein contained hereinbefore set forth in this information, tend to impeach and have impeached the honesty, virtue, and reputation of the said Insular Life Insurance Company by exposing it to public hatred, contempt, and ridicule; that by the matters printed in said circulars, and hereinbefore set forth in this information, the said defendants West Coast Life Insurance Company, John Northcott, and Manuel C. Grey meant and intended to state and represent to those to whom the said defendants delivered said circulars as aforesaid, that the said Insular Life Insurance Company was then and there in a dangerous financial condition and on the point of going into insolvency, to the detriment of the policy holders of the said Insular Life Insurance Company, and of those with whom the said Insular Life Insurance Company have and have had business transactions, and each and all of said persons to whom the said defendants delivered said circulars, and all persons as well who read said circulars understood the said matters in said circulars to have said libelous sense and meaning. Contrary to law. On the 20th day of December, 1912, the plaintiff, together with the other persons named as accused in said process through their attorneys, served upon the prosecuting attorney and filed with the clerk of the court a motion to quash said summons and the service thereof, on the ground that the court had no jurisdiction over the said company, there being no authority in the court for the issuance of the process, Exhibit B, the order under which it was issued being void. The court denied the motion and directed plaintiff to appear before it on the 28th day of December, 1912, and to plead to the information, to which order the plaintiff then and there duly excepted. It is alleged in the complaint that "unless restrained by this Court the respondent will proceed to carry out said void order and compel your petitioner to appear before his court and plead and submit to criminal prosecution without having acquired any jurisdiction whatever over your petitioner." The prayer of the complaint is, "your petitioner prays judgment for the issuance of a writ of prohibition against the respondent, commanding the respondent absolutely to desist or refrain from further proceedings against your petitioner in the said criminal action." The basis of the action is that the Court of First Instance has no power or authority, under the laws of the Philippine Islands, to proceed against a corporation, as such, criminally, to bring it into court for the purpose of making it amenable to the criminal laws. It is contended that the court had no jurisdiction to issue the process in evidence against the plaintiff corporation; that the issuance and service thereof upon the plaintiff corporation were outside of the authority and jurisdiction of the court, were authorized by no law, conferred no jurisdiction over said corporation, and that they were absolutely void and without force or effect. The plaintiff, further attacking said process, alleges that the process is a mixture of civil and criminal process, that it is not properly signed, that it does not direct or require an arrest; that it s an order to appear and answer on a date certain without restraint of the person, and that it is not in the form required by law. Section 5 of General Orders, No. 58, defines an information as "accusation in writing charging a period with a public offense." Section 6 provide that a complaint or information is sufficient it if shows "the name of the defendant, or if his name cannot be discovered, that he is described under a fictitious name with a statement that his true name is unknown to the informant or official signing the same. His true name may be inserted at any stage of the proceedings instituted against him, whenever ascertained." These provisions, as well as those which relate to arraignment and counsel, and to demurrers and pleas, indicate clearly that the maker of the Code of Criminal Procedure had no intention or expectation that corporations would be

included among those who would fall within the provisions thereof. The only process known to the Code of Criminal Procedure, or which any court is by that order authorized to issue, is an order of arrest. The Code of Criminal Procedure provides that "if the magistrate be satisfied from the investigation that the crime complained of has been committed, and there is reasonable ground to believe that the party charged has committed it, he must issue an order for his arrest. If the offense be bailable, and the defendant offer a sufficient security, he shall be admitted to bail; otherwise he shall be committed to prison." There is no authority for the issuance of any other process than an order of arrest. As a necessary consequence, the process issued in the case before us is without express authorization of statute. The question remains as to whether or not he court may, of itself and on its own motion, create not only a process but a procedure by which the process may be made effective. We do not believe that the authority of the courts of the Philippine Islands extends so far. While having the inherent powers which usually go with courts of general jurisdiction, we are of the opinion that, under the circumstances of their creation, they have only such authority in criminal matters as is expressly conferred upon them by statute or which it is necessary to imply from such authority in order to carry out fully and adequately the express authority conferred. We do not feel that Courts of First Instance have authority to create new procedure and new processes in criminal law. The exercise of such power verges too closely on legislation. Even though it be admitted, a question we do not now decide, that there are various penal laws in the Philippine Islands which corporation as such may violate, still we do not believe that the courts are authorized to go to the extent of creating special procedure and special processes for the purpose of carrying out those penal statutes, when the legislature itself has neglected to do so. To bring a corporation into court criminally requires many additions to the present criminal procedure. While it may be said to be the duty of courts to see to it that criminals are punished, it is no less their duty to follow prescribed forms of procedure and to go out upon unauthorized ways or act in an unauthorized manner. There are many cases cited by counsel for the defendant which show that corporations have been proceeded against criminally by indictment and otherwise and have been punished as malefactors by the courts. Of this, of course, there can be no doubt; but it is clear that, in those cases, the statute, by express words or by necessary intendment, included corporations within the persons who could offend against the criminal laws; and the legislature, at the same time established a procedure applicable to corporations. No case has been cited to us where a corporation has been proceeded against under a criminal statute where the court did not exercise its common law powers or where there was not in force a special procedure applicable to corporations. The courts of the Philippine Islands are creatures of statute and, as we have said, have only those powers conferred upon them by statute and those which are required to exercise that authority fully and adequately. The courts here have no common law jurisdiction or powers. If they have any powers not conferred by statute, expressly or impliedly, they would naturally come from Spanish and not from common law sources. It is undoubted that, under the Spanish criminal law and procedure, a corporation could not have been proceeded against criminally, as such, if such an entity as a corporation in fact existed under the Spanish law, and as such it could not have committed a crime in which a willful purpose or a malicious intent was required. Criminal actions would have been restricted or limited, under that system, to the officials of such corporations and never would have been directed against the corporation itself. This was the rule with relation to associations or combinations of persons approaching, more or less, the corporation as it is now understood, and it would undoubtedly have been the rue with corporations. From this source, then, the courts derive no authority to bring corporations before them in criminal actions, nor to issue processes for that purpose.

The case was submitted to this Court on an agreed statement of facts with a stipulation for a decision upon the merits. We are of the opinion that the plaintiff is entitled, under that stipulation, to the remedy prayed for. It is adjudged that the Court of First Instance of the city of Manila be and it is hereby enjoined and prohibited from proceeding further in the criminal cause which is before us in this proceeding, entitled United States vs. West Coast Life Insurance Company, a corporation, John Northcott and Manuel C. Grey, so far as said proceedings relate to the said West Coast Life Insurance Company, a corporation, the plaintiff in the case. G.R. Nos. 172785-86 June 18, 2009

On June 23, 2000, Eduque proposed the conversion of a part or all of petitioners LTCPs into East Asia equity. Petitioner declined the proposal and made a final demand for the turn-over of the proceeds of its matured LTCPs and the delivery of its outstanding LTCPs, with interest payments accruing thereto.5 As the demand remained unheeded, petitioner filed a complaint-affidavit with the Office of the City Prosecutor of Makati charging respondents, as officers and/or directors of East Asia, with violation of Article 315(1)(b) and (2)(a)6 of the Revised Penal Code. On February 5, 2001, an Information for estafa under Article 315(1)(b) was filed against respondents. Joson filed a motion for reconsideration while Eduque, Binamira and Delgado filed a petition for review with the Department of Justice. In the meantime, the case was docketed as Criminal Case No. 01-328 and assigned to Judge Marissa M. Guillen of the Regional Trial Court of Makati City, Branch 61. The Secretary of Justice granted the petition and directed the City Prosecutor of Makati to withdraw the information against respondents.7 On the other hand, the City Prosecutor of Makati granted Josons motion and recommended the dismissal of the charge against her.8 The City Prosecutor of Makati then filed a motion to withdraw information which was denied by Judge Guillen.9Joson filed a motion for reconsideration separate from the motion for reconsideration filed by Eduque, Binamira and Delgado. Judge Romeo F. Barza, who took over as presiding judge, granted10 Josons motion but denied11that of Eduque, Binamira and Delgado. Thereafter, they were arraigned over their objections. They filed another motion for reconsideration. Petitioner also moved to reconsider the withdrawal of the information against Joson. Due to Judge Barzas voluntary inhibition, the case was re-raffled and re-assigned to Judge Rebecca R. Mariano of the RTC of Makati City, Branch 134. Judge Mariano dismissed the criminal case against all respondents due to the absence of probable cause.12 Petitioner moved for partial reconsideration which Judge Mariano granted.13 She also denied respondents motion for reconsideration and ordered the pre-trial to proceed.14 Before the Court of Appeals, Joson filed a petition for review docketed as CA-G.R. SP No. 81518 while Eduque, Binamira and Delgado filed a petition for review docketed as CA-G.R. SP No. 81526. The appellate court granted the petitions on the following grounds: First, petitioners motion for partial reconsideration was a prohibited pleading which Judge Mariano should not have taken cognizance of. It was a second motion for reconsideration with regard to the dismissal of the criminal charge for estafa under Article 315(1)(b) against Joson. Second, there was no sufficient evidence to warrant Josons indictment since petitioner failed to show that she participated in the alleged conversion of the LTCPs and conspired with the other respondents in committing the same. Third, the Supreme Court ruled in Sesbreo v. Court of Appeals15 that a money market transaction partakes of a nature of a loan and therefore, the non-payment thereof would not give rise to criminal liability for estafa through misappropriation or conversion.16 East Asia did not receive money in trust, or on commission or for administration, or under any other obligation to make delivery of or to return the same. It did not become a trustee of petitioner, nor was any fiduciary relationship created. Thus, the

CRUZVALE, INC., Petitioner, vs. JOSE ARMANDO L. EDUQUE, PETER A. BINAMIRA, JEANETTE C. DELGADO and MA. LETICIA R. JOSON,Respondents. DECISION QUISUMBING, J.: This is a petition for review on certiorari seeking the reversal of the Decision1 dated March 1, 2006 of the Court of Appeals in CA-G.R. SP Nos. 81518 and 81526 and its Resolution2 dated May 22, 2006, denying reconsideration. The appellate court ordered the dismissal of the criminal charge for estafa under Article 315(1)(b)3 of the Revised Penal Code against respondents for lack of probable cause. Petitioner is a client of East Asia (AEA) Capital Corporation (East Asia) which is a duly licensed Philippine investment house engaged in the buy and sell or trading of securities and commercial papers. As a practice, East Asia purchases Long Term Commercial Papers (LTCPs) for petitioner from various corporations the latter has chosen. These LTCPs are registered with the issuing corporations in the name of East Asia in trust for petitioner. In turn, East Asia issues Outright Sales Invoices and Custodian Receipts to petitioner. Once the LTCPs mature, petitioner instructs East Asia to re-invest or roll-over the principal amounts and accrued interests to other similar LTCPs.1avvphi1 Petitioner alleged that sometime in April 2000, it learned of East Asias irregular transactions and precarious financial condition. Thus, it asked East Asia for an accounting of all its LTCPs. Meanwhile, petitioner conducted its own investigation and discovered that: (1) some of its outstanding LTCPs were sold or assigned to third parties; (2) the proceeds of such sale or assignment were covered by petitioners alleged purchase of East Asia promissory notes; (3) the proceeds of its matured LTCPs were not used to purchase other similar LTCPs but covered instead petitioners alleged purchase of East Asia promissory notes; and (4) interest payments from its LTCPs were received by East Asia and covered petitioners alleged purchase of East Asia promissory notes. All these were done without petitioners prior knowledge and consent. Petitioners representatives met with respondent Jose Armando L. Eduque, Chief Executive Officer and Director of East Asia, to confirm and discuss the foregoing. Eduque proposed to: (1) secure the East Asia promissory notes with collateral; and/or (2) dacion the LTCPs with East Asia real properties and shares of stock.4

appellate court ordered the dismissal of the criminal charge for estafa under Article 315(1)(b) against respondents for lack of probable cause: ALL THE FOREGOING CONSIDERED, the instant consolidated petition (CA-G.R. SP No. 81518 and CA-G.R. SP No. 81526) is hereby GRANTED. Accordingly, the assailed ORDERS dated 26 May 2003, 25 September 2003 and 29 December 2003, issued by public respondent are hereby REVERSED and SET ASIDE and the Order dated 13 December 2002 is hereby REINSTATED. SO ORDERED.17 Petitioner submits these issues for our consideration: I. WHETHER OR NOT THE COURT OF APPEALS ACTED CONTRARY TO AND SUBSTANTIALLY DEPARTED FROM LAW AND SETTLED JURISPRUDENCE WHEN IT RULED THAT SESBRE[]O V. COURT OF APPEALS IS APPLICABLE IN THE INSTANT CASE. II. WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND ACTED CONTRARY TO LAW AND SETTLED JURISPRUDENCE WHEN IT RULED THAT SOME OF THE ELEMENTS OF ESTAFA WITH UNFAITHFULNESS OR ABUSE OF CONFIDENCE UNDER ARTICLE 315(1) (b) ARE ABSENT IN THE INSTANT CASE, THEREBY WARRANTING THE DISMISSAL OF THE CHARGES AGAINST THE RESPONDENTS FOR LACK OF PROBABLE CAUSE. III. WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR AND ACTED CONTRARY TO SETTLED JURISPRUDENCE WHEN IT HELD THAT PETITIONER CRUZVALES MOTION FOR PARTIAL RECONSIDERATION DATED 27 JANUARY 2003 IS A SECOND MOTION FOR RECONSIDERATION WHICH IS NOT ALLOWED UNDER THE LAW.18 Essentially, we are asked to resolve whether the Court of Appeals erred in: (1) applying Sesbreo v. Court of Appeals; (2) ruling that some of the elements of estafa under Article 315(1)(b) are absent; and (3) holding that petitioners motion for partial reconsideration is a second motion for reconsideration which is a prohibited pleading. Petitioner avers that the instant case is different from Sesbreo for the following reasons. First, respondents are charged not with the simple failure to return petitioners investments, but rather, with: (1) the violation of their fiduciary obligation under the Custodian Receipts when they sold or assigned petitioners outstanding LTCPs to third parties without its prior knowledge and consent; (2) the misrepresentation that they still had custody of these LTCPs despite the double sale to third parties; (3) the violation of their fiduciary obligation as middleman to remit and account for the interests and proceeds of petitioners investments after the corporate borrowers have paid the same; (4) the misappropriation of these proceeds; and (5) the unilateral conversion of petitioners investments in LTCPs into East Asia promissory notes without its knowledge and consent. Second, East Asia is not only the middleman but also the custodian of the LTCPs it purchased in behalf of petitioner as evidenced by the Custodian

Receipts. As such, East Asia became a trustee who has the unconditional obligation to deliver the LTCPs to petitioner who is the beneficiary-placer. Its failure to deliver the LTCPs to petitioner amounts to conversion or unlawful deprivation. By selling the LTCPs to third parties and unilaterally replacing them with East Asia promissory notes without petitioners knowledge and consent, East Asia breached its obligation to hold the same in trust for petitioners account. Petitioner adds that the characterization of the transactions between the parties as akin to a loan is misplaced and contrary to Fontanilla v. People.19 In Fontanilla, the Court ruled that a fiduciary relationship exists between an investor and the person to whom he entrusts money for the purpose of investment.20 In the instant case, the Outright Sales Invoices and Custodian Receipts show that petitioner turned over money to East Asia for the purchase of LTCPs. The criminal charge against respondents constitutes estafa through misappropriation or conversion under Article 315(1)(b). Petitioner also argues that the elements of estafa with unfaithfulness or abuse of confidence under Article 315(1)(b) are present in the instant case. The subject of the misappropriation was not the funds invested by petitioner per se but the LTCPs themselves and the interests and proceeds of petitioners investments after the corporate borrowers have paid the same. It is not always essential for estafa that the complainant seek the return of the very same thing delivered under trust or for administration. Further, East Asias failure to account for the unremitted portion of the investments, after demand was made, necessarily leads to the conclusion that the same were misappropriated or converted into personal use. Finally, petitioner contends that its motion for partial reconsideration is not a second motion for reconsideration which is a prohibited pleading. The motions questioned the dismissal of the criminal charge against Joson on two different grounds. Respondents counter that the instant case involves a money market placement in which an investor delivers money to an investment house for the purpose of investing it in different securities in the hope of realizing profit. Whatever stocks, certificate or other documents that may be issued from these transactions are merely evidence of the money market placement. The transaction partakes of the nature of a loan and therefore nonpayment thereof would not give rise to any criminal liability for estafa through misappropriation or conversion. Respondents add that petitioner has not adduced any evidence to show that they actually participated in any act of misappropriation or conversion constituting estafa. Respondents also maintain that the prohibition against second motions for reconsideration does not provide as an exception the inclusion of new or additional grounds. The petition is partly meritorious. In Sesbreo v. Court of Appeals,21 Sesbreo made a money market placement of P300,000 with Philfinance for a term of 32 days at 20% interest. Philfinance then sold to him a share in Delta Motors Corporation Promissory No. 2731 which was payable to Philfinance but was in the custody of Pilipinas Bank. Unknown to Sesbreo, Philfinance and Delta agreed to set-off Promissory No. 2731 with Philfinances Promissory Note No. 143-A which was payable to Delta. As a result, Deltas liability under Promissory No. 2731 was extinguished. Later, Philfinance failed to pay the maturity value of Sesbreos investment when it became due. Sesbreo demanded payment from Delta and asked for the physical delivery of the promissory note from Pilipinas Bank. The two refused. Sesbreo then filed (1) a civil action for damages against Delta and Pilipinas Bank (1993 Sesbreo case),22 and (2) a criminal case for estafa against the officers of Philfinance (1995 Sesbreo case).23 In the 1993 Sesbreo case, this Court ruled that Philfinance and Delta were mutually debtors and creditors of each other by virtue of the promissory notes they issued. But when they

agreed to set-off the promissory notes, Philfinance stepped into the shoes of Delta and became Sesbreos debtor. This Court also found that a fiduciary relationship was created between Sesbreo and Pilipinas Bank. Thus, Pilipinas Bank was obliged to return the promissory note upon Sesbreos demand.1avvphi1 In the 1995 Sesbreo case, Sesbreo sought the return of his investment from Philfinance not in its capacity as middleman or dealer but as debtor. We cannot therefore sweepingly apply our pronouncement therein that a money market transaction partakes of the nature of a loan and that nonpayment thereof would not give rise to criminal liability for estafa through misappropriation or conversion24 for the following reasons: first, the 1995 Sesbreo case involved a money market placement which dealt with a short-term credit instrument25 and not long term commercial papers as in this case. Second, the 1995 Sesbreo case dealt with the liability of Philfinance not as middleman or dealer but as debtor unlike the liability of East Asia as middleman or dealer and custodian as obtaining here. On the other hand, we conclude that a fiduciary relationship was created between petitioner and East Asia. For simultaneously acting as middleman or dealer and custodian, East Asia was obliged to turn-over the proceeds of the matured LTCPs and to deliver the outstanding LTCPs to petitioner, with interest payments accruing thereto. This notwithstanding, we find no reason to depart from the recommendations of the City Prosecutor of Makati and the Secretary of Justice, which were affirmed by the appellate court, to dismiss the criminal charge against respondents for lack of probable cause. It bears stressing that the determination of probable cause for the filing of an information in court is an executive function which pertains at the first instance to the public prosecutor and then to the Secretary of Justice.26 Courts are not empowered to substitute their own judgment for that of the executive branch.27 To be held liable for estafa under Article 315(1)(b) of the Revised Penal Code, the following elements must concur: (1) that money, goods, or other personal properties are received by the offender in trust, or on commission, or for administration, or under any other obligation involving the duty to make delivery of, or to return, the same; (2) that there is a misappropriation or conversion of such money or property by the offender or denial on his part of such receipt; (3) that such misappropriation or conversion or denial is to the prejudice of another; and (4) that there is a demand made by the offended party on the offender.28 While East Asia acted as custodian of the LTCPs and was obliged to turn-over the proceeds of the matured LTCPs and to deliver the outstanding LTCPs to petitioner, with interest payments accruing thereto, there was no showing that respondents misappropriated or converted the same. East Asia periodically remitted the proceeds and interest payments to petitioner even before petitioner filed its complaint-affidavit. Moreover, apart from its sweeping allegation that respondents misappropriated or converted its money placements, petitioner failed to establish the particular role or actual participation of each respondent in the criminal act. Neither was it shown that they assented to its commission. It is basic that only corporate officers shown to have participated in the alleged anomalous acts may be held criminally liable. Finally, petitioners motion for partial reconsideration was a second motion for reconsideration with regard to the dismissal of the criminal charge for estafa under Article 315(1)(b) against Joson. Although it assailed two different orders of two different judges, the matter being questioned was the same. We reiterate that the propriety or acceptability of a

second motion for reconsideration is not contingent upon the averment of "new" grounds to assail the judgment.29 WHEREFORE, the Decision dated March 1, 2006 of the Court of Appeals in CA-G.R. SP Nos. 81518 and 81526 and its Resolution dated May 22, 2006, denying reconsideration, are AFFIRMED. SO ORDERED. G.R. No. L-30896 April 28, 1983 JOSE O. SIA, petitioner, vs. THE PEOPLE OF THE PHILIPPINES, respondent.

DE CASTRO, J.: Petition for review of the decision of the Court of Appeals affirming the decision of the Court of First Instance of Manila convicting the appellant of estafa, under an information which reads: That in, about or during the period comprised' between July 24, 1963 and December 31, 1963, both dates inclusive, in the City of Manila, Philippines, the said accused did then and there willfully, unlawfully and feloniously defraud the Continental Bank, a banking institution duly organized and doing business in the City of Manila, in the following manner, to wit: the said accused, in his capacity as president and general manager of the Metal Manufacturing of the Philippines, Inc. (MEMAP) and on behalf of said company, obtained delivery of 150 M/T Cold Rolled Steel Sheets valued at P 71,023.60 under a trust receipt agreement under L/C No. 63/109, which cold rolled steel sheets were consigned to the Continental Bank, under the express obligation on the part of said accused of holding the said steel sheets in trust and selling them and turning over the proceeds of the sale to the Continental Bank; but the said accused, once in possession of the said goods, far from complying with his aforesaid obligation and despite demands made upon him to do so, with intent to defraud, failed and refused to return the said cold rolled sheets or account for the proceeds thereof, if sold, which the said accused willfully, unlawfully and feloniously misappropriated, misapplied and converted to his own personal use and benefit, to the damage and prejudice of the said Continental Bank in the total amount of P146,818.68, that is the balance including the interest after deducting the sum of P28,736.47 deposited by the said accused with the bank as marginal deposit and forfeited by the said from the value of the said goods, in the said sum of P71,023.60. (Original Records, p. 1). In reviewing the evidence, the Court of Appeals came up with the following findings of facts which the Solicitor General alleges should be conclusive upon this Court: There is no debate on certain antecedents: Accused Jose 0. Sia sometime prior to 24 May, 1963, was General Manager of the Metal Manufacturing Company of the Philippines, Inc. engaged in the manufacture of steel office equipment; on 31 May, 1963, because his company was in need of raw materials to be imported from abroad, he applied for a letter of credit to import steel sheets from Mitsui Bussan Kaisha, Ltd. of Tokyo, Japan, the application being

directed to the Continental Bank, herein complainant, Exhibit B and his application having been approved, the letter of credit was opened on 5 June, 1963 in the amount of $18,300, Exhibit D; and the goods arrived sometime in July, 1963 according to accused himself, tsn. II:7; now from here on there is some debate on the evidence; according to Complainant Bank, there was permitted delivery of the steel sheets only upon execution of a trust receipt, Exhibit A; while according to the accused, the goods were delivered to him sometime before he executed that trust receipt in fact they had already been converted into steel office equipment by the time he signed said trust receipt, tsn. II:8; but there is no question - and this is not debated that the bill of exchange issued for the purpose of collecting the unpaid account thereon having fallen due (see Exh. B) neither accused nor his company having made payment thereon notwithstanding demands, Exh. C and C-1, dated 17 and 27 December, 1963, and the accounts having reached the sum in pesos of P46,818.68 after deducting his deposit valued at P28,736.47; that was the reason why upon complaint by Continental Bank, the Fiscal filed the information after preliminary investigation as has been said on 22 October, 1964. (Rollo [CA], pp. 103- 104). The first issue raised, which in effect combines the first three errors assigned, is whether petitioner Jose O. Sia, having only acted for and in behalf of the Metal Manufacturing Company of the Philippines (Metal Company, for short) as President thereof in dealing with the complainant, the Continental Bank, (Bank for short) he may be liable for the crime charged. In discussing this question, petitioner proceeds, in the meantime, on the assumption that the acts imputed to him would constitute the crime of estafa, which he also disputes, but seeks to avoid liability on his theory that the Bank knew all along that petitioner was dealing with him only as an officer of the Metal Company which was the true and actual applicant for the letter of credit (Exhibit B) and which, accordingly, assumed sole obligation under the trust receipt (Exhibit A). In disputing the theory of petitioner, the Solicitor General relies on the general principle that when a corporation commits an act which would constitute a punishable offense under the law, it is the responsible officers thereof, acting for the corporation, who would be punished for the crime, The Court of Appeals has subscribed to this view when it quoted approvingly from the decision of the trial court the following: A corporation is an artificial person, an abstract being. If the defense theory is followed unscrupulously legions would form corporations to commit swindle right and left where nobody could be convicted, for it would be futile and ridiculous to convict an abstract being that can not be pinched and confined in jail like a natural, living person, hence the result of the defense theory would be hopeless chose in business and finance. It is completely untenable. (Rollo [CA], p. 108.) The above-quoted observation of the trial court would seem to be merely restating a general principle that for crimes committed by a corporation, the responsible officers thereof would personally bear the criminal liability. (People vs. Tan Boon Kong, 54 Phil. 607. See also Tolentino, Commercial Laws of the Philippines, p. 625, citing cases.) The case cited by the Court of Appeals in support of its stand-Tan Boon Kong case, supra-may however not be squarely applicable to the instant case in that the corporation was directly required by law to do an act in a given manner, and the same law makes the person who fails to perform the act in the prescribed manner expressly liable criminally. The performance of the act is an obligation directly imposed by the law on the corporation. Since it is a responsible officer or officers of the corporation who actually perform the act for the corporation, they must of necessity be the ones to assume the criminal liability; otherwise this liability as created by the law would be illusory, and the deterrent effect of the law, negated.

In the present case, a distinction is to be found with the Tan Boon Kong case in that the act alleged to be a crime is not in the performance of an act directly ordained by law to be performed by the corporation. The act is imposed by agreement of parties, as a practice observed in the usual pursuit of a business or a commercial transaction. The offense may arise, if at all, from the peculiar terms and condition agreed upon by the parties to the transaction, not by direct provision of the law. The intention of the parties, therefore, is a factor determinant of whether a crime was committed or whether a civil obligation alone intended by the parties. With this explanation, the distinction adverted to between the Tan Boon Kong case and the case at bar should come out clear and meaningful. In the absence of an express provision of law making the petitioner liable for the criminal offense committed by the corporation of which he is a president as in fact there is no such provisions in the Revised Penal Code under which petitioner is being prosecuted, the existence of a criminal liability on his part may not be said to be beyond any doubt. In all criminal prosecutions, the existence of criminal liability for which the accused is made answerable must be clear and certain. The maxim that all doubts must be resolved in favor of the accused is always of compelling force in the prosecution of offenses. This Court has thus far not ruled on the criminal liability of an officer of a corporation signing in behalf of said corporation a trust receipt of the same nature as that involved herein. In the case of Samo vs. People, L-17603-04, May 31, 1962, the accused was not clearly shown to be acting other than in his own behalf, not in behalf of a corporation. The next question is whether the violation of a trust receipt constitutes estafa under Art. 315 (1-[2]) of the Revised Penal Code, as also raised by the petitioner. We now entertain grave doubts, in the light of the promulgation of P.D. 115 providing for the regulation of trust receipts transaction, which is a very comprehensive piece of legislation, and includes an express provision that if the violation or offense is committed by a corporation, partnership, association or other juridical entities the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to civil liabilities arising from the criminal offense. The question that suggests itself is, therefore, whether the provisions of the Revised Penal Code, Article 315, par. 1 (b) are not adequate to justify the punishment of the act made punishable by P.D. 115, that the necessity was felt for the promulgation of the decree. To answer this question, it is imperative to make an indepth analysis of the conditions usually embodied in a trust receipt to best their legal sufficiency to constitute the basis for holding the violation of said conditions as estafa under Article 315 of the Revised Penal Code which P.D. 115 now seeks to punish expressly. As executed, the trust receipt in question reads: I/WE HEREBY AGREE TO HOLD SAID GOODS IN TRUST FOR THE SAID BANK as its property with liberty to sell the same for its account but without authority to make any other disposition whatsoever of the said goods or any part thereof (or the proceeds thereof) either way of conditional sale, pledge or otherwise; In case of sale I/we further agree to hand the proceeds as soon as received to the BANK to apply against the relative acceptance (as described above) and for the payment of any other indebtedness of mine/ours to CONTINENTAL BANK. (Original Records, p. 108) One view is to consider the transaction as merely that of a security of a loan, and that the trust element is but and inherent feature of the security aspect of the arrangement where the goods are placed in the possession of the "entrustee," to use the term used in P.D. 115, violation of the element of trust not being intended to be in the same concept as how it is understood in the criminal sense. The other view is that the bank as the owner and "entrustor" delivers the goods to the "entrustee, " with the authority to sell the goods, but with the

obligation to give the proceeds to the "entrustor" or return the goods themselves if not sold, a trust being thus created in the full sense as contemplated by Art. 315, par. 1 (b). We consider the view that the trust receipt arrangement gives rise only to civil liability as the more feasible, before the promulgation of P.D. 115. The transaction being contractual, the intent of the parties should govern. Since the trust receipt has, by its nature, to be executed upon the arrival of the goods imported, and acquires legal standing as such receipt only upon acceptance by the "entrustee," the trust receipt transaction itself, the antecedent acts consisting of the application of the L/C, the approval of the L/C and the making of the marginal deposit and the effective importation of the goods, all through the efforts of the importer who has to find his supplier, arrange for the payment and shipment of the imported goods-all these circumstances would negate any intent of subjecting the importer to criminal prosecution, which could possibly give rise to a case of imprisonment for non-payment of a debt. The parties, therefore, are deemed to have consciously entered into a purely commercial transaction that could give rise only to civil liability, never to subject the "entrustee" to criminal prosecution. Unlike, for instance, when several pieces of jewelry are received by a person from the owner for sale on commission, and the former misappropriates for his personal use and benefit, either the jewelries or the proceeds of the sale, instead of returning them to the owner as is his obligation, the bank is not in the same concept as the jewelry owner with full power of disposition of the goods, which the bank does not have, for the bank has previously extended a loan which the L/C represents to the importer, and by that loan, the importer should be the real owner of the goods. If under the trust receipt the bank is made to appear as the owner, it was but an artificial expedient, more of a legal fiction than fact, for if it were really so, it could dispose of the goods in any manner it wants, which it cannot do, just to give consistency with the purpose of the trust receipt of giving a stronger security for the loan obtained by the importer. To consider the bank as the true owner from the inception of the transaction would be to disregard the loan feature thereof, a feature totally absent in the case of the transaction between the jewel-owner and his agent. Consequently, if only from the fact that the trust receipt transaction is susceptible to two reasonable interpretation, one as giving rise only to civil liability for the violation of the condition thereof, and the other, as generating also criminal liability, the former should be adopted as more favorable to the supposed offender. (Duran vs. CA, L-39758, May 7, 1976, 71 SCRA 68; People vs. Parayno, L-24804, July 5, 1968, 24 SCRA 3; People vs. Abendan, L-1481, January 28,1949,82 Phil. 711; People vs. Bautista, L-1502, May 24, 1948, 81 Phil. 78; People vs. Abana, L-39, February 1, 1946, 76 Phil. 1.) There is, moreover, one circumstance appearing on record, the significance of which should be properly evaluated. As stated in petitioner's brief (page 2), not denied by the People, "before the Continental Bank approved the application for a letter of credit (Exhibit 'D'), subsequently covered by the trust receipt, the Continental Bank examined the financial capabilities of the applicant, Metal Manufacturing Company of the Philippines because that was the bank's standard procedure (Testimony of Mr. Ernesto Garlit, Asst. Manager of the Foreign Department, Continental Bank, t.s.n., August 30, 1965). The Continental Bank did not examine the financial capabilities of herein petitioner, Jose O. Sia, in connection with the same letter of credit. (Ibid). " From this fact, it would appear as positively established that the intention of the parties in entering into the "trust receipt" agreement is merely to afford a stronger security for the loan evidenced by the letter of credit, may be not as an ordinary pledge as observed in P.N.B. vs. Viuda e Hijos de Angel Jose, et al., 63 Phil. 814, citing In re Dunlap C (206 Fed. 726) but neither as a transaction falling under Article 315-1 (b) of the Revised Penal Code giving rise to criminal liability, as previously explained and demonstrated. It is worthy of note that the civil liability imposed by the trust receipt is exclusively on the Metal Company. Speaking of such liability alone, as one arising from the contract, as

distinguished from the civil liability arising out of a crime, the petitioner was never intended to be equally liable as the corporation. Without being made so liable personally as the corporation is, there would then be no basis for holding him criminally liable, for any violation of the trust receipt. This is made clearly so upon consideration of the fact that in the violation of the trust agreement and in the absence of positive evidence to the contrary, only the corporation benefited, not the petitioner personally, yet, the allegation of the information is to effect that the misappropriation or conversion was for the personal use and benefit of the petitioner, with respect to which there is variance between the allegation and the evidence. It is also worthy of note that while the trust receipt speaks of authority to sell, the fact is undisputed that the imported goods were to be manufactured into finished products first before they could be sold, as the Bank had full knowledge of. This fact is, however, not embodied in the trust agreement, thus impressing on the trust receipt vagueness and ambiguity which should not be the basis for criminal prosecution, in the event of a violation of the terms of the trust receipt. Again, P.D. 115 has express provision relative to the "manufacture or process of the good with the purpose of ultimate sale," as a distinct condition from that of "to sell the goods or procure their sale" (Section 4, (1). Note that what is embodied in the receipt in question is the sale of imported goods, the manufacture thereof not having been mentioned. The requirement in criminal prosecution, that there must be strict harmony, not variance, between the allegation and the evidence, may therefore, not be said to have been satisfied in the instance case. FOR ALL THE FOREGOING, We reverse the decision of the Court of Appeals and hereby acquit the petitioner, with costs de oficio. SO ORDERED. G.R. No. L-22973 January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiff-appellant, vs. PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy Provincial Sheriff of Camarines Norte,defendants-appellees. 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 C4) 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 extrajudicially 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 (1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961 (b) Promissory note dated October 19, 1956 (1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 1961 II. III. Sheriff's fees [for two (2) day's work] Attorney's fee Total obligation as of Nov. 21, 1961 B. I. Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21, P56,908.00 P27,500.00 8,751.78 P15,500.00 4,734.08 10.00 1,000.00 P57,495.86

1961 II. Additional amount remitted to the PNB on Dec. 18, 1961 Total amount of Payment made to PNB as of Dec. 18, 1961 Deduct: Total obligation to the PNB Excess Payment to the PNB 738.59 P57,646.59 P57,495.86 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 reinspection report he made of the chattels in 1961, just a few months before the foreclosure sale, the same inspector of the PNB reported that the heavy equipment of herein appellant were "lying idle and rusty" but were "with a shed free from rains" 20 showing that although they

were no longer in use at the time, they were kept in a proper place and not exposed to the elements. The President of the appellant company, on the other hand, testified that its caterpillar (tractor) alone is worth P35,000.00 in the market, and that the value of its two trucks acquired by it with part of the proceeds of the loan and included as additional items in the mortgaged chattels were worth no less than P14,000.00. He likewise appraised the worth of its Murphy engine at P16,000.00 which, according to him, when taken together with the heavy equipments he mentioned, the sawmill itself and all other equipment forming part of the chattels under consideration, and bearing in mind the current cost of equipments these days which he alleged to have increased by about five (5) times, could safely be estimated at P120,000.00. This testimony, except for the appraised and market values appearing in the inspection and re-inspection reports of the PNB official earlier mentioned, stand uncontroverted in the record; but We are not inclined to accept such testimony at its par value, knowing that the equipments of herein appellant had been idle and unused since it stopped operating its sawmill in 1958 up to the time of the sale of the chattels in 1961. We have no doubt that the value of chattels was depreciated after all those years of inoperation, although from the evidence aforementioned, We may also safely conclude that the amount of P4,200.00 for which the chattels were sold in the foreclosure sale in question was grossly unfair to the mortgagor. Considering, however, the facts that the appraised value of P42,850.00 and the market value of P85,700.00 originally given by the PNB official were admittedly conservative; that two 6 x 6 trucks subsequently bought by the appellant company had thereafter been added to the chattels; and that the real value thereof, although depreciated after several years of inoperation, was in a way maintained because the depreciation is off-set by the marked increase in the cost of heavy equipment in the market, it is our opinion that the market value of the chattels at the time of the sale should be fixed at the original appraised value of P42,850.00. Herein appellant's claim for moral damages, however, seems to have no legal or factual basis. Obviously, an artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. 21 A corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages. The same cannot be considered under the facts of this case, however, not only because it is admitted that herein appellant had already ceased in its business operation at the time of the foreclosure sale of the chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the chattels could have upon its reputation or business standing would undoubtedly be the same whether the sale was conducted at Jose Panganiban, Camarines Norte, or in Manila which is the place agreed upon by the parties in the mortgage contract. But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale in utter disregard of the agreement to have the chattels sold in Manila as provided for in the mortgage contract, to which their attentions were timely called by herein appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00, herein appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances of the case also warrant the award of P3,000.00 as attorney's fees for herein appellant. WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision appealed from should be, as hereby, it is set aside. The Philippine National Bank and the Deputy Sheriff of the province of Camarines Norte are ordered to pay, jointly and severally, to Mambulao Lumber Company the total amount of P56,000.73, broken as follows: P150.73 overpaid by the latter to the PNB, P42,850.00 the value of the chattels at the time of the sale with interest at the rate of 6% per annum from December 21, 1961, until fully paid, P10,000.00 in exemplary damages, and P3,000.00 as attorney's fees. Costs against both appellees.

G.R. No. 117501 July 8, 1997 SOLID HOMES, INC., petitioner, vs. HON. COURT OF APPEALS, STATE FINANCING CENTER, INC., and REGISTER OF DEEDS FOR RIZAL,respondents. PANGANIBAN, J.: Is the failure to annotate the vendor a retro's right of repurchase in the certificates of title of the real estate properties subject of dacion en pago conclusive evidence of the vendee a retro's malice and bad faith, entitling the former to damages? In a sale with pacto de retro, is the repurchase price limited by Article 1616 of the Civil Code? These are the basic questions raised in this petition for review on certiorari under Rule 45 of the Rules of Court assailing the Court of Appeals 1 Decision 2 promulgated on April 25, 1994 and Resolution 3 of September 26, 1994 in CA-G.R. CV No. 39154, affirming the decision 4 of the Regional Trial Court of Pasig, Branch 157 in Civil Case No. 51214. The said RTC decision sustained the validity of the subject dacion en pago agreement and declared the same as "a true sale with right of repurchase." The Facts The facts of the case as narrated by the trial court and reproduced in the assailed Decision of the Court of Appeals are undisputed by the parties. These are the relevant portions: It appears that on June 4, 1979, Solid Homes executed in favor of State Financing (Center, Inc.) a Real Estate Mortgage (Exhibit "3") on its properties embraced in Transfer Certificate of Title No. 9633 (Exhibit "9") and Transfer Certificate of Title No. (492194) 11938 (Exhibit "8") of the Registry of Deeds in Pasig, Metro Manila, in order to secure the payment of a loan of P10,000,000.00 which the former obtained from the latter. A year after, Solid Homes applied for and was granted an additional loan of P1,511,270.03 by State Financing, and to secure its payment, Solid Homes executed the Amendment to Real Estate Mortgage dated June 4, 1980 (Exhibit "4") whereby the credits secured by the first mortgage on the abovementioned properties were increased from P10,000,000.00 to P11,511,270.03. Sometime thereafter, Solid Homes obtained additional credits and financing facilities from State Financing in the sum of P1,499,811,97, and to secure its payment, Solid Homes executed in favor of State Financing the Amendment to Real Estate Mortgage dated March 5, 1982 (Exhibit "5") whereby the mortgage executed on its properties on June 4, 1979 was again amended so that the loans or credits secured thereby were further increased from P11,511,270.03 to P13,011,082.00. When the loan obligations abovementioned became due and payable, State Financing made repeated demands upon Solid Homes for the payment thereof, but the latter failed to do so. So, on December 16, 1982, State Financing filed a petition for extrajudicial foreclosure of the mortgages abovementioned with the Provincial Sheriff of Rizal, who, in pursuance of the petition, issued a Notice of Sheriff's Sale dated February 4, 1983 (Exhibit "6"), whereby the mortgaged properties of Solid Homes and the improvements existing thereon, including the V.V. Soliven Towers II Building, were set for public auction sale on March 7, 1983 in order to satisfy the full amount of Solid Homes' mortgage indebtedness, the interest thereon, and the fees and expenses incidental to the foreclosure proceedings.

Before the scheduled public auction sale . . . , the mortgagor Solid Homes made representations and induced State Financing to forego with the foreclosure of the real estate mortgages referred to above. By reason thereof, State Financing agreed to suspend the foreclosure of the mortgaged properties, subject to the terms and conditions they agreed upon, and in pursuance of their said agreement, they executed a document entitled MEMORANDUM OF AGREEMENT/DACION EN PAGO ("Memorandum") dated February 28, 1983 (Exhibits "C" and "7") . . . . Among the terms and conditions that said parties agreed upon were . . . : 1. (Solid Homes) acknowledges that it has an outstanding obligation due and payable to (State Financing) and binds and obligates to pay (State Financing) the totality of its outstanding obligation in the amount of P14,225,178.40, within one hundred eighty (180) days from date of signing of this instrument. However, it is understood and agreed that the principal obligation of P14,225,178.40 shall earn interest at the rate of 14% per annum and penalty of 16% per annum counted from March 01, 1983 until fully paid. 2. The parties agree that should (Solid Homes) be able to pay (State Financing) an amount equivalent to sixty per centum (60%) of the principal obligation, or the amount of P8,535,107.04, within the first one hundred eighty (180) days, (State Financing) shall allow the remaining obligation of (Solid Homes) to be restructured at a rate of interest to be mutually agreed between the parties. 3. It is hereby understood and agreed that in the event (Solid Homes) fails to comply with the provisions of the preceding paragraphs, within the said period of one hundred eighty (180) days, this document shall automatically operate to be an instrument of dacion en pago without the need of executing any document to such an effect and (Solid Homes) hereby obligates and binds itself to transfer, convey and assign to (State Financing), by way of dacion en pago, its heirs, successors and assigns, and (State Financing) does hereby accept the conveyance and transfer of the above-described real properties, including all the improvements thereon, free from all liens and encumbrances, in full payment of the outstanding indebtedness of (Solid Homes) to (State Financing) . . . . xxx xxx xxx 6. (State Financing) hereby grants (Solid Homes) the right to repurchase the aforesaid real properties, including the condominium units and other improvements thereon, within ten (10) months counted from and after the one hundred eighty (180) days from date of signing hereof at an agreed price of P14,225,178.40, or as reduced pursuant to par. 5 (d), plus all cost of money equivalent to 30% per annum, registration fees, real estate and documentary stamp taxes and other incidental expenses incurred by (State Financing) in the transfer and registration of its ownership via dacion en pago . . . . xxx xxx xxx Subsequently, Solid Homes failed to pay State Financing an amount equivalent to 60% (or P8,535,107.04) of the principal obligation of P14,225,178.40 within 180 days from the signing of the (Memorandum) on February 28, 1983, as provided under paragraph 2 of the said document. Hence, and in pursuance of paragraph 3 thereof which provided that "this document shall automatically operate to be an instrument of dacion en pago without the need of executing any document to such an effect . . . (,)" State Financing registered the said (Memorandum) with the Register of Deeds in Pasig, Metro Manila on September 15, 1983. Consequently, the said Register of Deeds cancelled TCT No. 9633 and TCT No. (492194) 11938

in the name of Solid Homes which were the subject matter of the (Memorandum) abovementioned, and in lieu thereof, the said office issued Transfer Certificate of Title No. 40534 (Exhibits "J" and "11") and Transfer Certificate of Title No. 40534 (Exhibits "K" and "12") in the name of State Financing . . . . In a letter dated October 11, 1983 (Exhibit "16"), State Financing informed Solid Homes of the transfer in its name of the titles to all the properties subject matter of the (Memorandum) and demanded among other things, the Solid Homes turn over to State Financing the possession of the V.V. Soliven Towers II Building erected on two of the said properties. Solid Homes replied with a letter dated October 14, 1983, (Exhibit "20") asking for a period of ten (10) days within which to categorize its position on the matter; and in a subsequent letter dated October 24, 1983, Solid Homes made known to State Financing its position that the (Memorandum) is null and void because the essence thereof is that State Financing, as mortgagee creditor, would be able to appropriate unto itself the properties mortgaged by Solid Homes which is in contravention of Article 2088 of the Civil Code. State Financing then sent to Solid Homes another letter dated November 3, 1983 (Exhibit "17"), whereby it pointed out that Art. 2088 of the Civil Code is not applicable to the (Memorandum) they have executed, and also reiterated its previous demand that Solid Homes turn over to it the possession of the V.V. Soliven Towers II Building within five (5) days, but Solid Homes did not comply with the said demand. . . . and within that period of repurchase, Solid Homes wrote to State Financing a letter dated April 30, 1984 containing its proposal for repayment schemes under terms and conditions indicated therein for the repurchase of the properties referred to. In reply to said letter, State Financing sent a letter dated May 17, 1984 (Exhibit "18") advising Solid Homes that State Financing's management was not amenable to its proposal, and that by way of granting it some concessions, said management made a counter-proposal requiring Solid Homes to make an initial payment of P10 million until 22 May 1984 and the balance payable within the remaining period to repurchase the properties as provided for under the (Memorandum) . . . . Thereafter, a number of conferences were held among the corporate officers of both companies wherein they discussed the payment arrangement of Solid Home's outstanding obligation, . . . . In a letter dated June 7, 1984 (Exhibit "19"), State Financing reiterated the counter-proposal in its previous letter dated May 17, 1984 to Solid Homes as a way of making good its account, and at the same time reminded Solid Homes that it has until 27 June 1984 to exercise its right to repurchase the properties pursuant to the terms and conditions of the (Memorandum), otherwise, it will have to vacate and turn over the possession of said properties to State Financing. In return, Solid Homes sent to State Financing a letter dated June 18, 1984 (Exhibits "N" and "22") containing a copy of the written offer made by C.L. Alma Jose & Sons, Inc. (Exhibits "M" and "22-A") to avail of Solid Homes' right to repurchase the V.V. Soliven Towers II pursuant to the terms of the Dacion En Pago. The letter also contained a request that the repurchase period under said Dacion En Pago which will expire on June 27, 1984 be extended by sixty (60) days to enable Solid Homes to comply with the conditions in the offer of Alma Jose & Sons, Inc. referred to, and thereafter, to avail of the one year period to pay the balance based on the verbal commitment of State Financing's President . . . . However, on June 26, 1984, a day before the expiry date of its right to repurchase the properties involved in the (Memorandum) on June 27, 1984, Solid Homes filed the present action against defendants State Financing and the Register of Deeds for Metro Manila District II (Pasig), seeking the annulment of said (Memorandum) and the consequent reinstatement of the mortgages over the same properties; . . . 5 As earlier stated, the trial court held that the Memorandum of Agreement/Dacion En Pago executed by the parties was valid and binding, and that the registration of said instrument in the Register of Deeds was in accordance with law and the agreement of the parties. It disposed of the case thus:

WHEREFORE, this Court hereby renders judgment, as follows: 1. Declaring that the Memorandum of Agreement/Dacion En Pago entered into by and between plaintiff Solid Homes and defendant State Financing on February 28, 1983 is a valid and binding document which does not violate the prohibition against pactum commisorium under Art. 2088 of the Civil Code; 2. Declaring that the said Memorandum of Agreement/Dacion En Pago is a true sale with right of repurchase, and not an equitable mortgage; 3. Declaring that the registration of the said Memorandum of Agreement/Dacion En Pago with the defendant Register of Deeds in Pasig, Metro Manila by defendant State Financing on September 15, 1983 is in accordance with law and the agreement of the parties in the said document; but the annotation of the said document by the said Register of Deeds on the certificates of title over the properties subject of the Memorandum of Agreement/Dacion En Pago without any mention of the right of repurchase and the period thereof, is improper, and said Register of Deeds' cancellation of the certificates of title in the name of Solid Homes over the properties referred to and issuance of new titles in lieu thereof in the name of State Financing during the period of repurchase and without any judicial order is in violation of Art. 1607 of the Civil Code, which renders said titles null and void; 4. Ordering the defendant State Financing to surrender to the defendant Register of Deeds in Pasig, Metro Manila for the cancellation thereof, all the certificates of title issued in its name over the properties subject of the Memorandum of Agreement/Dacion En Pago, including those titles covering the fully paid condominium units and the substitute collateral submitted in exchange for said condominium units; 5. Ordering the said defendant Register of Deeds to cancel all the titles in the name of State Financing referred to and to reinstate the former titles over the same properties in the name of Solid Homes, with the proper annotation thereon of the Memorandum of Agreement/Dacion En Pago together with the right of repurchase and the period thereof as provided in said document and to return the said reinstated former titles (owner's copies) in the name of Solid Homes to State Financing; 6. Ordering the defendant State Financing to release to plaintiff Solid Homes all the certificates of title over the fully paid condominium units in the name of Solid Homes, free from all liens and encumbrances by releasing the mortgage thereon; 7. Granting the plaintiff Solid Homes the opportunity to exercise its right to repurchase the properties subject of the Memorandum of Agreement/Dacion En Pago within thirty (30) days from the finality of this Decision, by paying to defendant State Financing the agreed price of P14,225,178.40 plus all cost of money equivalent to 30% (interest of 14% and penalty of 16% from March 1, 1983) per annum, registration fees, real estate and documentary stamp taxes and other incidental expenses incurred by State Financing in the transfer and registration of its ownership via the Dacion En Pago, as provided in the said document and in pursuance of Articles 1606 and 1616 of the Civil Code; and 8. Ordering the defendant Register of Deeds in Pasig, Metro Manila should plaintiff Solid Homes fail to exercise the abovementioned right to repurchase within 30 days from the finality of this judgment to record the consolidation of ownership in State Financing over the properties subject of the Memorandum of Agreement/Dacion En Pago in the Registry of

Property, in pursuance of this Order, but excluding therefrom the fully paid condominium units and their corresponding titles to be released by State Financing. For lack of merit, the respective claims of both parties for damages, attorney's fees, expenses of litigation and costs of suit are hereby denied. 6 Both parties appealed from the trial court's decision. Solid Homes raised a lone question contesting the denial of its claim for damages. Such damages allegedly resulted from the bad faith and malice of State Financing in deliberately failing to annotate Solid Homes' right to repurchase the subject properties in the former's consolidated titles thereto. As a result of the non-annotation, Solid Homes claimed to have been prevented from generating funds from prospective buyers to enable it to comply with the Agreement and to redeem the subject properties. State Financing, on the other hand, assigned three errors against the RTC decision: (1) granting Solid Homes a period of thirty (30) days from finality of the judgment within which to exercise its right of repurchase; (2) ordering Solid Homes to pay only 30% per annum as interest and penalty on the principal obligation, rather than reasonable rental value from the time possession of the properties was illegally withheld from State Financing; and (3) failing to order the immediate turnover of the possession of the properties to State Financing as the purchasera retro from whom no repurchase has been made. As to the lone issue raised by Solid Homes, the Court of Appeals agreed with the trial court that the failure to annotate the right of repurchase of the vendor a retro is not by itself an indication of bad faith or malice. State Financing was not legally bound to cause its annotation, and Solid Homes could have taken steps to protect its own interests. The evidence shows that after such registration and transfer of titles, State Financing willingly negotiated with Solid Homes to enable the latter to exercise its right to repurchase the subject properties, 7 an act that negates bad faith. Anent the first error assigned by State Financing, Respondent Court likewise upheld the trial court in applying Article 1606, paragraph 3 8 of the Civil Code. Solid Homes was not in bad faith in filing the complaint for the declaration of nullity of the Memorandum of Agreement/Dacion En Pago. There is statutory basis for petitioner's claim that an equitable mortgage existed since it believed that (1) the price of P14 million was grossly inadequate, considering that the building alone was allegedly built at a cost of P60 million in 1979 and the lot was valued at P5,000.00 per square meter and (2) it remained in possession of the subject properties. 9 Furthermore, Article 1607 10 of the Civil Code abolished automatic consolidation of ownership in the vendee a retro upon expiration of the redemption period by requiring the vendee to institute an action for consolidation where the vendor a retromay be duly heard. If the vendee succeeds in proving that the transaction was indeed a pacto de retro, the vendor is still given a period of thirty days from the finality of the judgment within which to repurchase the property. 11 Respondent Court also affirmed the trial court's imposition of the 30% interest per annum on top of the redemption price in accordance with paragraph 6 of the parties' Memorandum of Agreement. 12 However, Respondent Court of Appeals rules favorably on State Financing's last assigned error by ordering Solid Homes to deliver possession of the subject properties to the private respondent, citing jurisprudence that in a sale with pacto de retro, the vendee shall immediately acquire title over and possession of the real property sold, subject only to the

vendor's right of redemption. 13 The full text of the dispositive portion of the assailed Decision is as follows: WHEREFORE, the judgment appealed from is affirmed with the modification that plaintiff Solid Homes is further ordered to deliver the possession of the subject property to State Financing. 14 The two opposing parties filed their respective motions for reconsideration of the assailed Decision. Both were denied by said Court for lack of merit. Both parties thereafter filed separate petitions for review before this Court. In a minute Resolution 15 dated December 5, 1994, this Court (Third Division) denied State Financing Center's petition because of its failure to show that a reversible error was committed by the appellate court. Its motion for reconsideration of said resolution was likewise denied for lack of merit. This case disposes only of the petition filed by Solid Homes, Inc. Issues In its petition, Solid Homes repeats its arguments before the Court of Appeals. It claims damages allegedly arising from the non-annotation of its right of repurchase in the consolidated titles issued to private respondent. Petitioner reiterates its attack against the inclusion of 30% interest per annum as part of the redemption price. It asserts that Article 1616 of the Civil Code authorizes only the return of the (1) price of the sale, (2) expenses of the contract and any other legitimate payments by reason of the sale and (3) necessary and useful expenses made on the thing sold. Considering that the transfer of titles was null and void, it was thus erroneous to charge petitioner the registration fees, documentary stamp taxes and other incidental expenses incurred by State Financing in the transfer and registration of the subject properties via the dacion en pago. Lastly, petitioner argues that there is no need for the immediate turnover of the properties to State Financing since the same was not stipulated under their Agreement, and the latter's rights were amply protected by the issuance of new certificates of title in its name. The Court's Ruling First Issue: Damages To resolve the issue of damages, an examination of factual circumstances would be necessary, a task that is clearly beyond this Court's dominion. It is elementary that in petitions for review on certiorari, only questions of law may be brought by the parties and passed upon by this Court. Findings of fact of lower courts are deemed conclusive and binding upon the Supreme Court except when the findings are grounded on speculation, surmises or conjectures; when the inference made is manifestly mistaken, absurd or impossible; when there is grave abuse of discretion in the appreciation of facts; when the factual findings of the trial and appellate courts are conflicting; when the Court of Appeals, in making its findings, has gone beyond the issues of the case and such findings are contrary to the admissions of both appellant and appellee; 16 when the judgment of the appellate court is premised on a misapprehension of facts or when it has failed to notice certain relevant facts which, if properly considered, will justify a different conclusion; when the findings of fact are conclusions without citation of specific evidence upon which they are based; and when findings of fact of the Court of Appeals are premised on the absence of evidence but are contradicted by the evidence on record. 17 The petitioner has not shown any and indeed the Court finds none of the above-mentioned exceptions to warrant a departure from the general rule.

In fact, petitioner has not even bothered to support with evidence as claim for "actual, moral and punitive/nominal damages" as well as "exemplary damages and attorney's fees." It is basic that the claim for these damages must each be independently identified and justified; such claims cannot be dealt with in the aggregate, since they are neither kindred or analogous terms nor governed by a coincident set of rules. 18 The trial court found, and the Court of Appeals affirmed, that petitioner's claim for actual damages was baseless. Solid Homes utterly failed to prove that respondent corporation had maliciously and in bad faith caused the non-annotation of petitioner's right of repurchase so as to prevent the latter from exercising such right. On the contrary, it is admitted by both parties that State Financing informed petitioner of the registration with the Register of Deeds of Pasig of their Memorandum of Agreement/Dacion en Pago and the issuance of new certificates of title in the name of the respondent corporation. Petitioner exchanged communications and held conferences with private respondent in order to draw a mutually acceptable payment arrangement for the former's repurchase of the subject properties. A written offer from another corporation alleging willingness to avail itself of petitioner's right of repurchase was even attached to one of these communications. Clearly, petitioner was not prejudiced by the non-annotation of such right in the certificates of titles issued in the name of State Financing. Besides, as the Court of Appeals noted, it was not the function of respondent corporation for cause said annotation. It was equally the responsibility of petitioner to protect its own rights by making sure that its right of repurchase was indeed annotated in the consolidated titles of private respondent. The only legal transgression of State Financing was its failure to observe the proper procedure in effecting the consolidation of the titles in its name. But this does not automatically entitle the petitioner to damages absent convincing proof of malice and bad faith 19 on the part of private respondent and actual damages suffered by petitioner as a direct and probable consequence thereof. In fact, the evidence proffered by petitioner consist of mere conjectures and speculations with no factual moorings. Furthermore, such transgression was addressed by the lower courts when they nullified the consolidated of ownership over the subject properties in the name of respondent corporation, because it had been effected in contravention of the provisions of Article 1607 20 of the Civil Code. Such rulings are consistent with law and jurisprudence. Neither can moral damages be awarded to petitioner. Time and again, we have held that a corporation being an artificial person which has no feelings, emotions or senses, and which cannot experience physical suffering or mental anguish is not entitled to moral damages. 21 While the amount of exemplary damages need not be proved, petitioner must show that he is entitled to moral or actual damages; 22 but the converse obtains in the instant case. Award of attorney's fees is likewise not warranted when moral and exemplary damages are eliminated and entitlement thereto is not demonstrated by the claimant.23 Lastly, "(n)ominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him." 24 As elaborated above and in the decisions of the two lower courts, no right of petitioner was violated or invaded by respondent corporation. Second Issue: Redemption Price

Another fundamental principle of procedural law precludes higher courts from entertaining matters neither alleged in the pleadings nor raised during the proceedings below, but ventilated for the first time only in a motion for reconsideration or on appeal. 25 On appeal, only errors specifically assigned and properly argued in the brief will be considered, with the exception of those affecting jurisdiction over the subject matter as well as plain and clerical errors. 26 As stated earlier, the single issue raised by petitioner in its appeal of the RTC decision to the Court of Appeals concerned only the denial of its claim for damages. Petitioner succinctly stated such issue in its brief as follows: I. LONE ASSIGNMENT OF ERROR The trial court erred in that after having found that the registration of the Memorandum of Agreement/Dacion en Pago on September 15, 1983 [and the consequent cancellation of the titles of plaintiff-appellant Solid Homes, Inc. and issuance in lieu thereof of titles to defendant-appellant State Financing Center, Inc. (SFCI)] was null and void because of failure to duly annotate the right to repurchase granted to plaintiff-appellant Solid Homes, Inc. under par. 6 thereof still then subsisting up to June 28, 1984 and the failure to comply with the provisions of Art. 1607, Civil Code . . . I[t] nonetheless did not rule that such irregular registration unduly deprived plaintiff-appellant Solid Homes, Inc. of its right of repurchase and that it further erred in not having declared that defendant-appellant SFCI liable in favor of said plaintiff-appellant for damages. 27 Petitioner is thus barred from raising a new issue in its appeal before this Court. Nevertheless, in the interest of substantial justice, we now resolve the additional question posed with respect to the composition of the redemption price prescribed by the trial court and affirmed by the Court of Appeals, as follows: 7. Granting the plaintiff Solid Homes the opportunity to exercise its right to repurchase the properties . . . by paying to defendant State Financing the agreed price of P14,225,178.40 plus all cost of money equivalent to 30% (interest of 14% and penalty of 16% from March 1, 1983) per annum, registration fees, real estate and documentary stamp taxes and other incidental expenses incurred by State Financing in the transfer and registration of its ownership via the Dacion En Pago, as provided in the said document and in pursuance of Articles 1606 and 1616 of the Civil Code; 28 Petitioner argues that such total redemption price is in contravention of Art. 1616 of the Civil Code. We do not, however, find said legal provision to be restrictive or exclusive, barring additional amounts that the parties may agree upon. Said provision should be construed together with Art. 1601 of the same Code which provides as follows: Art. 1601. Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of article 1616 and other stipulations which may have been agreed upon. (emphasis supplied) It is clear, therefore, that the provisions of Art. 1601 require petitioner to "comply with . . . the other stipulations" of the Memorandum of Agreement/Dacion en Pago it freely entered into with private respondent. The said Memorandum's provision on redemption states:

6. The FIRST PARTY (State Financing) hereby grants the SECOND PARTY (Solid Homes) the right to repurchase the aforesaid real properties, including the condominium units and other improvements thereon, within ten (10) months counted from and after the one hundred eighty (180) days from date of signing hereof at an agreed price of P14,225,178.40, or as reduced pursuant to par. 5 (d), plus all cost of money equivalent to 30% per annum, registration fees, real estate and documentary stamp taxes and the other incidental expensesincurred by the FIRST PARTY (State Financing) in the transfer and registration of its ownership via dacion en pago . . . 29 (emphasis supplied) Contracts have the force of law between the contracting parties who may establish such stipulations, clauses, terms and conditions as they may want subject only to the limitation that their agreements are not contrary to law, morals, customs, public policy or public order 30 and the above-quoted provision of the Memorandum does not appear to be so. Petitioner, however, is right in its observation that the Court of Appeal's inclusion of "registration fees, real estate and documentary stamp taxes and other incidental expenses incurred by State Financing in the transfer and registration of its ownership (of the subject properties) via dacion en pago" was vague, if not erroneous, considering that such transfer and issuance of the new titles were null and void. Thus, the redemption price shall include only those expenses relating to the registration of the dacion en pago, but not the registration and other expenses incurred in the issuance of new certificates of title in the name of State Financing. Possession of the Subject Properties During the Redemption Period The Court of Appeals Decision modified that of the trial court only insofar as it ordered petitioner to deliver possession of the subject properties to State Financing, the vendee a retro. We find no legal error in this holding. In a contract of sale with pacto de retro, the vendee has a right to the immediate possession of the property sold, unless otherwise agreed upon. It is basic that in a pacto de retro sale, the title and ownership of the property sold are immediately vested in the vendee a retro, subject only to the resolutory condition of repurchase by the vendora retro within the stipulated period. 31 WHEREFORE, the assailed Decision of the Court of Appeals is hereby AFFIRMED with the MODIFICATION that the redemption price shall not include the registration and other expenses incurred by State Financing Center, Inc. in the issuance of new certificates of title in its name, as this was done without the proper judicial order required under Article 1607 of the Civil Code. SO ORDERED. G.R. No. 128690 January 21, 1999 ABS-CBN BROADCASTING CORPORATION, petitioner, vs. HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC., and VICENTE DEL ROSARIO, respondents.

DAVIDE, JR., CJ.: In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABSCBN) 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-92-12309. 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. 910). 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 out 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 our 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)

On February 27, 1992, defendant Del Rosario approached ABS-CBN's 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-CBN 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-CRN 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 Viva's 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" - ABSCBN).

On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the terms and conditions of Viva's offer to sell the 104 films, after the rejection of the same package by ABS-CBN. On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note from Ms. Concio, (Exh. "5" - Viva), which reads: "Here's the draft of the contract. I hope you find everything in order," to which was attached a draft exhibition agreement (Exh. "C''- ABSCBN; 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 films right to 53 films and contains a right of first refusal to "1992 Viva Films." The said counter proposal was however rejected by Viva's 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 Viva's 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 27 May 1992, 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 filmMaging Sino Ka Man, which was scheduled to be shown on private respondents RBS' channel 7 at seven o'clock 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-CBN's posting of 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 counterbound. 9 In the meantime, private respondents filed separate answers 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 petitioner's 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 1992, the RTC conducted a pre-trial. 16 Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition 17challenging the RTC's Orders 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. 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 as G.R. No. 108363. In the meantime the RTC received the evidence for the parties in Civil Case No. Q-192-1209. 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, judgments 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 defendant RBS's bond to lift the injunction; b) P191,843.00 for the amount of print advertisement for "Maging Sino Ka Man" in various newspapers; c) Attorney's 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 defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable attorney's 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-CBN's 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. Concio's 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-CBN's 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 RTC's 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 attorney's 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, it's agent, might have agreed with Lopez III. The appellate court did not even believe ABS-CBN's evidence that Lopez III actually wrote down such an agreement on a "napkin," as the same was never produced in court. It likewise rejected ABSCBN's 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 subject 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-CBN's 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 V1VA 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, Ms. 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 of actual 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 had 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 RBS's 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 petitioner's knowledge that the contract with VIVA had not been perfected, It also upheld the award of attorney's fees, reasoning that with ABS-CBN's act of instituting Civil Case No, Q-92-1209, RBS was "unnecessarily forced to litigate." The appellate court, however, reduced the awards of moral damages to P2 million, exemplary damages to P2 million, and attorney's fees to P500, 000.00. On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was "RBS and not VIVA which was actually prejudiced when the complaint was filed by ABSCBN." 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 PREPONDERANCE 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 ATTORNEY'S FEES IN FAVOR 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 Lopez's 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 andVillonco 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 or 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 or 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 "Maging Sino Ka Man"; on the contrary, it was brought out during trial that with or without the case or the injunction, RBS would have spent such an amount to generate interest in the film. ABS-CBN further contends that there was no 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 front the 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 attorney's fees, ABS-CBN maintains that the same had no factual, legal, or equitable justification. In sustaining the trial court's award, the Court of Appeals acted in clear disregard of the doctrines laid down in Buan v. Camaganacan 32 that the text of the decision should state the reason why attorney's 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 party' s persistence in a case other than an erroneous conviction of the righteousness of his cause, attorney's 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 any meeting of minds between them regarding the object and consideration of the alleged contract. It affirms that the ABS-CBN's claim of a right of first refusal was correctly rejected by the trial court. RBS insist the premium it had paid for the counterbond constituted a pecuniary loss upon which it may recover. It was obliged to put up the counterbound 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 put out to announce the showing on a particular day and hour on Channel 7, i.e., in its entirety at one time, not a series to be shown on a periodic basis. Hence, the print advertisement were good and relevant for the particular date 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 Article 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 act done is not illicit and there is abuse of rights were plaintiff institutes and 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 respondents RBScited 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-CBN's 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 canceled, late viewers called up RBS' offices and subjected RBS to verbal abuse ("Announce kayo nang 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 planned 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 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 to 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-CBN's 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 attorney's fees. It may be noted that the award of attorney's 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 to 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 with 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 VIVA's offer to ABSCBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent, through Ms. Concio, a counter-proposal in the form of a draft contract proposing exhibition of 53 films for a consideration of P35 million. This counter-proposal could be nothing less than the counteroffer of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA's offer, for it was met by a counter-offer which substantially varied the terms of the offer. ABS-CBN's 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, 43which ruled that the acceptance of all offer must be unqualified and absolute, i.e., it "must be identical in all respects with that of the offer so as to produce consent or meeting of the minds." On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counteroffer 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 vendor's 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 counteroffer." 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 VIVA's offer. Hence, they underwent a period of bargaining. ABS-CBN then formalized its counter-proposals or counteroffer 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 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 bindings 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-CBN's counter-offer was best evidenced by his submission of the draft contract to VIVA's Board of Directors for the latter's 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-CBN's 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 a 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 Exhibits "C" reflected the true intent of the parties, then ABS-CBN's 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

contracts, so as to preclude perfection thereof. For settled is the rule that there can be no contract where there is no object which is its subject matter (Art. 1318, NCC). THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. "D") states:

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?

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 (P19,950,000.00 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-CBN's 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-CBN's 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 Tamarind 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.

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 Board of 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 Barner [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 contract 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 140 films be maintained (Exh. "7-1" - Viva ). 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-CBN 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 the 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 rights of the 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, It case of good faith, the damages recoverable are those which are the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have reasonably foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the non-performance of the obligation. 53 In crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural and probable consequences of the act or omission complained of, whether or not such damages has been foreseen or could have reasonably been foreseen by the defendant. 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 plaintiff's 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-CBN's alleged knowledge of lack of cause of action. Thus paragraph 12 of RBS's 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 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 his 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 tile 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 attorney's fees, the law is clear that in the absence of stipulation, attorney's 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 attorney's 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 to award attorney's fees under Article 2208 demands factual, legal, and equitable justification. 60 Even when claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where no sufficient showing of bad faith could be reflected in a party's persistence in a case other than 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. RBS's 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 then 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 on 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 call 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-contracts, 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, quasicontract, 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 other provisions of law which do not especially provide for their own sanction; while Article 21 deals with acts contra bonus mores, and has the following elements; (1) there is an act which is legal, (2) but which is contrary to morals, good custom, public order, or public policy, and (3) and it is done with intent to injure.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 to impose a penalty on the right to litigate. If damages result from a person's 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 attorney's fees in favor of VIVA Productions, Inc.1wphi1.nt No pronouncement as to costs. SO ORDERED. 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.

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 projects 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;

BELLOSILLO, J.:

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 contractor's 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 FEMSCO's Bidder's 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.1wphi1.nt 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 JARDINE's 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 attorney's 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 latter's 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 FEMSCO's 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 latter's 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. 5A 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 FEMSCO's 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 Court's 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 Court's 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 PUREFOODS 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 addition, 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.1wphi1.nt SO ORDERED. G.R. No. 126204 November 20, 2001

60,000 +/ - 10% September 4, 1987"5 On July 10, 1987, PHIBRO sent word to NAPOCOR that industrial disputes might soon plague Australia, the shipment's point of origin, which could seriously hamper PHIBRO's ability to supply the needed coal.6 From July 23 to July 31, 1987, PHIBRO again apprised NAPOCOR of the situation in Australia, particularly informing the latter that the ship owners therein are not willing to load cargo unless a "strike-free" clause is incorporated in the charter party or the contract of carriage.7 In order to hasten the transfer of coal, PHIBRO proposed to NAPOCOR that they equally share the burden of a "strike-free" clause. NAPOCOR refused. On August 6, 1987, PHIBRO received from NAPOCOR a confirmed and workable letter of credit. Instead of delivering the coal on or before the thirtieth day after receipt of the Letter of Credit, as agreed upon by the parties in the July contract, PHIBRO effected its first shipment only on November 17, 1987. Consequently, in October 1987, NAPOCOR once more advertised for the delivery of coal to its Calaca thermal plant. PHIBRO participated anew in this subsequent bidding. On November 24, 1987, NAPOCOR disapproved PHIBRO's application for pre-qualification to bid for not meeting the minimum requirements.8 Upon further inquiry, PHIBRO found that the real reason for the disapproval was its purported failure to satisfy NAPOCOR's demand for damages due to the delay in the delivery of the first coal shipment. This prompted PHIBRO to file an action for damages with application for injunction against NAPOCOR with the Regional Trial Court, Branch 57, Makati City.9 In its complaint, PHIBRO alleged that NAPOCOR's act of disqualifying it in the October 1987 bidding and in all subsequent biddings was tainted with malice and bad faith. PHIBRO prayed for actual, moral and exemplary damages and attorney's fees. In its answer, NAPOCOR averred that the strikes in Australia could not be invoked as reason for the delay in the delivery of coal because PHIBRO itself admitted that as of July 28, 1987 those strikes had already ceased. And, even assuming that the strikes were still ongoing, PHIBRO should have shouldered the burden of a "strike-free" clause because their contract was "C and F Calaca, Batangas, Philippines," meaning, the cost and freight from the point of origin until the point of destination would be for the account of PHIBRO. Furthermore, NAPOCOR claimed that due to PHIBRO's failure to deliver the coal on time, it was compelled to purchase coal from ASEA at a higher price. NAPOCOR claimed for actual damages in the amount of P12,436,185.73, representing the increase in the price of coal, and a claim of P500,000.00 as litigation expenses.10 Thereafter, trial on the merits ensued. On January 16, 1992, the trial court rendered a decision in favor of PHIBRO, the dispositive portion of which reads: "WHEREFORE, judgment is hereby rendered in favor of plaintiff Philipp Brothers Oceanic Inc. (PHIBRO) and against the defendant National Power Corporation (NAPOCOR) ordering the said defendant NAPOCOR: 1. To reinstate Philipp Brothers Oceanic, Inc. (PHIBRO) in the defendant National Power Corporation's list of accredited bidders and allow PHIBRO to participate in any and all future tenders of National Power Corporation for the supply and delivery of imported steam coal;

NATIONAL POWER CORPORATION, petitioner, vs. PHILIPP BROTHERS OCEANIC, INC., respondent. SANDOVAL-GUTIERREZ, J.: Where a person merely uses a right pertaining to him, without bad faith or intent to injure, the fact that damages are thereby suffered by another will not make him liable.1 This principle finds useful application to the present case. Before us is a petition for review of the Decision2 dated August 27, 1996 of the Court of Appeals affirming in toto the Decision3 dated January 16, 1992 of the Regional Trial Court, Branch 57, Makati City. The facts are: On May 14, 1987, the National Power Corporation (NAPOCOR) issued invitations to bid for the supply and delivery of 120,000 metric tons of imported coal for its Batangas Coal-Fired Thermal Power Plant in Calaca, Batangas. The Philipp Brothers Oceanic, Inc. (PHIBRO) prequalified and was allowed to participate as one of the bidders. After the public bidding was conducted, PHIBRO's bid was accepted. NAPOCOR's acceptance was conveyed in a letter dated July 8, 1987, which was received by PHIBRO on July 15, 1987.The "Bidding Terms and Specifications"4provide for the manner of shipment of coals, thus: "SECTION V SHIPMENT The winning TENDERER who then becomes the SELLER shall arrange and provide gearless bulk carrier for the shipment of coal to arrive at discharging port on or before thirty (30) calendar days after receipt of the Letter of Credit by the SELLER or its nominee as per Section XIV hereof to meet the vessel arrival schedules at Calaca, Batangas, Philippines as follows: 60,000 +/ - 10 % July 20, 1987

2. To pay Philipp Brothers Oceanic, Inc. (PHIBRO); a. The peso equivalent at the time of payment of $864,000 as actual damages, b. The peso equivalent at the time of payment of $100,000 as moral damages; c. The peso equivalent at the time of payment of $50,000 as exemplary damages; d. The peso equivalent at the time of payment of $73,231.91 as reimbursement for expenses, cost of litigation and attorney's fees; 3. To pay the costs of suit; 4. The counterclaims of defendant NAPOCOR are dismissed for lack of merit. SO ORDERED."
11

"Fortuitous events may be produced by two general causes: (1) by Nature, such as earthquakes, storms, floods, epidemics, fires, etc., and (2) by the act of man, such as an armed invasion, attack by bandits, governmental prohibitions, robbery, etc." Tolentino adds that the term generally applies, broadly speaking, to natural accidents. In order that acts of man such as a strike, may constitute fortuitous event, it is necessary that they have the force of an imposition which the debtor could not have resisted. He cites a parallel example in the case of Philippine National Bank v. Court of Appeals, 94 SCRA 357 (1979), wherein the Supreme Court said that the outbreak of war which prevents performance exempts a party from liability. Hence, by law and by stipulation of the parties, the strikes which took place in Australia from the first week of July to the third week of September, 1987, exempted Phibro from the effects of delay of the delivery of the shipment of coal."12 Twice thwarted, NAPOCOR comes to us via a petition for review ascribing to the Court of Appeals the following errors: I

Unsatisfied, NAPOCOR, through the Solicitor General, elevated the case to the Court of Appeals. On August 27, 1996, the Court of Appeals rendered a Decision affirming in toto the Decision of the Regional Trial Court. It ratiocinated that: "There is ample evidence to show that although PHIBRO's delivery of the shipment of coal was delayed, the delay was in fact caused by a) Napocor's own delay in opening a workable letter of credit; and b) the strikes which plaqued the Australian coal industry from the first week of July to the third week of September 1987. Strikes are included in the definition of force majeure in Section XVII of the Bidding Terms and Specifications, (supra), so Phibro is not liable for any delay caused thereby. Phibro was informed of the acceptance of its bid on July 8, 1987. Delivery of coal was to be effected thirty (30) days from Napocor's opening of a confirmed and workable letter of credit. Napocor was only able to do so on August 6, 1987. By that time, Australia's coal industry was in the middle of a seething controversy and unrest, occasioned by strikes, overtime bans, mine stoppages. The origin, the scope and the effects of this industrial unrest are lucidly described in the uncontroverted testimony of James Archibald, an employee of Phibro and member of the Export Committee of the Australian Coal Association during the time these events transpired. xxx xxx xxx

"Respondent Court of Appeals gravely and seriously erred in concluding and so holding that PHIBRO's delay in the delivery of imported coal was due to NAPOCOR's alleged delay in opening a letter of credit and to forcemajeure, and not to PHIBRO's own deliberate acts and faults."13 II "Respondent Court of Appeals gravely and seriously erred in concluding and so holding that NAPOCOR acted maliciously and unjustifiably in disqualifying PHIBRO from participating in the December 8, 1987 and future biddings for the supply of imported coal despite the existence of valid grounds therefor such as serious impairment of its track record."14 III "Respondent Court of Appeals gravely and seriously erred in concluding and so holding that PHIBRO was entitled to injunctive relief, to actual or compensatory, moral and exemplary damages, attorney's fees and litigation expenses despite the clear absence of legal and factual bases for such award."15 IV "Respondent Court of Appeals gravely and seriously erred in absolving PHIBRO from any liability for damages to NAPOCOR for its unjustified and deliberate refusal and/or failure to deliver the contracted imported coal within the stipulated period."16 V "Respondent Court of Appeals gravely and seriously erred in dismissing NAPOCOR's counterclaims for damages and litigation expenses."17

The records also attest that Phibro periodically informed Napocor of these developments as early as July 1, 1987, even before the bid was approved. Yet, Napocor did not forthwith open the letter of credit in order to avoid delay which might be caused by the strikes and their after-effects. "Strikes" are undoubtedly included in the force majeure clause of the Bidding Terms and Specifications (supra). The renowned civilist, Prof. Arturo Tolentino, defines force majeure as "an event which takes place by accident and could not have been foreseen." (Civil Code of the Philippines, Volume IV, Obligations and Contracts, 126, [1991]) He further states:

It is axiomatic that only questions of law, not questions of fact, may be raised before this Court in a petition for review under Rule 45 of the Rules of Court.18 The findings of facts of the Court of Appeals are conclusive and binding on this Court19 and they carry even more weight when the said court affirms the factual findings of the trial court.20 Stated differently, the findings of the Court of .Appeals, by itself, which are supported by substantial evidence, are almost beyond the power of review by this Court.21 With the foregoing settled jurisprudence, we find it pointless to delve lengthily on the factual issues raised by petitioner. The existence of strikes in Australia having been duly established in the lower courts, we are left only with the burden of determining whether or not NAPOCOR acted wrongfully or with bad faith in disqualifying PHIBRO from participating in the subsequent public bidding. Let us consider the case in its proper perspective. The Court of Appeals is justified in sustaining the Regional Trial Court's decision exonerating PHIBRO from any liability for damages to NAPOCOR as it was clearly established from the evidence, testimonial and documentary, that what prevented PHIBRO from complying with its obligation under the July 1987 contract was the industrial disputes which besieged Australia during that time. Extant in our Civil Code is the rule that no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.22 This means that when an obligor is unable to fulfill his obligation because of a fortuitous event or force majeure, he cannot be held liable for damages for non-performance.23 In addition to the above legal precept, it is worthy to note that PHIBRO and NAPOCOR explicitly agreed in Section XVII of the "Bidding Terms and Specifications"24 that "neither seller (PHIBRO) nor buyer (NAPOCOR) shall be liable for any delay in or failure of the performance of its obligations, other than the payment of money due, if any such delay or failure is due to Force Majeure." Specifically, they defined force majeure as "any disabling cause beyond the control of and without fault or negligence of the party, which causes may include but are not restricted to Acts of God or of the public enemy; acts of the Government in either its sovereign or contractual capacity; governmental restrictions; strikes, fires, floods, wars, typhoons, storms, epidemics and quarantine restrictions." The law is clear and so is the contract between NAPOCOR and PHIBRO. Therefore, we have no reason to rule otherwise. However, proceeding from the premise that PHIBRO was prevented by force majeure from complying with its obligation, does it necessarily follow that NAPOCOR acted unjustly, capriciously, and unfairly in disapproving PHIBRO's application for pre-qualification to bid? First, it must be stressed that NAPOCOR was not bound under any contract to approve PHIBRO's pre-qualification requirements. In fact, NAPOCOR had expressly reserved its right to reject bids. The Instruction to Bidders found in the "Post-Qualification Documents/Specifications for the Supply and Delivery of Coal for the Batangas Coal-Fired Thermal Power Plant I at Calaca, Batangas Philippines,"25 is explicit, thus: "IB-17 RESERVATION OF NAPOCOR TO REJECT BIDS NAPOCOR reserves the right to reject any or all bids, to waive any minor informality in the bids received.The right is also reserved to reject the bids of any bidder who has previously failed

to properly perform or complete on time any and all contracts for delivery of coal or any supply undertaken by a bidder."26(Emphasis supplied) This Court has held that where the right to reject is so reserved, the lowest bid or any bid for that matter may be rejected on a mere technicality.27 And where the government as advertiser, availing itself of that right, makes its choice in rejecting any or all bids, the losing bidder has no cause to complain nor right to dispute that choice unless an unfairness or injustice is shown. Accordingly, a bidder has no ground of action to compel the Government to award the contract in his favor, nor to compel it to accept his bid. Even the lowest bid or any bid may be rejected.28 In Celeste v. Court of Appeals,29 we had the occasion to rule: "Moreover, paragraph 15 of the Instructions to Bidders states that 'the Government hereby reserves the right to reject any or all bids submitted.' In the case of A.C. Esguerra and Sons v. Aytona, 4 SCRA 1245, 1249 (1962), we held: 'x x x [I]n the invitation to bid, there is a condition imposed upon the bidders to the effect that the bidders shall be subject to the right of the government to reject any and all bids subject to its discretion. Here the government has made its choice, and unless an unfairness or injustice is shown, the losing bidders have no cause to complain, nor right to dispute that choice.' Since there is no evidence to prove bad faith and arbitrariness on the part of the petitioners in evaluating the bids, we rule that the private respondents are not entitled to damages representing lost profits." (Emphasis supplied) Verily, a reservation of the government of its right to reject any bid, generally vests in the authorities a wide discretion as to who is the best and most advantageous bidder. The exercise of such discretion involves inquiry, investigation, comparison, deliberation and decision, which are quasi-judicial functions, and when honestly exercised, may not be reviewed by the court.30 In Bureau Veritas v. Office of the President,31 we decreed: "The discretion to accept or reject a bid and award contracts is vested in the Government agencies entrusted with that function. The discretion given to the authorities on this matter is of such wide latitude that the Courts will not interfere therewith, unless it is apparent that it is used as a shield to a fraudulent award. (Jalandoni v. NARRA, 108 Phil. 486 [1960]) x x x. The exercise of this discretion is a policy decision that necessitates prior inquiry, investigation, comparison, evaluation, and deliberation. This task can best be discharged by the Government agencies concerned, not by the Courts. The role of the Courts is to ascertain whether a branch or instrumentality of the Government has transgresses its constitutional boundaries. But the Courts will not interfere with executive or legislative discretion exercised within those boundaries. Otherwise, it strays into the realm of policy decision-making. x x x." (Emphasis supplied) Owing to the discretionary character of the right involved in this case, the propriety of NAPOCOR's act should therefore be judged on the basis of the general principles regulating human relations, the forefront provision of which is Article 19 of the Civil Code which provides 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."32Accordingly, a person will be protected only when he acts in the legitimate exercise of his right, that is, when he acts with prudence and in good faith; but not when he acts with negligence or abuse.33

Did NAPOCOR abuse its right or act unjustly in disqualifying PHIBRO from the public bidding? We rule in the negative.

with NPC so they are willing to sit down or even proposed that the case be submitted to the Department of Justice as to avoid a court action or arbitration. xxx xxx xxx

In practice, courts, in the sound exercise of their discretion, will have to determine under all the facts and circumstances when the exercise of a right is unjust, or when there has been an abuse of right.34 We went over the record of the case with painstaking solicitude and we are convinced that NAPOCOR's act of disapproving PHIBRO's application for pre-qualification to bid was without any intent to injure or a purposive motive to perpetrate damage. Apparently, NAPOCOR acted on the strong conviction that PHIBRO had a "seriously-impaired" track record. NAPOCOR cannot be faulted from believing so. At this juncture, it is worth mentioning that at the time NAPOCOR issued its subsequent Invitation to Bid, i.e., October 1987, PHIBRO had not yet delivered the first shipment of coal under the July 1987 contract, which was due on or before September 5, 1987. Naturally, NAPOCOR is justified in entertaining doubts on PHIBRO's qualification or capability to assume an obligation under a new contract. Moreover, PHIBRO's actuation in 1987 raised doubts as to the real situation of the coal industry in Australia. It appears from the records that when NAPOCOR was constrained to consider an offer from another coal supplier (ASEA) at a price of US$33.44 per metric ton, PHIBRO unexpectedly offered the immediate delivery of 60,000 metric tons of Ulan steam coal at US$31.00 per metric ton for arrival at Calaca, Batangas on September 20-21, 1987."35 Of course, NAPOCOR had reason to ponder how come PHIBRO could assure the immediate delivery of 60,000 metric tons of coal from the same source to arrive at Calaca not later than September 20/21, 1987 but it could not deliver the coal it had undertaken under its contract? Significantly, one characteristic of a fortuitous event, in a legal sense, and consequently in relations to contracts, is that "the concurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner."36 Faced with the above circumstance, NAPOCOR is justified in assuming that, may be, there was really no fortuitous event or force majeure which could render it impossible for PHIBRO to effect the delivery of coal. Correspondingly, it is also justified in treating PHIBRO's failure to deliver a serious impairment of its track record. That the trial court, thereafter, found PHIBRO's unexpected offer actually a result of its desire to minimize losses on the part of NAPOCOR is inconsequential. In determining the existence of good faith, the yardstick is the frame of mind of the actor at the time he committed the act, disregarding actualities or facts outside his knowledge. We cannot fault NAPOCOR if it mistook PHIBRO's unexpected offer a mere attempt on the latter's part to undercut ASEA or an indication of PHIBRO's inconsistency. The circumstances warrant such contemplation. That NAPOCOR believed all along that PHIBRO's failure to deliver on time was unfounded is manifest from its letters37 reminding PHIBRO that it was bound to deliver the coal within 30 days from its (PHIBRO's) receipt of the Letter of Credit, otherwise it would be constrained to take legal action. The same honest belief can be deduced from NAPOCOR's Board Resolution, thus: "On the legal aspect, Management stressed that failure of PBO to deliver under the contract makes them liable for damages, considering that the reasons invoked were not valid. The measure of the damages will be limited to actual and compensatory damages. However, it was reported that Philipp Brothers advised they would like to have continuous business relation

On the technical-economic aspect, Management claims that if PBO delivers in November 1987 and January 1988, there are some advantages. If PBO reacts to any legal action and fails to deliver, the options are: one, to use 100% Semirara and second, to go into urgent coal order. The first option will result in a 75 MW derating and oil will be needed as supplement. We will stand to lose around P30 M. On the other hand, if NPC goes into an urgent coal order, there will be an additional expense of $786,000 or P16.11 M, considering the price of the latest purchase with ASEA. On both points, reliability is decreased."38 The very purpose of requiring a bidder to furnish the awarding authority its pre-qualification documents is to ensure that only those "responsible" and "qualified" bidders could bid and be awarded with government contracts. It bears stressing that the award of a contract is measured not solely by the smallest amount of bid for its performance, but also by the "responsibility" of the bidder. Consequently, the integrity, honesty, and trustworthiness of the bidder is to be considered. An awarding official is justified in considering a bidder not qualified or not responsible if he has previously defrauded the public in such contracts or if, on the evidence before him, the official bona fide believes the bidder has committed such fraud, despite the fact that there is yet no judicial determination to that effect.39 Otherwise stated, if the awarding body bona fide believes that a bidder has seriously impaired its track record because of a particular conduct, it is justified in disqualifying the bidder. This policy is necessary to protect the interest of the awarding body against irresponsible bidders. Thus, one who acted pursuant to the sincere belief that another willfully committed an act prejudicial to the interest of the government cannot be considered to have acted in bad faith. Bad faith has always been a question of intention. It is that corrupt motive that operates in the mind. As understood in law, it contemplates a state of mind affirmatively operating with furtive design or with some motive of self-interest or ill-will or for ulterior purpose.40While confined in the realm of thought, its presence may be ascertained through the party's actuation or through circumstantial evidence.41 The circumstances under which NAPOCOR disapproved PHIBRO's pre-qualification to bid do not show an intention to cause damage to the latter. The measure it adopted was one of self-protection. Consequently, we cannot penalize NAPOCOR for the course of action it took. NAPOCOR cannot be made liable for actual, moral and exemplary damages. Corollarily, in awarding to PHIBRO actual damages in the amount of $864,000, the Regional Trial Court computed what could have been the profits of PHIBRO had NAPOCOR allowed it to participate in the subsequent public bidding. It ruled that "PHIBRO would have won the tenders for the supply of about 960,000 metric tons out of at least 1,200,000 metric tons" from the public bidding of December 1987 to 1990. We quote the trial court's ruling, thus: ". . . PHIBRO was unjustly excluded from participating in at least five (5) tenders beginning December 1987 to 1990, for the supply and delivery of imported coal with a total volume of about 1,200,000 metric tons valued at no less than US$32 Million. (Exhs. "AA," "AA-1-1," to "AA2"). The price of imported coal for delivery in 1988 was quoted in June 1988 by bidders at US$41.35 to US$43.95 per metric ton (Exh. "JJ"); in September 1988 at US$41.50 to US$49.50 per metric ton (Exh. "J-1"); in November 1988 at US$39.00 to US$48.50 per metric ton (Exh. "J2") and for the 1989 deliveries, at US$44.35 to US$47.35 per metric ton (Exh. "J-3") and US$38.00 to US$48.25 per metric ton in September 1990 (Exh. "JJ-6" and "JJ-7"). PHIBRO would have won the tenders for the supply and delivery of about 960,000 metric tons of coal out of at

least 1,200,000 metric tons awarded during said period based on its proven track record of 80%. The Court, therefore finds that as a result of its disqualification, PHIBRO suffered damages equivalent to its standard 3% margin in 960,000 metric tons of coal at the most conservative price of US$30,000 per metric ton, or the total of US$864,000 which PHIBRO would have earned had it been allowed to participate in biddings in which it was disqualified and in subsequent tenders for supply and delivery of imported coal." We find this to be erroneous. Basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof.42 A court cannot merely rely on speculations, conjectures, or guesswork as to the fact and amount of damages. Thus, while indemnification for damages shall comprehend not only the value of the loss suffered, but also that of the profits which the obligee failed to obtain,43 it is imperative that the basis of the alleged unearned profits is not too speculative and conjectural as to show the actual damages which may be suffered on a future period. In Pantranco North Express, Inc. v. Court of Appeals,44 this Court denied the plaintiff's claim for actual damages which was premised on a contract he was about to negotiate on the ground that there was still the requisite public bidding to be complied with, thus: "As to the alleged contract he was about to negotiate with Minister Hipolito, there is no showing that the same has been awarded to him. If Tandoc was about to negotiate a contract with Minister Hipolito, there was no assurance that the former would get it or that the latter would award the contract to him since there was the requisite public bidding. The claimed loss of profit arising out of that alleged contract which was still to be negotiated is a mere expectancy. Tandoc's claim that he could have earned P2 million in profits is highly speculative and no concrete evidence was presented to prove the same. The only unearned income to which Tandoc is entitled to from the evidence presented is that for the one-month period, during which his business was interrupted, which is P6,125.00, considering that his annual net income was P73,500.00." In Lufthansa German Airlines v. Court of Appeals,45 this Court likewise disallowed the trial court's award of actual damages for unrealized profits in the amount of US$75,000.00 for being highly speculative. It was held that "the realization of profits by respondent . . . was not a certainty, but depended on a number of factors, foremost of which was his ability to invite investors and to win the bid." This Court went further saying that actual or compensatory damages cannot be presumed, but must be duly proved, and proved with reasonable degree of certainty. And in National Power Corporation v. Court of Appeals,46 the Court, in denying the bidder's claim for unrealized commissions, ruled that even if NAPOCOR does not deny its (bidder's) claims for unrealized commissions, and that these claims have been transmuted into judicial admissions, these admissions cannot prevail over the rules and regulations governing the bidding for NAPOCOR contracts, which necessarily and inherently include the reservation by the NAPOCOR of its right to reject any or all bids. The award of moral damages is likewise improper. To reiterate, NAPOCOR did not act in bad faith. Moreover, moral damages are not, as a general rule, granted to a corporation.47 While it is true that besmirched reputation is included in moral damages, it cannot cause mental anguish to a corporation, unlike in the case of a natural person, for a corporation has no

reputation in the sense that an individual has, and besides, it is inherently impossible for a corporation to suffer mental anguish.48 In LBC Express, Inc. v. Court of Appeals,49 we ruled: "Moral damages are granted in recompense for physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. A corporation, being an artificial person and having existence only in legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows, and griefs of life all of which cannot be suffered by respondent bank as an artificial person." Neither can we award exemplary damages under Article 2234 of the Civil Code. Before the court may consider the question of whether or not exemplary damages should be awarded, the plaintiff must show that he is entitled to moral, temperate, or compensatory damages. NAPOCOR, in this petition, likewise contests the judgment of the lower courts awarding PHIBRO the amount of $73,231.91 as reimbursement for expenses, cost of litigation and attorney's fees. We agree with NAPOCOR. This Court has laid down the rule that in the absence of stipulation, a winning party may be awarded attorney's fees only in case plaintiff's action or defendant's stand is so untenable as to amount to gross and evident bad faith.50 This cannot be said of the case at bar. NAPOCOR is justified in resisting PHIBRO's claim for damages. As a matter of fact, we partially grant the prayer of NAPOCOR as we find that it did not act in bad faith in disapproving PHIBRO's prequalification to bid. Trial courts must be reminded that attorney's fees may not be awarded to a party simply because the judgment is favorable to him, for it may amount to imposing a premium on the right to redress grievances in court. We adopt the same policy with respect to the expenses of litigation. A winning party may be entitled to expenses of litigation only where he, by reason of plaintiff's clearly unjustifiable claims or defendant's unreasonable refusal to his demands, was compelled to incur said expenditures. Evidently, the facts of this case do not warrant the granting of such litigation expenses to PHIBRO. At this point, we believe that, in the interest of fairness, NAPOCOR should give PHIBRO another opportunity to participate in future public bidding. As earlier mentioned, the delay on its part was due to a fortuitous event. But before we dispose of this case, we take this occasion to remind PHIBRO of the indispensability of coal to a coal-fired thermal plant. With households and businesses being entirely dependent on the electricity supplied by NAPOCOR, the delivery of coal cannot be venturesome. Indeed, public interest demands that one who offers to deliver coal at an appointed time must give a reasonable assurance that it can carry through. With the deleterious possible consequences that may result from failure to deliver the needed coal, we believe there is greater strain of commitment in this kind of obligation. WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 126204 dated August 27, 1996 is hereby MODIFIED. The award, in favor of PHIBRO, of actual, moral and exemplary

damages, reimbursement for expenses, cost of litigation and attorney's fees, and costs of suit, is DELETED. SO ORDERED. Dissenting Opinions MELO, J., dissenting: While I agree with the majority opinion insofar as it finds that the delay in delivery of coal by respondent Philipp Brothers Oceanic, Inc. (hereafter PHIBRO) to petitioner National Power Corporation (hereafter NAPOCOR) was not due to the former's fault, I have to dissent from the majority insofar as it denies the award of actual, moral, and exemplary damages to PHIBRO for the latter's act of excluding PHIBRO from participating in biddings conducted by NAPOCOR. The facts are undisputed. On July 8, 1987, private respondent PHIBRO, one of the largest trading firms in energy worldwide, was awarded by NAPOCOR the contract to supply 120,000 MT of steam coal for the Batangas Coal Fired Thermal Power Plant, the same to be delivered in two (2) equal shipments on July 20 and September 14, 1987. However, while the contract provided for the arrival schedule of the two coal shipments, it also provided that PHIBRO had to effect delivery not later than 30 days from receipt of the letter of credit to be opened by NAPOCOR. Petitioner NAPOCOR was able to open its letter of credit only on August 6, 1987. Moreover, the contract had a clause which excused any delay occasioned by force majeure. This clause included strikes as one of the events to be considered as constituting force majeure. From July to September 1987, a series of strikes in the collieries in New South Wales (NSW), Australia, and the coal loading facility at Newcastle Port took place, which adversely affected PHIBRO's ability to deliver the first shipment on time. Pursuant to the contract, PHIBRO notified NAPOCOR of these force majeure conditions and that as a result of the strikes, vessels were not readily available and shipowners were unwilling to load cargo unless a strike-free risk was incorporated in the charter party. PHIBRO proposed an equal sharing in the strike-free risk, but NAPOCOR refused. Instead, it demanded delivery of the first shipment not later than 30 days from the opening of its letter of credit. In the meantime, NAPOCOR negotiated to buy from a company called ASEA 60,000MT imported steam coal at US$33.00/MT. This higher priced coal was purchased by NAPOCOR despite PHIBRO's offer for the same tonnage and delivery date at only US$31.00/MT, a price differential of US$2.00/MT. The PHIBRO offer was with the understanding that the existing 120,000MT contract would be delivered in accordance with a shipping schedule to be mutually agreed between PHIBRO and NAPOCOR, taking into account the strikes and NAPOCOR's needs. NAPOCOR ignored the offer and bought the higher priced material from ASEA.

In October 1987, NAPOCOR conducted a tender for the supply of 180,000 MT imported coal. PHIBRO, as in prior tenders, complied with all prequalification requirements of the tender. However, NAPOCOR disqualified PHIBRO allegedly for "not meeting the minimum prequalification requirements." PHIBRO was also refused the tender documents. In addition, NAPOCOR, in total disregard of the force majeure clause incorporated in the July 8, 1987 contract, demanded that unless its claims for damages due to the delayed delivery of the coal in said contract were first settled, PHIBRO would not be allowed to participate in any and all subsequent tenders to be conducted by NAPOCOR for the supply of imported coal. On November 25, 1987, PHIBRO protested the wrongful and unjust action taken by NAPOCOR inasmuch as PHIBRO had all the qualifications and none of the disqualifications. PHIBRO demanded that it be provided with tender and post qualification documents but NAPOCOR withheld the release of tender documents to PHIBRO. After, inquiry, PHIBRO was told that the real reason for the disqualification was not its "failure to meet the minimum prequalification requirements," but was principally the claim of NAPOCOR for alleged damages due to the delayed delivery of the first shipment of the July 8, 1987 contract. PHIBRO, on the other hand, maintained that its delayed deliveries were due to force majeure and NAPOCOR's delayed opening of its letter of credit. Despite this, however, NAPOCOR continued to bar PHIBRO from participating in tenders. Consequently, PHIBRO initiated suit before the Makati Regional Trial Court on December 4, 1987 against NAPOCOR, docketed therein as Civil Case No. 18473, complaining against the latter's alleged capricious, malevolent, iniquitous, discriminatory, oppressive and unjustified disqualification of PHIBRO, and asking for damages and that NAPOCOR be enjoined from blacklisting PHIBRO in the subsequent NAPOCOR tenders. After trial on the merits, the Makati Regional Trial Court, Branch 57, rendered its Decision on January 16, 1992 in favor of PHIBRO and against NAPOCOR, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff Philipp Brothers Oceanic, Inc. (PHIBRO) and against the defendant National Power Corporation (NAPOCOR) ordering the said defendant NAPOCOR: 1. To reinstate Philipp Brothers Oceanic, Inc. (PHIBRO) in the defendant National Power Corporation's list of accredited bidders and allow PHIBRO to participate in any and all future tenders of National Power Corporation for the supply and delivery of imported steam coal; 2. To pay Philipp Brothers Oceanic, Inc. (PHIBRO): a) The peso equivalent at the time of payment of $864,000 actual damages; b) The peso equivalent at the time of payment of $100,000 as moral damages; c) The peso equivalent at the time of payment of $50,000 as exemplary damages; d) The peso equivalent at the time of payment of $73,231.91 as reimbursement for expenses, cost of litigation and attorney's fees; 3. To pay the costs of suit;

4. The counterclaim of defendant NAPOCOR are dismissed for lack of merit. On January 27, 1992, the Office of the Solicitor General appealed the lower court's decision to the Court of Appeals. The appeal, docketed therein as CA-G.R. CV No. 37906, was decided on August 27, 1996 with the appellate court handing down an affirmance of the decision. Petitioner NAPOCOR now comes to this Court by way of a petition for review by certiorari under Rule 45 of the Rules of Court seeking to review, reverse, and set aside the aforementioned decision. Petitioner alleges that the Court of Appeals committed serious errors of law, overlooked certain substantial facts which if properly considered would affect the results of the case, drew incorrect conclusions from facts established by evidence or based on misapprehension of facts, its factual findings being incomplete and do not reflect the actual events that, transpired and the important points were left out and decided the case in a way not in accord with law or the applicable decisions of this Court, which collectively amount to grave abuse of discretion, to the damage and prejudice of petitioner's right to due process. Specifically, petitioner maintains that the Court of Appeals gravely and seriously erred: (1) in concluding and so holding that PHIBRO's delay in the delivery of imported coal was due to NAPOCOR's alleged delay in opening letter of credit to force majeure, and not to PHIBRO's own deliberate acts and faults; (2) in concluding and so holding that NAPOCOR acted maliciously and unjustifiably in disqualifying PHIBRO from participating in the December 8, 1987 and future biddings for the supply of imported coal despite the existence of valid grounds therefore such as serious impairment of its track record; (3) in concluding and so holding that PHIBRO was entitled to injunctive relief, to actual or compensatory, moral and exemplary damages, attorney's fees and litigation expenses despite the clear absence of legal and factual bases for such award; (4) in absolving PHIBRO from any liability for damages to NAPOCOR for its unjustified and deliberate refusal and/or failure to deliver the contracted imported coal within the stipulated period; and (5) in dismissing NAPOCOR's counterclaims for damages and litigation expenses. As correctly pointed out in the majority opinion, the rules are explicit that a petition under Rule 45 of the Rules of Court can raise only questions of law (Section 1, Rule 45, 1997 Rules of Civil Procedure). PHIBRO's delay in the delivery of imported coal was found by both the trial court and the Court of Appeals to have been due to the industrial unrest, occasioned by strikes and work stoppages, that occurred in Australia from the first week of July to the third week of September, 1987. As aptly observed by the Court of Appeals: There is ample evidence to show that although PHIBRO's delivery of the shipment of coal was delayed, the delay was in fact caused by a) NAPOCOR's own delay in opening a workable letter of credit; and b) the strikes which plagued the Australian coal industry from the first week of July to the week of September, 1987. Strikes are included in the definition of force majeure in Section XVII of the Bidding Terms and Specifications, (supra), so PHIBRO is not liable for any delay caused thereby.

PHIBRO was informed of the acceptance of its bid on July 8, 1987. Delivery of coal was to be effected thirty (30) days from NAPOCOR's opening of a confirmed and workable letter of credit. NAPOCOR was only able to do so on August 6, 1987. By that time, Australia's coal industry was in the middle of a seething controversy and unrest, occasioned by strikes, overtime bans, and mine stoppages. The general rule is that findings of fact of the Court of Appeals are binding and conclusive upon this Court (DBP vs. CA, 302 SCRA 362 [1999]). These factual findings carry even more weight when said court affirms the factual findings of the trial court (Lagrosa vs. CA, 312 SCRA 298 [1999]). Thus, it is beyond question that PHIBRO's delay in the delivery of coal is not attributable to its fault or negligence, these being the factual findings of both the trial court and the appellate court. However, despite this finding, the majority would find NAPOCOR free from liability to PHIBRO for its act of excluding the PHIBRO from NAPOCOR's subsequent biddings on the ground that the exclusion is merely the legitimate exercise of a right vested in NAPOCOR. In fine, The majority opinion would characterize PHIBRO's exclusion asdamnum absque injuria. I beg to disagree. The majority opinion anchors its thesis on the Instruction to Bidders found in the "PostQualification Documents/Specifications for the Supply and Delivery of Coal for the Batangas Coal-Fired Thermal Power Plant I at Calaca, Batangas, Philippines" providing that: NAPOCOR reserves the right to reject any and all bids, to waive any minor informality in the bids received. The right is also reserved to reject the bids of any bidder who has previously failed to properly perform or complete on time any and all contracts for delivery of coal or any supply undertaken by a bidder. (Original Records, p. 250.) My esteemed colleagues declare that since NAPOCOR has reserved the right to reject the bid of any bidder, the exclusion of PHIBRO was, in effect, only the use by NAPOCOR of a right pertaining to it, without bad faith or intent to injure and that the fact that PHIBRO may have suffered injuries thereby would not make NAPOCOR liable. The majority opinion goes on to state that where the government rejects any or all bids, the losing bidder has no cause to complain and that accordingly, "a bidder has no ground of action to compel the Government to award the contract in his favor, nor to compel it to accept his bid." I would wish to point out the following circumstances which I believe were ignored by the majority. Firstly, the instant case does not involve the rejection of PHIBRO's bid by NAPOCOR. The fact is that PHIBRO was not even allowed to bid by NAPOCOR. While it may be true that any bid may be rejected on a mere technicality if the right to reject is reserved, there is a whale of a difference between rejecting a bid and excluding a prospective bidder from participating in tenders, more so in this case where the prospective bidder has complied with all the prequalification requirements. Indubitably, the reservation of the right to reject any and all bids does not include the right to exclude a prospective bidder, perforce a qualified one at that.

Secondly, the reservation of the right to reject bids contained in the Instruction to Bidders is of doubtful applicability in this case since PHIBRO was not even allowed to submit a bid by NAPOCOR. The right to reject a bid implies that there was a bid submitted. In this case, PHIBRO was barred from submitting bids for subsequent tenders of NAPOCOR. Thirdly, this is not a simple case of rejecting a bid but one of barring participation in any and all subsequent bids for the supply of coal. This barring of PHIBRO caused the latter to incur damages, all because of what both the trial court and the Court of Appeals viewed to be an unfounded imputation of delay to PHIBRO in the July 8, 1987 contract for delivery of coal. As adverted to earlier, this delay was covered by the force majeure clause of the contract which validly excused the non-compliance with the specified delivery date. The situation was further exacerbated to private respondent's disadvantage when NAPOCOR, instead of accepting PHIBRO's offer to shoulder half the burden of a strike free clause, used the non-delivery on time of the coal as an excuse to exclude private respondent from future bidding processes at NAPOCOR. Thus, the Court of Appeals correctly found that: Under the factual milieu, the. court a quo correctly made an award of damages to PHIBRO for Napocor's malicious and unjustified act of disqualifying it from any and all subsequent bids for the supply of coal. It was sufficiently established that Phibro was entitled to an amount of US$864,000.00 representing unrealized profits or lucro cessante. Article 2200 of the Civil Code provides: "Article 2200. Indemnification for damages shall comprehend not only the value for the loss suffered, but also that of the profits when the obligee failed to obtain." Undoubtedly, PHIBRO could have earned the questioned amount if NAPOCOR did not unjustly discriminate against it during the October, 1987 bidding and all other bidding subsequent thereto. . . . Moreover, private respondent's business reputation and credibility in the market greatly suffered because of this malicious act of petitioner. As attested to by Vicente del Castillo: Q. In addition to loss of earnings and opportunity loss which you quantified earlier to be in the range of 770,000.00, what other damage, if any, did Philip Brothers incur? A. Well, when we were blacklisted by the National Power Corporation, it became known to the international market, and with such an unfair reputation, we had difficulty in obtaining business, new clients since our old clients know what kind of company we are and they continued to do business with us, and our business with Ulan Coal Mines for market other than the Philippines became difficult and we could no longer do business that we used to before this problem came about. (TSN, January 31, 1989, pp. 50-51.) Furthermore, James Archibald, an employee of PHIBRO and a member of the Export Committee of the Australia Coal Association, stated in his deposition, thus:

NBP Can you please state what affect the banning of NPC of PHIBRO tendering a supply of coal has had on PHIBRO? JMA Well, it ended the special relationship between Phibro and Ulan for a start out now I am in the cost trading business and I can tell you that when you loss a significant portion of your throughout like that the industry is extremely incestuous and everybody known very quickly that you have not been so successful as your past years which makes it that much more difficult to gain support from supplier in bidding for other spot contracts. NBP Can you explain what you mean by incestuous? JMA It is a very tight industry. Most people have worked in it in a number of companies such as myself, with deals with some markets such as Japan, we have actually joint negotiations and we actually go in to customers, on a collective needs. It is inevitable that we get to know each other very well. Also at the port of Newcastle, ten per cent of the coal shipped is actually traded amongst the various shippers because often one shipper maybe short say ten thousand tonnes for a particular cargo and they would buy in or swap coal with other shippers. A very common port practice. So you know everybody quite well. And also I am a representative of the Coal Association so I may have had a lot more exposure to the people in the industry. (Exh. (CC-30, 30-31.) Despite the favorable findings of the lower court and the Court of Appeals attributing no fault to PHIBRO, the harm done to PHIBRO's good standing in the market by the blacklisting of NAPOCOR, at least as far as Philippine setting is concerned, has already beer done. Thus, I believe that the court a quo, as sustained by the Court of Appeals, correctly made the following findings: PHIBRO is therefore entitled to damages for the discriminatory, oppressive and unjustified disqualification imposed upon it by NAPOCOR. PHIBRO was unjustly excluded from participating in at least five (5) tenders beginning December 1987 to 1990, for the supply and delivery of imported coal with a total volume of about 1,200,00 metric tons valued at no less than US$32 Million (Exhs. "AA", "AA-1", to "AA-2"). The price of imported coal for delivery in 1988 was quoted in June 1988 by bidders at US$41.35 to US$43.95 per metric ton (Exh. "JJ"); in September 1988 at US$41.50 to US$49.50 per metric ton (Exh. J-1); in November 1988 at US$39.00 to US$48.50 per metric ton (Exh. "J-2"); and for the 1989 deliveries, at US$44.35 to US$47.35 per metric ton (Exh. "J-3") and US$38.00 to US$48.25 per metric ton in September 1990 (Exhs. "JJ-6" and "JJ-7"). PHIBRO would have won the tenders for the supply and delivery of about 960,000 metric tons of coal out of at least 1,200,000 metric tons awarded during said period based on its proven track record of 80%. The Court, therefore, finds that as a result of its disqualification, PHIBRO suffered damages equivalent to its standard 3% margin in 960,000 metric tons of coal at the most conservative price of US$30.00 per metric ton, or the total of US$864,000 which PHIBRO would have earned had it been allowed to participate in biddings in which it was disqualified and in subsequent tenders for supply and delivery of imported coal. There is likewise uncontested or unrefuted evidence that as a result of PHIBRO's disqualification by NAPOCOR, PHIBRO suffered damages in its international reputation and lost credibility in Government and business circle, and hence an award is authorized by Art. 2205 of our Civil Code.

For the damage done to the business reputation of PHIBRO, I respectfully submit that the Court of Appeals was likewise correct in sustaining the award of US$100,000.00 as moral damages to private respondent a corporate body under Article 2217 of the Civil Code. The Court, in a number of cases (i.e. Asset Privatization Trust vs. CA, 300 SCRA 579 [1998]; Maersk Tabacalera Shipping Agency (Filipina), Inc. vs. CA, 197 SCRA 646 [1991]), has sustained the award of moral damages to a corporation despite the general rule that moral damages cannot be awarded to an artificial person which has no feelings, emotions or senses, and which cannot experience physical suffering and mental anguish (LBC Express Inc. vs. CA, 236 SCRA 602 [1994]; see also Solid Homes, Inc. vs. CA, 275 SCRA 267 [1997]) because a corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages (Mambulao Lumber Co. vs. PNB, 22 SCRA 359 [1968]). Thus, in the case of Simex International (Manila), Inc. vs. CA (183 SCRA 360 [1990]), the Court held: From every viewpoint except that of the petitioner's, its claim of moral damages in the amount of Php1,000,000.00 is nothing short of preposterous. Its business certainly is not that big, or its name that prestigious, to sustain such an extravagant pretense. Moreover, a corporation is not as a rule entitled to moral damages because, not being a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is where the corporation has a good reputation that is debased, resulting in its social humiliation. We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that caused the dishonor of the checks issued by it. The immediate consequence was that its prestige was impaired because of the bouncing checks and confidence in it as a reliable debtor was diminished. The private respondent makes much of the one instance when the petitioner was sued in a collection case, but that did not prove that it did not have a good reputation that could not be marred, more so since that case was ultimately settled. It does not appear that, as the private respondent would portray it, the petitioner is an unsavory and disreputable entity that has no good name to protect. Considering all this, we feel that the award of nominal damages in the sum of Php20,000.00 was not the proper relief to which the petitioner was entitled. Under Article 2221 of the Civil Code, "nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him." As we have found that the petitioner has indeed incurred loss through the fault of the private respondent, the proper remedy is the award to it of moral damages, which we impose, in our discretion, in the same amount of Php20,000.00. It must be noted that trial courts are generally given discretion to determine the amount of moral damages, the same being incapable of pecuniary estimation. The Court of Appeals can only modify or change the amount awarded when they are palpably or scandalously excessive so as to indicate that it was the result of passion, prejudice or corruption on the part of the trial court. In the case at bar, the conclusive finding of the Court of Appeals of petitioner's malice and bad faith justify the award of both moral and exemplary damages. As held in De Guzman vs. NLRC, (211 SCRA 723 [1992]): When moral damages are awarded, exemplary damages may also be decreed. Exemplary damages are imposed by way of example or correction for the public

good, in addition to moral, temperate, liquidated or compensatory damages. According to the Code Commission, "exemplary damages are required by public policy, for wanton acts must be suppressed. They are an antidote so that the poison of wickedness may not run through the body politic." These damages are legally assessible against him. In addition, NAPOCOR's baseless and unwarranted discrimination against PHIBRO constrained the latter to seek the aid of the courts in order to obtain redress. This calls for an award of attorney's fees, which the lower court correctly made. Consequently, I vote to dismiss the petition and to affirm the decision of the Court of Appeals. G.R. No. 141994 January 17, 2005

FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMECBCCM) and ANGELITA F. AGO, respondents. DECISION CARPIO, J.: The Case This petition for review1 assails the 4 January 1999 Decision2 and 26 January 2000 Resolution of the Court of Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 1992 Decision3 of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical and Educational Center-Bicol Christian College of Medicine moral damages, attorneys fees and costs of suit. The Antecedents "Expos" is a radio documentary4 program hosted by Carmelo Mel Rima ("Rima") and Hermogenes Jun Alegre ("Alegre").5 Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc. ("FBNI"). "Expos" is heard over Legazpi City, the Albay municipalities and other Bicol areas.6 In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and parents against Ago Medical and Educational CenterBicol Christian College of Medicine ("AMEC") and its administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as Dean of AMECs College of Medicine, filed a complaint for damages7 against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the allegedly libelous broadcasts: JUN ALEGRE:

Let us begin with the less burdensome: if you have children taking medical course at AMECBCCM, advise them to pass all subjects because if they fail in any subject they will repeat their year level, taking up all subjects including those they have passed already. Several students had approached me stating that they had consulted with the DECS which told them that there is no such regulation. If [there] is no such regulation why is AMEC doing the same? xxx Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS. xxx Third: Students are required to take and pay for the subject even if the subject does not have an instructor - such greed for money on the part of AMECs administration. Take the subject Anatomy: students would pay for the subject upon enrolment because it is offered by the school. However there would be no instructor for such subject. Students would be informed that course would be moved to a later date because the school is still searching for the appropriate instructor. xxx It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past few years since its inception because of funds support from foreign foundations. If you will take a look at the AMEC premises youll find out that the names of the buildings there are foreign soundings. There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the support of foreign foundations for AMEC is substantial, isnt it? With the report which is the basis of the expose in DZRC today, it would be very easy for detractors and enemies of the Ago family to stop the flow of support of foreign foundations who assist the medical school on the basis of the latters purpose. But if the purpose of the institution (AMEC) is to deceive students at cross purpose with its reason for being it is possible for these foreign foundations to lift or suspend their donations temporarily.8 xxx On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of Mass Communication in their effort to minimize expenses in terms of salary are absorbing or continues to accept "rejects". For example how many teachers in AMEC are former teachers of Aquinas University but were removed because of immorality? Does it mean that the present administration of AMEC have the total definite moral foundation from catholic administrator of Aquinas University. I will prove to you my friends, that AMEC is a dumping ground, garbage, not merely of moral and physical misfits. Probably they only qualify in terms of intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old to work, being an old woman. Is the AMEC administration exploiting the very [e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just patiently making use of Dean Justita Lola were if she is very old. As in atmospheric situation zero visibility the plane cannot land, meaning she is very old, low pay follows. By the way, Dean Justita Lola is also the chairman of the committee on scholarship in AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made use of her. xxx

MEL RIMA: xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this mean? Immoral and physically misfits as teachers. May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are too old. As an aviation, your case is zero visibility. Dont insist. xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason is practical cost saving in salaries, because an old person is not fastidious, so long as she has money to buy the ingredient of beetle juice. The elderly can get by thats why she (Lola) was taken in as Dean. xxx xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by evil. When they become members of society outside of campus will be liabilities rather than assets.What do you expect from a doctor who while studying at AMEC is so much burdened with unreasonable imposition? What do you expect from a student who aside from peculiar problems because not all students are rich in their struggle to improve their social status are even more burdened with false regulations. xxx9(Emphasis supplied) The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI, Rima and Alegre "transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation." AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in the selection and supervision of its employees, particularly Rima and Alegre. On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer10 alleging that the broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public duty to report the "goings-on in AMEC, [which is] an institution imbued with public interest." Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, collaborating counsel of Atty. Lozares, filed a Motion to Dismiss11 on FBNIs behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the selection and supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an apprenticeship and training program after passing the interview. FBNI likewise claimed that it always reminds its broadcasters to "observe truth, fairness and objectivity in their broadcasts and to refrain from using libelous and indecent language." Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga Brodkaster sa Pilipinas ("KBP") accreditation test and to secure a KBP permit. On 14 December 1992, the trial court rendered a Decision12 finding FBNI and Alegre liable for libel except Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected the broadcasters claim that their utterances were the result of straight reporting because it had no factual basis. The broadcasters did not even verify their reports before airing them to show good faith. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise diligence in the selection and supervision of its employees.

In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed with Alegres expos. The trial court found Rimas statement within the "bounds of freedom of speech, expression, and of the press." The dispositive portion of the decision reads: WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by the controversial utterances, which are not found by this court to be really very serious and damaging, and there being no showing that indeed the enrollment of plaintiff school dropped,defendants Hermogenes "Jun" Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of suit. SO ORDERED. 13 (Emphasis supplied) Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision to the Court of Appeals. The Court of Appeals affirmed the trial courts judgment with modification. The appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos claim for damages and attorneys fees because the broadcasts were directed against AMEC, and not against her. The dispositive portion of the Court of Appeals decision reads: WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre. SO ORDERED.14 FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000 Resolution. Hence, FBNI filed this petition.
15

The Court of Appeals found Rima also liable for libel since he remarked that "(1) AMEC-BCCM is a dumping ground for morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize expenses on its employees salaries; and (3) AMEC burdened the students with unreasonable imposition and false regulations."16 The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its employees for allowing Rima and Alegre to make the radio broadcasts without the proper KBP accreditation. The Court of Appeals denied Agos claim for damages and attorneys fees because the libelous remarks were directed against AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages, attorneys fees and costs of suit.1awphi1.nt Issues FBNI raises the following issues for resolution: I. WHETHER THE BROADCASTS ARE LIBELOUS; II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES; III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT. The Courts Ruling We deny the petition. This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against AMEC.17 While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint reveals that AMECs cause of action is based on Articles 30 and 33 of the Civil Code. Article 3018 authorizes a separate civil action to recover civil liability arising from a criminal offense. On the other hand, Article 3319 particularly provides that the injured party may bring a separate civil action for damages in cases of defamation, fraud, and physical injuries. AMEC also invokes Article 1920 of the Civil Code to justify its claim for damages. AMEC cites Articles 217621 and 218022 of the Civil Code to hold FBNI solidarily liable with Rima and Alegre. I. Whether the broadcasts are libelous A libel23 is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical person, or to blacken the memory of one who is dead.24

The Ruling of the Court of Appeals The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and that FBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found Rima and Alegres claim that they were actuated by their moral and social duty to inform the public of the students gripes as insufficient to justify the utterance of the defamatory remarks. Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that the broadcasts were made "with reckless disregard as to whether they were true or false." The appellate court pointed out that FBNI, Rima and Alegre failed to present in court any of the students who allegedly complained against AMEC. Rima and Alegre merely gave a single name when asked to identify the students. According to the Court of Appeals, these circumstances cast doubt on the veracity of the broadcasters claim that they were "impelled by their moral and social duty to inform the public about the students gripes."

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

every discreditable imputation publicly made is deemed false, because every man is presumed innocent until his guilt is judicially proved, and every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed against a public person in his public capacity, it is not necessarily actionable. In order that such discreditable imputation to a public official may be actionable, it must either be a false allegation of fact or a comment based on a false supposition. If the comment is an expression of opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.32(Emphasis supplied) True, AMEC is a private learning institution whose business of educating students is "genuinely imbued with public interest." The welfare of the youth in general and AMECs students in particular is a matter which the public has the right to know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts dealt with matters of public interest. However, unlike in Borjal, the questioned broadcasts are not based on established facts. The record supports the following findings of the trial court: xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff, yet, defendants have not presented in court, nor even gave name of a single student who made the complaint to them, much less present written complaint or petition to that effect. To accept this defense of defendants is too dangerous because it could easily give license to the media to malign people and establishments based on flimsy excuses that there were reports to them although they could not satisfactorily establish it. Such laxity would encourage careless and irresponsible broadcasting which is inimical to public interests. Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not verify and analyze the truth of the reports before they aired it, in order to prove that they are in good faith. Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before the controversial broadcast, accreditation to offer Physical Therapy course had already been given the plaintiff, which certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have easily known this were they careful enough to verify. And yet, defendants were very categorical and sounded too positive when they made the erroneous report that plaintiff had no permit to offer Physical Therapy courses which they were offering. The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not to be true also. The truth is there is no Mcdonald Foundation existing. Although a big building of plaintiff school was given the name Mcdonald building, that was only in order to honor the first missionary in Bicol of plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single centavo appears to be received by plaintiff school from the aforementioned McDonald Foundation which does not exist. Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in one subject, they are made to repeat all the other subject[s], even those they have already passed, nor their claim that the school charges laboratory fees even if there are no laboratories in the school. No evidence was presented to prove the bases for these claims, at least in order to give semblance of good faith.

As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out Dean Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was found to be 75 years old. xxx Even older people prove to be effective teachers like Supreme Court Justices who are still very much in demand as law professors in their late years. Counsel for defendants is past 75 but is found by this court to be still very sharp and effective.l^vvphi1.net So is plaintiffs counsel. Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile. The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere conclusion. Being from the place himself, this court is aware that majority of the medical graduates of plaintiffs pass the board examination easily and become prosperous and responsible professionals.33 Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred from the facts.34 However, the comments of Rima and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged and remain libelousper se. The broadcasts also violate the Radio Code35 of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. ("Radio Code"). Item I(B) of the Radio Code provides: B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES 1. x x x 4. Public affairs program shall present public issues free from personal bias, prejudice andinaccurate and misleading information. x x x Furthermore, the station shall strive to present balanced discussion of issues. x x x. xxx 7. The station shall be responsible at all times in the supervision of public affairs, public issues and commentary programs so that they conform to the provisions and standards of this code. 8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest, general welfare and good order in the presentation of public affairs and public issues.36 (Emphasis supplied) The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct imposed by the radio broadcast industry on its own members. The Radio Code is a public warranty by the radio broadcast industry that radio broadcast practitioners are subject to a code by which their conduct are measured for lapses, liability and sanctions. The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their profession, just like other professionals. A professional code of conduct provides the standards for determining whether a person has acted justly, honestly

and with good faith in the exercise of his rights and performance of his duties as required by Article 1937 of the Civil Code. A professional code of conduct also provides the standards for determining whether a person who willfully causes loss or injury to another has acted in a manner contrary to morals or good customs under Article 2138 of the Civil Code. II. Whether AMEC is entitled to moral damages FBNI contends that AMEC is not entitled to moral damages because it is a corporation.39 A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock.40 The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.41 to justify the award of moral damages. However, the Courts statement in Mambulao that "a corporation may have a good reputation which, if besmirched, may also be a ground for the award of moral damages" is an obiter dictum.42 Nevertheless, AMECs claim for moral damages falls under item 7 of Article 221943 of the Civil Code. This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages.44 Moreover, where the broadcast is libelous per se, the law implies damages.45 In such a case, evidence of an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of damages.46Neither in such a case is the plaintiff required to introduce evidence of actual damages as a condition precedent to the recovery of some damages.47 In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages. However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral damages from P300,000 to P150,000. III. Whether the award of attorneys fees is proper FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys fees. FBNI adds that the instant case does not fall under the enumeration in Article 220848 of the Civil Code. The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys fees. AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover, both the trial and appellate courts failed to explicitly state in their respective decisions the rationale for the award of attorneys fees.49 In Inter-Asia Investment Industries, Inc. v. Court of Appeals ,50 we held that:

[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and counsels fees are not to be awarded every time a party wins a suit. The power of the court to award attorneys fees under Article 2208 of the Civil Code demands factual, legal and equitable justification, without which the award is a conclusion without a premise, its basis being improperly left to speculation and conjecture. In all events, the court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the legal reason for the award of attorneys fees.51 (Emphasis supplied) While it mentioned about the award of attorneys fees by stating that it "lies within the discretion of the court and depends upon the circumstances of each case," the Court of Appeals failed to point out any circumstance to justify the award. IV. Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorneys fees and costs of suit FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys fees because it exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI maintains that its broadcasters, including Rima and Alegre, undergo a "very regimented process" before they are allowed to go on air. "Those who apply for broadcaster are subjected to interviews, examinations and an apprenticeship program." FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster. FBNI points out that the "minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove that FBNI did not exercise the diligence of a good father of a family in selecting and supervising them." Rimas accreditation lapsed due to his non-payment of the KBP annual fees while Alegres accreditation card was delayed allegedly for reasons attributable to the KBP Manila Office. FBNI claims that membership in the KBP is merely voluntary and not required by any law or government regulation. FBNIs arguments do not persuade us. The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they commit.52 Joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit.53 Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil Code.1a\^/phi1.net As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from the libelous broadcasts. As stated by the Court of Appeals, "recovery for defamatory statements published by radio or television may be had from the owner of the station, a licensee, the operator of the station, or a person who procures, or participates in, the making of the defamatory statements."54 An employer and employee are solidarily liable for a defamatory statement by the employee within the course and scope of his or her employment, at least when the employer authorizes or ratifies the defamation.55 In this case, Rima and Alegre were clearly performing their official duties as hosts of FBNIs radio program Expos when they aired the broadcasts. FBNI neither alleged nor proved that Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did not authorize and ratify the defamatory broadcasts.

Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection andsupervision of its employees, particularly Rima and Alegre. FBNI merely showed that it exercised diligence in theselection of its broadcasters without introducing any evidence to prove that it observed the same diligence in thesupervision of Rima and Alegre. FBNI did not show how it exercised diligence in supervising its broadcasters. FBNIs alleged constant reminder to its broadcasters to "observe truth, fairness and objectivity and to refrain from using libelous and indecent language" is not enough to prove due diligence in the supervision of its broadcasters. Adequate training of the broadcasters on the industrys code of conduct, sufficient information on libel laws, and continuous evaluation of the broadcasters performance are but a few of the many ways of showing diligence in the supervision of broadcasters. FBNI claims that it "has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in mind their qualifications." However, no clear and convincing evidence shows that Rima and Alegre underwent FBNIs "regimented process" of application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP accreditation,56 which is one of FBNIs requirements before it hires a broadcaster. Significantly, membership in the KBP, while voluntary, indicates the broadcasters strong commitment to observe the broadcast industrys rules and regulations. Clearly, these circumstances show FBNIs lack of diligence in selecting andsupervising Rima and Alegre. Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre. WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral damages is reduced from P300,000 to P150,000 and the award of attorneys fees is deleted. Costs against petitioner. SO ORDERED. EMPLOYEES UNION OF BAYER PHILS., FFW and JUANITO S. FACUNDO, in his capacity as President, Petitioners, G.R. No. 162943 Present: CARPIO MORALES, J., Chairperson, BRION, BERSAMIN, VILLARAMA, JR., and SERENO, JJ.

- versus -

BAYER PHILIPPINES, INC., DIETER J. LONISHEN (President),ASUNCION AMISTOSO (HRD Promulgated: Manager), AVELINA REMIGIO AND ANASTACIA VILLAREAL, December 6, 2010 Respondents. x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION VILLARAMA, JR., J.:

This petition for review on certiorari assails the Decision[1] dated December 15, 2003 and Resolution[2] dated March 23, 2004 of the Court of Appeals (CA) in CA-G.R. SP No. 73813. Petitioner Employees Union of Bayer Philippines[3] (EUBP) is the exclusive bargaining agent of all rank-and-file employees of Bayer Philippines (Bayer), and is an affiliate of the Federation of Free Workers (FFW). In 1997, EUBP, headed by its president Juanito S. Facundo (Facundo), negotiated with Bayer for the signing of a collective bargaining agreement (CBA). During the negotiations, EUBP rejected Bayers 9.9% wage-increase proposal resulting in a bargaining deadlock. Subsequently, EUBP staged a strike, prompting the Secretary of the Department of Labor and Employment (DOLE) to assume jurisdiction over the dispute. In November 1997, pending the resolution of the dispute, respondent Avelina Remigio (Remigio) and 27 other union members, without any authority from their union leaders, accepted Bayers wage-increase proposal. EUBPs grievance committee questioned Remigios action and reprimanded Remigio and her allies. On January 7, 1998, the DOLE Secretary issued an arbitral award ordering EUBP and Bayer to execute a CBA retroactive to January 1, 1997 and to be made effective until December 31, 2001. The said CBA[4] was registered on July 8, 1998 with the Industrial Relations Division of the DOLE-National Capital Region (NCR).[5] Meanwhile, the rift between Facundos leadership and Remigios group broadened. On August 3, 1998, barely six months from the signing of the new CBA, during a companysponsored seminar,[6] Remigio solicited signatures from union members in support of a resolution containing the decision of the signatories to: (1) disaffiliate from FFW, (2) rename the union as Reformed Employees Union of Bayer Philippines (REUBP), (3) adopt a new constitution and by-laws for the union, (4) abolish all existing officer positions in the union and elect a new set of interim officers, and (5) authorize REUBP to administer the CBA between EUBP and Bayer.[7] The said resolution was signed by 147 of the 257 local union members. A subsequent resolution was also issued affirming the first resolution.[8] A tug-of-war then ensued between the two rival groups, with both seeking recognition from Bayer and demanding remittance of the union dues collected from its rank-and-file members. On September 8, 1998, Remigios splinter group wrote Facundo, FFW and Bayer informing them of the decision of the majority of the union members to disaffiliate from FFW. [9] This was followed by another letter informing Facundo, FFW and Bayer that an interim set of REUBP executive officers and board of directors had been appointed, and demanding the remittance of all union dues to REUBP. Remigio also asked Bayer to desist from further transacting with EUBP. Facundo, meanwhile, sent similar requests to Bayer[10] requesting for the remittance of union dues in favor of EUBP and accusing the company of interfering with purely union matters.[11] Bayer responded by deciding not to deal with either of the two groups, and by placing the union dues collected in a trust account until the conflict between the two groups is resolved.[12] On September 15, 1998, EUBP filed a complaint for unfair labor practice (first ULP complaint) against Bayer for non-remittance of union dues. The case was docketed as NLRCNCR-Case No. 00-09-07564-98.[13] EUBP later sent a letter dated November 5, 1998 to Bayer asking for a grievance conference.[14] The meeting was conducted by the management on November 11, 1998, with all REUBP officers including their lawyers present. Facundo did not attend the meeting, but

sent two EUBP officers to inform REUBP and the management that a preventive mediation conference between the two groups has been scheduled on November 12, 1998 before the National Conciliation and Mediation Board (NCMB).[15] Apparently, the two groups failed to settle their issues as Facundo again sent respondent Dieter J. Lonishen two more letters, dated January 14, 1999[16] and September 2, 1999,[17] asking for a grievance meeting with the management to discuss the failure of the latter to comply with the terms of their CBA. Both requests remained unheeded. On February 9, 1999, while the first ULP case was still pending and despite EUBPs repeated request for a grievance conference, Bayer decided to turn over the collected union dues amounting to P254,857.15 to respondent Anastacia Villareal, Treasurer of REUBP. Aggrieved by the said development, EUBP lodged a complaint[18] on March 4, 1999 against Remigios group before the Industrial Relations Division of the DOLE praying for their expulsion from EUBP for commission of acts that threaten the life of the union. On June 18, 1999, Labor Arbiter Jovencio Ll. Mayor, Jr. dismissed the first ULP complaint for lack of jurisdiction.[19] The Arbiter explained that the root cause for Bayers failure to remit the collected union dues can be traced to the intra-union conflict between EUBP and Remigios group[20] and that the charges imputed against Bayer should have been submitted instead to voluntary arbitration.[21] EUBP did not appeal the said decision.[22] On December 14, 1999, petitioners filed a second ULP complaint against herein respondents docketed as NLRC-RAB-IV Case No. 12-11813-99-L. Three days later, petitioners amended the complaint charging the respondents with unfair labor practice committed by organizing a company union, gross violation of the CBA and violation of their duty to bargain. [23] Petitioners complained that Bayer refused to remit the collected union dues to EUBP despite several demands sent to the management.[24] They also alleged that notwithstanding the requests sent to Bayer for a renegotiation of the last two years of the 1997-2001 CBA between EUBP and Bayer, the latter opted to negotiate instead with Remigios group.[25] On even date, REUBP and Bayer agreed to sign a new CBA. Remigio immediately informed her allies of the managements decision.[26] In response, petitioners immediately filed an urgent motion for the issuance of a restraining order/injunction[27] before the National Labor Relations Commission (NLRC) and the Labor Arbiter against respondents. Petitioners asserted their authority as the exclusive bargaining representative of all rank-and-file employees of Bayer and asked that a temporary restraining order be issued against Remigios group and Bayer to prevent the employees from ratifying the new CBA. Later, petitioners filed a second amended complaint [28] to include in its complaint the issue of gross violation of the CBA for violation of the contract bar rule following Bayers decision to negotiate and sign a new CBA with Remigios group. Meanwhile, on January 26, 2000, the Regional Director of the Industrial Relations Division of DOLE issued a decision dismissing the issue on expulsion filed by EUBP against Remigio and her allies for failure to exhaust reliefs within the union and ordering the conduct of a referendum to determine which of the two groups should be recognized as union officers. [29] EUBP seasonably appealed the said decision to the Bureau of Labor Relations (BLR).

[30]

On June 16, 2000, the BLR reversed the Regional Directors ruling and ordered the management of Bayer to respect the authority of the duly-elected officers of EUBP in the administration of the prevailing CBA.[31] Unfortunately, the said BLR ruling came late since Bayer had already signed a new CBA[32] with REUBP on February 21, 2000. The said CBA was eventually ratified by majority of the bargaining unit.[33] On June 2, 2000, Labor Arbiter Waldo Emerson R. Gan dismissed EUBPs second ULP complaint for lack of jurisdiction.[34] The Labor Arbiter explained the dismissal as follows: All told, were it not for the fact that there were two (2) [groups] of employees, the Union led by its President Juanito Facundo and the members who decided to disaffiliate led by Ms. Avelina Remigio, claiming to be the rightful representative of the rank and file employees, the Company would not have acted the way it did and the Union would not have filed the instant case. Clearly then, as the case involves intra-union disputes, this Office is bereft of any jurisdiction pursuant to Article 226 of the Labor Code, as amended, which provides pertinently in part, thus: Bureau of Labor Relations The Bureau of Labor Relations and the Labor Relations Divisions in the regional offices of the Department of Labor and Employment shall have original and exclusive authority to act, at their own initiative or upon request of either or both parties, on all inter-union and intra-union conflicts, and all disputes, grievances or problems arising from or affecting labor-management relations in all workplaces whether agricultural or non-agricultural, except those arising from the implementation or interpretation of collective bargaining agreements which shall be the subject of grievance procedure and/or voluntary arbitration. Specifically, with respect to the union dues, the authority is the case of Cebu Seamens Association[,] Inc. vs. Ferrer-Calleja, (212 SCRA 51), where the Supreme Court held that when the issue calls for the determination of which between the two groups within a union is entitled to the union dues, the same cannot be taken cognizance of by the NLRC. xxxx WHEREFORE, premises considered, the instant complaint is hereby DISMISSED on the ground of lack of jurisdiction. SO ORDERED.[35] On June 28, 2000, the NLRC resolved to dismiss[36] petitioners motion for a restraining order and/or injunction stating that the subject matter involved an intra-union dispute, over which the said Commission has no jurisdiction.[37]

Thus, petitioners filed a Rule 65 petition to the CA. On December 15, 2003, the CA sustained both the Labor Arbiter and the NLRCs rulings. The appellate court explained, A cursory reading of the three pleadings, to wit: the Complaint (Vol. I, Rollo, p[p]. 166-167); the Amended Complaint (Vol. I, Rollo[,] pp. 168-172) and the Second Amended Complaint dated March 8, 2000 (Vol. II, Rollo, pp. 219-225) will readily show that the instant case was brought about by the action of the Group of REM[I]GIO to disaffiliate from FFW and to organized (sic) REUBP under the tutelage of REM[I]GIO and VILLAREAL. At first glance of the case at bar, it involves purely an (sic) inter-union and intra-union conflicts or disputes between EUBP-FFW and REUBP which issue should have been resolved by the Bureau of Labor Relations under Article 226 of the Labor Code. However, since no less than petitioners who admitted that respondents committed gross violations of the CBA, then the BLR is divested of jurisdiction over the case and the issue should have been referred to the Grievance Machinery and Voluntary Arbitrator and not to the Labor Arbiter as what petitioners did in the case at bar. x x x xxxx Furthermore, the CBA entered between BAYER and EUBP-FFW [has] a life span of only five years and after the said period, the employees have all the right to change their bargaining unit who will represent them. If there exist[s] two opposing unions in the same company, the remedy is not to declare that such act is considered unfair labor practice but rather they should conduct a certification election provided [that] it should be conducted within 60 days of the so[-]called freedom period before the expiration of the CBA. WHEREFORE, premises considered, this Petition is DENIED and the assailed Decision dated September 27, 2001 as well as the Order dated June 21, 2002, denying the motion for reconsideration, by the National Labor Relations Commission, First Division, in NLRC Case No. RAB-IV-12-11813-99-L, are hereby AFFIRMED in toto. Costs against petitioners. SO ORDERED.[40]

Undaunted, petitioners filed this Rule 45 petition before this Court. Initially, the said petition was denied for having been filed out of time and for failure to comply with the requirements provided in the 1997 Rules of Civil Procedure, as amended.[41] Upon petitioners motion, however, we decided to reinstate their appeal. The following are the issues raised by petitioners, to wit: I. WHETHER OR NOT THE HONORABLE COURT OF APPEALS, IN ARRIVING AT THE DECISION PROMULGATED ON 15 DECEMBER 2003 AND RESOLUTION PROMULGATED ON 23 MARCH 2004, DECIDED THE CASE IN ACCORDANCE WITH LAW AND JURISPRUDENCE; AND WHETHER OR NOT THE HONORABLE COURT OF APPEALS, IN ARRIVING AT THE DECISION PROMULGATED ON 15 DECEMBER 2003 AND RESOLUTION PROMULGATED ON 23 MARCH 2004, GRAVELY ABUSE[D] ITS DISCRETION IN ITS FINDINGS AND CONCLUSION THAT:

II. Aggrieved by the Labor Arbiters decision to dismiss the second ULP complaint, petitioners appealed the said decision, but the NLRC denied the appeal.[38] EUBPs motion for reconsideration was likewise denied.[39]

THE ACTS OF ABETTING OR ASSISTING IN THE CREATION OF ANOTHER UNION, NEGOTIATING OR BARGAINING WITH SUCH UNION, WHICH IS NOT THE SOLE AND EXCLUSIVE BARGAINING AGENT, VIOLATING THE DUTY TO BARGAIN COLLECTIVELY, REFUSAL TO PROCESS GRIEVABLE ISSUES IN THE GRIEVANCE MACHINERY AND/OR REFUSAL TO DEAL WITH THE SOLE AND EXCLUSIVE BARGAINING AGENT ARE ACTS CONSTITUTING OR TANTAMOUNT TO UNFAIR LABOR PRACTICE.[42]

An intra-union dispute refers to any conflict between and among union members, including grievances arising from any violation of the rights and conditions of membership, violation of or disagreement over any provision of the unions constitution and by-laws, or disputes arising from chartering or disaffiliation of the union.[49] Sections 1 and 2, Rule XI of Department Order No. 40-03, Series of 2003 of the DOLE enumerate the following circumstances as inter/intra-union disputes, viz: RULE XI INTER/INTRA-UNION DISPUTES AND OTHER RELATED LABOR RELATIONS DISPUTES SECTION 1. Coverage. - Inter/intra-union disputes shall include: (a) (b) cancellation of registration of a labor organization filed by its members or by another labor organization; conduct of election of union and workers association officers/nullification of election of union and workers association officers; audit/accounts examination of union or workers association funds; deregistration of collective bargaining agreements; validity/invalidity of union affiliation or disaffiliation; validity/invalidity membership; of acceptance/non-acceptance of for union union and

Respondents Bayer, Lonishen and Amistoso, meanwhile, identify the issues as follows: I. WHETHER OR NOT THE UNIFORM FINDINGS OF THE COURT OF APPEALS, THE NLRC AND THE LABOR ARBITER ARE BINDING ON THIS HONORABLE COURT; WHETHER OR NOT THE LABOR ARBITER AND THE NLRC HAVE JURISDICTION OVER THE INSTANT CASE; WHETHER OR NOT THE INSTANT CASE INVOLVES AN INTRA-UNION DISPUTE; (c) IV. WHETHER OR NOT RESPONDENTS COMPANY, LONISHEN AND AMISTOSO COMMITTED AN ACT OF UNFAIR LABOR PRACTICE; AND WHETHER OR NOT THE INSTANT CASE HAS BECOME MOOT AND ACADEMIC.
[43]

II.

III.

(d) (e) (f)

V.

Essentially, the issue in this petition is whether the act of the management of Bayer in dealing and negotiating with Remigios splinter group despite its validly existing CBA with EUBP can be considered unfair labor practice and, if so, whether EUBP is entitled to any relief. Petitioners argue that the subject matter of their complaint, as well as the subsequent amendments thereto, pertain to the unfair labor practice act of respondents Bayer, Lonishen and Amistoso in dealing with Remigios splinter union. They contend that (1) the acts of abetting or assisting in the creation of another union is among those considered by the Labor Code, as amended, specifically under Article 248 (d)[44] thereof, as unfair labor practice; (2) the act of negotiating with such union constitutes a violation of Bayers duty to bargain collectively; and (3) Bayers unjustified refusal to process EUBPs grievances and to recognize the said union as the sole and exclusive bargaining agent are tantamount to unfair labor practice.[45] Respondents Bayer, Lonishen and Amistoso, on the other hand, contend that there can be no unfair labor practice on their part since the requisites for unfair labor practice i.e., that the violation of the CBA should be gross, and that it should involve violation in the economic provisions of the CBA were not satisfied. Moreover, they cite the ruling of the Labor Arbiter that the issues raised in the complaint should have been ventilated and threshed out before the voluntary arbitrators as provided in Article 261 of the Labor Code, as amended. [46] Respondents Remigio and Villareal, meanwhile, point out that the case should be dismissed as against them since they are not real parties in interest in the ULP complaint against Bayer, [47] and since there are no specific or material acts imputed against them in the complaint.[48] The petition is partly meritorious.

(g) (h) (i) (j) (k) (l) (m) (n)

validity/invalidity of impeachment/expulsion workers association officers and members; validity/invalidity of voluntary recognition;

opposition to application for union and CBA registration; violations of or disagreements over any provision in a union or workers association constitution and by-laws; disagreements over chartering or registration organizations and collective bargaining agreements; of labor

violations of the rights and conditions of union or workers association membership; violations of the rights of legitimate labor organizations, except interpretation of collective bargaining agreements; such other disputes or conflicts involving the rights to selforganization, union membership and collective bargaining (1) between and among legitimate labor organizations; (2) between and among members of a union or workers association.

SECTION 2. Coverage. Other related labor relations disputes shall include any conflict between a labor union and the employer or any individual, entity or group that is not a labor organization or workers

association. This includes: (1) cancellation of registration of unions and workers associations; and (2) a petition for interpleader.

It is clear from the foregoing that the issues raised by petitioners do not fall under any of the aforementioned circumstances constituting an intra-union dispute. More importantly, the petitioners do not seek a determination of whether it is the Facundo group (EUBP) or the Remigio group (REUBP) which is the true set of union officers. Instead, the issue raised pertained only to the validity of the acts of management in light of the fact that it still has an existing CBA with EUBP. Thus as to Bayer, Lonishen and Amistoso the question was whether they were liable for unfair labor practice, which issue was within the jurisdiction of the NLRC. The dismissal of the second ULP complaint was therefore erroneous. However, as to respondents Remigio and Villareal, we find that petitioners complaint was validly dismissed. Petitioners ULP complaint cannot prosper as against respondents Remigio and Villareal because the issue, as against them, essentially involves an intra-union dispute based on Section 1 (n) of DOLE Department Order No. 40-03. To rule on the validity or illegality of their acts, the Labor Arbiter and the NLRC will necessarily touch on the issues respecting the propriety of their disaffiliation and the legality of the establishment of REUBP issues that are outside the scope of their jurisdiction. Accordingly, the dismissal of the complaint was validly made, but only with respect to these two respondents. But are Bayer, Lonishen and Amistoso liable for unfair labor practice? On this score, we find that the evidence supports an answer in the affirmative. It must be remembered that a CBA is entered into in order to foster stability and mutual cooperation between labor and capital. An employer should not be allowed to rescind unilaterally its CBA with the duly certified bargaining agent it had previously contracted with, and decide to bargain anew with a different group if there is no legitimate reason for doing so and without first following the proper procedure. If such behavior would be tolerated, bargaining and negotiations between the employer and the union will never be truthful and meaningful, and no CBA forged after arduous negotiations will ever be honored or be relied upon. Article 253 of the Labor Code, as amended, plainly provides: ART. 253. Duty to bargain collectively when there exists a collective bargaining agreement. Where there is a collective bargaining agreement, the duty to bargain collectively shall also mean that neither party shall terminate or modify such agreement during its lifetime. However, either party can serve a written notice to terminate or modify the agreement at least sixty (60) days prior to its expiration date. It shall be the duty of both parties to keep the status quo and to continue in full force and effect the terms and conditions of the existing agreement during the 60-day period and/or until a new agreement is reached by the parties. (Emphasis supplied.)

Certificate of Registration[50] issued by the DOLE, it is specified that the registered CBA serves as the covenant between the parties and has the force and effect of law between them during the period of its duration. Compliance with the terms and conditions of the CBA is mandated by express policy of the law primarily to afford protection to labor [51] and to promote industrial peace. Thus, when a valid and binding CBA had been entered into by the workers and the employer, the latter is behooved to observe the terms and conditions thereof bearing on union dues and representation.[52] If the employer grossly violates its CBA with the duly recognized union, the former may be held administratively and criminally liable for unfair labor practice.
[53]

Respondents Bayer, Lonishen and Amistoso, contend that their acts cannot constitute unfair labor practice as the same did not involve gross violations in the economic provisions of the CBA, citing the provisions of Articles 248 (1) and 261[54] of theLabor Code, as amended. [55] Their argument is, however, misplaced. Indeed, in Silva v. National Labor Relations Commission,[56] we explained the correlations of Article 248 (1) and Article 261 of the Labor Code to mean that for a ULP case to be cognizable by the Labor Arbiter, and for the NLRC to exercise appellate jurisdiction thereon, the allegations in the complaint must show prima facie the concurrence of two things, namely: (1) gross violation of the CBA; and (2) the violation pertains to the economic provisions of the CBA.[57] This pronouncement in Silva, however, should not be construed to apply to violations of the CBA which can be considered as gross violations per se, such as utter disregard of the very existence of the CBA itself, similar to what happened in this case. When an employer proceeds to negotiate with a splinter union despite the existence of its valid CBA with the duly certified and exclusive bargaining agent, the former indubitably abandons its recognition of the latter and terminates the entire CBA. Respondents cannot claim good faith to justify their acts. They knew that Facundos group represented the duly-elected officers of EUBP. Moreover, they were cognizant of the fact that even the DOLE Secretary himself had recognized the legitimacy of EUBPs mandate by rendering an arbitral award ordering the signing of the 1997-2001 CBA between Bayer and EUBP. Respondents were likewise well-aware of the pendency of the intra-union dispute case, yet they still proceeded to turn over the collected union dues to REUBP and to effusively deal with Remigio. The totality of respondents conduct, therefore, reeks with anti-EUBP animus. Bayer, Lonishen and Amistoso argue that the case is already moot and academic following the lapse of the 1997-2001 CBA and their renegotiation with EUBP for the 2006-2007 CBA. They also reason that the act of the company in negotiating with EUBP for the 2006-2007 CBA is an obvious recognition on their part that EUBP is now the certified collective bargaining agent of its rank-and-file employees.[58] We do not agree. First, a legitimate labor organization cannot be construed to have abandoned its pending claim against the management/employer by returning to the negotiating table to fulfill its duty to represent the interest of its members, except when the pending claim has been expressly waived or compromised in its subsequent negotiations with the management. To hold otherwise would be tantamount to subjecting industrial peace to the precondition that previous claims that labor may have against capital must first be waived or abandoned before negotiations between them may resume. Undoubtedly, this would be against public policy of affording protection to labor and will encourage scheming employers to commit unlawful acts without fear of being sanctioned in the future.

This is the reason why it is axiomatic in labor relations that a CBA entered into by a legitimate labor organization that has been duly certified as the exclusive bargaining representative and the employer becomes the law between them. Additionally, in the

Second, that the management of Bayer decided to recognize EUBP as the certified collective bargaining agent of its rank-and-file employees for purposes of its 2006-2007 CBA negotiations is of no moment. It did not obliterate the fact that the management of Bayer had withdrawn its recognition of EUBP and supported REUBP during the tumultuous implementation of the 1997-2001 CBA. Such act of interference which is violative of the existing CBA with EUBP led to the filing of the subject complaint. On the matter of damages prayed for by the petitioners, we have held that as a general rule, a corporation cannot suffer nor be entitled to moral damages. A corporation, and by analogy a labor organization, being an artificial person and having existence only in legal contemplation, has no feelings, no emotions, no senses; therefore, it cannot experience physical suffering and mental anguish. Mental suffering can be experienced only by one having a nervous system and it flows from real ills, sorrows, and griefs of life all of which cannot be suffered by an artificial, juridical person.[59] A fortiori, the prayer for exemplary damages must also be denied.[60] Nevertheless, we find it in order to award (1) nominal damages in the amount of P250,000.00 on the basis of our ruling in De La Salle University v. De La Salle University Employees Association (DLSUEA-NAFTEU)[61] and Article 2221,[62] and (2) attorneys fees equivalent to 10% of the monetary award. The remittance to petitioners of the collected union dues previously turned over to Remigio and Villareal is likewise in order. WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The Decision dated December 15, 2003 and the Resolution dated March 23, 2004 of the Court of Appeals in CA-G.R. SP No. 73813 are MODIFIED as follows: 1) Respondents Bayer Phils., Dieter J. Lonishen and Asuncion Amistoso are found LIABLE for Unfair Labor Practice, and are hereby ORDERED to remit to petitioners the amount of P254,857.15 representing the collected union dues previously turned over to Avelina Remigio and Anastacia Villareal. They are likewise ORDERED to pay petitioners nominal damages in the amount of P250,000.00 and attorneys fees equivalent to 10% of the monetary award; and The complaint, as against respondents Remigio and Villareal. is DISMISSED due to the lack of jurisdiction of the Labor Arbiter and the NLRC, the complaint being in the nature of an intra-union dispute. No pronouncement as to costs. SO ORDERED. G.R. No. 164326 October 17, 2008

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision1of the Court of Appeals (CA) dated May 20, 2004 in CA-G.R. CV No. 72193, which had affirmed in toto the Decision2 of the Regional Trial Court (RTC) of Pasig City, Branch 157, dated September 10, 2001 in Civil Case No. 64943. The factual antecedents, as summarized by the CA, are as follows: On September 24, 1994, defendant-appellant Seaoil Petroleum Corporation (Seaoil, for brevity) purchased one unit of ROBEX 200 LC Excavator, Model 1994 from plaintiff-appellee Autocorp Group (Autocorp for short). The original cost of the unit was P2,500,000.00 but was increased toP3,112,519.94 because it was paid in 12 monthly installments up to September 30, 1995. The sales agreement was embodied in the Vehicle Sales Invoice No. A-0209 and Vehicle Sales Confirmation No. 258. Both documents were signed by Francis Yu (Yu for short), president of Seaoil, on behalf of said corporation. Furthermore, it was agreed that despite delivery of the excavator, ownership thereof was to remain with Autocorp until the obligation is fully settled. In this light, Seaoils contractor, Romeo Valera, issued 12 postdated checks. However, Autocorp refused to accept the checks because they were not under Seaoils name. Hence, Yu, on behalf of Seaoil, signed and issued 12 postdated checks for P259,376.62 each with Autocorp as payee. The excavator was subsequently delivered on September 26, 1994 by Autocorp and was received by Seaoil in its depot in Batangas. The relationship started to turn sour when the first check bounced. However, it was remedied when Seaoil replaced it with a good check. The second check likewise was also good when presented for payment. However, the remaining 10 checks were not honored by the bank since Seaoil requested that payment be stopped. It was downhill from thereon. Despite repeated demands, Seaoil refused to pay the remaining balance of P2,593,766.20. Hence, on January 24, 1995, Autocorp filed a complaint for recovery of personal property with damages and replevin in the Regional Trial Court of Pasig. The trial court ruled for Autocorp. Hence, this appeal. Seaoil, on the other hand, alleges that the transaction is not as simple as described above. It claims that Seaoil and Autocorp were only utilized as conduits to settle the obligation of one foreign entity named Uniline Asia (herein referred to as Uniline), in favor of another foreign entity, Focus Point International, Incorporated (Focus for short). Paul Rodriguez (Rodriguez for brevity) is a stockholder and director of Autocorp. He is also the owner of Uniline. On the other hand, Yu is the president and stockholder of Seaoil and is at the same time owner of Focus. Allegedly, Uniline chartered MV Asia Property (sic) in the amount of $315,711.71 from its owner Focus. Uniline was not able to settle the said amount. Hence, Uniline, through Rodriguez, proposed to settle the obligation through conveyance of vehicles and heavy equipment. Consequently, four units of Tatamobile pick-up trucks procured from Autocorp were conveyed to Focus as partial payment. The excavator in controversy was allegedly one part of the vehicles conveyed to Focus. Seaoil claims that Rodriguez initially issued 12 postdated checks in favor of Autocorp as payment for the excavator. However, due to the fact that it was company policy for Autocorp not to honor postdated checks issued by its own directors, Rodriguez requested Yu to issue 12 PBCOM postdated checks in favor of Autocorp. In turn, said checks would be funded by the corresponding 12 Monte de Piedad postdated checks issued by Rodriguez. These Monte de Piedad checks were postdated three days prior to the maturity of the PBCOM checks.

2)

SEAOIL PETROLEUM CORPORATION, petitioners, vs. AUTOCORP GROUP and PAUL Y. RODRIGUEZ, respondents. DECISION NACHURA, J.:

Seaoil claims that Rodriguez issued a stop payment order on the ten checks thus constraining the former to also order a stop payment order on the PBCOM checks. In short, Seaoil claims that the real transaction is that Uniline, through Rodriguez, owed money to Focus. In lieu of payment, Uniline instead agreed to convey the excavator to Focus. This was to be paid by checks issued by Seaoil but which in turn were to be funded by checks issued by Uniline. x x x3 As narrated above, respondent Autocorp filed a Complaint for Recovery of Personal Property with Damages and Replevin4 against Seaoil before the RTC of Pasig City. In its September 10, 2001 Decision, the RTC ruled that the transaction between Autocorp and Seaoil was a simple contract of sale payable in installments.5 It also held that the obligation to pay plaintiff the remainder of the purchase price of the excavator solely devolves on Seaoil. Paul Rodriguez, not being a party to the sale of the excavator, could not be held liable therefor. The decretal portion of the trial courts Decision reads, thus: WHEREFORE, judgment is hereby rendered in favor of plaintiff Autocorp Group and against defendant Seaoil Petroleum Corporation which is hereby directed to pay plaintiff: - P2,389,179.23 plus 3% interest from the time of judicial demand until full payment; and - 25% of the total amount due as attorneys fees and cost of litigation. The third-party complaint filed by defendant Seaoil Petroleum Corporation against third-party defendant Paul Rodriguez is hereby DISMISSED for lack of merit. SO ORDERED. Seaoil filed a Petition for Review before the CA. In its assailed Decision, the CA dismissed the petition and affirmed the RTCs Decision in toto.6 It held that the transaction between Yu and Rodriguez was merely verbal. This cannot alter the sales contract between Seaoil and Autocorp as this will run counter to the parol evidence rule which prohibits the introduction of oral and parol evidence to modify the terms of the contract. The claim that it falls under the exceptions to the parol evidence rule has not been sufficiently proven. Moreover, it held that Autocorps separate corporate personality cannot be disregarded and the veil of corporate fiction pierced. Seaoil was not able to show that Autocorp was merely an alter ego of Uniline or that both corporations were utilized to perpetrate a fraud. Lastly, it held that the RTC was correct in dismissing the third-party complaint since it did not arise out of the same transaction on which the plaintiffs claim is based, or that the third partys claim, although arising out of another transaction, is connected to the plaintiffs claim. Besides, the CA said, such claim may be enforced in a separate action. Seaoil now comes before this Court in a Petition for Review raising the following issues: I Whether or not the Court of Appeals erred in partially applying the parol evidence rule to prove only some terms contained in one portion of the document but disregarded the rule with respect to another but substantial portion or entry also contained in the same document which should have proven the true nature of the transaction involved.

II Whether or not the Court of Appeals gravely erred in its judgment based on misapprehension of facts when it declared absence of facts which are contradicted by presence of evidence on record. III Whether or not the dismissal of the third-party complaint would have the legal effect of res judicata as would unjustly preclude petitioner from enforcing its claim against respondent Rodriguez (third-party defendant) in a separate action. IV Whether or not, given the facts in evidence, the lower courts should have pierced the corporate veil. The Petition lacks merit. We sustain the ruling of the CA. We find no fault in the trial courts appreciation of the facts of this case. The findings of fact of the trial court are conclusive upon this Court, especially when affirmed by the CA. None of the exceptions to this well-settled rule has been shown to exist in this case. Petitioner does not question the validity of the vehicle sales invoice but merely argues that the same does not reflect the true agreement of the parties. However, petitioner only had its bare testimony to back up the alleged arrangement with Rodriguez. The Monte de Piedad checks the supposedly "clear and obvious link"7 between the documentary evidence and the true transaction between the parties are equivocal at best. There is nothing in those checks to establish such link. Rodriguez denies that there is such an agreement. Unsubstantiated testimony, offered as proof of verbal agreements which tends to vary the terms of a written agreement, is inadmissible under the parol evidence rule.8 Rule 130, Section 9 of the Revised Rules on Evidence embodies the parol evidence rule and states: SEC. 9. Evidence of written agreements.When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors-in-interest, no evidence of such terms other than the contents of the written agreement. However, a party may present evidence to modify, explain or add to the terms of the written agreement if he puts in issue in his pleading: (a) An intrinsic ambiguity, mistake or imperfection in the written agreement;

(b) The failure of the written agreement to express the true intent and agreement of the parties thereto; (c) The validity of the written agreement; or (d) The existence of other terms agreed to by the parties or their successors-in-interest after the execution of the written agreement. The term "agreement" includes wills. The parol evidence rule forbids any addition to, or contradiction of, the terms of a written agreement by testimony or other evidence purporting to show that different terms were agreed upon by the parties, varying the purport of the written contract.9 This principle notwithstanding, petitioner would have the Court rule that this case falls within the exceptions, particularly that the written agreement failed to express the true intent and agreement of the parties. This argument is untenable. Although parol evidence is admissible to explain the meaning of a contract, it cannot serve the purpose of incorporating into the contract additional contemporaneous conditions which are not mentioned at all in the writing unless there has been fraud or mistake.10 Evidence of a prior or contemporaneous verbal agreement is generally not admissible to vary, contradict or defeat the operation of a valid contract.11 The Vehicle Sales Invoice12 is the best evidence of the transaction. A sales invoice is a commercial document. Commercial documents or papers are those used by merchants or businessmen to promote or facilitate trade or credit transactions.13 Business forms, e.g., order slip, delivery charge invoice and the like, are commonly recognized in ordinary commercial transactions as valid between the parties and, at the very least, they serve as an acknowledgment that a business transaction has in fact transpired.14 These documents are not mere scraps of paper bereft of probative value, but vital pieces of evidence of commercial transactions. They are written memorials of the details of the consummation of contracts.15 The terms of the subject sales invoice are clear. They show that Autocorp sold to Seaoil one unit Robex 200 LC Excavator paid for by checks issued by one Romeo Valera. This does not, however, change the fact that Seaoil Petroleum Corporation, as represented by Yu, is the customer or buyer. The moment a party affixes his or her signature thereon, he or she is bound by all the terms stipulated therein and is subject to all the legal obligations that may arise from their breach.16 Oral testimony on the alleged conditions, coming from a party who has an interest in the outcome of the case, depending exclusively on human memory, is not as reliable as written or documentary evidence.17 Hence, petitioners contention that the document falls within the exception to the parol evidence rule is untenable. The exception obtains only where "the written contract is so ambiguous or obscure in terms that the contractual intention of the parties cannot be understood from a mere reading of the instrument. In such a case, extrinsic evidence of the subject matter of the contract, of the relations of the parties to each other, and of the facts and circumstances surrounding them when they entered into the contract may be received to enable the court to make a proper interpretation of the instrument."18

Even assuming there is a shred of truth to petitioners contention, the same cannot be made a basis for holding respondents liable therefor. As pointed out by the CA, Rodriguez is a person separate and independent from Autocorp. Whatever obligations Rodriguez contracted cannot be attributed to Autocorp19 and vice versa. In fact, the obligation that petitioner proffers as its defense under the Lease Purchase Agreement was not even incurred by Rodriguez or by Autocorp but by Uniline. The Lease Purchase Agreement20 clearly shows that the parties thereto are two corporations not parties to this case: Focus Point and Uniline. Under this Lease Purchase Agreement, it is Uniline, as lessee/purchaser, and not Rodriguez, that incurred the debt to Focus Point. The obligation of Uniline to Focus Point arose out of a transaction completely different from the subject of the instant case. It is settled that a corporation has a personality separate and distinct from its individual stockholders or members, and is not affected by the personal rights, obligations and transactions of the latter.21 The corporation may not be held liable for the obligations of the persons composing it, and neither can its stockholders be held liable for its obligation.22 Of course, this Court has recognized instances when the corporations separate personality may be disregarded. However, we have also held that the same may only be done in cases where the corporate vehicle is being used to defeat public convenience, justify wrong, protect fraud, or defend crime.23 Moreover, the wrongdoing must be clearly and convincingly established. It cannot be presumed.24 To reiterate, the transaction under the Vehicle Sales Invoice is separate and distinct from that under the Lease Purchase Agreement. In the former, it is Seaoil that owes Autocorp, while in the latter, Uniline incurred obligations to Focus. There was never any allegation, much less any evidence, that Autocorp was merely an alter ego of Uniline, or that the two corporations separate personalities were being used as a means to perpetrate fraud or wrongdoing. Moreover, Rodriguez, as stockholder and director of Uniline, cannot be held personally liable for the debts of the corporation, which has a separate legal personality of its own. While Section 31 of the Corporation Code25 lays down the exceptions to the rule, the same does not apply in this case. Section 31 makes a director personally liable for corporate debts if he willfully and knowingly votes for or assents to patently unlawful acts of the corporation. Section 31 also makes a director personally liable if he is guilty of gross negligence or bad faith in directing the affairs of the corporation.26 The bad faith or wrongdoing of the director must be established clearly and convincingly. Bad faith is never presumed.27 The burden of proving bad faith or wrongdoing on the part of Rodriguez was, on petitioner, a burden which it failed to discharge. Thus, it was proper for the trial court to have dismissed the third-party complaint against Rodriguez on the ground that he was not a party to the sale of the excavator. Rule 6, Section 11 of the Revised Rules on Civil Procedure defines a third-party complaint as a claim that a defending party may, with leave of court, file against a person not a party to the action, called the third-party defendant, for contribution, indemnity, subrogation or any other relief, in respect of his opponents claim.

The purpose of the rule is to permit a defendant to assert an independent claim against a third party which he, otherwise, would assert in another action, thus preventing multiplicity of suits.28 Had it not been for the rule, the claim could have been filed separately from the original complaint.29 Petitioners claim against Rodriguez was fully ventilated in the proceedings before the trial court, tried and decided on its merits. The trial courts ruling operates as res judicata against another suit involving the same parties and same cause of action. This is rightly so because the trial court found that Rodriguez was not a party to the sale of the excavator. On the other hand, petitioner Seaoils liability has been successfully established by respondent. A last point. We reject Seaoils claim that "the ownership of the subject excavator, having been legally and completely transferred to Focus Point International, Inc., cannot be subject of replevin and plaintiff [herein respondent Autocorp] is not legally entitled to any writ of replevin."30 The claim is negated by the sales invoice which clearly states that "[u]ntil after the vehicle is fully paid inclusive of bank clearing time, it remains the property of Autocorp Group which reserves the right to take possession of said vehicle at any time and place without prior notice."31 Considering, first, that Focus Point was not a party to the sale of the excavator and, second, that Seaoil indeed failed to pay for the excavator in full, the same still rightfully belongs to Autocorp. Additionally, as the trial court found, Seaoil had already assigned the same to its contractor for the construction of its depot in Batangas.32Hence, Seaoil has already enjoyed the benefit of the transaction even as it has not complied with its obligation. It cannot be permitted to unjustly enrich itself at the expense of another. WHEREFORE, the foregoing premises considered, the Petition is hereby DENIED. The Decision of the Court of Appeals dated May 20, 2004 in CA-G.R. CV No. 72193 is AFFIRMED. SO ORDERED. G.R. No. 167751 March 2, 2011

Harpoon Marine Services, Incorporated (Harpoon) and Jose Lido T. Rosit (Rosit) solidarily liable to pay respondent Fernan H. Francisco (respondent) separation pay, backwages and unpaid commissions for illegally dismissing him. Factual Antecedents Petitioner Harpoon, a company engaged in ship building and ship repair, with petitioner Rosit as its President and Chief Executive Officer (CEO), originally hired respondent in 1992 as its Yard Supervisor tasked to oversee and supervise all projects of the company. In 1998, respondent left for employment elsewhere but was rehired by petitioner Harpoon and assumed his previous position a year after. On June 15, 2001, respondent averred that he was unceremoniously dismissed by petitioner Rosit. He was informed that the company could no longer afford his salary and that he would be paid his separation pay and accrued commissions. Respondent nonetheless continued to report for work. A few days later, however, he was barred from entering the company premises. Relying on the promise of petitioner Rosit, respondent went to the office on June 30, 2001 to receive his separation pay and commissions, but petitioner Rosit offered only his separation pay. Respondent refused to accept it and also declined to sign a quitclaim. After several unheeded requests, respondent, through his counsel, sent a demand letter dated September 24, 20016 to petitioners asking for payment of P70,000.00, which represents his commissions for the seven boats7 constructed and repaired by the company under his supervision. In a letter-reply dated September 28, 2001,8 petitioners denied that it owed respondent any commission, asserting that they never entered into any contract or agreement for the payment of commissions. Hence, on October 24, 2001, respondent filed an illegal dismissal complaint praying for the payment of his backwages, separation pay, unpaid commissions, moral and exemplary damages and attorneys fees. Petitioners presented a different version of the events and refuted the allegations of respondent. They explained that petitioner Rosit indeed talked to respondent on June 15, 2001 not to dismiss him but only to remind and warn him of his excessive absences and tardiness, as evinced by his Time Card covering the period June 1-15, 2001.9Instead of improving his work behavior, respondent continued to absent himself and sought employment with another company engaged in the same line of business, thus, creating serious damage in the form of unfinished projects. Petitioners denied having terminated respondent as the latter voluntarily abandoned his work after going on Absence Without Official Leave (AWOL) beginning June 22, 2001. Petitioners contended that when respondents absences persisted, several memoranda10 informing him of his absences were sent to him by ordinary mail and were duly filed with the Department of Labor and Employment (DOLE) on August 13, 2001. Upon respondents continuous and deliberate failure to respond to these memoranda, a Notice of Termination dated July 30, 200111 was later on issued to him. Respondent, however, denied his alleged tardiness and excessive absences. He claimed that the three-day absence appearing on his time card cannot be considered as habitual absenteeism. He claimed that he incurred those absences because petitioner Rosit, who was hospitalized at those times, ordered them not to report for work until he is discharged from the hospital. In fact, a co-worker, Nestor Solares (Solares), attested that respondent always goes to work and continued to report until June 20, 2001.12 Respondent further denied having received the memoranda that were allegedly mailed to him, asserting that said documents were merely fabricated to cover up and justify petitioners act of illegally terminating him on June 15, 2001. Respondent absolved himself of fault for defective works, justifying that he was illegally terminated even before the company projects were completed. Finally, respondent

HARPOON MARINE SERVICES, Inc. and JOSE LIDO T. ROSIT, Petitioners, vs. FERNAN H. FRANCISCO, Respondent. DECISION DEL CASTILLO, J.: Satisfactory evidence of a valid or just cause of dismissal is indispensably required in order to protect a laborers right to security of tenure. In the case before us, the employer presented none despite the burden to prove clearly its cause. This Petition for Review on Certiorari with Prayer for the Issuance of a Temporary Restraining Order and/or a Writ of Preliminary Injunction1 assails the Decision2 dated January 26, 2005 and Resolution3 dated April 12, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 79630, which affirmed the Decision4 of the National Labor Relations Commission (NLRC) dated March 31, 2003, as well as the NLRC modified Decision5 dated June 30, 2003, declaring petitioners

denied petitioners asseveration that he abandoned his job without any formal notice in 1998 as he wrote a resignation letter which petitioners received. As regards the commissions claimed, respondent insisted that in addition to his fixed monthly salary ofP18,200.00, he was paid a commission of P10,000.00 for every ship repaired or constructed by the company. As proof, he presented two check vouchers13 issued by the company showing payment thereof. Petitioners, on the other hand, contended that respondent was hired as a regular employee with a fixed salary and not as an employee paid on commission basis. The act of giving additional monetary benefit once in a while to employees was a form of recognizing employees efforts and cannot in any way be interpreted as commissions. Petitioners then clarified that the word "commission" as appearing in the check vouchers refer to "additional money" that employees receive as differentiated from the usual "vale" and is written for accounting and auditing purposes only. Ruling of the Labor Arbiter On May 17, 2002, the Labor Arbiter rendered a Decision14 holding that respondent was validly dismissed due to his unjustified absences and tardiness and that due process was observed when he was duly served with several memoranda relative to the cause of his dismissal. The Labor Arbiter also found respondent entitled to the payment of commissions by giving credence to the check vouchers presented by respondent as well as attorneys fees for withholding the payment of commissions pursuant to Article 111 of the Labor Code. The dispositive portion of the Labor Arbiters Decision reads: WHEREFORE, premises considered, judgment is hereby rendered finding the dismissal of complainant Fernan H. Francisco legal; ordering respondents Harpoon Marine Services Inc., and Jose Lido T. Rosit, to pay complainant his commission in the sum of PHP70,000.00; as well as attorneys fees of ten percent (10%) thereof; and dismissing all other claims for lack of merit. SO ORDERED.15

Arbiters award of commissions in favor of respondent for failure of petitioners to refute the validity of his claim. The NLRC, however, deleted the award of attorneys fees for lack of evidence showing petitioners bad faith in terminating respondent. As the NLRC only resolved petitioners appeal, respondent moved before the NLRC to resolve his appeal of the Labor Arbiters Decision.19 For their part, petitioners filed a Verified Motion for Reconsideration20 reiterating that there was patent error in admitting, as valid evidence, photocopies of the check vouchers without substantial proof that they are genuine copies of the originals. The NLRC, in its Decision dated June 30, 2003,21 modified its previous ruling and held that respondents dismissal was illegal. According to the NLRC, the only evidence presented by the petitioners to prove respondents habitual absenteeism and tardiness is his time card for the period covering June 1-15, 2001. However, said time card reveals that respondent incurred only three absences for the said period, which cannot be considered as gross and habitual. With regard to the award of commissions, the NLRC affirmed the Labor Arbiter because of petitioners failure to question the authenticity of the check vouchers in the first instance before the Labor Arbiter. It, nevertheless, sustained the deletion of the award of attorneys fees in the absence of proof that petitioners acted in bad faith. Thus, for being illegally dismissed, the NLRC granted respondent backwages and separation pay in addition to the commissions, as contained in the dispositive portion of its Decision, as follows: WHEREFORE, the decision dated 31 March 2003 is further MODIFIED. Respondents are found to have illegally dismissed complainant Fernan H. Francisco and are ordered to pay him the following: 1. Backwages = P218,066.33 (15 June 2001 17 May 2002) a) Salary P18,200.00 x 11.06 months = P201,292.00 b) 13th month pay: P201,292.00/12 = 16,774.33

Proceedings before the National Labor Relations Commission ---------------Both parties appealed to the NLRC. Petitioners alleged that the Labor Arbiter erred in ruling that respondent is entitled to the payment of commissions and attorneys fees. They questioned the authenticity of the check vouchers for being photocopies bearing only initials of a person who remained unidentified. Also, according to petitioners, the vouchers did not prove that commissions were given regularly as to warrant respondents entitlement thereto.16 Respondent, on the other hand, maintained that his dismissal was illegal because there is no sufficient evidence on record of his alleged gross absenteeism and tardiness. He likewise imputed bad faith on the part of petitioners for concocting the memoranda for the purpose of providing a semblance of compliance with due process requirements.17 In its Decision dated March 31, 2003,18 the NLRC affirmed the Labor 2. Separation Pay of one month salary for every year of service (October 1999 17 May 2002) P18,200.00 x 3 yrs. = 54,600.00 3. Commission = 70,000.00 TOTAL P342,666.33

The Motion for Reconsideration filed by complainant and respondents are hereby DISMISSED for lack of merit. SO ORDERED.22 Ruling of the Court of Appeals Petitioners filed a petition for certiorari23 with the CA, which on January 26, 2005, affirmed the findings and conclusions of the NLRC. The CA agreed with the NLRC in not giving any probative weight to the memoranda since there is no proof that the same were sent to respondent. It also upheld respondents right to the payment of commissions on the basis of the check vouchers and declared petitioners solidarily liable for respondents backwages, separation pay and accrued commissions. Petitioners moved for reconsideration which was denied by the CA. Hence, this petition. Issues WHETHER The Court of Appeals committed error in rendering its Decision and its Resolution dismissing and denying the Petition for Certiorari a quo when it failed to rectify and correct the findings and conclusions of the NLRC (and of the Labor Arbiter a quo), which were arrived at with grave abuse of discretion amounting to lack or excess of jurisdiction. In particular: I WHETHER THE COURT OF APPEALS ERRED WHEN IT FAILED TO REVERSE THE FINDINGS OF THE NLRC AND OF THE LABOR ARBITER A QUO BECAUSE THESE FINDINGS ARE NOT SUPPORTED BY SUBSTANTIAL EVIDENCE[;] ARE CONFLICTING AND CONTRADICTORY; GROUNDED UPON SPECULATION, CONJECTURES, AND ASSUMPTIONS; [AND] ARE MERE CONCLUSIONS FOUNDED UPON A MISAPPREHENSION OF FACTS, AMONG OTHERS. II WHETHER THE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE WAS AN ILLEGAL DISMISSAL IN THE SEPARATION FROM EMPLOYMENT OF FERNAN H. FRANCISCO NOTWITHSTANDING THE FACT THAT HE WAS HABITUALLY ABSENT, SUBSEQUENTLY WENT ON AWOL, AND HAD ABANDONED HIS WORK AND CORRELATIVELY, WHETHER HE IS ENTITLED TO BACKWAGES AND SEPARATION PAY. III WHETHER THE COURT OF APPEALS ERRED WHEN IT RULED THAT FERNAN H. FRANCISCO IS ENTITLED TO COMMISSIONS IN THE AMOUNT OF P70,000 EVEN THOUGH NO SUBSTANTIAL EVIDENCE WAS SHOWN TO SUPPORT THE CLAIM. IV

WHETHER THE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE WAS BAD FAITH ON THE PART OF PETITIONER ROSIT EVEN THOUGH NO SUBSTANTIAL EVIDENCE WAS PRESENTED TO PROVE THIS AND CORRELATIVELY, WHETHER PETITIONER ROSIT CAN BE HELD SOLIDARILY LIABLE WITH PETITIONER HARPOON.24 Petitioners submit that there was no basis for the CA to rule that respondent was illegally dismissed since more than sufficient proof was adduced to show his habitual absenteeism and abandonment of work as when he further incurred additional absences after June 15, 2001 and subsequently went on AWOL; when he completely ignored all the notices/memoranda sent to him; when he never demanded for reinstatement in his September 24, 2001 demand letter, complaint and position paper before the Labor Arbiter; when it took him four months before filing an illegal dismissal complaint; and when he was later found to have been working for another company. Petitioners also question the veracity of the documents presented by respondent to prove his entitlement to commissions, to wit: the two check vouchers25 and the purported list26 of vessels allegedly constructed and repaired by the company. Petitioners insist that the check vouchers neither prove that commissions were paid on account of a repair or construction of a vessel nor were admissible to prove that a regular commission is given for every vessel that is constructed/repaired by the company under respondents supervision. The list of the vessels, on the other hand, cannot be used as basis in arriving at the amount of commissions due because it is self-serving, unsigned, unverified and merely enumerates a list of names of vessels which does not prove anything. Therefore, the award of commissions was based on unsupported assertions of respondent. Petitioners also insist that petitioner Rosit, being an officer of the company, has a personality distinct from that of petitioner Harpoon and that no proof was adduced to show that he acted with malice or bad faith hence no liability, solidary or otherwise, should be imposed on him. Our Ruling The petition is partly meritorious. Respondent was illegally dismissed for failure of petitioners to prove the existence of a just cause for his dismissal. Petitioners reiterate that respondent was a habitual absentee as indubitably shown by his time card for the period covering June 1-15, 2001,27 payroll28 for the same period as well as the memoranda29 enumerating his absences subsequent to June 15, 2001. Respondent belies these claims and explained that his absence for three days as reflected in the time card was due to petitioner Rosits prohibition for them to report for work owing to the latters hospitalization. He claims that he was illegally terminated on June 15, 2001 and was subsequently prevented from entering company premises. In defense, petitioners deny terminating respondent on June 15, 2001, maintaining that petitioner Rosit merely reminded him of his numerous absences. However, in defiance of the companys order, respondent continued to absent himself, went on AWOL and abandoned his work.

We find no merit in petitioners contention that respondent incurred unexplained and habitual absences and tardiness. A scrutiny of the time card and payroll discloses that respondent incurred only three days of absence and no record of tardiness. As aptly held by the NLRC, the time card and payroll presented by petitioners do not show gross and habitual absenteeism and tardiness especially since respondents explanation of his three-day absence was not denied by petitioners at the first instance before the Labor Arbiter. No other evidence was presented to show the alleged absences and tardiness. On the other hand, Solares, a co-worker of respondent has stated under oath that, as their supervisor, respondent was diligent in reporting for work until June 20, 2001 when they heard the news concerning respondents termination from his job. Likewise, we are not persuaded with petitioners claim that respondent incurred additional absences, went on AWOL and abandoned his work. It is worthy to note at this point that petitioners never denied having offered respondent his separation pay. In fact, in their letterreply dated September 28, 2001,30 petitioners intimated that respondent may pick up the amount of P27,584.37 any time he wants, which amount represents his separation and 13th month pays. Oddly, petitioners deemed it fit to give respondent his separation pay despite their assertion that there is just cause for his dismissal on the ground of habitual absences. This inconsistent stand of petitioners bolsters the fact that they wanted to terminate respondent, thus giving more credence to respondents protestation that he was barred and prevented from reporting for work. Jurisprudence provides for two essential requirements for abandonment of work to exist. The "failure to report for work or absence without valid or justifiable reason" and "clear intention to sever the employer-employee relationship x x x manifested by some overt acts" should both concur.31 Further, the employees deliberate and unjustified refusal to resume his employment without any intention of returning should be established and proven by the employer.32 Petitioners failed to prove that it was respondent who voluntarily refused to report back for work by his defiance and refusal to accept the memoranda and the notices of absences sent to him. The CA correctly ruled that petitioners failed to present evidence that they sent these notices to respondents last known address for the purpose of warning him that his continued failure to report would be construed as abandonment of work. The affidavit of petitioner Harpoons liaison officer that the memoranda/notices were duly sent to respondent is insufficient and self-serving. Despite being stamped as received, the memoranda do not bear any signature of respondent to indicate that he actually received the same. There was no proof on how these notices were given to respondent. Neither was there any other cogent evidence that these were properly received by respondent. The fact that respondent never prayed for reinstatement and has sought employment in another company which is a competitor of petitioner Harpoon cannot be construed as his overt acts of abandoning employment. Neither can the delay of four months be taken as an indication that the respondents filing of a complaint for illegal dismissal is a mere afterthought. Records show that respondent first attempted to get his separation pay and alleged commissions from the company. It was only after his requests went unheeded that he resorted to judicial recourse. In fine, both the NLRC and the CA did not commit manifest error in finding that there was illegal dismissal. The award of backwages and separation pay in favor of respondent is therefore proper. Respondent is not entitled to the payment of commissions since the check vouchers and purported list of vessels show vagueness as to sufficiently prove the claim.

The Labor Arbiter, the NLRC and the CA unanimously held that respondent is entitled to his accrued commissions in the amount of P10,000.00 for every vessel repaired/constructed by the company or the total amount ofP70,000.00 for the seven vessels repaired/constructed under his supervision.lawphi1 The Court, however, is inclined to rule otherwise. Examination of the check vouchers presented by respondent reveals that an amount of P30,000.00 and P10,000.00 alleged as commissions were paid to respondent on June 9, 2000 and September 28, 2000, respectively. Although the veracity and genuineness of these documents were not effectively disputed by petitioners, nothing in them provides that commissions were paid to respondent on account of a repair or construction of a vessel. It cannot also be deduced from said documents for what or for how many vessels the amounts stated therein are for. In other words, the check vouchers contain very scant details and can hardly be considered as sufficient and substantial evidence to conclude that respondent is entitled to a commission of P10,000.00 for every vessel repaired or constructed by the company. At most, these vouchers only showed that respondent was paid on two occasions but were silent as to the specific purpose of payment. The list of vessels supposedly repaired/constructed by the company neither validates respondents monetary claim as it merely contains an enumeration of 17 names of vessels and nothing more. No particulars, notation or any clear indication can be found on the list that the repair or complete construction of seven of the seventeen boats listed therein was supervised or managed by respondent. Worse, the list is written only on a piece of paper and not on petitioners official stationery and is unverified and unsigned. Verily, its patent vagueness makes it unworthy of any credence to be used as basis for awarding respondent compensations as alleged commissions. Aside from these documents, no other competent evidence was presented by respondent to determine the value of what is properly due him, much less his entitlement to a commission. Respondents claim cannot be based on allegations and unsubstantiated assertions without any competent document to support it. Certainly, the award of commissions in favor of respondent in the amount of P70,000.00 should not be allowed as the claim is founded on mere inferences, speculations and presumptions. Rosit could not be held solidarily liable with Harpoon for lack of substantial evidence of bad faith and malice on his part in terminating respondent. Although we find no error on the part of the NLRC and the CA in declaring the dismissal of respondent illegal, we, however, are not in accord with the ruling that petitioner Rosit should be held solidarily liable with petitioner Harpoon for the payment of respondents backwages and separation pay. As held in the case of MAM Realty Development Corporation v. National Labor Relations Commission,33"obligations incurred by [corporate officers], acting as such corporate agents, are not theirs but the direct accountabilities of the corporation they represent."34 As such, they should not be generally held jointly and solidarily liable with the corporation. The Court, however, cited circumstances when solidary liabilities may be imposed, as exceptions: 1. When directors and trustees or, in appropriate cases, the officers of a corporation (a) vote for or assent to [patently] unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing the corporate affairs; (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons.

2. When the director or officer has consented to the issuance of watered stock or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto. 3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation. 4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.35 The general rule is grounded on the theory that a corporation has a legal personality separate and distinct from the persons comprising it.36 To warrant the piercing of the veil of corporate fiction, the officers bad faith or wrongdoing "must be established clearly and convincingly" as "[b]ad faith is never presumed."37 In the case at bench, the CAs basis for petitioner Rosits liability was that he acted in bad faith when he approached respondent and told him that the company could no longer afford his salary and that he will be paid instead his separation pay and accrued commissions. This finding, however, could not substantially justify the holding of any personal liability against petitioner Rosit. The records are bereft of any other satisfactory evidence that petitioner Rosit acted in bad faith with gross or inexcusable negligence, or that he acted outside the scope of his authority as company president. Indeed, petitioner Rosit informed respondent that the company wishes to terminate his services since it could no longer afford his salary. Moreover, the promise of separation pay, according to petitioners, was out of goodwill and magnanimity. At the most, petitioner Rosits actuations only show the illegality of the manner of effecting respondents termination from service due to absence of just or valid cause and nonobservance of procedural due process but do not point to any malice or bad faith on his part. Besides, good faith is still presumed. In addition, liability only attaches if the officer has assented to patently unlawful acts of the corporation. Thus, it was error for the CA to hold petitioner Rosit solidarily liable with petitioner Harpoon for illegally dismissing respondent. WHEREFORE, the petition is PARTLY GRANTED. The Decision dated January 26, 2005 and Resolution dated April 12, 2005 of the Court of Appeals in CA-G.R. SP No. 79630 finding respondent Fernan H. Francisco to have been illegally dismissed and awarding him backwages and separation pay are AFFIRMED. The award of commissions in his favor is, however, DELETED. Petitioner Jose Lido T. Rosit is ABSOLVED from the liability adjudged against co-petitioner Harpoon Marine Services, Incorporated. SO ORDERED. G.R. No. 163786 February 16, 2005

LLADO, RONILO BALTAZAR, MARITO PANDO, LEOPOLDO FUNTILA, GERRY B. CARRIDO, WILLIAM A. TABUCOL, ANTONIO L. RAMOS, SR., PABLO P. PADRE, HENRY B. GANIR, TEOTIMO R. REQUILMAN, CIPRIANO ULPINDO, ROGER BABIDA, SAMUEL PERALTA, BONIFACIO TUMALIP, EDGAR ABLOG, EFREN ABELLA, RODRIGO RABOY, RENATO SILVA, GEORGE PERALTA, RONILO BARBOSA, JULIAN BUENAFE, FLORENCIO CARIO, BERNIE TUMBAGA, RODRIGO CABAERO, ELMER TAMO, LEOPOLDO NANA, NELIE BOSE, DEMETRIO HERRERA, RODOLFO ABELLA, ALVIN ELEFANTE, REDENTOR GARCIA, JERRY PALACPAC, JOSE PAET, ARTHUR IBEA, ELIZER BORJA, EDMUNDO ASPIRAS, JOSE V. PESCADOR, WILLIAM GARCIA, ERNESTO P. MANGULABNAN, BENJAMIN B. BLAZA, JOSELITO P. CACABELOS, LEON R. GALANTA, JR., MARIANO P. TEJADA, PEDRITO C. ORTIZ, JR., NESTOR E. BALCITA, FLOR BURBANO, HERNANDO A. PIMENTEL, ALEX A. GOMEZ, ARNALDO P. BOSE, NAPOLEON BALDERAS, CARLINO V. RULLODA, JR., RANDY R. AMODO, CORNELIO R. RAGUINI, ROBERT CERIA, JUANITO U. UGALDE, ALBERTO PAJO, ALFREDO VALOROSO, RUFINO ADRIATICO, BARTOLOME C. EDROSOLAN, JR., REYNANTE A. ALCAIN, NOELITO SUSA and VICENTE NAVA, respondents. DECISION YNARES-SANTIAGO, J.: This petition for review on certiorari assails the decision of the Court of Appeals dated January 30, 2004 in CA-G.R. SP No. 75291,1 which set aside the decision and resolution of the National Labor Relations Commission, and its resolution dated May 24, 20042 denying reconsideration thereof. Petitioner Times Transportation Company, Inc. (Times) is a corporation engaged in the business of land transportation. Prior to its closure in 1997, the Times Employees Union (TEU) was formed and issued a certificate of union registration. Times challenged the legitimacy of TEU by filing a petition for the cancellation of its union registration. On March 3, 1997, TEU held a strike in response to Times alleged attempt to form a rival union and its dismissal of the employees identified to be active union members. Upon petition by Times, then Labor Secretary, and now Associate Justice of this Court, Leonardo A. Quisumbing, assumed jurisdiction over the case and referred the matter to the NLRC for compulsory arbitration. The case was docketed as NLRC NCR CC-000134-97. A return-to-work order was likewise issued on March 10, 1997. In a certification election held on July 1, 1997, TEU was certified as the sole and exclusive collective bargaining agent in Times. Consequently, TEUs president wrote the management of Times and requested for collective bargaining. Times refused on the ground that the decision of the Med-Arbiter upholding the validity of the certification election was not yet final and executory. TEU filed a Notice of Strike on August 8, 1997. Another conciliation/mediation proceeding was conducted for the purpose of settling the brewing dispute. In the meantime, Times management implemented a retrenchment program and notices of retrenchment dated September 16, 1997 were sent to some of its employees, including the respondents herein, informing them of their retrenchment effective 30 days thereafter. On October 17, 1997, TEU held a strike vote on grounds of unfair labor practice on the part of Times. For alleged participation in what it deemed was an illegal strike, Times terminated all the 123 striking employees by virtue of two notices dated October 26, 1997 and November 24,

TIMES TRANSPORTATION COMPANY, INC., petitioner, vs. SANTOS SOTELO, CONRADO B. SALONGA, SAMSON C. SOLIVEN, BIENVENIDO F. MALANA, JR., JOVITO V. ALCAUSIN, EFREN A. RAMOS, RODRIGO P. CABUSAO, JR., EDGAR G. PONCE, RONALD ALLAN PARINAS, RODEL PALO, REYNALDO R. RAGUCOS, MARIO T. TOLEDO, BERNARDINO PADUA, DOMINGO P. BILAN, ARNEL VALLEDORES, RAMON RETUTA, JR., PANTALEON TABANGIN, ALBERTO PANDO, VIRGILIO E. OBAR, EULOGIO D. DIGA, SR., DANIEL

1997.3 On November 17, 1997, then DOLE Secretary Quisumbing issued the second return-towork order certifying the dispute to the NLRC. While the strike was ended, the employees were no longer admitted back to work. In the meantime, by December 12, 1997, Mencorp Transport Systems, Inc. (Mencorp) had acquired ownership over Times Certificates of Public Convenience and a number of its bus units by virtue of several deeds of sale.4Mencorp is controlled and operated by Mrs. Virginia Mendoza, daughter of Santiago Rondaris, the majority stockholder of Times. On May 21, 1998, the NLRC rendered a decision5 in the cases certified to it by the DOLE, the dispositive portion of which read: WHEREFORE, the respondents first strike, conducted from March 3, 1997 to March 12, 1997, is hereby declared LEGAL; its second strike, which commenced on October 17, 1997, is hereby declared ILLEGAL. Consequently, those 23 persons who participated in the illegal strike are deemed to have lost their employment status and were therefore validly dismissed from employment: The respondents "Motion to Implead Mencorp Transport Systems, Inc. and/or Virginia Mendoza and/or Santiago Rondaris" is hereby DENIED for lack of merit. SO ORDERED.6 Times and TEU both appealed the decision of the NLRC, which the Court of Appeals affirmed on November 17, 2000.7 Upon denial of its motion for reconsideration, Times filed a petition for review on certiorari,8 docketed as G.R. Nos. 148500-01, now pending with the Third Division of this Court. TEU likewise appealed but its petition was denied due course. In 1998, and after the closure of Times, the retrenched employees, including practically all the respondents herein, filed cases for illegal dismissal, money claims and unfair labor practices against Times before the Regional Arbitration Branch in San Fernando City, La Union. Times filed a Motion to Dismiss but on October 30, 1998, the arbitration branch ordered the archiving of the cases pending resolution of G.R. Nos. 148500-01.9 The dismissed employees did not interpose an appeal from said Order. Instead, they withdrew their complaints with leave of court and filed a new set of cases before the National Capital Region Arbitration Branch. This time, they impleaded Mencorp and the Spouses Reynaldo and Virginia Mendoza. Times sought the dismissal of these cases on the ground of litis pendencia and forum shopping. On January 31, 2002, Labor Arbiter Renaldo O. Hernandez rendered a decision stating: WHEREFORE, premises considered, judgment is hereby entered FINDING that the dismissals of complainants, excluding the expunged ones, by respondent Times Transit (sic) Company, Inc. effected, participated in, authorized or ratified by respondent Santiago Rondaris constituted the prohibited act of unfair labor practice under Article 248(a) and (e) of the Labor Code, as amended and hence, illegal and that the sale of said respondent company to respondents Mencorp Transport Systems Company (sic), Inc. and/or Virginia Mendoza and Reynaldo Mendoza was simulated and/or effected in bad faith, ORDERING:

1. respondents Times Transit (sic) Company, Inc. and Santiago Rondaris as the officer administratively held liable of the unfair labor practice herein to CEASE AND DESIST therefore (sic); 2. respondents Times Transit (sic) Company, Inc. and/or Santiago Rondaris and Mencorp Transport Systems Company, Inc. and/or Virginia Mendoza and Reynaldo Mendoza to cause the reinstatement therein of complainants to their former positions without loss of seniority rights and benefits and to pay jointly and severally said complainants full back wages reckoned from their respective dates of illegal dismissal as above-indicated, until actually reinstated or in lieu of such reinstatement, at the option of said complainants, payment of their separation pay of one (1) month pay per year of service, reckoned from their date of hire as aboveindicated, until actual payment and/or finality of this decision; 3. and finally for respondents Times Transit (sic) Company, Inc. and/or Santiago Rondaris to pay jointly and severally said complainants as moral and exemplary damages the combined amount of P75,000.00 and 5% of the total award as attorneys fees. All other claims of complainants are dismissed for lack of merit. . SO ORDERED.10 The monetary award amounted to P43,347,341.69. On March 4, 2002, Times, Mencorp and the Spouses Mendoza submitted their respective memorandum of appeal to the NLRC with motions to reduce the bond. Mencorp posted a P5 million bond issued by Security Pacific Assurance Corp. (SPAC). On April 30, 2002, the NLRC issued an order disposing of the said motion, thus: WHEREFORE, premises considered, the Urgent Motion for Reduction of Bond is denied for lack of merit. Respondents are hereby ordered to complete the bond equivalent to the monetary award in the Labor Arbiters Decision, within an unextendible period of ten (10) days from receipt hereof, otherwise, the appeal shall be dismissed for non-perfection thereof. SO ORDERED.11 On May 18, 2002, Times moved to reconsider said order arguing mainly that it did not have sufficient funds to put up the required bond. On July 26, 2002, Mencorp and the Spouses Mendoza posted an additional P10 million appeal bond. Thus far, the total amount of bond posted was P15 million. On August 7, 2002, the NLRC granted the Motion for Reduction of Bond and approved the P10 million additional appeal bond.12 On September 17, 2002, the NLRC rendered its decision, stating: WHEREFORE, the foregoing premises duly considered, the decision appealed from is hereby VACATED. The records of these consolidated cases are hereby ordered REMANDED to the Arbitration Branch of origin for disposition and for the conduct of appropriate proceedings for a decision to be rendered with dispatch. SO ORDERED.13

Reconsideration thereof was denied by the NLRC on October 30, 2002. Thus, the respondents appealed to the Court of Appeals by way of a petition for certiorari, attributing grave abuse of discretion on the NLRC for: (1) not dismissing the appeals of Times, Mencorp and the Spouses Mendoza despite their failure to post the required bond; (2) remanding the case for further proceedings despite the sufficiency of the evidence presented by the parties; (3) not sustaining the labor arbiters ruling that they were illegally dismissed; (4) not affirming the labor arbiters ruling that there was no litis pendencia; and (5) not ruling that Times and Mencorp are one and the same entity.1vvphi1.nt On January 30, 2004, the Court of Appeals rendered the decision now assailed in this petition, the decretal portion of which states: WHEREFORE, based on the foregoing, the instant petition is hereby GRANTED. The assailed Decision and Resolution of the NLRC are hereby SET ASIDE. The Decision of the Labor Arbiter dated January 31, 2002 is hereby REINSTATED. SO ORDERED.14 Times, Mencorp and the Spouses Mendoza filed Motions for Reconsideration, which were denied in a resolution promulgated on May 24, 2004. Hence, this petition for review based on the following grounds: I. Petitioner respectfully maintains that the Honorable Court a quo, in not dismissing the complaints against the petitioner on the ground of lis pendens, decided the matter in a way not in accord with existing laws and applicable decisions of this Honorable Court. II. Petitioner, further, respectfully maintains that the Honorable Court a quo, in determining that herein petitioners hitherto lost their right to appeal to the NLRC on account of their purported failure to post an adequate appeal bond, radically departed from the accepted and usual course of judicial proceedings, not to mention resolved said issue in a manner and fashion antithetical to existing jurisprudence. III. Petitioner, furthermore, respectfully maintains that the Honorable Court a quo, in applying wholesale the doctrine of piercing the veil of corporate fiction and finding Times copetitioners liable for the formers obligations, resolved the matter in a manner contradictory to existing applicable laws and dispositions of this Honorable Court, and departed from the accepted and usual course of judicial proceedings with regard to admitting evidence to sustain the application of such principle.15 The petition lacks merit. As to the first issue, Times argues that there exists an identity of issues, rights asserted, relief sought and causes of action between the present case and the one concerning the legality of the second strike, which is now pending with the Third Division of this Court. As such, the Court of Appeals erred in not dismissing the case at bar on the ground of litis pendencia. Litis pendencia as a ground for dismissal of an action refers to that situation wherein another action is pending between the same parties for the same cause of action and the second action becomes unnecessary and vexatious.16 We agree with the findings of the Court of Appeals that there is no litis pendencia as the two cases involve dissimilar causes of action. The first case, now pending with the Third Division, pertains to the alleged error of the NLRC in not upholding

the dismissal of all the striking employees (not only of the 23 strikers so declared to have lost their employment) in spite of the latters ruling that the second strike was illegal. None of the respondents herein were among those deemed terminated by virtue of the NLRC decision. In the instant case, the issue is the validity of the retrenchment implemented by Times prior to the second strikeand the subsequent dismissal of the striking employees. As such, there can be no question that respondents were still employees of Times when they were retrenched. In short, the outcome of this case does not hinge on the legality of the second strike or the validity of the dismissal of the striking employees, which issues are yet to be resolved in G.R. Nos. 148500-01. Consequently, litis pendencia does not arise. Anent the issue on whether Times perfected its appeal to the NLRC, the right to appeal is a statutory right and one who seeks to avail of the right must comply with the statute or rules. The rules for perfecting an appeal must be strictly followed as they are considered indispensable interdictions against needless delays and for orderly discharge of judicial business.17 Section 3(a), Rule VI of the NLRC Rules of Procedure outlines the requisites for perfecting an appeal, to wit: SECTION 3. Requisites for Perfection of Appeal. a) The Appeal shall be filed within the reglementary period as provided in Section 1 of this Rule and shall be under oath with proof of payment of the required appeal fee and the posting of a cash or surety bond as provided in Section 6 of this Rule; shall be accompanied by memorandum of appeal which shall state the grounds relied upon and the arguments in support thereof; the relief prayed for and a statement of the date when the appellant received the appealed decision, order or award and proof of service on the other party of such appeal. A mere notice of appeal without complying with the other requisites aforestated shall not stop the running of the period for perfecting an appeal. (Emphasis supplied) Article 223 of the Labor Code provides that in case of a judgment involving a monetary award, an appeal by the employer may be perfected only upon the posting of a cash or surety bond issued by a reputable bonding company duly accredited by the NLRC in the amount equivalent to the monetary award in the judgment appealed from. The perfection of an appeal in the manner and within the period prescribed by law is not only mandatory but also jurisdictional, and failure to perfect an appeal has the effect of making the judgment final and executory.18However, in several cases, we have relaxed the rules regarding the appeal bond especially where it must necessarily yield to the broader interest of substantial justice.19 The Rules of Procedure of the NLRC allows for the reduction of the appeal bond upon motion of the appellant and on meritorious grounds.20 It is required however that such motion is filed within the reglementary period to appeal. The records reveal that Times, Mencorp and the Spouses Mendozas motion to reduce the bond was denied and the NLRC ordered them to post the required amount within an unextendible period of ten (10) days.21 However, instead of complying with the directive, Times filed another motion for reconsideration of the order of denial. Several weeks later, Mencorp posted an additional bond, which was still less than the required amount. Three (3) months after the filing of the motion for reconsideration, the NLRC reversed its previous order and granted the motion for reduction of bond.1awphi1.nt We agree with the Court of Appeals that the foregoing constitutes grave abuse of discretion on the part of the NLRC. By delaying the resolution of Times motion for reconsideration, it has unnecessarily prolonged the period of appeal. We have held that to extend the period of

appeal is to prolong the resolution of the case, a circumstance which would give the employer the opportunity to wear out the energy and meager resources of the workers to the point that they would be constrained to give up for less than what they deserve in law.22 The NLRC is well to take notice of our pronouncement in Santos v. Velarde:23 The Court is aware that the NLRC is not bound by the technical rules of procedure and is allowed to be liberal in the interpretation of rules in deciding labor cases. However, such liberality should not be applied in the instant case as it would render futile the very purpose for which the principle of liberality is adopted. From the decision of the Labor Arbiter, it took the NLRC four months to rule on the "motion" for exemption to pay bond and another four months to decide the merits of the case. This Court has repeatedly ruled that delay in the settlement of labor cases cannot be countenanced. Not only does it involve the survival of an employee and his loved ones who are dependent on him, it also wears down the meager resources of the workers...24 (Emphasis supplied) The NLRCs reversal of its previous order of denial lacks basis. In the first motion, Mencorp and Spouses Mendoza moved for the reduction of the appeal bond on the ground that the computation of the monetary award was highly suspicious and anomalous. In their motion for reconsideration of the NLRCs denial, Mencorp and the Spouses Mendoza cited financial difficulties in completing the appeal bond. Neither ground is well-taken. Times and Mencorp failed to substantiate their allegations of errors in the computation of the monetary award. They merely asserted "inaccuracies" without specifying which aspect of the computation was inaccurate. If Times and Mencorp truly believed that there were errors in the computation, they could have presented their own computation for comparison. As to the claim of financial difficulties, suffice it to say that the law does not require outright payment of the total monetary award, but only the posting of a bond to ensure that the award will be eventually paid should the appeal fail.l^vvphi1.net What Times has to pay is a moderate and reasonable sum for the premium for such bond.25 The impression thus created was that Times, Mencorp and the Spouses Mendoza were clearly circumventing, if not altogether dodging, the rules on the posting of appeal bonds.

1. The sale was transferred to a corporation controlled by V. Mendoza, the daughter of respondent S. Rondaris of [Times] where she is/was also a director, as proven by the articles of incorporation of [Mencorp]; 2. All of the stockholders/incorporators of [Mencorp]: Reynaldo M. Mendoza, Virginia R. Mendoza, Vernon Gerard R. Mendoza, Vivian Charity R. Mendoza, Vevey Rosario R. Mendoza are all relatives of respondent S. Rondaris; 3. The timing of the sale evidently was to negate the employees/complainants/members right to organization as it was effected when their union (TEU) was just organized/requesting [Times] to bargain; 5. [Mencorp] never obtained a franchise since its supposed incorporation in 10 May 1994 but at present, all the buses of [Times] are already being run/operated by respondent [Mencorp], the franchise of [Times] having been transferred to it.29 We uphold the findings of the labor arbiter and the Court of Appeals. The sale of Times franchise as well as most of its bus units to a company owned by Rondaris daughter and family members, right in the middle of a labor dispute, is highly suspicious. It is evident that the transaction was made in order to remove Times remaining assets from the reach of any judgment that may be rendered in the unfair labor practice cases filed against it. WHEREFORE, premises considered, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 75291 dated January 30, 2004 and its resolution dated May 24, 2004, are hereby AFFIRMED in toto. SO ORDERED. G.R. No. 157851 Present: YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, CHICO-NAZARIO, and NACHURA, JJ. Promulgated: June 29, 2007 x------------------------------------------------------------------------------------x

On the propriety of the piercing of the corporate veil, Times claims that "to drag Mencorp, ATTY. ANDREA UY and FELIX YUSAY, [Spouses] Mendoza and Rondaris into the picture on the purported ground that a fictitious sale of Times assets in their favor was consummated with the end in view of frustrating the ends Petitioners, of justice and for purposes of evading compliance with the judgment is the height of judicial 26 arrogance." The Court of Appeals believes otherwise and reckons that Times and Mencorp failed to adduce evidence to refute allegations of collusion between them. - versus We have held that piercing the corporate veil is warranted only in cases when the separate ARLENE VILLANUEVA and NATIONAL LABOR RELATIONS legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend COMMISSION, crime, such that in the case of two corporations, the law will regard the corporations as merged into one.27 It may be allowed only if the following elements concur: (1) controlnot Respondents. mere stock control, but complete dominationnot only of finances, but of policy and business practice in respect to the transaction attacked; (2) such control must have been used to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and an unjust act in contravention of a legal right; and (3) the said control and breach of duty must have proximately caused the injury or unjust loss complained of.28 The following findings of the Labor Arbiter, which were cited and affirmed by the Court of Appeals, have not been refuted by Times, to wit:

DECISION NACHURA, J.: This appeal on certiorari under Rule 45 of the Rules of Court seeks the nullification of the February 28, 2002 Resolution and the February 27, 2003 Resolution denying the motion for reconsideration thereof of the Former Tenth Division of the Court of Appeals (CA) in CA-G.R. SP No. 68680. The antecedents of the case are as follows: Countrywide Rural Bank of La Carlota, Inc. (Countrywide Bank) is a private banking corporation engaged in rural banking and other allied services through its branches nationwide. Sometime in 1998, Countrywide Bank experienced liquidity problems and its treasury department was unable to comply with its branches demands for fresh funds. Its various branches eventually experienced bank runs.1 Several of the banks depositors were alarmed at the prospect of losing their deposits and investments. A group of depositors, holding about 70% of the banks deposit accounts, met and agreed to organize themselves into a "Committee of Depositors." Petitioner Felix Yusay was elected by the Committee as Chairman of the Interim Board of Directors, while petitioner Atty. Andrea Uy was designated Secretary. According to petitioners, the Committee was formed for the purpose of protecting their collective interests and to increase their chances of recovering their deposits.2 With the consent and approval of the incumbent Board of Directors, the Committee of Depositors assumed temporary administrative control of the remaining operations of the bank.3 The incumbent Board of Directors informed the Committee that some employees had tendered courtesy resignations, while some had expressed their willingness to resign upon official request. The Committee then accepted some of the courtesy resignations.4 The Bangko Sentral ng Pilipinas (BSP) subsequently placed the bank under receivership and appointed a liquidator. Meanwhile, the Philippine Deposit Insurance System (PDIC) commenced the processing of claims for return of deposits.5 Realizing that their bid to rehabilitate the bank had failed, the Committee of Depositors disbanded.6 Eventually, three cases for illegal dismissal were filed against Countrywide Bank before the National Labor Relations Commission (NLRC). These were filed by Amalia Bueno (NLRC Case No. RAB-XI-01-50037-99), Amelia Valdez and Lyn Villa (NLRC Case No. RAB-XI-01-20039-99), and herein private respondent Arlene Villanueva (NLRC Case No. RAB-XI-01-50043-99).7 Private respondent Villanueva avers that she was a regular employee of Countrywide Banks Marbel, South Cotabato branch. On December 7, 1998, she received a memorandum from the Interim Board of Directors accepting her courtesy resignation. She, however, denies that she submitted a written courtesy resignation.8

On November 16, 1999, Labor Arbiter Arturo P. Gamolo of NLRC Sub-Regional Arbitration Branch No. XI, General Santos City rendered a Decision in RAB-XI-01-50043-99, the dispositive portion of which reads: WHEREFORE, premises considered, respondent Country Wide Rural Bank of La Carlota, Inc. and Individual Respondents Atty. Andrea Uy and Felix Yusay are solidarily liable to pay complainant Arlene Villanueva the sum PESOS: ONE HUNDRED THIRTEEN THOUSAND SIX HUNDRED FORTY (P113,640.00) ONLY representing her monetary awards and attorneys fees.9 On January 21, 2000, Villanueva filed a Motion for Execution of Judgment10 to which Countrywide Bank, through the PDIC, filed an Opposition. 11 Thereafter, Labor Arbiter Gamolo rendered a Resolution and Order for all three cases against Countrywide Bank, the dispositive portion of which reads: Wherefore, finding the PDICs opposition to complainants motion for execution meritorious, complainants are hereby directed to file their respective money claims as adjudged in the decisions rendered in the above-entitled cases before the liquidation court for the latters approval of inclusion in the Banks Distribution Plan. SO ORDERED.12 Petitioners then filed a Notice of Appeal with Memorandum of Appeal with the NLRC, 5th Division, Cagayan de Oro City.13 On November 27, 2000, the NLRC dismissed the appeal for being filed out of time.14 Petitioners filed a motion for reconsideration.15 The NLRC then recalled its November 27, 2000 Resolution and set the case for clarificatory hearing.16 Petitioners, however, received the Resolution five days after the scheduled clarificatory hearing. They instead filed their memorandum in lieu of the clarificatory hearing. On October 10, 2001, the NLRC rendered another Resolution reinstating its November 27, 2000 Resolution.17 Petitioners filed a petition for certiorari before the CA to nullify the NLRCs November 27, 2000 and October 10, 2001 Resolutions. On February 28, 2002, the Tenth Division of the CA dismissed the petition for certiorari on technical grounds. In particular, the CA cited the following grounds for dismissal: 1. Failure to attach necessary pleadings and comments which are material portion of the records in able [sic] for this to [sic] judiciously evaluate the merit of the case such as: a.) memorandum of appeal filed by the petitioner on May 18, 2000; b.) Motion for Reconsideration of the petitioners dated December 21, 2000; in violation of Section 3, Rule 46 of the 1997 Rules of Civil Procedure as amended;

2. Failure to attach certified photocopy copies [sic] of the assailed resolutions and decisions of the original documents in violation of the same rules; and 3. Failure to send copy of the resolution to the public respondent.18 Petitioners filed a Motion for Reconsideration19 arguing that the failure to attach the abovementioned documents was merely a procedural lapse on their part. They, likewise, attached the documents to the motion. Their motion for reconsideration having been denied,20 petitioners filed the present appeal on certiorari. They argue that the CAs dismissal of their petition for certiorari on technical grounds deprived them of substantial justice. They assail the CAs Resolution dismissing their petition on technical grounds. They cite previous decisions of this Court where it held that technicalities can be relaxed in order to uphold the substantive rights of the parties.21 They likewise allege that the Labor Arbiter ruled in favor of respondent Villanueva based only on the pleadings filed by the latter. They allege that they were not properly served summons and notices which led to their failure to file their position paper. They also argue that they cannot be held solidarily liable to private respondent because they were mere depositors of the bank and not stockholders. Even assuming that they were stockholders, they still cannot be held individually liable for the banks obligations. On the other hand, private respondent argues that the appeal on certiorari merely reiterated arguments and issues on questions of facts that have already been passed upon by competent authority.22 Having none of the circumstances that will warrant exemption from the requirement that a petition for review on certiorari under Rule 45 shall only raise questions of law, the petition must be dismissed. Likewise, private respondent argues that the petition has no other purpose than to delay the final execution of the decision. While this case was pending, petitioners filed a Manifestation23 on February 20, 2007, informing this Court that the case entitled Atty. Andrea Uy and Felix Yusay v. Amalia Bueno,24 docketed as G.R. No. 159119 and involving the same factual antecedents as the present case, was decided by this Courts Second Division on March 14, 2006 in this wise: IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals Decision dated January 24, 2003 and Resolution dated May 26, 2003 in CA-G.R. SP No. 70672, which found petitioner Atty. Andrea Uy25 solidarily liable with Countrywide Rural Bank of [La] Carlota, Inc. in Marbel, Koronadal City, South Cotabato, are REVERSED. No costs. SO ORDERED.26 In the Bueno case, the Court found that, per the records of the case, petitioner Uy was a "mere depositor,"27 one of several depositors who formed themselves into a group or association indicating their intention to help rehabilitate Countrywide Rural Bank.28 It also found no evidence that the Committee of Depositors that elected petitioner Uy as Interim President and Corporate Secretary was recognized by the Bangko Sentral ng Pilipinas, hence, had no legal authority to act for the bank.29As such, the Court said:

Lacking this evidence, the act of petitioner Uy in dismissing the respondent cannot be deemed an act as an officer of the bank. Consequently, it cannot be held that there existed an employer-employee relationship between petitioner Uy and respondent Bueno when the former allegedly dismissed the latter. This requirement of employer-employee relationship is jurisdictional for the provisions of the Labor Code, specifically Book VI thereof, on PostEmployment, to apply. Since the employer-employee relationship between petitioner Uy and respondent Bueno was not established, the labor arbiter never acquired jurisdiction over petitioner Uy. Consequently, whether petitioner Uy was properly served summons is immaterial. Likewise, that she terminated the services of respondent Bueno in bad faith and with malice is of no moment. Her liability, if any, should be determined in another forum.30 The Court noted the manifestation in a Resolution31 dated April 23, 2007. We find the present petition meritorious. At the outset, we note that Countrywide Bank did not appeal the NLRCs rulings. As to the bank, therefore, the NLRC Decision has become final and executory. Rule 45 of the Rules of Civil Procedure provides that only questions of law shall be raised in an appeal by certiorari before this Court. This rule, however, admits of certain exceptions, namely, (1) when the findings are grounded entirely on speculations, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is based on misappreciation of facts; (5) when the findings of fact are conflicting; (6) when in making its findings, the same are contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs are not disputed by the respondent; and (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record.32 In this case, the CA committed grave abuse of discretion in dismissing the petition without first examining its merits. The policy of our judicial system is to encourage full adjudication of the merits of an appeal. In the exercise of its equity jurisdiction, this Court may reverse the dismissal of appeals that are grounded merely on technicalities.33 In the past, the Court has held that technicalities should not be permitted to stand in the way of equitably and completely resolving the rights and obligations of the parties. Where the ends of substantial justice would be better served, the application of technical rules of procedure may be relaxed.34 Rules of procedure should indeed be viewed as mere tools designed to facilitate the attainment of justice.35 Section 1, Rule 65 of the Rules of Court provides: SECTION 1. Petition for certiorari. When any tribunal, board or officer exercising judicial or quasi-judicial functions has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, or 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 of such tribunal, board or officer, and granting such incidental reliefs as law and justice may require.

The petition shall be accompanied by a certified true copy of the judgment, order or resolution subject thereof, copies of all pleadings and documents relevant and pertinent thereto, and a sworn certification of non-forum shopping as provided in the third paragraph of Section 3, Rule 46. (emphasis supplied) Records show that in the petition for certiorari, filed before the CA, the petitioners attached photocopies of the assailed October 10, 2001 NLRC Resolution,36 the NLRC Resolution dated November 27, 2000,37 the Labor Arbiters Decision dated November 16, 1999,38 and the Labor Arbiters Resolution and Order dated April 17, 2000.39 Subsequently, when the CA dismissed the petition on technical grounds, petitioners filed a motion for reconsideration explaining the reason for the omission and attaching, in addition to the abovementioned documents, the other documents referred to in the CA Resolution. The Courts ruling in the case of Garcia v. Philippine Airlines40 is most instructive, to wit: It is evident, therefore, that aside from the assailed decision, order or resolution, not every pleading or document mentioned in the petition is required to be submitted only those that are pertinent and relevant to the judgment, order or resolution subject of the petition. The initial determination of what pleadings, documents or orders are relevant and pertinent to the petition rests on the petitioner. If, upon its initial review of the petition, the CA is of the view that additional pleadings, documents or order should have been submitted and appended to the petition, the following are its options: (a) dismiss the petition under the last paragraph of Rule 46 of the Rules of Court; (b) order the petitioner to submit the required additional pleadings, documents, or order within a specific period of time; or (c) order the petitioner to file an amended petition appending thereto the required pleadings, documents or order within a fixed period. If the CA opts to dismiss the petition outright and the petitioner files a motion for the reconsideration of such dismissal, appending thereto the requisite pleadings, documents or order/resolution with an explanation for the failure to append the required documents to the original petition, this would constitute substantial compliance with the Rules of Court. In such case, then, the petition should be reinstated. As this Court emphasized in Cusi-Hernandez v. Diaz: xxxx We must stress that "cases should be determined on the merits after full opportunity to all parties for ventilation of their causes and defenses, rather than on technicality or some procedural imperfections. In that way, the ends of justice would be served better." Moreover, the Court has held: "Dismissal of appeals purely on technical grounds is frowned upon and the rules of procedure ought not to be applied in a very rigid, technical sense, for they are adopted to help secure, not override, substantial justice, and thereby defeat their very aims." Rules of procedure are mere tools designed to expedite the decision or resolution of cases and other matters pending in court. A strict and rigid application of rules that would result in technicalities that tend to frustrate rather than promote substantial justice must be avoided. (citations omitted)

In putting a premium on technical rules over the just resolution of the case, therefore, the CA overlooked the right of petitioners to the full adjudication of their petition on its merits. Indeed, while labor laws mandate the speedy administration of justice with least attention to technicalities, this must be done without sacrificing the fundamental requisites of due process.41 We now proceed to rule on the merits of the case. In order to sustain a finding of illegal dismissal, we must first determine the relationship between the petitioners and private respondent. Illegal dismissal presupposes that there was an employer-employee relationship between the dismissed employee and the persons complained of. To determine whether there was an employer-employee relationship between petitioners and private respondent, the Court has consistently used the "four-fold" test. The test calls for the determination of (1) whether the alleged employer has the power of selection and engagement of an employee; (2) whether he has control of the employee with respect to the means and methods by which work is to be accomplished; (3) whether he has the power to dismiss; and (4) whether the employee was paid wages. Of the four, the control test is the most important element.42 In the instant case, all these elements are attributable to the bank itself and not to petitioners. There is no question that private respondent was an employee of the bank. As mentioned above, the NLRC Decision has become final and executory as to the bank. Its liability for private respondents dismissal is no longer in dispute. The same cannot be said of petitioners. Petitioners assumed only limited administrative control of the bank as part of the "Committee of Depositors." However, there is no showing that they took over the management and control of the bank. Given that there is in fact no employer-employee relationship between petitioners and private respondents, the Labor Arbiter, and consequently, the NLRC, is without jurisdiction to adjudicate the dispute between them. The cases a Labor Arbiter can hear and decide are "employment-related."43 Even assuming that an employer-employee relationship does exist between petitioners and private respondent, the former still cannot be held liable with Countrywide Bank for the illegal dismissal of private respondent. Corporate officers are not personally liable for the money claims of discharged corporate employees, unless they acted with evident malice and bad faith in terminating their employment.44 First, we agree with petitioners that they are not corporate officers of the bank. It has been held that an "office" is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the other hand, an "employee" usually occupies no office and generally is employed not by action of the directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid to such employee.45 Given this distinction, petitioners are neither officers nor employees of the bank. They are mere depositors who sought to manage the bank in order to save it.

Next, settled is the rule in this jurisdiction that a corporation is vested by law with a legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it.46 The general rule is that obligations incurred by the corporation, acting through its directors, officers, and employees, are its sole liabilities. However, solidary liability may be incurred, but only under the following exceptional circumstances: 1. When directors and trustees or, in appropriate cases, the officers of a corporation: (a) vote for or assent to patently unlawful acts of the corporation; (b) act in bad faith or with gross negligence in directing the corporate affairs; (c) are guilty of conflict of interest to the prejudice of the corporation, its stockholders or members, and other persons; 2. When a director or officer has consented to the issuance of watered stocks or who, having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto; 3. When a director, trustee or officer has contractually agreed or stipulated to hold himself personally and solidarily liable with the corporation; or 4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action.47 Not one of these circumstances is present in this case.

ought to be decided alike. Thus, where the same question relating to the same event is brought by parties similarly situated as in a previous case already litigated and decided by a competent court, the rule of stare decisis is a bar to any attempt to relitigate the same issue."53 Petitioners liability, if there be any, must be determined in the proper action and at the proper forum. WHEREFORE, premises considered, the petition is GRANTED. The February 28, 2002 Resolution in CA-G.R. SP No. 68680 of the Court of Appeals is REVERSED and SET ASIDE. The Decision of the Labor Arbiter in RAB-XI-01-50037-99, finding petitioners solidarily liable with Countrywide Rural Bank of La Carlota is, likewise, REVERSED and SET ASIDE. No pronouncement as to costs. SO ORDERED. G.R. No. 98310 October 24, 1996 MATUGUINA INTEGRATED WOOD PRODUCTS, INC., petitioner, vs. The HON. COURT OF APPEALS, DAVAO ENTERPRISES CORPORATION, The HON. MINISTER, (NOW SECRETARY) of NATURAL RESOURCES AND PHILLIP CO, respondents.

TORRES, JR., J.:p Furthermore, the doctrine of piercing the veil of corporate fiction finds no application in the case. Piercing the veil of corporate fiction may only be done when "the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime."48 The general rule is that a corporation will be looked upon as a separate legal entity, unless and until sufficient reason to the contrary appears. For the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed.49 Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not in itself sufficient ground for disregarding the separate corporate personality.50 In the case at bar, petitioners are not even stockholders of the bank but mere depositors. That they assumed temporary control of the banks administration did not change the character of their relationship with the bank. In fact, their bid to convert their interest in the bank to that of stockholders failed as the BSP denied their plan to rehabilitate the bank. Finally, we have noted petitioners Manifestation51 dated January 31, 2007 and this Courts decision in Atty. Andrea Uy and Felix Yusay v. Amalia Bueno.52 In previous cases, the Court has held, "When a court has laid down a principle of law as applicable to a certain set of facts, it will adhere to that principle and apply it to all future cases in which the facts are substantially the same. Stare decisis et non quieta movere. Stand by the decision and disturb not what is settled. It simply means that a conclusion reached in one case should be applied to those that follow if the facts are substantially the same, even though the parties may be different. It comes from the basic principle of justice that like cases Matuguina Integrated Wood Products Inc. (MIWPI, for brevity) filed this action for Prohibition, Damages and Injunction, in order to prevent the respondent Minister (now Secretary) of Natural Resources from enforcing its Order of Execution against it, for liability arising from an alleged encroachment of the petitioner over the timber concession of respondent DAVENCOR located in Mati, Davao Oriental. The Regional Trial Court, Branch 17, Davao City, ruled in favor of the petitioner, but on appeal, was reversed by the respondent Court of Appeals in its decision dated February 25, 1991, which found MIWPI, as an alter ego of Milagros Matuguina and/or Matuguina Logging Enterprises (MLE), to be liable to DAVENCOR for the illegal encroachment. The following are the antecedent facts: On June 28, 1973, the Acting Director of the Bureau of Forest Development issued Provisional Timber License (PTL) No. 30, covering an area of 5,400 hectares to Ms. Milagros Matuguina who was then doing business under the name of MLE, a sole proprietorship venture. A portion, covering 1,900 hectares, of the said area was located within the territorial boundary of Gov. Generoso in Mati, Davao Oriental, and adjoined the timber concession of Davao Enterprises Corporation (DAVENCOR), the private respondent in this case. On July 10, 1974, petitioner Matuguina Integrated Wood Products, Inc. (MIWPI), was incorporated, having an authorized capital stock of Ten Million Pesos (P10,000,000.00). 1 The incorporators/stockholders of MIWPI, and their stock subscriptions were as follows:

Name No. Of Shares Amount of Capital Subscribed Stock Subscribed 1. Henry Wee 1,160,000 1,160,000.00 2. Ma. Milagros Matuguina 400,000 400,000.00 3. Alejandro Chua Chun 200,000 200,000.00 4. Bernadita Chua 120,000 120,000.00 5. Domingo Herrera 40,000 40,000.00 6. Manuel Hernaez 40,000 40,000.00 7. Luis Valderama 40,000 40,000.00 2,000,000 2,000,000.00 ======== ========= Milagros Matuguina became the majority stockholder of MIWPI on September 24, 1974, when the latter's Board of Directors approved by Resolution the transfer of 1,000,000 shares from Henry Wee to Milagros Matuguina, thus giving her seventy percent (70%) stock ownership of MIWPI. In an undated letter 2 to the Director of Forest Development (BFD) on November 26, 1974, Milagros Matuguina requested the Director for a change of name and transfer of management of PTL No. 30 from a single proprietorship under her name, to that of MIWPI. This request was favorably endorsed on December 2, 1974 3 by the BFD's Acting Director, Jose Viado to respondent Secretary of Natural Resources, who approved the same on September 5, 1975. 4 On July 17, 1975, Milagros Matuguina and petitioner MIWPI executed a Deed of Transfer 5 transferring all of the former's rights, interests, ownership and participation in Provincial Timber License No. 30 to the latter for and in consideration of 148,000 shares of stocks in MIWPI. A copy of said deed was submitted to the Director of Forest Development and petitioner MIWPI had since been acting as holder and licensee of PTL No. 30 On July 28, 1975, pending approval of the request to transfer the PTL to MIWPI, DAVENCOR, through its Assistant General Manager, complained to the District Forester at Mati, Davao Oriental that Milagros Matuguina/MLE had encroached into and was conducting logging operations in DAVENCOR's timber concession. After investigation of DAVENCOR's complaint, the Investigating Committee which looked into DAVENCOR's complaint submitted its report to the Director, finding that MLE had encroached on the concession area of DAVENCOR. In line with this, the Director of Forest Development issued an Order 6 on July 15, 1981, finding and declaring MLE to have encroached upon, and conducted illegal logging operations within the licensed or concession area of DAVENCOR. MLE appealed the Order to the Ministry of Natural Resources, which appeal was docketed as MNR CASE No. 6540. During the pendency of the appealed case with the Minister of Natural Resources, Ma. Milagros Matuguina disposed of her shares in petitioner MIWPI, thereby ceasing to be a stockholder of the petitioner as of March 16, 1986. 7

On October 1, 1986, The Minister of Natural Resources, Hon. Ernesto M. Maceda rendered his Decision, 8affirming the aforesaid order of the Director of Foreign Development, stating thus: DECISION For our Resolution is the appeal by MATUGUINA LOGGING ENTERPRISES (MLR, for short) of the Order dated 15 July 1991 of the Director of Forest Development finding and declaring MLE to have encroached upon, and conducted illegal logging operations within the license or concession area of DAVAO ENTERPRISES CORPORATION. The aforesaid Order dispositively states: Wherefore, there being a clear and convincing proof that Matuguina Conducted illegal operation within the license area of DAVENCOR, above named respondent is hereby ordered to pay to the complainant the equivalent value in pesos of 2,352.04 cubic meters of timber based on the market price obtaining, at the logpond of the respondent at the time of cutting, minus the cost of production, or to restitute to the complainant equal volume of 2,352.04 cubic meters of logs owned by respondent to be taken at respondent's logpond. The respondent is hereby directed to comply with this Order within a period of ninety (90) days from receipt of this Order and after the lapse of the said period, no compliance has been made by the respondent, its logging operations shall ipso facto become automatically suspended until respondent shall have complied as directed. The Regional Director of Region II, Davao City is hereby instructed to implement this Order and to submit his compliance report within ten (10) days after the lapse of the ninety (90) days period within which the respondent is directed to comply with this Order. And that the dispositive portion of the said decision states: WHEREFORE, the Order dated 15 July 1981 of the Director of Forest Development is hereby AFFIRMED. When the Decision of the Minister of Natural Resources became final and executory, Philip Co and DAVENCOR requested the respondent Minister on October 30, 1986 to issue immediately a writ of execution against MLE and/or MIWPI. 9 The Order of Execution 10 was issued on January 6, 1987 by the Minister through the latter's Assistant on Legal Affairs. The said Order directed the issuance of a writ of execution, not only against MLE, but likewise against MIWPI. The dispositive portion of the order provides: WHEREFORE, let a Writ of Execution be issued against Matuguina Logging Enterprises and/or Matuguina Integrated Wood Products, Inc. For the satisfaction of the Decision of the Bureau of Forest Development dated 15 July 1981, and the Order of this office dated 1 October 1986. SO ORDERED. Subsequently, a writ of execution 11 dated January 8, 1987 was issued in favor of the respondent DAVENCOR, which states: The City/Provincial Sheriff Davao City

GREETINGS: You are hereby directed to enforce, implement and execute the Order of Execution dated 06 June 1987 of this Office in the above-entitled case against Matuguina Logging Enterprises and/or Matuguina Integrated Wood Products, Inc. Its officers or any person or corporation in its behalf and conformably with the Order dated 15 July 1981 of the Director of Forest Development, stating dispositively. xxx xxx xxx You are hereby requested to submit your return to this Office within the period of sixty (60) days from your receipt hereof as to action taken hereon. SO ORDERED. On February 11, 1987, MIWPI filed the instant complaint 12 for prohibition, damages and injunction, with prayer for restraining order, which case was docketed as Civil Case No. 18,457-87 in the Regional Trial Court Davao City, Branch 17. MIWPI stated its primary cause of action, the relevant portion of which reads, viz.: 5. That plaintiff which has a distinct and separate personality of its own under the law, and was never a party to the case between DAVENCOR and MLE, suddenly became a party to the case after the decision became final and executory with the issuance of Annex "B" hereof for reasons known to the defendants alone: 6. That the issuance of Annex "B" hereof (the order of execution) by the defendant Minister has been made not only without or in excess of his authority but that the same was issued patently without any factual or legal basis, hence, a gross violation of plaintiff's constitutional rights under the due process clause; 7. That plaintiff, in the face of the order (Annex "B") complained of, there being no appeal or any plain, speedy, and adequate remedy in the ordinary course of law, does not have any alternative but to ventilate the present recourse; 8. That defendant Minister is doing, threatens or is about to do, or is procuring or suffering to be done, some act which definitely is in violation of the plaintiff's rights respecting the subject matter of the action, and unless said act or acts are restrained or prohibited at least during the pendency of this case, said act or acts would probably work not only injustice to plaintiff but would tend to render the judgment of this Honorable Court ineffectual; 9. That the commission or continuance of the acts complained of during the present litigation would not only cause great and irreparable injury, but will also work injustice to the plaintiff, and would complicate, aggravate and multiply the issues in this case; 10. That the plaintiff is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the acts complained of, or in the performance of acts, either for a limited period or perpetually;

11. That great and irreparable injury would inevitably result to the plaintiff before the matter can be heard on notice, hence, immediate issuance of a restraining order is necessary and proper; 12. That the plaintiff is willing and able to file the necessary bond executed to the defendants, in an amount to be fixed by the court, to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the court should finally decide that the plaintiff was not entitled thereto. MIWPI, likewise, alleges that in wantonly and imprudently procuring the Writ of Execution against it, which DAVENCOR and Philip Co seek to enforce a 2.5 Million Peso liability of plaintiff, the latter has been constrained to bring the present action, thereby incurring damages in the sum of P500,000.00 in concept of actual and compensatory damages, and P250,000.00 in attorney's fees, which amount petitioner now seeks to recover. The trial court issued a temporary restraining order the next day, February 12, 1987, restraining and/or enjoining the private respondents and the Hon. Secretary of Natural Resources from enforcing, implementing and/or carrying into effect, the decision of the respondent Secretary dated October 1, 1986, as well as the order of execution dated January 6, 1987. On February 17, 1987, private respondents filed a Motion to Dismiss 13 alleging that the trial court had no jurisdiction over the case under Presidential Decree No. 705, to which Motion to Dismiss, petitioner filed an Opposition 14 dated February 1987. On March 9, 1987, the trial court issued an order 15 denying private respondent's Motion to Dismiss. Hence, private respondents filed their Answer 16 dated March 13, 1987 and an Amended Answer 17 dated July 16, 1987. In the latter pleading, private respondents raised the following special and affirmative defenses: 7. That neither Milagros Matuguina nor Matuguina Integrated Wood Products, Inc. advised defendant Davencor of the change of name, and transfer of management of PTL No. 30 from Milagros Matuguina to Matuguina Integrated Wood Products, Inc., during the pendency of MNR Case No. 6540 before the Bureau of Forest Development and the Ministry of Natural Resources, notwithstanding that the lawyer of Matuguina Integrated Wood Products, Inc., who was also a stockholder thereof, had appeared for Milagros Matuguina in said administrative case. 8. That plaintiff has acted in bad faith and is now in estoppel from questioning the Writ of Execution issued against Milagros Matuguina (now Matuguina Integrated Wood Products, Inc.) to satisfy the judgment in MNR Case No. 6540. 9. This Honorable Court has no jurisdiction over the nature and subject matter of this action, especially because: (a) The plaintiff has not exhausted administrative remedies available to it before initiating this action; (b) In the guise of entertaining an action for damages, this Court is being misled by the plaintiff into deciding questions properly for the Department of Natural Resources to decide exclusively in the lawful exercise of its regulatory jurisdiction;

(c) The plaintiff is now precluded and estopped from filing this action. 10. The plaintiff has no cause of action against the defendants and has not stated any in its complaint, especially because: (a) Having failed to exhaust administrative remedies, plaintiff is without a ripe cause of action that can be pleaded before this Honorable Court; (b) In substance, there is no justiciable question raised under the facts and circumstances of this case. Meanwhile, on June 2, 1987, the trial court issued on order 18 granting the petitioner's prayer for the issuance of a writ of preliminary injunction against the private respondents and the Secretary of Natural Resources, ordering them to desist, refrain and prevent from enforcing respondent Secretary's Decision dated October 1, 1986 as well as the writ of execution dated January 8, 1987. On May 10, 1989, the trial court rendered its Decision 19 in favor of the petitioner, disposing of the action as follows: WHEREFORE, in view of the foregoing, finding the evidence of plaintiff, Matuguina Integrated Wood Products, Inc. sufficient to sustain a preponderance of evidence, showing that the order of execution dated January 6, 1987, issued by the Minister of Natural Resources, through Alexander C. Castro, Assistant Minister for Legal Affairs, included therein, plaintiff Matuguina Integrated Wood Products, Inc., despite non-inclusion of plaintiff in the decision of the then Minister of Natural Resources, dated October 1, 1986, already final and executory before the issuance of the order and execution, said order or execution is hereby declared null and void and without any legal effect. As a consequence thereof, the writ of preliminary injunction issued by this court, dated June 2, 1987 is hereby made permanent. Moreover, as a result of the filing of this case, defendant Philip Co and Davencor Corporation, are ordered to jointly and severally pay the amount of P100,000.00 as actual and compensatory damages, along with another amount of P20,000.00 as attorney's fees and costs of this action, in favor of plaintiff Matuguina Integrated Wood Products, Inc. SO ORDERED.

SO ORDERED. In due time, petitioner filed a motion for reconsideration. 21 Private respondents filed their opposition 22 to the same on April 2, 1991. In a Resolution 23 dated April 12, 1991, the motion was denied by the respondent Court. Not content with the court's pronouncement, petitioner is now before us on a Petition for Review on Certiorari, 24alleging that the respondent court acted with grave abuse of discretion in rendering the questioned decision and its companion resolution, denying the motion for reconsideration. The reasons relied upon by the Petitioner in filing its petition are hereby restated: I PETITIONER WAS DENIED DUE PROCESS OF LAW WHEN IT WAS MADE LIABLE BY RESPONDENT SECRETARY OF NATURAL RESOURCES IN HIS ORDER OF EXECUTION DATED 06 JANUARY 1987 (EXHIBIT "B" OF ATTACHMENT "O") ISSUED IN MNR CASE NO. 6540 DESPITE THE FACT THAT PETITIONER WAS NEVER A PARTY NOR A PARTICIPANT IN THE SAID CASE: IN FACT, PETITIONER NEVER HAD NOTICE OF THE PROCEEDINGS IN MNR CASE NO. 6540. II THE FAILURE TO AFFORD PETITIONER THE OPPORTUNITY TO BE HEARD IN THE ADMINISTRATIVE LEVEL (MNR CASE NO. 6540) COULD NOT HAVE BEEN CURED BY THE INSTITUTION OF THE ACTION FOR PROHIBITION IN THE TRIAL COURT BECAUSE SAID COURT HAD NO JURISDICTION TO DETERMINE WHETHER PETITIONER WAS GUILTY OF ENCROACHMENT ON PRIVATE RESPONDENT DAVENCOR'S TIMBER CONCESSION; FURTHERMORE, THE QUESTION ON WHETHER PETITIONER WAS GUILTY OF ENCROACHMENT WAS NEVER PUT IN ISSUE IN THE CASE BEFORE THE TRIAL COURT. III THE LIABILITY OF MILAGROS/MLE AS FOUND BY RESPONDENT SECRETARY IN ITS DECISION DATED 01 OCTOBER 1986 (EXHIBIT "A" OF THE ATTACHMENT "0") CANNOT BE IMPUTED AGAINST PETITIONER SINCE THE LATTER IS A CORPORATION HAVING A PERSONALITY SEPARATE AND DISTINCT FROM MILAGROS/MLE. IV

Private respondents appealed the trial court's decision on May 19, 1989. Their notice of appeal was approved by the trial court. The appealed case was docketed with respondent Honorable Court of Appeals as CA-G.R. SP No. 19887. On February 25, 1991, the respondent Court rendered its Decision, 20 reversing the lower court's pronouncement. The dispositive portion of the Decision reads: WHEREFORE, premises considered, the decision appealed from is reversed and set aside and the Order of Execution issued by the Minister of Natural Resources dated January 6, 1987 is affirmed. Without pronouncement as to costs.

PETITIONER CANNOT BE MADE LIABLE TO PRIVATE RESPONDENTS UNDER THE DEED OF TRANSFER DATED 18 JULY 1975 (EXHIBIT "3" OF ATTACHMENT "P") AND SECTION 61 OF THE REVISED FORESTRY CODE OF THE PHILIPPINES (P.D. 705, AS AMENDED): A. THE ALLEGED TRANSFER OF PTL NO. 30 FROM MILAGROS/MLE TO PETITIONER NEVER BECAME BINDING AND EFFECTIVE SINCE PTL NO. 30 REMAINED IN THE NAME OF MILAGROS/MLE UNTIL ITS EXPIRATION ON 30 JUNE 1977: THIS IS DUE TO THE FACT THAT SAID TRANSFER WAS NEVER APPROVED BY THE SECRETARY OF NATURAL RESOURCES.

B. GRANTING ARGUENDO THAT THERE WAS AN EFFECTIVE TRANSFER OF PTL NO. 30 FROM MILAGROS/MLE TO PETITIONER, THE TRANSFER COULD NOT MAKE PETITIONER LIABLE FOR THE ALLEGED ENCROACHMENT OF PRIVATE RESPONDENT DAVENCOR'S TIMBER CONCESSION, SINCE: 1. SAID TRANSFER WAS EXECUTED PRIOR TO THE COMMISSION OF THE ALLEGED ENCROACHMENT AND THE FILING THE ADMINISTRATIVE COMPLAINT FOR ENCROACHMENT DATED 28 JULY 1975; THUS, PETITIONER CANNOT BE MADE LIABLE FOR OBLIGATIONS OF MILAGROS/MLE WHICH WERE INCURRED AFTER THE DATE OF THE SAID TRANSFER. 2. SAID TRANSFER COVERED ONLY FORESTRY CHARGES AND OTHER GOVERNMENT FEES, AND DID NOT INCLUDE THE PERSONAL LIABILITY OF MILAGROS/MLE THAT AROSE FROM THE ENCROACHMENT OF THE TIMBER CONCESSION OF RESPONDENT DAVENCOR. 25 Private Respondents DAVENCOR and the public respondent Hon. Minister (now Secretary) of Natural Resources filed separate Comments 26 on September 5, 1991 and June 8, 1992 respectively. The essential issues of the present controversy boil down to the following: Was the Petitioner denied due process when it was adjudged liable with MLE for encroaching upon the timber concession of DAVENCOR in the respondent Minister's Order of Execution? Is the petitioner a transferee of MLE's interest, as to make it liable for the latter's illegal logging operations in DAVENCOR's timber concession, or more specially, is it possible to pierce the veil of MIWPI's corporate existence, making it a mere conduit or successor of MLE? Generally accepted is the principle that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case not bound by judgment rendered by the court. In the same manner an execution can be issued only against a party and not against one who did not have his day in court. In Lorenzo vs. Cayetano, 78 SCRA 485 [1987], this Court held that only real parties in interest in an action are bound by judgment therein and by writs of execution and demolition issued pursuant thereto. 27 Indeed a judgment cannot bind persons who are not parties to the action. 28 It is elementary that strangers to a case are not bound by the judgment rendered by the court and such judgment is not available as an adjudication either against or in favor of such other person. A decision of a court will not operate to divest the rights of a person who has not and has never been a party to a litigation, either as plaintiff or as defendant. Execution of a judgment can only be issued against one who is a party to the action, and not against one who, not being a party in the action has not yet had his day in court. 29 The writ of execution must conform to the judgment which is to be executed, as it may not vary the terms of the judgment it seeks to enforce. 30 Nor may it go beyond the terms of the judgment sought to be executed. Where the execution is not in harmony with the judgment which gives it life and exceeds it, it has pro tanto no validity. To maintain otherwise would be to ignore the constitutional provision against depriving a person of his property without due process of law. 31 The writ of execution issued by the Secretary of Natural Resources on January 8, 1987 clearly varies the term of his Decision of October 1, 1986, inasmuch as the Writ includes the MIWPI as party liable whereas the Decision only mentions Milagros Matuguina/MLE.

There is no basis for the issuance of the Order of Execution against the petitioner. The same was issued without giving the petitioner an opportunity to defend itself and oppose the request of DAVENCOR for the issuance of a writ of execution against it. In fact, it does not appear that petitioner was at all furnished with a copy of DAVENCOR's letter requesting for the Execution of the Honorable Secretary's decision against it. Petitioner was suddenly made liable upon the order of execution by the respondent Secretary's expedient conclusions that MLE and MIWPI are one and the same, apparently on the basis merely of DAVENCOR's letter requesting for the Order, and without hearing or impleading MIWPI. Until the issuance of the Order of execution, petitioner was not included or mentioned in the proceedings as having any participation in the encroachment in DAVENCOR's timber concession. This action of the respondent Secretary disregards the most basis tenets of due process and elementary fairness. The liberal atmosphere which pervades the procedure in administrative proceedings does not empower the presiding officer to make conclusions of fact before hearing all the parties concerned. 32 In Police Commission vs.Hon. Judge Lood, 33 we held that the formalities usually attendant in court hearings need not be present in an administrative investigation, provided that the parties are heard given the opportunity to adduce their evidence. The right to notice and hearing is essential to due process and its non-observance will, as a rule, invalidate the administrative proceedings. As observed by the appellate court, to writ: the appellant should have filed a Motion with the Minister with Notice to the appellee to include the latter as party liable for the judgment in order to afford the appellee an opportunity to be heard on its liability for the judgment rendered against Ma. Milagros Matuguina doing business under the name Matuguina Logging Enterprises. 34 Continuing, the said court stated further that: Nevertheless, the failure to comply with the procedure in order to satisfy the requirements of due process was cured by the present action for prohibition where the liability of appellee has been ventilated. We do not agree. Essential, Prohibition is a remedy to prevent inferior courts, corporations, boards or persons from usurping or exercising a jurisdiction or power with which they have not been vested by law 35 As we have held in Mafinco Trading Corporation vs. Ople, et al, 36 in a certiorari or prohibition case, only issues affecting the jurisdiction of the tribunal, board and offices involved may be resolved on the basis of undisputed facts. The issue of whether or not petitioner is an alter ego of Milagros Matuguina/MLE, is one of fact, and which should have been threshed out in the administrative proceedings, and not in the prohibition proceedings in the trial court, where it is precisely the failure of the respondent Minister of Natural Resources to proceed as mandated by law in the execution of its order which is under scrutiny. Assuming, arguendo, that prohibition is the proper remedy for determining the propriety of piercing the separate personality of petitioner with its stockholders, the evidence presented at said trial does not warrant such action. It is settled that a corporation is clothed with personality separate and distinct from that of the persons composing it. It may not generally be held liable for that of the persons composing

it. It may not be held liable for the personal indebtedness of its stockholders or those of the entities connected with it. Conversely, a stockholder cannot be made to answer for any of its financial obligations even if he should be its president. 37 But when the juridical personality of the corporation is used to defeat public convenience, justify wrong, protect fraud or defend crime, the corporation shall be considered as a mere association of persons (Koppel, Inc. vs. Yatco, 77 Phil 496, Palay, Inc. vs. Clave, G.R. No. 56076, September 21, 1983, 124 SCRA 638), and its responsible officers and/or stockholders shall be individually liable (Namarco vs. Associated Finance Co., Inc., G.R. No. L-20886, April 27, 1967, 19 SCRA 962). For the same reasons, a corporation shall be liable for the obligations of a stockholder (Palacio vs. Fely Transportation Co., G.R No. L-15121, August 31, 1963, 5 SCRA 1011), or a corporation and its successor-in-interest shall be considered as one and the liability of the former shall attach to the latter. 38 But for the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed. 39 In the case at bar, there is, insufficient basis for the appellate court's ruling that MIWPI is the same as Matuguina. The trial court's observation is enlightening. Despite apparently opposing evidence of both parties, the Court gathered and finds, that defendant's attempt to pierce the veil of corporate personality of plaintiff corporation, as to consider plaintiff corporations merely an adjunct or alter ego of Maria Milagros Matuguina Logging Enterprises, to justify defendant's claim against plaintiff corporation, suffers heavily from insufficiency of evidence. It is the vehement contention of defendants, to bolster its claim, that plaintiff corporation is the alter ego of Maria Milagros Matuguina Logging Enterprises, because when Milagros Matuguina became the Chairman of the Board of Directors of plaintiff corporation, she requested for the change of name and transfer of management of PTL No. 30, from her single proprietorship, to plaintiff corporation. Secondly, when Milagros Matuguina executed the deed of transfer, transferring her forest concession under PTL No. 30, together with all the structures and improvements therein, to plaintiff corporation, for a consideration of P14,800.00 representing 148,000 shares of stocks of plaintiff corporation actually all existing shares of stocks of Milagros Matuguina, in plaintiff corporation represents 77.4% therein; suffice to say that plaintiff corporation practically became an alter ego of Milagros Matuguina. Defendant's arguments on this peripheral aspect of corporate existence, do not at all indicate that such a legal fiction, was granted. In the first place, the alleged control of plaintiff corporation was not evident in any particular corporate acts of plaintiff corporation, wherein Maria Milagros Matuguina Logging Enterprises using plaintiff corporation, executed acts or powers directly involving plaintiff corporation. Neither was there any evidence of defendants, that Maria Milagros Matuguina Logging Enterprises, using the facilities and resources of plaintiff corporation, involved itself in transaction using both single proprietorship and plaintiff corporation in such particular line of business undertakings.

As stated by this court in resolving plaintiff's prayer for issuance of a writ or preliminary injunction, said: There is actually, no evidence presented by defendant, showing that sometime on March 15, 1986, to January 1987, during which period, the subject decision of Hon. Secretary of Natural Resources and corresponding writ of execution, Maria Milagros Matuguina was a stockholder of plaintiff corporation in such amount or was she an officer of plaintiff corporation in whatever capacity. The above circumstances is relevant and significant to assume any such justification of including plaintiff corporation in the subject writ of execution, otherwise, as maintained by defendants, what matters most was the control of Milagros Matuguina Logging Enterprises of plaintiff corporation in 1974 and 1975, when the administrative case was pending, this circumstance alone without formally including plaintiff corporation in said case, will not create any valid and sufficient justification for plaintiff corporation, to have been supposedly included in the suit against defendants and Maria Milagros Matuguina Logging Enterprises, in the administrative case. Yet, granting as claimed by defendants, that in 1974 or in 1975, Maria Milagros Matuguina became the controlling stockholder of plaintiff corporation, on account of the change of name and transfer of management of PTL No. 30, this circumstance, we repeat, does not of itself prove that plaintiff corporation was the alter ego of Maria Milagros Matuguina Logging Enterprises, as enunciated in various decisions of this Court, to writ: It is important to bear in mind that mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stocks of the corporation, is not itself a sufficient warrant for disregarding the fiction of separate personality (Liddel and Co. vs. Collector of Internal Revenue, G.R. No. 9687, June 30, 1961). It is recognized as lawful to obtain a corporation charter, even with a single substantial stockholder, to engage in specific activity and such activity may co-exist with other private activities of the stockholder. If the corporation is substantial one, conducted lawfully; without fraud on another, its separate identity is to be respected. 40 In this jurisdiction, it is a settled rule that conclusions and findings of fact by the trial court are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons because the trial court is in a better position to examine real evidence, as well as to observe the demeanor of the witnesses while testifying in the case. 41 It is likewise improper to state that the MIWPI is the privy or the successor-in-interest of MLE, as the liability for the encroachment over DAVENCOR's timber concession is concerned, by reason of the transfer of interest in PTL No. 30 from MLE to MIWPI. First of all, it does not appear indubitable that the said transfer ever became effective, since PTL No. 30 remained in the name of Milagros Matuguina/MLE until it expired on June 30, 1977. 42 More importantly, even if it is deemed that there was a valid change of name and transfer of interest in the PTL No. 30, this only signifies a transfer of authority, from MLE to MIWPI, to

conduct logging operations in the area covered by PTL No. 30. It does not show indubitable proof that MIWPI was a mere conduit or successor of Milagros Matuguina/MLE, as far the latter's liability for the encroachment upon DAVENCOR's concession is concerned. This is the only conclusion which we can discern from the language of Section 61 of P.D. 750, 43 and the letters of the Acting Minister of Natural Resources to Milagros Matuguina/MLE and to MIWPI, on September 16, 1975. 44 InSoriano vs. Court of Appeals, this Court stated in clear language, that It is the general rule that the protective mantle of a corporation's separate and distinct personality could only be pierced and liability attached directly to its officers and/or members stockholders, when the same is used for fraudulent, unfair, or illegal purpose. In the case at bar, there is no showing that the Association entered into the transaction with the private respondent for the purpose of defrauding the latter of his goods or the payment thereof. . . . Therefore, the general rule on corporate liability, not the exception, should be applied in resolving this case. (G.R. No. 49834, June 22, 1989) The respondents cite Section 61 of P.D. 705 to establish MIWPI's succession to the liability of Milagros Matuguina/MLE: Sec. 61. Transfers. Unless authorized by the Department Head, no licensee, lessee, or permittee may transfer, exchange, sell, or convey his license agreement, license, lease or permit, or any of his rights or interests therein, or any of his assets used in connection therewith. The licensee, lessee, or permittee shall be allowed to transfer or convey his license agreement, license, lease, or permit only if he has not violated any forestry law, rule or regulation; has been faithfully complying with the terms and conditions of the license agreement, license, lease or permit; the transferee has all the qualifications and none of the disqualifications to hold a license agreement, license, lease or permit; there is no evidence that such transfer or conveyance is being made for purposes of speculation; and the transferee shall assume all the obligations of the transferor. The transferor shall forever be barred from acquiring another license agreement, license, lease or permit. Even if it is mandated in the abovestated provision that "the transferee shall assume all the obligations of the transferor" this does not mean that all obligations are assumed, indiscriminately. Invariably, it is not the letter, but the spirit of the law and intent of the legislature that is important. When the interpretation of a statute according to the exact and literal import of its words would lead to absurdity, it should be construed according to the spirit and reason, disregarding if necessary the letter of the law. 45 In construing statutes, the terms used therein are generally to be given their ordinary meaning, that is, such meaning which is ascribed to them when they are commonly used, to the end that absurdity in the law must be avoided. 46 The term "obligations" as used in the final clause of the second paragraph of Section 61 of P.D. 705 is construed to mean those obligations incurred by the transferor in the ordinary course of business. It cannot be construed to mean those obligations or liabilities incurred by the transferor as a result of transgressions of the law, as these are personal obligations of the transferor, and could not have been included in the term "obligations" absent any modifying provision to that effect.

In the September 16, 1975 letters of Acting Director of the Bureau of Forest Development of Milagros Matuguina and MIWPI informing them of the approval of Matuguina's request for the change of name and transfer of management of PTL No. 30, the following statements were made by the Acting Director: In view hereof, (Matuguina Integrated Wood Products, Inc.) shall assume the responsibility of paying whatever pending liabilities and/or accounts remaining unsettled, if any, by the former licensee, Milagros Matuguina, with the government. (Emphasis ours) 47 Accordingly, the letter's language implies that the obligations which MIWPI are to assume as transferee of Milagros Matuguina/MLE are those obligations in favor of the government only, and not to any other entity. Thus this would include Forestry Charges, Taxes, Fees, and similar accountabilities. In sum, the Court makes the following pronouncements: (a) The respondent Honorable Minister of Natural Resources gravely abused its discretion when it issued its Order of Execution on January 6, 1987, including therein as one of the parties liable the petitioner Matuguina Integrated Wood Products, Inc., which was never a party to the assailed proceeding resulting in the issuance of such Order and, without affording the same an opportunity to be heard before it was adjudged liable. (b) The petitioner is a corporate entity separate and distinct from Milagros Matuguina/Matuguina Logging Enterprises, there being no clear basis for considering it as a mere conduit or alter ego of Matuguina/MLE, and therefore, cannot be made liable for the obligations of the same for encroachment over the timber concession of private respondent DAVENCOR. IN VIEW OF THE FOREGOING, the Petition is hereby GRANTED, and the Decision dated February 25, 1991, is SET ASIDE. The decision of the Regional Trial Court is hereby REINSTATED, and correspondingly, Order of Execution of the respondent Secretary of Natural Resources is declared NULL and VOID and without effect. No pronouncement as to costs. SO ORDERED. G.R. No. 85416 July 24, 1990 FRANCISCO V. DEL ROSARIO, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and LEONARDO V. ATIENZA, respondents. Jardeleza, Sobrevias, Diaz, Hayudini & Bodegon Law Offices for petitioner. Lourdes T. Pagayatan for private respondent.

CORTES, J.: In POEA Case No. 85-06-0394, the Philippine Overseas Employment Administration (POEA) promulgated a decision on February 4, 1986 dismissing the complaint for money claims for lack of merit. The decision was appealed to the National Labor Relations Commission (NLRC), which on April 30, 1987 reversed the POEA decision and ordered Philsa Construction and Trading Co., Inc. (the recruiter) and Arieb Enterprises (the foreign employer) to jointly and severally pay private respondent the peso equivalent of $16,039.00, as salary differentials, and $2,420.03, as vacation leave benefits. The case was elevated to the Supreme Court, but the petition was dismissed on August 31, 1987 and entry of judgment was made on September 24, 1987. A writ of execution was issued by the POEA but it was returned unsatisfied as Philsa was no longer operating and was financially incapable of satisfying the judgment. Private respondent moved for the issuance of an alias writ against the officers of Philsa. This motion was opposed by the officers, led by petitioner, the president and general manager of the corporation. On February 12, 1988, the POEA issued a resolution, the dispositive portion of which read: WHEREFORE, premises considered, let an alias writ of Execution be issued and the handling sheriff is ordered to execute against the properties of Mr. Francisco V. del -Rosario and if insufficient, against the cash and/or surety bond of Bonding Company concerned for the full satisfaction of the judgment awarded. Petitioner appealed to the NLRC. On September 23, 1988, the NLRC dismissed the appeal. On October 21, 1988, petitioner's motion for reconsideration was denied. Thus, this petition was filed on October 28, 1988, alleging that the NLRC gravely abused its discretion. On November 10, 1988 the Court issued a temporary restraining order enjoining the enforcement of the NLRC's decision dated September 23, 1988 and resolution dated October 21, 1988. The petition was given due course on June 14, 1989. After considering the undisputed facts and the arguments raised in the pleadings, the Court finds grave abuse of discretion on the part of the NLRC. The action of the NLRC affirming the issuance of an alias writ of execution against petitioner, on the theory that the corporate personality of Philsa should be disregarded, was founded primarily on the following findings of the POEA xxx xxx xxx

agency whose license was issued on November 5, 1981, represented by the same Mr. Francisco V. del Rosario as its President/ General Manager. and an application of the ruling of the Court in A.C. Ransom Labor Union-CCLU v. NLRC, G.R. No. 69494, June 10, 1986, 142 SCRA 269. However, we find that the NLRC's reliance on the findings of the POEA and the ruling in A. C. Ransom is totally misplaced. 1. Under the law a corporation is bestowed juridical personality, separate and distinct from its stockholders [Civil Code, Art. 44; Corporation Code, sec. 2]. But when the juridical personality of the corporation is used to defeat public convenience, justify wrong, protect fraud or defend crime, the corporation shall be considered as a mere association of persons [Koppel (Phil.), Inc. v. Yatco, 77 Phil. 496 (1946), citing 1 Fletcher, Cyclopedia of Corporations, 135136; see also Palay, Inc. v. Clave, G.R. No. 56076, September 21, 1983, 124 SCRA 638], and its responsible officers and/or stockholders shall be held individually liable [Namarco v. Associated Finance Co., Inc., G.R. No. L-20886, April 27, 1967, 19 SCRA 962]. For the same reasons, a corporation shall be liable for the obligations of a stockholder [Palacio v. Fely Transportation Company, G.R. No. L-15121, August 31, 1962, 5 SCRA 1011; Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, G.R. No. L-20502, February 26, 1965, 13 SCRA 290], or a corporation and its successor-in-interest shall be considered as one and the liability of the former shall attach to the latter [Koppel v. Yatco, supra; Liddell & Co. v. Collector of Internal Revenue, G.R. No. L-9687, June 30, 1961, 2 SCRA 632]. But for the separate juridical personality of a corporation to be disregarded, the wrongdoing must be clearly and convincingly established. It cannot be presumed. In this regard we find the NLRC's decision wanting. The conclusion that Philsa allowed its license to expire so as to evade payment of private respondent's claim is not supported by the facts. Philsa's corporate personality therefore remains inviolable. Consider the following undisputed facts: (1) Private respondent filed his complaint with the POEA on June 4, 1985; (2) The last renewal of Philsa's license expired on October 12, 1985; (3) The POEA dismissed private respondent's complaint on February 4, 1986; (4) Philsa was delisted for inactivity on August 15, 1986; *

6. Per the certification issued by the Licensing Division of this Office, it appears that Philsa Construction & Trading Co., Inc., with office address at 126 Pioneer St., Mandaluyong, Metro Manila, represented by Mr. Francisco V. del Rosario, President and General Manager, was formerly a registered construction contractor whose authority was originally issued on July 21, 1978 but was already delisted from the list of agencies/entities on August 15, 1986 for inactivity; 7. Per another certification issued by the Licensing Division of this Office, it also appears that another corporation, Philsa International Placement & Services Corp., composed of practically the same set of incorporators/stockholders, was registered as a licensed private employment

(5) The dismissal of the complaint was appealed to the NLRC and it was only on April 30, 1987 that the judgment awarding differentials and benefits to private respondent was rendered. Thus, at the time Philsa allowed its license to lapse in 1985 and even at the time it was delisted in 1986, there was yet no judgment in favor of private respondent. An intent to evade payment of his claims cannot therefore be implied from the expiration of Philsa's license and its delisting.

Neither will the organization of Philsa International Placement and Services Corp. and its registration with the POEA as a private employment agency imply fraud since it was organized and registered in 1981, several years before private respondent filed his complaint with the POEA in 1985. The creation of the second corporation could not therefore have been in anticipation of private respondent's money claims and the consequent adverse judgment against Philsa Likewise, substantial identity of the incorporators of the two corporations does not necessarily imply fraud. The circumstances of this case distinguish it from those in earlier decisions of the Court in labor cases where the veil of corporate fiction was pierced. In La Campana Coffee Factory, Inc. v. Kaisahan ng Manggagawa sa La Campana (KKM) 93 Phil. 160 (1953), La Campana Coffee Factory, Inc. and La Campana Gaugau Packing were substantially owned by the same person. They had one office, one management, and a single payroll for both businesses. The laborers of the gaugaufactory and the coffee factory were also interchangeable, i.e., the workers in one factory worked also in the other factory. In Claparols v. Court of Industrial Relations, G.R. No. L-30822, July 31, 1975, 65 SCRA 613, the Claparols Steel and Nail Plant, which was ordered to pay its workers backwages, ceased operations on June 30, 1957 and was succeeded on the next day, July 1, 1957 by the Claparols Steel Corporation. Both corporations were substantially owned and controlled by the same person and there was no break or cessation in operations. Moreover, all the assets of the steel and nail plant were transferred to the new corporation. 2. As earlier stated, we also find that, contrary to the NLRC'S holding, the ruling in A. C. Ransom is inapplicable to this case. In A. C. Ransom, the Court said: ... In the instant case, it would appear that RANSOM, in 1969, foreseeing the possibility or probability of payment of back wages to the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikers win their case. RANSOM actually ceased operations on May 1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was promulgated against RANSOM. [At p. 274.] The distinguishing marks of fraud were therefore clearly apparent in A. C. Ransom. A new corporation was created, owned by the same family, engaging in the same business and operating in the same compound. Thus, considering that the non-payment of the workers was a continuing situation, the Court adjudged its President, the "responsible officer" of the corporation, personally liable for the backwages awarded, he being the chief operation officer or "manager" who could be held criminally liable for violations of Republic Act No. 602 (the old Minimum Wage Law.) In the case now before us, not only has there been a failure to establish fraud, but it has also not been shown that petitioner is the corporate officer responsible for private respondent's predicament. It must be emphasized that the claim for differentials and benefits was actually directed against the foreign employer. Philsa became liable only because of its undertaking to be jointly and severally bound with the foreign employer, an undertaking required by the rules of the POEA [Rule II, sec. 1(d) (3)], together with the filing of cash and surety bonds [Rule 11,

sec. 4], in order to ensure that overseas workers shall find satisfaction for awards in their favor. At this juncture, the Court finds it appropriate to point out that a judgment against a recruiter should initially be enforced against the cash and surety bonds filed with the POEA. As provided in the POEA Rules and Regulations ... The bonds shall answer for all valid and legal claims arising from violations of the conditions for the grant and use of the license or authority and contracts of employment. The bonds shall likewise guarantee compliance with the provisions of the Labor Code and its implementing rules and regulations relating to recruitment and placement, the rules of the Administration and relevant issuances of the Ministry and all liabilities which the Administration may impose. ... [Rule II, see. 4.] Quite evidently, these bonds do not answer for a single specific liability, but for all sorts of liabilities of the recruiter to the worker and to the POEA. Moreover, the obligations guaranteed by the bonds are continuing. Thus, the bonds are subject to replenishment when they are garnished, and failure to replenish shall cause the suspension or cancellation of the recruiter's license [Rule II, sec. 19]. Furthermore, a cash bond shall be refunded to a recruiter who surrenders his license only upon posting of a surety bond of similar amount valid for three (3) years [Rule II, sec. 20]. All these, to ensure recovery from the recruiter. It is therefore surprising why the POEA ordered execution "against the properties of Mr. Francisco V. del Rosarioand if insufficient, against the cash and/or surety bond of Bonding Company concerned for the till satisfaction of the judgment awarded" in complete disregard of the scheme outlined in the POEA Rules and Regulations. On this score alone, the NLRC should not have affirmed the POEA. WHEREFORE, the petition is GRANTED and the decision and resolution of the NLRC, dated September 23, 1988 and October 21, 1988, respectively, in POEA Case No. 85-06-0394 are SET ASIDE. The temporary restraining order issued by the Court on November 10, 1988 is MADE PERMANENT. SO ORDERED. G.R. No. 70661 April 9, 1987 FILMERCO COMMERCIAL CO., INC., SPOUSES JAIME and ANA MARIA MIGUEL, petitioners, vs. HON. INTERMEDIATE APPELLATE COURT; HON. TEOFILO GUADIZ, JR., in his official capacity as Presiding Judge of Regional Trial Court, National Capital Judicial Region, Branch 147, Makati Metro Manila; PIOQUINTO VILLAPANA, in his official capacity as Deputy Sheriff of the Office of the Provincial Sheriff, National Capital Judicial Region, Makati, Metro Manila; and BANK OF THE PHILIPPINE ISLANDS,respondents. Tomacruz, Manguiat & Associates for petitioners.

GUTIERREZ, JR., J.:

The main issue in this petition is whether or not the petitioners were served valid summons so as to bring their within the jurisdiction of the court. Filmerco Commercial Co., Inc., (Filmerco) obtained two separate loans from the Bank of Philippine Islands (BPI) on November 26, 1982 and December 26, 1982 respectively. As security for the payment of the obligation stated in the promissory notes, spouses Jaime and Ana Maria Miguel executed a deed of continuing suretyship wherein the Miguels bound themselves jointly and solidarily with Filmerco for the payment of the latter's obligation under the loan-accounts. The loans remained outstanding even after they became due and demandable. Hence, on May 5,1983, BPI filed a complaint docketed as Civil Case No. 2807 for recovery of a sum of money against Filmerco and spouses Jaime and Ana Maria Miguel before the Regional Trial Court of Makati, Rizal. Upon motion of the plaintiff, the defendants were d in default for failure to file an answer within the reglementary period. The plaintiff was then allowed to present its evidence exparte after which the lower court on June 11, 1984 rendered a decision, the dispositive portion of which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendants, ordering the latter to pay, jointly and severally, the former: a) the sum of P308,525.17 plus 10% interest per annum and 12% penalty fee per annum from May 21, 1984 until the amount is fully paid; b) the sum equivalent to 20% of the total amount due as and for attorney's fees; c) to pay the costs of suit. (p.52, Rollo) On the ground that the period to appeal expired without any decision having been appealed, the plaintiff filed a motion for execution of judgment before the lower court. This motion was granted and a writ of execution was issued against Filmerco and the Miguels. Pursuant to the writ of execution, respondent Sheriff Villapana levied on and attached alleged properties of Filmerco and the Miguels. These properties were scheduled for sale on September 20, 1984. On September 25, 1984, the defendants filed a motion to set aside the decision, writ of execution, notice of levy/attachment and to restrain the holding of the auction sale. The motion was premised on the ground that the court had no jurisdiction over the defendants because no valid summons was served on them. On November 26, 1984, after opposition to motion, reply, rejoinder and sub-rejoinder had been duly submitted, the lower court issued an order denying the aforesaid motion. On December 3, 1984, while the public auction of the attached properties was in progress, the defendants filed a motion for reconsideration of the November 26, 1984 order.

Without waiting for the resolution of the aforesaid motion for reconsideration, the defendants filed with the Intermediate Appellate Court a petition for certiorari and prohibition, injunction and preliminary restraining order against the lower court's decision and orders. The appellate court dismissed the petition. A motion for reconsideration was likewise denied. Hence, this petition. The petitioners submit that no valid summons was served upon them. Therefore, they contend that the lower court had not acquired jurisdiction over their persons thus resulting in the nullity of its decision. According to the sheriff's return dated September 7, 1983, summons and copy of the complaint were not served on the petitioners at 31 Sta. Escolastica Street, Pasay City, their given principal place of business and had to be returned to the court unserved for the reason that the "defendants have already vacated the premises and/or addresses more than a year ago and no definite information could be had regarding their present whereabouts." Three separate summons for each of the defendants were addressed to 31 Sta. Scholastics Street, Pasay City, Metro Manila. Upon motion of the private respondent (plaintiff in the case) the lower court issued alias summons. According to the sheriff's return dated March 31, 1984, summons were duly served upon "defendant-spouses Jaime and Ana Maria Miguel at No. 18, Yuchengco Drive, Pacific Malayan Village, Alabang, Muntinlupa, Metro Manila, thru Mrs. Angle Morger, a person residing therein of suitable age and discretion to receive service of that nature and who received the said court processes for and in behalf of the defendants but refused to sign." It was noted therein that the defendant spouses are "duly served" but that the other defendant Filmerco was "not and could not be served" and the summons pertaining to it was " returned unserved." Petitioner spouses, Jaime and Ana Maria Miguel contend that the substituted service of summons upon their persons thru Mrs. Angle Morger at No. 18 Yuchengco Drive, Pacific Malayan Village, Alabang, Muntinlupa, Metro Manila was in- valid for the following reasons: (1) at the time of the service they were not residents of the said address, and (2) Mrs. Angle Morger was not authorized to receive papers or documents for them. They submitted affidavits of Angle Morger to prove their point. There can be no dispute that service of summons upon the defendant is necessary in order that a court may acquire jurisdiction over his person. Any judgment without such service in the absence of a valid waiver is null and void. (Keister v. Navarro, 77 SCRA 209). Pursuant to Section 7, Rule 14 of the Revised Rules of court, summons must be served on the defendant. However, when the defendant cannot be served personally within a reasonable time after efforts to locate him have failed, substituted service may be made. In the case at bar, there is no question that personal service of summons upon the defendants could not be made because they moved out from their given address and their whereabouts were unknown as indicated in the sheriff's return. Hence, the court resorted to substituted service of summons provided for under Section 8, Rule 14 of the Revised Rules of Court:

SEC. 8. Substituted service. If the defendant cannot be served within a reasonable time as provided in the preceding section, service may be effected (a) by leaving copies of the summons at the defendant's dwelling house or residence with some person of suitable age and discretion then residing therein, or (b) by leaving the copies at defendant's office or regular place of business with some competent person in charge thereof. In the case of Keister v. Navarro (supra), we construed this rule as follows: xxx xxx xxx ... [U]nder the controlling decisions, the statutory requirements of substituted service must be followed strictly, faithfully and fully, and any substituted service other than that authorized by the statute is considered ineffective. (Ibid., pp. 1053-1054). Indeed, the constitutional requirement of due process requires that the service be such as may be reasonably expected to give the desired notice to the party of the claim against him. (Perkins v. Dizon, 69 Phil. 186; Dy Reyes v. Ortega, 16 SCRA 903) xxx xxx xxx ... The terms "dwelling house" or "residence" are generally held to refer to the time of service, hence it is not sufficient "to leave the copy at defendant's former dwelling house, residence, or place of abode, as the case may be, after his removal therefrom." (72 C.J.S. 1059) They refer to the place where the person named in the summons is living at the time when the service is made, even though he may be temporarily out of the country at the time. Similary, the terms "office" or "regular place of business" refer to the office or place of business of defendant at the time of service. ... (at p. 215) Applying these principles to the case at bar, we find that no valid service of summons upon the defendant spouses could be effected thru Mrs. Angle Morger. In her affidavits, Mrs. Morger manifested that she and her husband are the bona fide residents of 18 Yuchengco Drive, Pacific Malayan Village, Alabang, Metro Manila; that they leased the said premises from the owner thereof as evidenced by a contract of lease dated August 8, 1983; that they have been occupying the premises since September 1, 1983; that on March 31, 1984, Sheriff Villapana attempted to serve the official summons and a copy of a complaint against spouses Jaime and Ana Maria Miguel and Filmerco Commercial Inc.; that she informed the sheriff that the Miguels do not reside in the place and that neither was said residence the dwelling place of the Miguel spouses; that she does not know Filmerco, Inc.; that despite the fact that she informed the sheriff that she is not authorized by the spouses and Filmerco to receive any papers for them, the sheriff left, leaving some documents with her maid, Daday Lopez; that she did not affix her signature on the documents being then served by the sheriff nor did the maid affix hers; that the documents left by the sheriff with the maid were not even ascertained nor read by the affiant. Mrs. Morger's manifestation is not refuted or rebutted. Obviously, the address No. 18 Yuchengco Drive, Pacific Malayan Village, Alabang, Muntinlupa, Metro Manila was neither the "residence" nor the "dwelling house" of the petitioners at the time summons was served upon them as contemplated by the Rules. Moreover, Angle Morger is not a proper person with whom the copies of the summons could be left. The sheriff 's return indicates that she refused to sign the summons and the same was returned to the court unsigned. This fact adds credence to Angle Morger's manifestation about

her informing the sheriff that she was not authorized to receive papers in behalf of the defendant-spouses and that she refused to receive them. We ruled in the case earlier cited: xxx xxx xxx ... [T]he rule designates the persons to whom copies of the process may be left. The rule presupposes that such a relation of confidence exists between the person with whom the copy is left and the defendant and therefore, assumes that such person win deliver the process to defendant or in some way give notice thereof. (Keister v. Navarro, supra) Mrs. Morger's manifestation negates any close relationship between herself and the defendantspouses to qualify her as representative of the former to receive summons in their behalf. The private respondent merely relies on the sheriff's return that summons was duly served on the spouses and states that to disregard the return would be disastrous as "self-serving affidavits" would be preferred over the presumption of regularity in the discharge of official functions. It urges that the sheriff's return should be given credence over the affidavit. A sheriff's certification that he duly served summons on a defendant does not necessarily mean that he validly served the summons. In this particular case, there is a strong showing that Mr. and Mrs. Jaime Miguel are notresidents of 18 Yuchengco Drive, Pacific Malayan Village, Alabang, Muntinlupa. The respondent, itself, states that the spouses are hiding to escape their obligations. Sworn statements of Mrs. Angle Morger assert that she and her husband are lessees of the premises and are the actual residents therein. The respondents claim these statements are self-serving. Whether self-serving or not, the fact remains that Mrs. Morger was seen by the sheriff as the then person in that house. The respondents have absolutely no grounds, other than suspicions, for their contention that the Miguels and not the Morgers are the actual residents at that address. In the light of these facts, the appellate court's reliance on the sheriff's return that summons upon defendant-spouses thru Angle Morger was "duly served" in consonance with the principle of presumption in favor of regularity of performance of official functions of a public officer (Section 5, Rule 13, Rules of Court) has no basis. With regards to the petitioner corporation, the sheriff's return categorically states that the alias summons was not served upon the corporation. Moreover, the private respondent filed a motion to declare defendant-spouses Jaime and Ana Maria Miguel alone, in default without including the petitioner corporation (Annex E, p. 64, Rollo) These facts not withstanding the trial court declared all the defendants in default and rendered a decision also against the petitioner corporation. This decision was affirmed by the appellate court which applied the doctrine of piercing the veil of corporate fiction. The appellate court stated: The records disclose that petitioner-spouses are both directors of respondent-Corporation being the majority stockholder of FILMERCO (Annex "A," Comment). The records, also, reveal that both petitioner-spouses and petitioner-corporation were impleaded as party defendants in the civil case filed before the lower court. Hence, petitioner-corporation cannot now claim to have been improperly served with summons. This Court, therefore, finds justifiable reason for the lower court's order piercing the veil of corporate fiction. ... (p. 56, rollo)

We have already found that there was no valid summons effected upon petitioner-spouses. Since, the appellate court considered service of summons upon the petitioner-spouses as constituting service of summons upon the petitioner-corporation, the inevitable conclusion is that no valid summons could have been effected upon the petitioner-corporation. Moreover, even if we assume that there was valid service of summons upon the petitionerspouses, it does not necessarily follow that there was also valid service of summons upon the petitioner-corporation. We have explained the doctrine of piercing the veil of corporate fiction in the following manner: The doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who compose it is recognized and respected in all cases which are within reason and the law. (Borja v. Vasquez, 74 Phil. 56), When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, (Koppel Phil. v. Yatco, 77 Phil. 496; Lidell & Co. v. Collector, G.R. No. L-9687, June 30, 1961; Commissioner v. Norton & Harrison Company, G.R. No. L- 17618, Aug. 31, 1964; and Guevarra, Phil. Corp. Law, 1961 ed., p. 7) the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be drifted to allow for its consideration merely as an aggregation of individuals. (Villa Rey Transit, Inc. v. Ferrer, 25 SCRA 845-857). In effect, this doctrine refers to determination of liability and not to determination of jurisdiction. This is so because the doctrine of piercing the veil of corporate fiction comes to play only during the trial of the case after the court has already acquired jurisdiction over the corporation. Hence, before this doctrine can be applied, based on the evidence to be presented, it is imperative that the court must first have jurisdiction over the corporation. For the court to acquire jurisdiction over a domestic corporation such as the petitionercorporation, summons must be served upon it through the officers of the corporation enumerated in Section 13, Rule 14 of the Revised Rules of Court. There is not even a semblance of any effort to serve summons upon an officer as such Since, the summons intended for the petitioner-corporation was "not and could not be served" as certified in the sheriff's return, the lower court never acquired jurisdiction over the petitioner-corporation. It follows that the judgment against the petitioner-corporation is null and void The allegations that the petitioners deliberately concealed their whereabouts to escape the payment of just and valid obligations appear to have some basis. However, allegations such as these do not justify the appellate court's upholding a judgment wherein the trial court has not acquired jurisdiction over the persons of the defendants. The private respondent has chosen to employ a procedure which is strictly in personam. As indicated in the cases of Citizens Surety and Insurance, Inc. v. Melencio-Herrera (38 SCRA 369) and Magdalena Estate, Inc. v. Nieto(125 SCRA 758) it is also possible to use proceedings in rem or quasi in rem to achieve the same desired ends. There may be other ways which, if utilized, would insure that the courts acquire jurisdiction over defendants in recovery of money cases but the shortcut method approved by the respondent court is not one of them.

WHEREFORE, the instant petition is hereby GRANTED. The lower court's decision in Civil Case No. 2807 is SET ASIDE. The case is remanded to the trial court for proper service of summons and trial. SO ORDERED. G.R. No. 170689 March 17, 2009

PANTRANCO EMPLOYEES ASSOCIATION (PEA-PTGWO) and PANTRANCO RETRENCHED EMPLOYEES ASSOCIATION (PANREA), Petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION (NLRC), PANTRANCO NORTH EXPRESS, INC. (PNEI), PHILIPPINE NATIONAL BANK (PNB), PHILIPPINE NATIONAL BANK-MANAGEMENT AND DEVELOPMENT CORPORATION (PNB-MADECOR), and MEGA PRIME REALTY AND HOLDINGS CORPORATION (MEGA PRIME), Respondents. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 170705 March 17, 2009

PHILIPPINE NATIONAL BANK, Petitioner, vs. PANTRANCO EMPLOYEES ASSOCIATION, INC. (PEA-PTGWO), PANTRANCO RETRENCHED EMPLOYEES ASSOCIATION (PANREA) AND PANTRANCO ASSOCIATION OF CONCERNED EMPLOYEES (PACE), ET AL., PHILIPPINE NATIONAL BANK-MANAGEMENT DEVELOPMENT CORPORATION (PNB-MADECOR), and MEGA PRIME REALTY HOLDINGS, INC., Respondents. NACHURA, J.: Before us are two consolidated petitions assailing the Court of Appeals (CA) Decision1 dated June 3, 2005 and its Resolution2 dated December 7, 2005 in CA-G.R. SP No. 80599. In G.R. No. 170689, the Pantranco Employees Association (PEA) and Pantranco Retrenched Employees Association (PANREA) pray that the CA decision be set aside and a new one be entered, declaring the Philippine National Bank (PNB) and PNB Management and Development Corporation (PNB-Madecor) jointly and solidarily liable for the P722,727,150.22 National Labor Relations Commission (NLRC) judgment in favor of the Pantranco North Express, Inc. (PNEI) employees;3 while in G.R. No. 170705, PNB prays that the auction sale of the Pantranco properties be declared null and void.4 The facts of the case, as found by the CA,5 and established in Republic of the Phils. v. NLRC,6 Pantranco North Express, Inc. v. NLRC,7 and PNB MADECOR v. Uy,8 follow: The Gonzales family owned two corporations, namely, the PNEI and Macris Realty Corporation (Macris). PNEI provided transportation services to the public, and had its bus terminal at the corner of Quezon and Roosevelt Avenues in Quezon City. The terminal stood on four valuable pieces of real estate (known as Pantranco properties) registered under the name of Macris.9 The Gonzales family later incurred huge financial losses despite attempts of rehabilitation and loan infusion. In March 1975, their creditors took over the management of

PNEI and Macris. By 1978, full ownership was transferred to one of their creditors, the National Investment Development Corporation (NIDC), a subsidiary of the PNB. Macris was later renamed as the National Realty Development Corporation (Naredeco) and eventually merged with the National Warehousing Corporation (Nawaco) to form the new PNB subsidiary, the PNB-Madecor. In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a company owned by Gregorio Araneta III. In 1986, PNEI was among the several companies placed under sequestration by the Presidential Commission on Good Government (PCGG) shortly after the historic events in EDSA. In January 1988, PCGG lifted the sequestration order to pave the way for the sale of PNEI back to the private sector through the Asset Privatization Trust (APT). APT thus took over the management of PNEI. In 1992, PNEI applied with the Securities and Exchange Commission (SEC) for suspension of payments. A management committee was thereafter created which recommended to the SEC the sale of the company through privatization. As a cost-saving measure, the committee likewise suggested the retrenchment of several PNEI employees. Eventually, PNEI ceased its operation. Along with the cessation of business came the various labor claims commenced by the former employees of PNEI where the latter obtained favorable decisions. On July 5, 2002, the Labor Arbiter issued the Sixth Alias Writ of Execution10 commanding the NLRC Sheriffs to levy on the assets of PNEI in order to satisfy the P722,727,150.22 due its former employees, as full and final satisfaction of the judgment awards in the labor cases. The sheriffs were likewise instructed to proceed against PNB, PNB-Madecor and Mega Prime.11 In implementing the writ, the sheriffs levied upon the four valuable pieces of real estate located at the corner of Quezon and Roosevelt Avenues, on which the former Pantranco Bus Terminal stood. These properties were covered by Transfer Certificate of Title (TCT) Nos. 87881-87884, registered under the name of PNB-Madecor.12 Subsequently, Notice of Sale of the foregoing real properties was published in the newspaper and the sale was set on July 31, 2002. Having been notified of the auction sale, motions to quash the writ were separately filed by PNBMadecor and Mega Prime, and PNB. They likewise filed their Third-Party Claims.13 PNB-Madecor anchored its motion on its right as the registered owner of the Pantranco properties, and Mega Prime as the successor-in-interest. For its part, PNB sought the nullification of the writ on the ground that it was not a party to the labor case.14 In its Third-Party Claim, PNB alleged that PNB-Madecor was indebted to the former and that the Pantranco properties would answer for such debt. As such, the scheduled auction sale of the aforesaid properties was not legally in order.15 On September 10, 2002, the Labor Arbiter declared that the subject Pantranco properties were owned by PNB-Madecor. It being a corporation with a distinct and separate personality, its assets could not answer for the liabilities of PNEI. Considering, however, that PNB-Madecor executed a promissory note in favor of PNEI forP7,884,000.00, the writ of execution to the extent of the said amount was concerned was considered valid.16 PNBs third-party claim to nullify the writ on the ground that it has an interest in the Pantranco properties being a creditor of PNB-Madecor, on the other hand, was denied because it only had an inchoate interest in the properties.17 The dispositive portion of the Labor Arbiters September 10, 2002 Resolution is quoted hereunder:

WHEREFORE, the Third Party Claim of PNB Madecor and/or Mega Prime Holdings, Inc. is hereby GRANTED and concomitantly the levies made by the sheriffs of the NLRC on the properties of PNB Madecor should be as it (sic) is hereby LIFTED subject to the payment by PNB Madecor to the complainants the amount of P7,884,000.00. The Motion to Quash and Third Party Claim of PNB is hereby DENIED. The Motion to Quash of PNB Madecor and Mega Prime Holdings, Inc. is hereby PARTIALLY GRANTED insofar as the amount of the writ exceeds P7,884,000.00. The Motion for Recomputation and Examination of Judgment Awards is hereby DENIED for want of merit. The Motion to Expunge from the Records claimants/complainants Opposition dated August 3, 2002 is hereby DENIED for lack of merit. SO ORDERED.18 On appeal to the NLRC, the same was denied and the Labor Arbiters disposition was affirmed.19 Specifically, the NLRC concluded as follows: (1) PNB-Madecor and Mega Prime contended that it would be impossible for them to comply with the requirement of the labor arbiter to pay to the PNEI employees the amount of P7.8 million as a condition to the lifting of the levy on the properties, since the credit was already garnished by Gerardo Uy and other creditors of PNEI. The NLRC found no evidence that Uy had satisfied his judgment from the promissory note, and opined that even if the credit was in custodia legis, the claim of the PNEI employees should enjoy preference under the Labor Code. (2) The PNEI employees contested the finding that PNB-Madecor was indebted to the PNEI for only P7.8 million without considering the accrual of interest. But the NLRC said that there was no evidence that demand was made as a basis for reckoning interest. (3) The PNEI employees further argued that the labor arbiter may not properly conclude from a decision of Judge Demetrio Macapagal Jr. of the RTC of Quezon City that PNB-Madecor was the owner of the properties as his decision was reconsidered by the next presiding judge, nor from a decision of the Supreme Court that PNEI was a mere lessee of the properties, the fact being that the transfer of the properties to PNB-Madecor was done to avoid satisfaction of the claims of the employees with the NLRC and that as a result of a civil case filed by Mega Prime, the subsequent sale of the properties by PNB to Mega Prime was rescinded. The NLRC pointed out that while the Macapagal decision was set aside by Judge Bruselas and hence, his findings could not be invoked by the labor arbiter, the titles of PNB-Madecor are conclusive and there is no evidence that PNEI had ever been an owner. The Supreme Court had observed in its decision that PNEI owed back rentals of P8.7 million to PNB-Madecor. (4) The PNEI employees faulted the labor arbiter for not finding that PNEI, PNB, PNB-Madecor and Mega Prime were all jointly and severally liable for their claims. The NLRC underscored the fact that PNEI and Macris were subsidiaries of NIDC and had passed through and were under the Asset Privatization Trust (APT) when the labor claims accrued. The labor arbiter was correct in not granting PNBs third-party claim because at the time the causes of action accrued, the PNEI was managed by a management committee appointed by the PNB as the new owner of PNRI (sic) and Macris through a deed of assignment or transfer of ownership. The

NLRC says at length that the same is not true with PNB-Madecor which is now the registered owner of the properties.20 The parties separate motions for reconsideration were likewise denied.21 Thereafter, the matter was elevated to the CA by PANREA, PEA-PTGWO and the Pantranco Association of Concerned Employees. The latter group, however, later withdrew its petition. The former employees petition was docketed as CA-G.R. SP No. 80599. PNB-Madecor and Mega Prime likewise filed their separate petition before the CA which was docketed as CA-G.R. SP No. 80737, but the same was dismissed.22 In view of the P7,884,000.00 debt of PNB-Madecor to PNEI, on June 23, 2004, an auction sale was conducted over the Pantranco properties to satisfy the claim of the PNEI employees, wherein CPAR Realty was adjudged as the highest bidder.23 On June 3, 2005, the CA rendered the assailed decision affirming the NLRC resolutions. The appellate court pointed out that PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and distinct from PNEI. As such, there being no cogent reason to pierce the veil of corporate fiction, the separate personalities of the above corporations should be maintained. The CA added that the Pantranco properties were never owned by PNEI; rather, their titles were registered under the name of PNB-Madecor. If PNB and PNB-Madecor could not answer for the liabilities of PNEI, with more reason should Mega Prime not be held liable being a mere successor-in-interest of PNB-Madecor. Unsatisfied, PEA-PTGWO and PANREA filed their motion for reconsideration;24 while PNB filed its Partial Motion for Reconsideration.25 PNB pointed out that PNB-Madecor was made to answer for P7,884,000.00 to the PNEI employees by virtue of the promissory note it (PNBMadecor) earlier executed in favor of PNEI. PNB, however, questioned the June 23, 2004 auction sale as the P7.8 million debt had already been satisfied pursuant to this Courts decision in PNB MADECOR v. Uy.26 Both motions were denied by the appellate court.27 In two separate petitions, PNB and the former PNEI employees come up to this Court assailing the CA decision and resolution. The former PNEI employees raise the lone error, thus: The Honorable Court of Appeals palpably departed from the established rules and jurisprudence in ruling that private respondents Pantranco North Express, Inc. (PNEI), Philippine National Bank (PNB), Philippine National Bank Management and Development Corporation (PNB-MADECOR), Mega Prime Realty and Holdings, Inc. (Mega Prime) are not jointly and severally answerable to the P722,727,150.22 Million NLRC money judgment awards in favor of the 4,000 individual members of the Petitioners.28 They claim that PNB, through PNB-Madecor, directly benefited from the operation of PNEI and had complete control over the funds of PNEI. Hence, they are solidarily answerable with PNEI for the unpaid money claims of the employees.29 Citing A.C. Ransom Labor Union-CCLU v. NLRC,30 the employees insist that where the employer corporation ceases to exist and is no longer able to satisfy the judgment awards in favor of its employees, the owner of the employer corporation should be made jointly and severally liable.31 They added that malice or bad faith need not be proven to make the owners liable.

On the other hand, PNB anchors its petition on this sole assignment of error, viz.: THE AUCTION SALE OF THE PROPERTY COVERED BY TCT NO. 87884 INTENDED TO PARTIALLY SATISFY THE CLAIMS OF FORMER WORKERS OF PNEI IN THE AMOUNT OF P7,884,000.00 (THE AMOUNT OF PNB-MADECORS PROMISSORY NOTE IN FAVOR OF PNEI) IS NOT IN ORDER AS THE SAID PROPERTY IS NOT OWNED BY PNEI. FURTHER, THE SAID PROMISSORY NOTE HAD ALREADY BEEN GARNISHED IN FAVOR OF GERARDO C. UY WHICH LED TO THREE (3) PROPERTIES UNDER THE NAME OF PNB-MADECOR, NAMELY TCT NOS. 87881, 87882 AND 87883, BEING LEVIED AND SOLD ON EXECUTION IN THE "PNB-MADECOR VS. UY" CASE (363 SCRA 128 [2001]) AND "GERARDO C. UY VS. PNEI" (CIVIL CASE NO. 95-72685, RTC MANILA, BRANCH 38).32 PNB insists that the Pantranco properties could no longer be levied upon because the promissory note for which the Labor Arbiter held PNB-Madecor liable to PNEI, and in turn to the latters former employees, had already been satisfied in favor of Gerardo C. Uy. It added that the properties were in fact awarded to the highest bidder. Besides, says PNB, the subject properties were not owned by PNEI, hence, the execution sale thereof was not validly effected.33 Both petitions must fail. G.R. No. 170689 Stripped of the non-essentials, the sole issue for resolution raised by the former PNEI employees is whether they can attach the properties (specifically the Pantranco properties) of PNB, PNB-Madecor and Mega Prime to satisfy their unpaid labor claims against PNEI. We answer in the negative. First, the subject property is not owned by the judgment debtor, that is, PNEI. Nowhere in the records was it shown that PNEI owned the Pantranco properties. Petitioners, in fact, never alleged in any of their pleadings the fact of such ownership. What was established, instead, in PNB MADECOR v. Uy34 and PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime Realty and Holdings Corporation v. PNB35 was that the properties were owned by Macris, the predecessor of PNB-Madecor. Hence, they cannot be pursued against by the creditors of PNEI. We would like to stress the settled rule that the power of the court in executing judgments extends only to properties unquestionably belonging to the judgment debtor alone.36 To be sure, one mans goods shall not be sold for another mans debts.37 A sheriff is not authorized to attach or levy on property not belonging to the judgment debtor, and even incurs liability if he wrongfully levies upon the property of a third person.38 Second, PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and distinct from that of PNEI. PNB is sought to be held liable because it acquired PNEI through NIDC at the time when PNEI was suffering financial reverses. PNB-Madecor is being made to answer for petitioners labor claims as the owner of the subject Pantranco properties and as a subsidiary of PNB. Mega Prime is also included for having acquired PNBs shares over PNBMadecor. The general rule is that a corporation has a personality separate and distinct from those of its stockholders and other corporations to which it may be connected.39 This is a fiction created by law for convenience and to prevent injustice.40 Obviously, PNB, PNB-Madecor, Mega Prime,

and PNEI are corporations with their own personalities. The "separate personalities" of the first three corporations had been recognized by this Court in PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime Realty and Holdings Corporation v. PNB41 where we stated that PNB was only a stockholder of PNB-Madecor which later sold its shares to Mega Prime; and that PNB-Madecor was the owner of the Pantranco properties. Moreover, these corporations are registered as separate entities and, absent any valid reason, we maintain their separate identities and we cannot treat them as one. Neither can we merge the personality of PNEI with PNB simply because the latter acquired the former. Settled is the rule that where one corporation sells or otherwise transfers all its assets to another corporation for value, the latter is not, by that fact alone, liable for the debts and liabilities of the transferor.42 Lastly, while we recognize that there are peculiar circumstances or valid grounds that may exist to warrant the piercing of the corporate veil, 43 none applies in the present case whether between PNB and PNEI; or PNB and PNB-Madecor. Under the doctrine of "piercing the veil of corporate fiction," the court looks at the corporation as a mere collection of individuals or an aggregation of persons undertaking business as a group, disregarding the separate juridical personality of the corporation unifying the group.44 Another formulation of this doctrine is that when two business enterprises are owned, conducted and controlled by the same parties, both law and equity will, when necessary to protect the rights of third parties, disregard the legal fiction that two corporations are distinct entities and treat them as identical or as one and the same.45 Whether the separate personality of the corporation should be pierced hinges on obtaining facts appropriately pleaded or proved. However, any piercing of the corporate veil has to be done with caution, albeit the Court will not hesitate to disregard the corporate veil when it is misused or when necessary in the interest of justice. After all, the concept of corporate entity was not meant to promote unfair objectives.46 As between PNB and PNEI, petitioners want us to disregard their separate personalities, and insist that because the company, PNEI, has already ceased operations and there is no other way by which the judgment in favor of the employees can be satisfied, corporate officers can be held jointly and severally liable with the company. Petitioners rely on the pronouncement of this Court in A.C. Ransom Labor Union-CCLU v. NLRC47 and subsequent cases.48 This reliance fails to persuade. We find the aforesaid decisions inapplicable to the instant case. For one, in the said cases, the persons made liable after the companys cessation of operations were the officers and agents of the corporation. The rationale is that, since the corporation is an artificial person, it must have an officer who can be presumed to be the employer, being the person acting in the interest of the employer. The corporation, only in the technical sense, is the employer.49 In the instant case, what is being made liable is another corporation (PNB) which acquired the debtor corporation (PNEI). Moreover, in the recent cases Carag v. National Labor Relations Commission50 and McLeod v. National Labor Relations Commission,51 the Court explained the doctrine laid down in AC Ransom relative to the personal liability of the officers and agents of the employer for the debts of the latter. In AC Ransom, the Court imputed liability to the officers of the corporation on the strength of the definition of an employer in Article 212(c) (now Article 212[e]) of the

Labor Code. Under the said provision, employer includes any person acting in the interest of an employer, directly or indirectly, but does not include any labor organization or any of its officers or agents except when acting as employer. It was clarified in Carag and McLeod that Article 212(e) of the Labor Code, by itself, does not make a corporate officer personally liable for the debts of the corporation. It added that the governing law on personal liability of directors or officers for debts of the corporation is still Section 3152 of the Corporation Code. More importantly, as aptly observed by this Court in AC Ransom, it appears that Ransom, foreseeing the possibility or probability of payment of backwages to its employees, organized Rosario to replace Ransom, with the latter to be eventually phased out if the strikers win their case. The execution could not be implemented against Ransom because of the disposition posthaste of its leviable assets evidently in order to evade its just and due obligations.53 Hence, the Court sustained the piercing of the corporate veil and made the officers of Ransom personally liable for the debts of the latter. Clearly, what can be inferred from the earlier cases is that the doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.54 In the absence of malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities.55 Applying the foregoing doctrine to the instant case, we quote with approval the CA disposition in this wise: It would not be enough, then, for the petitioners in this case, the PNEI employees, to rest on their laurels with evidence that PNB was the owner of PNEI. Apart from proving ownership, it is necessary to show facts that will justify us to pierce the veil of corporate fiction and hold PNB liable for the debts of PNEI. The burden undoubtedly falls on the petitioners to prove their affirmative allegations. In line with the basic jurisprudential principles we have explored, they must show that PNB was using PNEI as a mere adjunct or instrumentality or has exploited or misused the corporate privilege of PNEI. We do not see how the burden has been met. Lacking proof of a nexus apart from mere ownership, the petitioners have not provided us with the legal basis to reach the assets of corporations separate and distinct from PNEI.56 Assuming, for the sake of argument, that PNB may be held liable for the debts of PNEI, petitioners still cannot proceed against the Pantranco properties, the same being owned by PNB-Madecor, notwithstanding the fact that PNB-Madecor was a subsidiary of PNB. The general rule remains that PNB-Madecor has a personality separate and distinct from PNB. The mere fact that a corporation owns all of the stocks of another corporation, taken alone, is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiarys separate existence shall be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective businesses.57

In PNB v. Ritratto Group, Inc.,58 we outlined the circumstances which are useful in the determination of whether a subsidiary is but a mere instrumentality of the parent-corporation, to wit: 1. The parent corporation owns all or most of the capital stock of the subsidiary; 2. The parent and subsidiary corporations have common directors or officers; 3. The parent corporation finances the subsidiary; 4. The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation; 5. The subsidiary has grossly inadequate capital; 6. The parent corporation pays the salaries and other expenses or losses of the subsidiary; 7. The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation; 8. In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporations own; 9. The parent corporation uses the property of the subsidiary as its own; 10. The directors or executives of the subsidiary do not act independently in the interest of the subsidiary, but take their orders from the parent corporation; 11. The formal legal requirements of the subsidiary are not observed. None of the foregoing circumstances is present in the instant case. Thus, piercing of PNBMadecors corporate veil is not warranted. Being a mere successor-in-interest of PNB-Madecor, with more reason should no liability attach to Mega Prime. G.R. No. 170705 In its petition before this Court, PNB seeks the annulment of the June 23, 2004 execution sale of the Pantranco properties on the ground that the judgment debtor (PNEI) never owned said lots. It likewise contends that the levy and the eventual sale on execution of the subject properties was null and void as the promissory note on which PNB-Madecor was made liable had already been satisfied. It has been repeatedly stated that the Pantranco properties which were the subject of execution sale were owned by Macris and later, the PNB-Madecor. They were never owned by PNEI or PNB. Following our earlier discussion on the separate personalities of the different corporations involved in the instant case, the only entity which has the right and interest to question the execution sale and the eventual right to annul the same, if any, is PNB-Madecor

or its successor-in-interest. Settled is the rule that proceedings in court must be instituted by the real party in interest. A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit.59 "Interest" within the meaning of the rule means material interest, an interest in issue and to be affected by the decree, as distinguished from mere interest in the question involved, or a mere incidental interest.60 The interest of the party must also be personal and not one based on a desire to vindicate the constitutional right of some third and unrelated party.61 Real interest, on the other hand, means a present substantial interest, as distinguished from a mere expectancy or a future, contingent, subordinate, or consequential interest.62 Specifically, in proceedings to set aside an execution sale, the real party in interest is the person who has an interest either in the property sold or the proceeds thereof. Conversely, one who is not interested or is not injured by the execution sale cannot question its validity.63 In justifying its claim against the Pantranco properties, PNB alleges that Mega Prime, the buyer of its entire stockholdings in PNB-Madecor was indebted to it (PNB). Considering that said indebtedness remains unpaid, PNB insists that it has an interest over PNB-Madecor and Mega Primes assets. Again, the contention is bereft of merit. While PNB has an apparent interest in Mega Primes assets being the creditor of the latter for a substantial amount, its interest remains inchoate and has not yet ripened into a present substantial interest, which would give it the standing to maintain an action involving the subject properties. As aptly observed by the Labor Arbiter, PNB only has an inchoate right to the properties of Mega Prime in case the latter would not be able to pay its indebtedness. This is especially true in the instant case, as the debt being claimed by PNB is secured by the accessory contract of pledge of the entire stockholdings of Mega Prime to PNB-Madecor.64 The Court further notes that the Pantranco properties (or a portion thereof ) were sold on execution to satisfy the unpaid obligation of PNB-Madecor to PNEI. PNB-Madecor was thus made liable to the former PNEI employees as the judgment debtor of PNEI. It has long been established in PNB-Madecor v. Uy and other similar cases that PNB-Madecor had an unpaid obligation to PNEI amounting to more or less P7 million which could be validly pursued by the creditors of the latter. Again, this strengthens the proper parties right to question the validity of the execution sale, definitely not PNB. Besides, the issue of whether PNB has a substantial interest over the Pantranco properties has already been laid to rest by the Labor Arbiter.65 It is noteworthy that in its Resolution dated September 10, 2002, the Labor Arbiter denied PNBs Third-Party Claim primarily because PNB only has an inchoate right over the Pantranco properties.66 Such conclusion was later affirmed by the NLRC in its Resolution dated June 30, 2003.67Notwithstanding said conclusion, PNB did not elevate the matter to the CA via a petition for review. Hence it is presumed to be satisfied with the adjudication therein.68 That decision of the NLRC has become final as against PNB and can no longer be reviewed, much less reversed, by this Court.69 This is in accord with the doctrine that a party who has not appealed cannot obtain from the appellate court any affirmative relief other than the ones granted in the appealed decision.70 WHEREFORE, premises considered, the petitions are hereby DENIED for lack of merit. SO ORDERED.

G.R. No. 131673

September 10, 2004

RUBEN MARTINEZ,* substituted by his heirs, MENA CONSTANTINO MARTINEZ, WILFRIDO C. MARTINEZ, EMMA M. NAVA, and EDNA M. SAKHRANI, petitioners, vs. COURT OF APPEALS and BPI INTERNATIONAL FINANCE, respondents. CALLEJO, SR., J.: Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals, in CAG.R. CV No. 43985, modifying the Decision2 of the Regional Trial Court of Kalookan City, Branch 122, in Civil Case No. C-10811. The antecedents are as follows: Respondent BPI International Finance3 is a foreign corporation not doing business in the Philippines, with office address at the Bank of America Tower, 12 Harcourt Road, Central Hongkong. It was a deposit-taking company organized and existing under and by virtue of the laws of Hongkong, and was also engaged in investment banking operations therein. Cintas Largas, Ltd. (CLL) was also a foreign corporation, established in Hongkong, with a paidup capital of HK$10,000. The registered shareholders of the CLL in Hongkong were the Overseas Nominee, Ltd. and Shares Nominee, Ltd., which were mainly nominee shareholders. In Hongkong, the nominee shareholder of CLL was Baker & McKenzie Nominees, Ltd., a leading solicitor firm. However, beneficially, the company was equally owned by Messrs. Ramon Siy, Ricardo Lopa, Wilfrido C. Martinez, and Miguel J. Lacson.4 The registered office address of CLL in Hongkong was 22/F, Princes Building, also the office address of Price Waterhouse & Co., a large accounting firm in Hongkong. The bulk of the business of the CLL was the importation of molasses from the Philippines, principally from the Mar Tierra Corporation, and the resale thereof in the international market.5 However, Mar Tierra Corporation also sold molasses to its customers.6 Wilfrido C. Martinez was the president of Mar Tierra Corporation, while its executive vice-president was Blamar Gonzales. The business operations of both the CLL and Mar Tierra Corporation were run by Wilfrido Martinez and Gonzales. About 42% of the capital stock of Mar Tierra Corporation was owned by RJL Martinez Fishing Corporation (RJL), the leading tuna fishing outfit in the Philippines. Petitioner Ruben Martinez was the president of RJL and a member of the board of directors thereof. The majority stockholders of RJL were Ruben Martinez and his brothers, Jose and Luis Martinez. Sixty-eight (68) percent of the total assets of Ruben Martinez were in the RJL. In 1979, respondent BPI International Finance (then AIFL) granted CLL a letter of credit in the amount of US$3,000,000. Wilfrido Martinez signed the letter agreement with the respondent for the CLL. The respondent and the CLL had made the following arrangements: Cintas Largas, Ltd. will purchase molasses from the Philippines, mainly from Mar Tierra Corporation, and then sell the molasses to foreign countries. Both the purchase of the molasses from the Philippines and the subsequent sale thereof to foreign customers were effected by means of Letters of Credit. A Letter of Credit would be opened by Cintas Largas, Ltd. in favour of Mar Tierra Corporation or any other seller in the Philippines. Upon the sale of

the molasses to foreign buyers, a Letter of Credit would then be opened by such buyers, in favour of Cintas Largas, Ltd. The Letters of Credit were effected through the Letter of Credit Facility of Cintas Largas, Ltd. in plaintiff. The profits of Cintas Largas, Ltd. from these transactions were then deposited in either the deposit account of Cintas Largas, Ltd. with plaintiff or the Money Market Placement Account Nos. 063 and 084, depending upon the instructions of Wilfrido C. Martinez and Blamar C. Gonzales, principally.7 On January 24, 1979, the CLL opened a money market placement with the respondent bearing MMP No. 063, with an initial placement of US$390,000.8 The CLL also opened and maintained a foreign currency account and a deposit account with the respondent. The authorized signatory in both accounts of CLL was Wilfrido C. Martinez. Some instructions also came from Gonzales, to be confirmed by Wilfrido Martinez.9 On March 21, 1980, petitioner Ruben Martinez and/or his son Wilfrido C. Martinez and/or Miguel J. Lacson affixed their signatures on the two signature cards furnished by the respondent which became MMP No. 063 and MMP No. 084. On the face of the cards, the signatories became joint account holders of the said money market placements.10 On March 25, 1980, the CLL opened a money market placement account with the respondent bearing MMP No. 084 with an initial placement of US$68,768.60, transferred from MMP No. 063.11 At times, funds in MMP Nos. 063 and 084 were transferred to the CLLs deposit account, and vice versa. On May 19, 1980, the CLL, through Wilfrido Martinez, and the respondent, through Senen L. Matoto and Michael Sung, Senior Manager of the Money Management Division of the respondent, executed a letter-agreement in which the existing back-to-back credit facility granted to the CLL way back in 1979 was extended up to July 1980, and increased to US$5,000,000. The credit facility was to be secured as follows: SECURITY: (i) Back-to-Back L/C to be secured by an L/C issued, by a bank acceptable to AFHK, in favor of Cintas Largas. (ii) AFHK L/C issued prior to receipt of Backing L/C to be secured by a 10% margin by way of a hold out on cash deposit with AFHK with interest at LIBOR. The Backing L/C, however, shall be opened not later than 120 days after the issuance of AFHKs L/C. (iii) JSS of Messrs. Ramon Siy, Wilfrido C. Martinez, Ricardo Lopa and Miguel J. Lacson for both of the above cases. DOCUMENTATION: Standard AFHK L/C documentation.12 The facility was designed to finance the purchases of molasses made by the CLL from the Philippines for re-export.13 In compliance with the letter-agreement, Wilfrido C. Martinez, Miguel J. Lacson, Ricardo Lopa, and Ramon Siy executed a continuing suretyship agreement in which they bound and obliged themselves, jointly and severally, with the CLL to pay the latters obligation under the said credit facility.14 As of September 26, 1980, the balance of the deposit account of the CLL with the respondent was US$1,025,052.06.15 On the other hand, the balance of the money placement in MMP No.

063, as of September 25, 1980 was US$312,708.43,16 while the balance of the money market placement in MMP No. 084 as of September 8, 1980 stood at US$768,258.24.17 On October 10, 1980, Blamar Gonzales, acting for Mar Tierra Corporation, sent to the respondent a telex confirming his telephone conversation with Michael Sung/Bing Matoto requesting the respondent to transfer US$340,000 to Account No. FCD SA 18402-7, registered in the name of Mar Tierra Corporation, Philippine Banking Corporation, Union Cement Building, Port Area, Manila, as payee, with the following specific instructions: (a) there should be no mention of Wilfrido Martinez or Mar Tierra Corporation; (b) the telex instruction should be signed only by Wilfrido Martinez and sent only through the telex machine of Mar Tierra Corporation; and, (c) the final confirmation of the transfer should be made by telephone call.18 Gonzales requested the respondent, in the same telex, to confirm its total available account so that instructions on the transfer of the funds to FCD SA 18402-7 could be formalized.19 On October 13, 1980, Sung sent a telex to Gonzales informing the latter of the balances of the MMP Nos. 063 and 084 and in the CLL account deposit, with the corresponding maturity dates thereof, thus: 1. DETAIL OF PLACEMENT IN VARIOUS A/C. MMP 063 VALUE DATE 25/9/80 MMP 084 25/09/80 28/11/80 12-1/4 USD751,883.88 MATURITY DATE 28/11/80 DATE 12-1/4 AMOUNT USD306,043.48

7.89 (EXCHANGE RATE) 1.20 (120 PCT) ----------------1,662,357.00 ========== 3. ACCORDINGLY, THE FUND AVAILABLE IS APPROX. USD340,000.00. PLS REVERT.20 Sung informed Gonzales that the account available was approximately US$340,000, considering the CLL deposit account and the money market placements.21 On October 14, 1980, the respondent received a telex from Wilfrido C. Martinez requesting that the transfer of US$340,000 from the deposit account of the CLL or any deposit available be effected by telegraphic transfer as soon as possible to their account, payee FCD SA 18402-7, Philippine Banking Corporation, Port Area, Manila.22 On October 21, 1980, Wilfrido Martinez wrote the respondent confirming his request for the transfer of US$340,000 to "their" account, FCD SA 18402-7, with the Philippine Banking Corporation, through Wells Fargo Bank of New York, Philippine Banking Corporation Account No. FCDU SA No. 003-019205.23 The respondent complied with the request of the CLL, through Wilfrido Martinez and Gonzales, and remitted US$340,000 as instructed.24 However, instead of deducting the amount from the funds in the CLL foreign currency or deposit accounts and/or MMP Nos. 063 and 084, the respondent merely "posted" the US$340,000 as an account receivable of the CLL since, at that time, the money market placements had not yet matured.25 When the money market placements matured, however, the respondent did not collect the US$340,000 therefrom. MATURITY VALUE Instead, the respondent allowed the CLL and/or Wilfrido C. Martinez to withdraw, up to July 3, 1981, the bulk of the CLL deposit account and MMP Nos. 084 and 063;26 hence, it failed to USD 312,708.43 secure reimbursement for the US$340,000 from the said deposit account and/or money market placements. USD 768,258.24 In the meantime, problems ensued in the reconciliation of the transactions involving the funds of - - - - - including the MMP Nos. 063 and 084 with the respondent, as well as the receivables - - - - - the- CLL, - - of Mar Tierra USD1080,966.67 Corporation. There was also a need to audit the said funds. Sometime in July 1982, conferences were held between the executive committee of Mar Tierra Corporation and ============== some of its officers, including Miguel J. Lacson, where the means to reduce the administrative expenses and accountants fees, and the possibility of placing the CLL on an "inactive status" were discussed.27 The respondent pressured the CLL, Wilfrido Martinez, and Gonzales to pay the US$340,000 it remitted to Account No. FCD SA 18402-7.28 Eventually, Wilfrido C. Martinez and Blamar Gonzales engaged the services of the auditing firm, the Jacinto, Belano, Castro & Co., to VALUE MATURITYreview the flow of the CLLs funds and the receivables of Mar Tierra Corporation. On August 16, 1982, the CLL, through its certified public accountant, wrote the respondent requesting the latter to furnish its accountant with a copy of the financial report prepared by its auditors.29 An audit was, thereafter, conducted by the Jacinto, Belano, Castro & Co., certified public accountants of the CLL and Mar Tierra Corporation. Based on their report, the auditors found that the CLL owed the respondent US$340,000.30 USD 425,843.44 In the meantime, the respondent demanded from the CLL, Wilfrido Martinez, Lacson, Gonzales, and petitioner Ruben Martinez, the payment of the US$340,000 remitted by it to FCD SA 18402-7, per instructions of Gonzales and Wilfrido Martinez. No remittance was made to the respondent. Petitioner Ruben Martinez denied knowledge of any such remittance, as well as any liability for the amount thereof.

CINTAS LARGAS VALUE DATE 15/9/80 25/9/80 MATURITY DATE 1 DAY CALL 1 DAY CALL DATE 10-7/8 11-1/4 AMOUNT USD 46,131.26 USD500,000.00

(RATE ADJ: TO 12-1/4 VALUE 7/10/80) 26/9/80 31/10/80 12-1/4 USD420,831.45

2. ACCORDING TO AIDC, O/S OF PESO LOAN IS 10,930,000.00, AND THE HOLDOUT REQUIRED IS 120 PCT COMPUTATION: PESO 10,930,000.00

On June 17, 1983, the respondent filed a complaint against the CLL, Wilfrido Martinez, Lacson, Gonzales, and petitioner Ruben Martinez, with the RTC of Kaloocan City for the collection of the principal amount of US$340,000, with a plea for a writ of preliminary attachment. Two alternative causes of action against the defendants were alleged therein, viz: FIRST ALTERNATIVE CAUSE OF ACTION 2.1 The allegations contained in the foregoing paragraphs are repleaded herein by reference. 2.2 The remittance by plaintiff of the sum of US$340,000.00 as previously explained in the foregoing paragraphs was made upon the express instructions of defendants GONZALES and WILFRIDO C. MARTINEZ acting for and in behalf of the defendant CINTAS, defendants GONZALES and WILFRIDO C. MARTINEZ being the duly authorized representatives of defendant CINTAS to transact any and all of its business with plaintiff. 2.3 The remittance of US$340,000.00 was made under an agreement for plaintiff to advance the said amount and for defendants GONZALES, WILFRIDO C. MARTINEZ and CINTAS to repay plaintiff all such monies so advanced to said defendants or to their order. 2.4 In making said remittance, plaintiff acted as the agent of the foregoing defendants in meeting the latters liability to the recipient/s of the amount so remitted. 2.5 The remittance of US$340,000.00 which remains unsettled to date is a just, binding and lawful obligation of the defendants GONZALES, WILFRIDO C. MARTINEZ and CINTAS. 2.6 Defendant CINTAS is a reinvoicing or paper company with nominee shareholders in Hongkong. The real and beneficial shareholders of the foregoing defendants are the defendants LACSON and WILFRIDO C. MARTINEZ. 2.7 Defendant CINTAS is being used by the foregoing defendants as an alter ego or business conduit for their sole benefit and/or to defeat public convenience. 2.8 Defendant CINTAS, being a mere alter ego or business conduit for the foregoing defendants, has no corporate personality distinct and separate from that of its beneficial shareholders and, likewise, has no substantial assets in its own name. 2.9 The remittance of US$340,000.00 as referred to previously, although made upon the instructions of defendants GONZALES, WILFRIDO C. MARTINEZ and CINTAS, was in fact a remittance made for the benefit of the beneficial shareholders of defendant CINTAS. 2.10 Any and all obligations of defendant CINTAS are the obligations of its beneficial shareholders since the former is being used by the latter as an alter ego or business conduit for their sole benefit and/or to defeat public convenience. SECOND ALTERNATIVE CAUSE OF ACTION 3.1 The allegations contained in the foregoing paragraphs are incorporated herein by reference.

3.2 Defendants RUBEN MARTINEZ, WILFRIDO C. MARTINEZ and LACSON are joint account holders of Money Market Placement Account Nos. 063 and 084 (hereinafter referred to as MMP 063 and 084 for brevity) opened and maintained by said defendants with the plaintiff. 3.3 Said money market placement accounts, although nominally opened and maintained by said defendants, were in reality for the account and benefit of all the defendants. 3.4 Defendant CINTAS likewise opened and maintained a deposit account with plaintiff. 3.5 Defendants W.C. Martinez and Gonzales upon giving instructions to plaintiff to remit the amount of US$340,000.00 as previously discussed also instructed plaintiff to reimburse itself from available funds in MMP Account Nos. 063 and 084 and the defendant CINTAS deposit account. 3.6 Due to excusable mistake, plaintiff was unable to obtain reimbursement for the remittance it made from MMP Account Nos. 063, 084 and from the deposit account of defendant CINTAS. 3.7 As a consequence of said mistake, plaintiff delivered to the foregoing defendants and/or to third parties upon orders of the defendants substantially all the funds in MMP Account Nos. 063, 084 and the deposit account of defendant CINTAS. 3.8 The amount of US$340,000.00 delivered by plaintiff to the foregoing defendants constituted an overpayment and/or erroneous payment as defendants had no right to demand the same; further, said amount having been unduly delivered by mistake, the foregoing defendants were obliged to return it. 3.9 Since the foregoing defendants had no legal right to the overpayment or erroneous payment of US$340,000.00 they, therefore, hold said money in trust for the plaintiff. 3.10 Despite numerous demands to the defendants WILFRIDO C. MARTINEZ, RUBEN MARTINEZ, LACSON and CINTAS for restitution of the funds erroneously paid or overpaid to said defendants, they have failed and continue to fail to make any restitution.31 The respondent prayed therein that, after due proceedings, judgment be rendered in its favor, viz: ON THE FIRST ALTERNATIVE CAUSE OF ACTION 4.1 Ordering defendants GONZALES, WILFRIDO C. MARTINEZ and CINTAS, jointly and severally, liable to pay plaintiff the amount of US$340,000.00 with interests thereon from February 20, 1982 until fully paid. 4.2 Declaring that defendant CINTAS is a mere alter ego or business conduit of defendants LACSON and WILFRIDO C. MARTINEZ; hence, the foregoing defendants are, jointly and severally, liable to pay plaintiff the amount of US$340,000.00 with interests thereon. 4.3 Ordering the foregoing defendants to be, jointly and severally, liable for the amount of P100,000.00 as and for attorneys fees; and

4.4 Ordering the foregoing defendants to be, jointly and severally, liable to plaintiff for actual damages in an amount to be proved at the trial. Or ON THE SECOND ALTERNATIVE CAUSE OF ACTION 5.1 Declaring that plaintiff made an erroneous payment in the amount of US$340,000.00 to defendants LACSON, WILFRIDO C. MARTINEZ, RUBEN MARTINEZ and CINTAS. 5.2 Declaring the foregoing defendants to be, jointly and severally, liable to reimburse plaintiff the amount of US$340,000.00 with interest thereon from February 20, 1982 until fully paid. 5.3 Ordering defendants to be, jointly and severally, liable for the amount of P100,000.00 as and for attorneys fees; and 5.4 Ordering defendants to be, jointly and severally, liable to plaintiff for actual damages in an amount to be proved at the trial. 5.5 A writ of preliminary attachment be issued against the properties of the defendants WILFRIDO C. MARTINEZ, RUBEN MARTINEZ, LACSON and CINTAS as a security for the satisfaction of any judgment that may be recovered. Plaintiff further prays for such other relief as may be deemed just and equitable in the premises.32 In his answer to the complaint, petitioner Ruben Martinez interposed the following special and affirmative defenses: BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES, answering defendant respectfully states: 2. Defendant is not the holder, owner, depositor, trustee and has no interest whatsoever in the account in Philippine Banking Corporation (FCD SA 18402-7) where the plaintiff remitted the amount sought to be recovered. Hence, he did not benefit directly or indirectly from the said remittance; 3. Defendant did not participate in any manner whatsoever in the remittance of funds from the plaintiff to the alleged FCD Account in the Philippine Banking Corporation; 4. Defendant has not received nor benefited from the alleged remittance, "payment," "overpayment" or "erroneous payment" allegedly made by plaintiff; hence, insofar as he is concerned, there is nothing to return to or to "hold in trust" for the plaintiff; 5. Plaintiffs alleged remittance of the amount by mere telex or telephone instruction was highly irregular and questionable considering that the undertaking was that no remittance or transfer could be done without the prior signature of the authorized signatories; 6. The alleged telex instructions to the plaintiff was for it to confirm the amounts that are "free and available" which it did;

7. Plaintiff is guilty of estoppel or laches by making it appear that the funds so remitted are "free and available" and by not acting within reasonable time to correct the alleged mistake; 8. The alleged remittance, "overpayment" and "erroneous payment" was manipulated by plaintiffs own employees, officers or representatives without connivance or collusion on the part of the answering defendant; hence, plaintiff has only itself to blame for the same; likewise, its recourse is not against answering defendant; 9. Plaintiffs Complaint is defective in that it has failed to state the facts constituting the "mistake" regarding its failure to obtain reimbursement from MMP 063 and 084; 10. Plaintiff is guilty of gross negligence and it only has itself to blame for its alleged loss; 11. Sometime on or about 1980, defendant was made to sign blank forms concerning opening of money market placements and perhaps, this is how he became a "joint account holder" of MMP 063 and 084; defendant at that time did not realize the import or significance of his act; afterwards, defendant did not do any act or omission by which he could be implicated in this case; 12. Assuming that defendant is a "joint account holder" of said MMP 063 and 084, plaintiff has failed to plead defendants obligations, if any, by being said "joint account holder;" likewise, the Complaint fails to attach the corresponding documents showing defendants being a "joint account holder."33 The CLL was declared in default for its failure to file an answer to the complaint. After trial, the RTC rendered its decision, the dispositive portion of which reads as follows: PREMISES CONSIDERED, judgment is hereby rendered as follows: 1. Ordering all the defendants, jointly and severally, to pay plaintiff the amount of US$340,000.00 or its equivalent in Philippine currency measured at the Central Bank prevailing rate of exchange in October 1980 and with legal interest thereon computed from the filing of plaintiffs complaint on June 17, 1983 until fully paid; 2. Declaring that defendant Cintas Largas Ltd. is a mere business conduit and alter ego of the individual defendants, thereby holding the individual defendants, jointly and severally, liable to pay plaintiff the aforesaid amount of US$340,000.00 or its equivalent in Philippine Currency measured at the Central Bank prevailing rate of exchange in October 1980, with interest thereon as above-stated; 3. Ordering all defendants to, jointly and severally, pay unto plaintiff the amount of P50,000.00 as and for attorneys fees, plus costs. All counterclaims and cross-claims are dismissed for lack of merit. SO ORDERED.34

The trial court ruled that the CLL was a mere paper company with nominee shareholders in Hongkong. It ruled that the principle of piercing the veil of corporate entity was applicable in this case, and held the defendants liable, jointly and severally, for the claim of the respondent, on its finding that the defendants merely used the CLL as their business conduit. The trial court declared that the majority shareholder of Mar Tierra Corporation was the RJL, controlled by petitioner Ruben Martinez and his brothers, Jose and Luis Martinez, as majority shareholders thereof. Moreover, petitioner Ruben Martinez was a joint account holder of MMP Nos. 063 and 084. The trial court, likewise, found that the auditors of Mar Tierra Corporation and the CLL confirmed that the defendants owed US$340,000. The trial court concluded that the respondent had established its causes of action against Wilfrido Martinez, Lacson, Gonzales, and petitioner Ruben Martinez; hence, held all of them liable for the claim of the respondent. The decision was appealed to the CA. On June 27, 1997, the CA rendered its decision, the dispositive portion of which reads: WHEREFORE, the decision of the Court a quo dated December [19], 1991 is hereby MODIFIED, by exonerating appellant Blamar Gonzales from any liability to appellee and the complaint against him isDISMISSED. The decision appealed from is AFFIRMED in all other respect. SO ORDERED.35 The appellate court exonerated Gonzales of any liability, reasoning that he was not a stockholder of the CLL nor of Mar Tierra Corporation, but was a mere employee of the latter corporation.36 Petitioner Ruben Martinez sought a reconsideration of the decision of the CA, to no avail.37 Dissatisfied with the decision and resolution of the appellate court, the petitioner, filed the petition at bar, on the following grounds: I RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT HEREIN PETITIONER RUBEN MARTINEZ IS LIABLE TO RESPONDENT BPI INTERNATIONAL FINANCE FOR REIMBURSEMENT OF THE US$340,000.00 REMITTED BY SAID RESPONDENT BPI INTERNATIONAL FINANCE TO FCD SA ACCOUNT NO. 18402-7 AT THE PHILIPPINE BANKING CORPORATION, PORT AREA BRANCH. II RESPONDENT COURT OF APPEALS ERRED IN NOT GRANTING THE COUNTER-CLAIM OF PETITIONER RUBEN MARTINEZ CONSIDERING THE EVIDENCE ON RECORD THAT PROVES THE SAME.38 The paramount issue posed for resolution is whether or not the petitioner is obliged to reimburse to the respondent the principal amount of US$340,000. The petitioner asserts that the trial and appellate courts erred when they held him liable for the reimbursement of US$340,000 to the respondent. He contends that he is not in actuality a stockholder of Mar Tierra Corporation, nor a stockholder of the CLL. He was not involved in

any way in the operations of the said corporations. He added that while he may have signed the signature cards of MMP Nos. 063 and 084 in blank, he never had any involvement in the management and disposition of the said accounts, nor of any deposits in or withdrawals from either or both accounts. He was not aware of any transactions between the respondent, Wilfrido Martinez, and Gonzales, with reference to the remittance of the US$340,000 to FCD SA 18402-7; nor did he oblige himself to pay the said amount to the respondent. According to the petitioner, there is no evidence that he had benefited from any of the following: (a) the remittance by the respondent of the US$340,000 to Account No. FCD SA 18402-7 owned by Mar Tierra Corporation; (b) the money market placements in MMP Nos. 063 and 084, or, (c) from any deposits in or withdrawals from the said account and money market placements. On the other hand, the appellate court found the petitioner and his co-defendants, jointly and severally, liable to the respondent for the payment of the US$340,000 based on the following findings of the trial court: The Court finds that defendant Cintas Largas (Ltd.) with capitalization of $10,000.00 divided into 1,000 shares at HK$10 per share, is a mere paper company with nominee shareholders in Hongkong, namely: Overseas Nominees Ltd. and Shares Nominees Ltd., with defendants Wilfrido and Miguel J. Lacson as the sole directors (Exh. A). Since the said shareholders are mere nominee companies, it would appear that the said defendants Wilfrido and Miguel J. Lacson who are the sole directors are the real and beneficial shareholders (t.s.n., 9-1-87, p. 5). Further, defendant Cintas Largas Ltd. has no real office in Hongkong as it is merely being accommodated by Price Waterhouse, a large accounting office in Hongkong (t.s.n., 9-1-87, pp. 7-8). Defendant Cintas Largas Ltd., being a mere alter ego or business conduit for the individual defendants with no corporate personality distinct and separate from that of its beneficial shareholders and with no substantial assets in its own name, it is safe to conclude that the remittance of US$340,000.00 was, in fact, a remittance made for the benefit of the individual defendants. Plaintiff was supposed to deduct the US$340,000.00 remitted to the foreign currency deposit account from Cintas Largas (Ltd.) funds or from money market placement account Nos. 063 and 084 as well as Cintas Largas Ltd. deposit account (Exh. FF-24). Defendant Cintas Largas Ltd. was established only for financing (t.s.n., 12-19-88, pp. 25-26) and the active owners of Cintas are defendants Miguel Lacson and Wilfrido C. Martinez (t.s.n., 12-19-88, p. 22). Mar Tierra Corporation of which defendant Wilfrido Martinez is the President and one of its owners and defendant Blamar Gonzales as the Vice President, sells molasses to defendant Cintas Largas Ltd. Defendant Miguel J. Lacson is a business partner in purchasing molasses for Mar Tierra Corporation. Mar Tierra Corporation was selling molasses to Cintas Largas Ltd. which were purchased by Miguel Lacson and Wilfrido C. Martinez (t.s.n., 12-19-88, pp. 23-24). The majority owner of Mar Tierra Corporation is RJL Martinez Fishing Corporation which is owned by brothers Ruben Martinez, Jose Martinez and Luis Martinez (t.s.n., 12-19-88, pp. 24-25; t.s.n., 6-20-88, pp. 11-12). The FCD SA-18402-7 account at Philippine Banking Corporation, Port Area Branch, where the US$340,000.00 was remitted by the plaintiff is the account of Mar Tierra Corporation, and with the interlapping connection of the defendants to each other, these could be the reason why the funds of Cintas Largas Ltd. were being comingled and controlled by defendants more particularly defendants Blamar Gonzales and Wilfrido C. Martinez (Exhs. D, E, F, G, H, I, J, L, M, N, O, P, R, S, and T). On the basis of the evidence, the Court finds and so holds that the cause of action of the plaintiff against the defendants has been established.39

We do not agree with the trial court and appellate court. We note that the question of whether or not a corporation is merely an alter ego is purely one of fact.40 So is the question of whether or not a corporation is a paper company or a sham or subterfuge or whether the respondent adduced the requisite quantum of evidence warranting the piercing of the veil of corporate entity of the CLL.41The Court is not a trier of facts. Hence, the factual findings of the trial court, as affirmed by the appellate court, are generally conclusive upon this Court.42 However, the rule is subject to the following exceptions: (a) where the conclusion is a finding grounded entirely on speculation, surmise and conjectures; (b) where the information made is manifestly mistaken; (c) where there is grave abuse of discretion; (d) where the judgment is based on a misapplication of facts, and the findings of facts of the trial court and the appellate court are contradicted by the evidence on record; and (e) when certain material facts and circumstances had been overlooked by the trial court which, if taken into account, would alter the result of the case. We have reviewed the records and find that some substantial factual findings of the trial court and the appellate court and, consequently, their conclusions based on the said findings, are not supported by the evidence on record. The general rule is that a corporation is clothed with a personality separate and distinct from the persons composing it. Such corporation may not be held liable for the obligation of the persons composing it; and neither can its stockholders be held liable for such obligation.43 A corporation has a separate personality distinct from its stockholders and from other corporation to which it may be connected.44 This separate and distinct personality of a corporation is a fiction created by law for convenience and to prevent injustice.45 Nevertheless, being a mere fiction of law, peculiar situations or valid grounds can exist to warrant, albeit sparingly, the disregard of its independent being and the piercing of the corporate veil.46 Thus, the veil of separate corporate personality may be lifted when such personality is used to defeat public convenience, justify wrong, protect fraud or defend crime; or used as a shield to confuse the legitimate issues; or when the corporation is merely an adjunct, a business conduit or an alter ego of another corporation or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation;47 or when the corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or for the protection of the creditors.48 In such cases where valid grounds exist for piercing the veil of corporate entity, the corporation will be considered as a mere association of persons.49 The liability will directly attach to them.50 However, mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stocks of a corporation is not by itself a sufficient ground to disregard the separate corporate personality. The substantial identity of the incorporators of two or more corporations does not warrantly imply that there was fraud so as to justify the piercing of the writ of corporate fiction.51 To disregard the said separate juridical personality of a corporation, the wrongdoing must be proven clearly and convincingly.52 The test in determining the application of the instrumentality or alter ego doctrine is as follows: 1. Control, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the

corporate entity as to this transaction had at the time no separate mind, will or existence of its own; 2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of plaintiffs legal rights; and 3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendants relationship to that operation.53 In this case, the respondent failed to adduce the quantum of evidence necessary to prove any valid ground for the piercing of the veil of corporate entity of Mar Tierra Corporation, or of RJL for that matter, and render the petitioner liable for the respondents claim, jointly and severally, with Wilfrido Martinez and Lacson. The mere fact that the majority stockholder of Mar Tierra Corporation is the RJL, and that the petitioner, along with Jose and Luis Martinez, owned about 42% of the capital stock of RJL, do not constitute sufficient evidence that the latter corporation, and/or the petitioner and his brothers, had complete domination of Mar Tierra Corporation. It does not automatically follow that the said corporation was used by the petitioner for the purpose of committing fraud or wrong, or to perpetrate an injustice on the respondent. There is no evidence on record that the petitioner had any involvement in the purchases of molasses by Wilfrido Martinez, Gonzales and Lacson, and the subsequent sale thereof to the CLL, through Mar Tierra Corporation. On the contrary, the evidence on record shows that the CLL purchased molasses from Mar Tierra Corporation and paid for the same through the credit facility granted by the respondent to the CLL. The CLL, thereafter, made remittances to Mar Tierra Corporation from its deposit account and MMP Nos. 063 and 084 with the respondent. The close business relationship of the two corporations does not warrant a finding that Mar Tierra Corporation was but a conduit of the CLL. Likewise, the respondent failed to adduce preponderant evidence to prove that the Mar Tierra Corporation and the RJL were so organized and controlled, its affairs so conducted as to make the latter corporation merely an instrumentality, agency, conduit or adjunct of the former or of Wilfrido Martinez, Gonzales, and Lacson for that matter, or that such corporations were organized to defraud their creditors, including the respondent. The mere fact, therefore, that the businesses of two or more corporations are interrelated is not a justification for disregarding their separate personalities, absent sufficient showing that the corporate entity was purposely used as a shield to defraud creditors and third persons of their rights.54 Also, the mere fact that part of the proceeds of the sale of molasses made by Mar Tierra Corporation to the CLL may have been used by the latter as deposits in its deposit account with the respondent or in the money market placements in MMP Nos. 063 and 084, or that the funds of Mar Tierra Corporation and the CLL with the respondent were mingled, and their disposition controlled by Wilfrido Martinez, does not constitute preponderant evidence that the petitioner, Wilfrido Martinez and Lacson used the Mar Tierra Corporation and the RJL to defraud the respondent. The respondent treated the CLL and Mar Tierra Corporation as separate entities and considered them as one and the same entity only when Wilfrido C. Martinez and/or Blamar Gonzales failed to pay the US$340,000 remitted by the respondent to FCD SA 18402-7. This being the case, there is no factual and legal basis to hold the petitioner liable to the respondent for the said amount.

Contrary to the ruling of the trial court and the appellate court, the auditors of the CLL and the Mar Tierra Corporation, in their report, did not find the petitioner liable for the respondents claim in their report. The auditors, in fact, found the CLL alone liable for the said amount.55 Even a cursory reading of the report will show that the name of the petitioner was not mentioned therein. The respondent failed to adduce evidence that the petitioner had any involvement in the transactions between the CLL, through Wilfrido Martinez and Gonzales, and the respondent, with reference to the remittance of the US$340,000 to FCD SA 18402-7. In fact, the said transaction was so confidential that Gonzales even suggested to the respondent that the name of Wilfrido Martinez or Mar Tierra Corporation be not made of record, and to authorize only Wilfrido Martinez to sign the telex instruction: OCT. 10, 1980 TO: AYALA FINANCE ATTN: MICHAEL SUNG/BING MATOTO FR: B. GONZALES RE: TRANSFER OF FUNDS THIS IS TO CONFRM OUR TELEPHONE CONVERSATION THAT WE WLD LIKE TO SUGGEST THE FF PROCEDURES FOR FUND TRANSFER. 1. TLX INSTRUCTION THAT FUNDS BE TRANSFERRED TO OUR FCD ACCT BY TELEGRAPHIC TRANSFER. 2. WE WILL ONLY USE ONE ACCT W/C IS FCD SA 18402-7 OF PHILBANKING CORPORATION, PORT AREA BRANCH, UNION CEMENT BLDG, BONIFACIO DRIVE, PORT AREA, METRO MANILA, PHILS. 3. PAYEE SHLD BE FCD SA 18402-7 AND NO MENTION OF W.C. MARTINEZ OR MAR TIERRA CORP. TLX INSTRUCTION SHLD BE SIGNED BY W.C. MARTINEZ AND WILL BE SENT ONLY THRU TLX MACHINE OF MAR TIERRA CORP. 4. FINAL CONFIRMATION OF THE TRANSFER BY TELEPHONE CALL. PLS CONFRM TODAY TOTAL AMT. THAT IS FREE AND AVAILABLE SO WE CAN FORMALIZE INSTRUCTION OF TRANSFER IF THE ABOVE PROCEDURE IS APPROVED BY YOU. PLS CONFRM ALSO LIST OF CORRESPONDENT BANK IN HK. IN CASE OF WELLS FARGO HK, WE WLD LIKE TO SUGGEST THE FF PROCEDURE: 1. WELLS FARGO HK WIL SEND A TLX TO MANILA INSTRUCTING PHIL BANKING CORP TO CREDIT FCD SA 18402-7.

2. REIMBURSEMENT INSTRUCTION, AT THE SAME TIME WELLS FARGO HK WIL REQUEST WELLS FARGO NEW YORK TO CREDIT FCDU NO. 003-019205 FOR THE ACCT OF PHIL BANKING CORP.56 Even the respondent admitted, in its complaint, that the CLL, Gonzales, and Wilfrido Martinez, bound and obliged themselves to repay the US$340,000, viz: 2.2 The remittance by plaintiff of the sum of US$340,000.00 as previously explained in the foregoing paragraphs was made upon the express instructions of defendants GONZALES and WILFRIDO C. MARTINEZ acting for and in behalf of the defendant CINTAS, defendants GONZALES and WILFRIDO C. MARTINEZ being the duly authorized representatives of defendant CINTAS to transact any and all of its business with plaintiff. 2.3 The remittance of US$340,000.00 was made under an agreement for plaintiff to advance the said amount and for defendants GONZALES, WILFRIDO C. MARTINEZ and CINTAS to repay plaintiff all such monies so advanced to said defendants or to their order. 2.4 In making said remittance, plaintiff acted as the agent of the foregoing defendants in meeting the latters liability to the recipient/s of the amount so remitted. 2.5 The remittance of US$340,000.00 which remains unsettled to date is a just, binding and lawful obligation of the defendants GONZALES, WILFRIDO C. MARTINEZ and CINTAS. 2.6 Defendant CINTAS is a reinvoicing or paper company with nominee shareholders in Hongkong. The real and beneficial shareholders of the foregoing defendants are the defendants LACSON, and WILFRIDO C. MARTINEZ. 2.7 Defendant CINTAS is being used by the foregoing defendants as an alter ego or business conduit for their sole benefit and/or to defeat public convenience. 2.8 Defendant CINTAS, being a mere alter ego or business conduit for the foregoing defendants, has no corporate personality distinct and separate from that of its beneficial shareholders and likewise has no substantial assets in its own name. 2.9 The remittance of US$340,000.00 as referred to previously, although made upon the instructions of defendants GONZALES, WILFRIDO C. MARTINEZ and CINTAS, was in fact a remittance made for the benefit of the beneficial shareholders of defendant CINTAS.57 The admissions made by the respondent in its complaint are judicial admissions which cannot be contradicted unless there is a showing that it was made through palpable mistake or that no such admission was made.58 The respondent impleaded the petitioner only in its second alternative cause of action, on its allegation that the latter was a joint account holder of MMP Nos. 063 and 084, simply because he signed the signature cards with Wilfrido Martinez and/or Lacson in blank. The trial court found the submission of the respondent duly established, based on Wilfrido Martinezs answer to the complaint, and held the petitioner liable for the said amount based on the signature cards in this language: Defendants Ruben Martinez, Wilfrido C. Martinez and Miguel Lacson are joint account holders of the money market placement account Nos. 063 and 084 (par. 17 page 4 Answer of

defendant Wilfrido C. Martinez; par. 2, page 5, Amended Answer of defendant Lacson; t.s.n., 4-18-88, p. 7).59 The appellate court affirmed the ruling of the trial court without making any specific reference to the aforequoted ruling of the trial court.60 We do not agree. The judicial admissions made by Wilfrido Martinez in his answer to the complaint are not binding on the petitioner.61 The evidence on record shows that the petitioner affixed his signatures on the signature cards merely upon the request of his son, Wilfrido Martinez. The signature cards were printed forms of the respondent with the names of the signatories and the supposed account holders typewritten thereon and, except for the account number, were similarly worded, viz: SIGNATURE CARD Account Name: Mr. Ruben Martinez and/or Mr. Wilfrido C. Martinez and/or Mr. Miguel J. Lacson Account Number: MMP-063

SIGNATURE 2. Sgd. SIGNATURE

NAME (Ruben Martinez) NAME

SIGNATURE 4. Sgd. SIGNATURE

NAME (Miguel J. Lacson) NAME62

The respondent failed to adduce any evidence, testimonial or documentary, including the relevant laws63 of Hongkong where the placements were made to hold the petitioner liable for the respondents claims. Other than the signature cards, the respondent failed to adduce a shred of evidence to prove (a) the terms and conditions of the money market placements of the CLL in MMP Nos. 063 and 084; and, (b) the rights and obligations of the petitioner, Wilfrido Martinez and Lacson, over the money market placements. In light of the evidence on record, the CLL and/or Wilfrido Martinez never surrendered their ownership over the funds in favor of the petitioner when the latter co-signed the signature cards. The CLL and/or Wilfrido Martinez retained complete control and dominion over the funds. By merely affixing his signatures on the signature cards, the petitioner did not necessarily become a joint and solidary creditor of the respondent over the said placements. Neither did the petitioner bind himself to pay to the respondent the US$340,000 which was borrowed by the CLL and/or Wilfrido Martinez, and later remitted to FCD SA 18402-7. The respondent has no one but itself to blame for its failure to deduct the US$340,000 from the foreign currency and deposit accounts and money market placements of the CLL. The evidence on record shows that the respondent was supposed to deduct the said amount from the money market placements of the CLL in MMP Nos. 063 and 084, but failed to do so. The respondent remitted the amount from its own funds and, by its negligence, merely posted the amount in the account of the CLL. Worse, the respondent allowed the CLL and Wilfrido Martinez to withdraw the entirety of the deposits in the said accounts, without first deducting the US$340,000. By the time the respondent realized its mistakes, the funds in the said accounts had already been withdrawn solely by the CLL and/or Wilfrido Martinez. This was the testimony of Michael Sung, the witness for the respondent. Q: Do you know whether this US$340,000 was really transferred to Foreign Currency Deposit Account No. 18402-7 of the Philippine Banking Corporation in Manila? A: Yes.

I.D. Card/Passport No.: _____________________________________________ Residence Address: ________________________________________________ _________________________________________ Tel.: ___________________ Office Address: ____________________________________________________ _________________________________________ Tel.: ___________________ Number of signature required to withdraw funds: _________________________ Confirmation/Correspondence to be mailed to: ___ Office ___ Residence

___ Others: ________________Q: Pursuant to the procedure for fund transfer as contained in Exhs. B, C, D and E, after having made such remittance of US$340,000.00, what was plaintiff supposed to do, if any, in order to get reimbursement for such transfer? __________________________ Other Instructions: _______________________________________________ _________________________________________________________________ _________________________________________________________________ Specimen of signature: 1. Sgd. (Ruben Martinez) 3. Sgd. (Wilfrido Martinez) A: Plaintiff was supposed to deduct the US$340,000.00 remitted to the foreign currency deposit account from the Cintas Largas funds or from Money Market Placement Account Nos. 063 and 084 as well as the Cintas Largas, Ltd. deposit account. Q: Do you know if plaintiff was able to obtain reimbursement of the US$340,000 remitted to the Philippine Banking Corporation in Manila? A: No, because instead of deducting the remittance of US$340,000 from the funds in the money market placement accounts and/or the Cintas Largas Deposit Account, we posted the US$340,000 remittance as an account receivable of Cintas Largas, Ltd. since at that time the

money market placement deposits have not yet matured. Subsequently, we failed to charge the deposit and MMP accounts when they matured and Cintas Largas, Ltd. and/or Wilfrido C. Martinez had already withdrawn the bulk of the funds contained in Money Market Placement Account No. 063 and the Cintas Largas, Ltd. Deposit Account thus, we were unable to obtain reimbursement therefrom.64 It cannot even be argued that if the petitioner would not be adjudged liable for the respondents claim, he would thereby be enriching himself at the expense of the respondent. There is no evidence on record that the petitioner withdrew a single centavo from or was personally benefited by the funds in MMP Nos. 063 and 084. The testimonial and documentary evidence of the respondent clearly shows that the CLL and/or Wilfrido Martinez used and disposed of the said funds without the knowledge, involvement, and consent of the petitioner. Furthermore, the documentary evidence of the respondent shows the following: MMP 063 Statement of Accounts (Deposit) Value Date Funds In Funds Out 28/11/80 29/12/80 21/01/81 21/01/81 13/02/81 " 17/02/81 18/03/81 " " _____________ US$443,975.85 ============ 55.07 1,317.27 100,000.00 5,713.74 _____________ US$443,975.85 ============ 2,321.99 100,015.00 6,664.95 4,779.66 4,024.83 119,478.51 Interests earned " " " " Remarks

28/11/80 01/12/80 04/12/80 " 09/12/80 " 18/12/80 " 1,545.42 200,000.00 1,290.56 200,000.00 16,374.36 488.16 1,089.06 US$250,000.00 Transfer to A/C of Cintas Largas Interests earned Transfer to Cintas Largas A/R. Interests earned T/T to Chase Manhattan NY for Credit A/C Allied Capital F/O Frank Chan B/O Grand Solid. 02/03/81 " 09/03/81 " 321.91 60,000.00 4,608.27 20,470.74 Interests earned Transfer to A/C of Grand Solid Interests earned Transfer to A/C of Trinisia Ltd. Interests earned 45,286.26 T/T to Nitto Trading & Josho Ind. Co., Ltd., Japan. " " " 30.00 _____________ US$777,815.02 ============ 2,028.02 Transfer to A/C Receivable (MMP-084) Cable Charges
66

Interests earned " " " "

20/03/81 213.40 Purchase HK$632,041.33 @5.29 & transferred to its statement A/C " Interests earned Transfer to Cintas Largas A/C Receivable. Interests earned

" Purchase HK$525,000.00 @5.25 cheque made payable to Grand Solid Enterprises Co., Ltd. _____________ US$777,815.02 Transfer to A/C Receivable ============ (MMP-063)
65

CINTAS LARGAS Statement of Accounts (Deposit) MMP 084 Statement of Accounts (Deposit) Value Date Funds In Funds Out 31/10/80 17/11/80 5,011.99 8,067.70 Interests earned " " Remarks

Value Date

Funds In

Funds Out

Remarks

" 09/11/80 " 26/11/80 " 21/01/81 " 02/03/81 " 02/04/81 10/04/81 " 13/04/81 21/04/81 " 28/04/81 " " 19/05/81 22/05/81 26/05/81 04/06/81 " 11/06/81 " " " 25/06/81 " 15.00 31.65 1,192.24 2,252.36 52,692.00 178,465.18 46,472.00 28.40 1,242.80 132.04 311.66 456.81 2,445.49 1,299.80 3,264.34 3,062.23

350,000.00

Transfer to A/C of Grand Solid Interests earned

" "

22,656.88 45,800.00 15.00

T/T to Daiwa Bank, Los Angeles for A/C of OAC T/T to Josho Ind. Co. Ltd., Japan Cable Charge Interests earned

350,000.00

300,000.00

81,415.00

129,529.26 143,000.00

50,000.00 US$ 40.89

US$ 50,000.00

40,000.00

Purchase HK$1,789,200.00 @5.112, Cheque made payable to Grand " Solid. 03/07/81 165.47 Interests earned " Purchase HK$1,535,100.00 @5.117, Cheque made payable to Grand Solid " Interests earned 06/07/81 17.60 Remittance from C. Itoh & Co., NY 07/07/81 14.83 Interests earned " Transfer to Grand Solids A/C Receivable " Transfer from CLs Statement A/C 15/09/81 US$ 482.29 Interests earned " Purchase HK$267,150.00 @5.343, Cheque made payable to Grand Solid. 17/09/81 11.91 Interests earned " " " 08/01/82 70,360.00 Purchase HK$268,850.00 @5.377, cheque made payable to Grand Solid. 19/01/82 268.74 Interests earned " Purchase HK$214,480.00 @5.362, cheque made payable to Grand Solid. " Remittance from Dai Ichi Kangyo Bank NY. REF. KOMEIMARU " Transfer from CLs A/C Receivable _____________ Remittance from C. Itoh & Co., NY Re. Pacific Geory. TOTAL : US$1,756,387.32 Interests earned " " -

11,870.00 15.00

T/T to Bank of Tokyo, Kobe Branch for A/C of F Mar Tierra Takashiro Maru, Eatelite Nav. and R Cable Charge Interests earned " "

16,000.00 15.00

T/T to Dai Ichi Kangyo Bank, Shimizu Branch fo Cable Charge Interests earned

US$ 1,250.00

Reimbursement of expenses paid to Price Wate Interests earned

237.43

Purchase HK$1,421.50 for cheque payment to P Remittance from C. Itoh & Co., NY Interests earned

3,064.81 50,000.00 5,952.38 ______________ US$1,732,103.25 24,284.07 ______________ US$1,756,387.32 ==============

Transfer to CLs Margin A/C

Purchase HK$295,100.00, cheque made payable Transfer to A/C of Trinisia Ltd.

Outstanding deposits
67

50,000.00

______________ US$1,756,387.32 Purchase HK$275,750.00 @5.515, Cheque made payable to Grand Solid ============== Interests earned

66,400.00

Clearly from the foregoing, the withdrawals from the deposit and foreign currency accounts T/T to Security Pacific Natl Bank LA for A/C of Twentieth Century Fox and MMP Nos. 063 and 084 of the CLL, after the respondent remitted the US$340,000, were for Intl Corp. the account of the CLL and/or Wilfrido Martinez, and not of the petitioner. Cable Charge IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of Purchase HK$175.00 @5.53 for paymentAppeals isREVERSED ANDFee. ASIDE. The complaint of the respondent against the petitioner of Business Registration SET in Civil Case No. C-10811 isDISMISSED. No costs. Interests earned

60,000.00

Purchase HK$331,500.00 @5.525, cheque made payable to Grand Solid. SO ORDERED.

G.R. No. L-19891

July 31, 1964

J.R.S. BUSINESS CORPORATION, J.R. DA SILVA and A.J. BELTRAN, petitioners, vs. IMPERIAL INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila and HON. AGUSTIN MONTESA, Judge of the Court of First Instance of Manila, respondents. Felipe N. Aurea for petitioners. Taada, Teehankee and Carreon for respondent Imperial Insurance, Inc. PAREDES, J.: Petitioner J. R. Da Silva, is the President of the J.R.S. Business Corporation, an establishment duly franchised by the Congress of the Philippines, to conduct a messenger and delivery express service. On July 12, 1961, the respondent Imperial Insurance, Inc., presented with the CFI of Manila a complaint (Civ. Case No. 47520), for sum of money against the petitioner corporation. After the defendants therein have submitted their Answer, the parties entered into a Compromise Agreement, assisted by their respective counsels, the pertinent portions of which recite: 1) WHEREAS, the DEFENDANTS admit and confess their joint and solidary indebtedness to the PLAINTIFF in the full sum of PESOS SIXTY ONE THOUSAND ONE HUNDRED SEVENTY-TWO & 32/100 (P61,172.32), Philippine Currency, itemized as follows: a) Principal b) Interest at 12% per annum c) Liquidated damages at 7% per annum d) Costs of suit e) Attorney's fees P50,000.00 5,706.14 3,330.58 135.60 2,000.00

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. 1wph1.t On May 15, 1962, one day after the date fixed in the compromise agreement, within which the judgment debt would be paid, but was not, respondent Imperial Insurance Inc., filed a "Motion for the Insurance of a Writ of Execution". On May 23, 1962, a Writ of Execution was issued by respondent Sheriff of Manila and on May 26, 1962, Notices of Sale were sent out for the auction of the personal properties of the petitioner J.R.S. Business Corporation. On June 2, 1962, a Notice of Sale of the "whole capital stocks of the defendants JRS Business Corporation, the business name, right of operation, the whole assets, furnitures and equipments, the total liabilities, and Net Worth, books of accounts, etc., etc." of the petitioner corporation was, handed down. On June 9, the petitioner, thru counsel, presented an "Urgent Petition for Postponement of Auction Sale and for Release of Levy on the Business Name and Right to Operate of Defendant JRS Business Corporation", stating that petitioners were busy negotiating for a loan with which to pay the judgment debt; that the judgment was for money only and, therefore, plaintiff (respondent Insurance Company) was not authorized to take over and appropriate for its own use, the business name of the defendants; that the right to operate under the franchise, was not transferable and could not be considered a personal or immovable, property, subject to levy and sale. On June 10, 1962, a Supplemental Motion for Release of Execution, was filed by counsel of petitioner JRS Business Corporation, claiming that the capital stocks thereof, could not be levied upon and sold under execution. Under date of June 20, 1962, petitioner's counsel presented a pleading captioned "Very Urgent Motion for Postponement of Public Auction Sale and for Ruling on Motion for Release of Levy on the Business Name, Right to Operate and Capital Stocks of JRS Business Corporation". The auction sale was set for June 21, 1962. In said motion, petitioners alleged that the loan they had applied for, was to be secured within the next ten (10) days, and they would be able to discharge the judgment debt. Respondents opposed the said motion and on June 21, 1962, the lower court denied the motion for postponement of the auction sale. In the sale which was conducted in the premises of the JRS Business Corporation at 1341 Perez St., Paco, Manila, all the properties of said corporation contained in the Notices of Sale dated May 26, 1962, and June 2, 1962 (the latter notice being for the whole capital stocks of the defendant, JRS Business Corporation, the business name, right of operation, the whole assets, furnitures and equipments, the total liabilities and Net Worth, books of accounts, etc., etc.), were bought by respondent Imperial Insurance, Inc., for P10,000.00, which was the highest bid offered. Immediately after the sale, respondent Insurance Company took possession of the proper ties and started running the affairs and operating the business of the JRS Business Corporation. Hence, the present appeal. It would seem that the matters which need determination are (1) whether the respondent Judge acted without or in excess of his jurisdiction or with grave abuse of discretion in promulgating the Order of June 21, 1962, denying the motion for postponement of the scheduled sale at public auction, of the properties of petitioner; and (2) whether the business name or trade name, franchise (right to operate) and capital stocks of the petitioner are properties or property rights which could be the subject of levy, execution and sale. The respondent Court's act of postponing the scheduled sale was within the discretion of respondent Judge, the exercise of which, one way or the other, did not constitute grave abuse of discretion and/or excess of jurisdiction. There was a decision rendered and the corresponding writ of execution was issued. Respondent Judge had jurisdiction over the matter and erroneous conclusions of law or fact, if any, committed in the exercise of such jurisdiction are merely errors of judgment, not correctible by certiorari (Villa Rey Transit v. Bello, et al., L-18957, April 23, 1963, and cases cited therein.)

2) WHEREAS, the DEFENDANTS bind themselves, jointly and severally, and hereby promise to pay their aforementioned obligation to the PLAINTIFF at its business address at 301-305 Banquero St., (Ground Floor), Regina Building, Escolta, Manila, within sixty (60) days from March 16, 1962 or on or before May 14, 1962; 3) WHEREAS, in the event the DEFENDANTS FAIL to pay in full the total amount of PESOS SIXTY ONE THOUSAND ONE HUNDRED SEVENTY TWO & 32/100 (P61,172.32), Philippine Currency, for any reason whatsoever, on May 14, 1962, the PLAINTIFF shall be entitled, as a matter of right, to move for the execution of the decision to be rendered in the above-entitled case by this Honorable Court based on this COMPROMISE AGREEMENT. On March 17, 1962, the lower court rendered judgment embodying the contents of the said compromise agreement, the dispositive portion of which reads WHEREFORE, the Court hereby approves the above-quoted compromise agreement and renders judgment in accordance therewith, enjoining the parties to comply faithfully and strictly with the terms and conditions thereof, without special pronouncement as to costs.

The corporation law, on forced sale of franchises, provides Any franchise granted to a corporation to collect tolls or to occupy, enjoy, or use public property or any portion of the public domain or any right of way over public property or the public domain, and any rights and privileges acquired under such franchise may be levied upon and sold under execution, together with the property necessary for the enjoyment, the exercise of the powers, and the receipt of the proceeds of such franchise or right of way, in the same manner and with like effect as any other property to satisfy any judgment against the corporation: Provided, That the sale of the franchise or right of way and the property necessary for the enjoyment, the exercise of the powers, and the receipt of the proceeds of said franchise or right of way is especially decreed and ordered in the judgment: And provided, further, That the sale shall not become effective until confirmed by the court after due notice. (Sec. 56, Corporation Law.) In the case of Gulf Refining Co. v. Cleveland Trust Co., 108 So., 158, it was held The first question then for decision is the meaning of the word "franchise" in the statute. "A franchise is a special privilege conferred by governmental authority, and which does not belong to citizens of the country generally as a matter of common right. ... Its meaning depends more or less upon the connection in which the word is employed and the property and corporation to which it is applied. It may have different significations. "For practical purposes, franchises, so far as relating to corporations, are divisible into (1) corporate or general franchises; and (2) special or secondary franchises. The former is the franchise to exist as a corporation, while the latter are certain rights and privileges conferred upon existing corporations, such as the right to use the streets of a municipality to lay pipes or tracks, erect poles or string wires." 2 Fletcher's Cyclopedia Corp. See. 1148; 14 C.J. p. 160; Adams v. Yazon & M. V. R. Co., 24 So. 200, 317, 28 So. 956, 77 Miss. 253, 60 L.R.A. 33 et seq. The primary franchise of a corporation that is, the right to exist as such, is vested "in the individuals who compose the corporation and not in the corporation itself" (14 C.J. pp. 160, 161; Adams v. Railroad, supra; 2 Fletcher's Cyclopedia Corp. Secs. 1153, 1158; 3 Thompson on Corporations 2d Ed.] Secs. 2863, 2864),and cannot be conveyed in the absence of a legislative authority so to do (14A CJ. 543, 577; 1 Fletcher's Cyc. Corp. Sec. 1224; Memphis & L.R.R. Co. v. Berry 5 S. Ct. 299, 112 U.S. 609, 28 L.E.d. 837; Vicksburg Waterworks Co. v. Vicksburg, 26 S. Ct. 660, 202 U.S. 453, 50 L.E.d. 1102, 6 Ann. Cas. 253; Arthur v. Commercial & Railroad Bank, 9 Smedes & M. 394, 48 Am. Dec. 719), but the specify or secondary franchises of a corporation are vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its property (Adams v. Railroad, supra; 14A C.J. 542, 557; 3 Thompson on Corp. [2nd Ed.] Sec. 2909), except such special or secondary franchises as are charged with a public use (2 Fletcher's Cyc. Corp. see. 1225; 14A C.J. 544; 3 Thompson on Corp. [2d Ed.] sec. 2908; Arthur v. Commercial & R.R. Bank, supra; McAllister v. Plant, 54 Miss. 106). The right to operate a messenger and express delivery service, by virtue of a legislative enactment, is admittedly a secondary franchise (R.A. No. 3260, entitled "An Act granting the JRS Business Corporation a franchise to conduct a messenger and express service)" and, as such, under our corporation law, is subject to levy and sale on execution together and including all the property necessary for the enjoyment thereof. The law, however, indicates the procedure under which the same (secondary franchise and the properties necessary for its enjoyment) may be sold under execution. Said franchise can be sold under execution, when

such sale is especially decreed and ordered in the judgment and it becomes effective only when the sale is confirmed by the Court after due notice (Sec. 56, Corp. Law). The compromise agreement and the judgment based thereon, do not contain any special decree or order making the franchise answerable for the judgment debt. The same thing may be stated with respect to petitioner's trade name or business name and its capital stock. Incidentally, the trade name or business name corresponds to the initials of the President of the petitioner corporation and there can be no serious dispute regarding the fact that a trade name or business name and capital stock are necessarily included in the enjoyment of the franchise. Like that of a franchise, the law mandates, that property necessary for the enjoyment of said franchise, can only be sold to satisfy a judgment debt if the decision especially so provides. As We have stated heretofore, no such directive appears in the decision. Moreover, a trade name or business name cannot be sold separately from the franchise, and the capital stock of the petitioner corporation or any other corporation, for the matter, represents the interest and is the property of stockholders in the corporation, who can only be deprived thereof in the manner provided by law (Therbee v. Baker, 35 N.E. Eq. [8 Stew.] 501, 505; In re Wells' Estate, 144 N.W. 174, 177, Wis. 294, cited in 6 Words and Phrases, 109). It, therefore, results that the inclusion of the franchise, the trade name and/or business name and the capital stock of the petitioner corporation, in the sale of the properties of the JRS Business Corporation, has no justification. The sale of the properties of petitioner corporation is set aside, in so far as it authorizes the levy and sale of its franchise, trade name and capital stocks. Without pronouncement as to costs. Bengzon, C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Regala and Makalintal, JJ., concur. G.R. No. 103533 December 15, 1998 MANILA JOCKEY CLUB, INC. AND PHILIPPINE RACING CLUB, INC., petitioners, vs. THE COURT OF APPEALS AND PHILIPPINE RACING COMMISSION, respondents.

QUISUMBING, J.: This is a Petition for Review on Certiorari seeking the reversal of the decision 1 of the Court of Appeals in CA-G.R. SP No. 25251 dated September 17, 1991 and the resolution 2 dated January 8, 1992, which denied the motion for reconsideration. At issue here is the control and disposition of "breakages" 3 in connection with the conduct of horse-racing. The pertinent facts on record are as follows: On June 18, 1948, Congress approved Republic Act No. 309, entitled "An Act to Regulate HorseRacing in the Philippines." This Act consolidated all existing laws and amended inconsistent provisions relative to horse racing. It provided for the distribution of gross receipts from the sale of betting tickets, but is silent on the allocation of so-called "breakages." Thus the practice, according to the petitioners, was to use the "breakages" for the anti-bookies drive and other sales promotions activities of the horse racing clubs.

On October 23, 1992, petitioners, Manila Jockey Club, Inc. (MJCI) and Philippine Racing Club, Inc. (PRCI), were granted franchises to operate and maintain race tracks for horse racing in the City of Manila and the Province of Rizal by virtue of Republic Act Nos. 6631 and 6632, respectively, and allowed to hold horse races, with bets, on the following dates: . . . Saturdays, Sundays and official holidays of the year, excluding Thursday and Fridays of the Holy Week, June twelfth, commonly known as Independence Day, Election Day and December thirtieth, commonly known as Rizal Day. (Sec. 5 of R.A. 6631) . . . Saturday, Sundays, and official holiday of the year, except on those official holidays where the law expressly provides that no horse races are to be held. The grantee may also conduct races on the eve of any public holiday to start not earlier than five-thirty (5:30) o'clock in the afternoon but not to exceed five days a year. (Sec. 7 of R.A. 6632)

We find no further need to dissect the provisions of P.D. 420 to come to a legal conclusion. As can be clearly seen from the foregoing discussion and based on the established precedents, there can be no doubt that the breakage of Wednesday races shall belong to the racing club concerned. 8 Consequently, the petitioners allocated the proceeds of breakages for their own business purpose: Thereafter, PHILRACOM authorized the holding of races on Thursdays from November 15, 1984 to December 31, 1984 and on Tuesdays since January 15, 1985 up to the present. These midweek races are in addition to those days specifically mentioned in R.A. 6631 and R.A. 6632. Likewise, petition allocated the breakages from these races for their own uses. On December 16, 1986 President Corazon Aquino amended certain provisions Sec. 4 of R.A. 8631 and Sec. 6 of R.A. 6632 through Executive Orders No. 88 and 89. Under these Executive Orders, breakages were allocated to beneficiaries, as follows: Franchise Laws

Said laws carried provisions on the allocation of "breakages" to beneficiaries as follows: E.O. 89 9 E.O. 88 10 Franchise Laws (for MJCI) (for PRCI) R.A. 6631 R.A. 6632 (for MJCI) (for PRCI) Rehabilitation of drug addicts 25% 50% Provincial or city hospitals 25% For the benefit of Philippine Rehabilitation of drug addicts 25% 50% Racing Commission 50% 25% For the benefit of Philippine Charitable institutions 25% Amateur Athletes Federation 50% 25% Charitable institutions 25% On March 20, 1974, Presidential Decree No. 420 was issued creating the Philippine Racing Commission (PHILRACOM), giving it exclusive jurisdiction and control over every aspect of the conduct of horse racing, including the framing and scheduling of races. 6 By virtue of this power, the PHILRACOM authorized the holding of races on Wednesdays starting on December 22, 1976. 7 In connection with the new schedule of races, petitioners made a joint query regarding the ownership of breakages accumulated during Wednesday races. In response to the query, PHILRACOM rendered its opinion in a letter dated September 20, 1978. It declared that the breakages belonged to the racing clubs concerned, to wit: On April 23, 1987, PHILRACOM itself addressed a query to the Office of the President asking which agency is entitled to dispose of the proceeds of the "breakages" derived from the Tuesday and Wednesday races. In a letter dated May 21, 1987, the Office of the President, through then Deputy Executive Secretary Catalino Macaraig, Jr., replied that "the disposition of the breakages rightfully belongs to PHILRACOM, not only those derived from the Saturday, Sunday and holiday races, but also from the Tuesday and Wednesday races in accordance with the distribution scheme prescribed in said Executive Orders". 11 Controversy arose when herein respondent PHILRACOM, sent a series of demand letters to petitioners MJCI and PRCI, requesting its share in the "breakages" of mid-week-races and proof of remittances to other legal beneficiaries as provided under the franchise laws. On June 8, 1987, PHILRACOM sent a letter of demand to petitioners MJCI and PRCI asking them to remit PHILRACOM's share in the "breakages" derived from the Tuesday, Wednesday and Thursday races in this wise:
4 5

Provincial or city hospitals 25%

xxx xxx xxx Pursuant to Board Resolution dated December 21, 1986, and Executive Order Nos. 88 and 89 series of 1986, and the authority given by the Office of the President dated May 21, 1987, please remit to the Commission the following: 1) PHILRACOM's share in the breakages derived from Wednesday racing for the period starting December 22, 1976 up to the December 31, 1986. 2) PHILRACOM's share in the breakages derived from Thursday racing for the period starting November 15, 1984 up to December 31, 1984; and 3) PHILRACOM's share in the breakages derived from Tuesday racing for the period starting January 15, 1985 up to December, 1986. 4) Kindly furnish the Commission with the breakdown of all breakages derived from Tuesday, Thursdays and Wednesdays racing that you have remitted to the legal beneficiaries. 12 On June 16, 1987, petitioners MJCI and PRCI sought reconsideration 13 of the May 21, 1987 opinion of then Deputy Executive Secretary Macaraig, but the same was denied by the Office of the President in its letter dated April 11, 1988. 14 On April 25, 1988, PHILRACOM wrote another letter 15 to the petitioners MJCI and PRCI seeking the remittance of its share in the breakages. Again, on June 13, 1990, PHILRACOM reiterated its previous demand embodied in its letter of April 25, 1 988. 16 Petitioners ignored said demand. Instead, they filed a Petition for Declaratory Relief before the Regional Trial Court, Branch 150 of Makati, on the ground that there is a conflict between the previous opinion of PHILRACOM dated September 20, 1978 and the present position of PHILRACOM, as declared and affirmed by the Office of the President in its letters dated May 21, 1987 and April 11, 1988. Petitioners averred that there was an "actual controversy" between the parties, which should be resolved. On March 11, 1991, the trial court rendered judgment, disposing as follows: WHEREFORE, and in view of all the foregoing considerations, the Court hereby declares and decides as follows: a) Executive Orders Nos. 88 and 89 do not and cannot cover the disposition and allocation of mid-week races, particularly those authorized to be held during Tuesdays, Wednesdays and those which are not authorized under Republic Acts 6631 and 6632; and b) The ownership by the Manila Jockey Club, Inc. and the Philippine Racing Club, Inc. of the breakages they derive from mid-week races shall not be disturbed, with the reminder that the breakages should be strictly and wholly utilized for the purpose for which ownership thereof has been vested upon said racing entities. SO ORDERED. 17

Dissatisfied, respondent PHILRACOM filed a Petition for Certiorari with prayer for the issuance of a writ of preliminary injunction before this Court, raising the lone question of whether or not E.O. Nos. 88 and 89 cover breakages derived from the mid-week races. However, we referred the case to the Court of Appeals, which eventually reversed the decision of the trial court, and ruled as follows: xxx xxx xxx The decision on the part of PHILRACOM to authorize additional racing days had the effect of widening the scope of Section 5 of RA 6631 and Section 7 of RA 6632. Consequently, private respondents derive their privilege to hold races on the designated days not only their franchise acts but also from the order issued by the PHILRACOM. No provision of law became inconsistent with the passage of the Order granting additional racing days. Neither was there a special provision set to govern those mid-week races. The reason is simple. There was no need for any new provisions because there are enough general provisions to cover them. The provisions on the disposition and allocation of breakages being general in character apply to breakages derived on any racing day. 18 xxx xxx xxx WHEREFORE, based on the foregoing analysis and interpretation of the laws in question, the judgment of the trial court is hereby SET ASIDE. Decision is hereby rendered: 1. declaring Section 4 of RA 6631 as amended by E.O. 89 and Section 6 of RA 6632 as amended by E.O. 88 to cover the disposition and allocation of breakages derived on all races conducted by private respondents on any racing day, whether as provided for under Section 4 of RA 6631 or Section 6 of RA 6632 or as ordered by PHILRACOM in the exercise of its powers under P.D. 420; 2. ordering private respondent to remit to PHILRACOM its share under E.O. 88 and E.O. 89 derived from races held on Tuesday, Wednesdays, Thursday as authorized by PHILRACOM. SO ORDERED. 19 Petitioners filed a motion for reconsideration, but it was denied for lack of merit, with respondent Court of Appeals further declaring that: xxx xxx xxx In so far as the prospective application of Executive Orders Nos. 88 and 89 is concerned. We have no disagreement with the respondents. Since PHILRACOM became the beneficiary of the breakages only upon effectivity of Executive Order Nos. 88 and 89, it is therefore entitled to such breakages from December 16, 1986 when said Executive Orders were issued. However, we do not concede that respondents are entitled to breakages prior to December 16, 1986 because it is clear that the applicable laws from 1976 to December 16, 1986 were R.A. 6631 and R.A. 6632, which specifically apportion the breakages to specified beneficiaries among which was the PAAF, a government agency. Since respondents admit that PHILRACOM (Petitioner) was merely placed in lieu of PAAF as beneficiary/recipient of breakages, then whatever breakages was due to PAAF as one of the beneficiaries under R.A. Nos. 6631 and 6632 accrued to or should belong to PHILRACOM as successor to the defunct PAAF.

Finding the Motion for Reconsideration without merit, and for reasons indicated, the Motion is denied. SO ORDERED. 20 Consequent to the aforequoted adverse decision, petitioners MJCI and PRCI filed this petition for review under Rule 45. The main issue brought by the parties for the Court's resolution is: Who are the rightful beneficiaries of the breakages derived from mid-week races? This issue also carries an ancillary question: assuming PHILRACOM is entitled to the mid-week breakages under the law, should the petitioners remit the money from the time the mid-week races started, or only upon the promulgation of E.O. Nos. 88 and 89? Petitioners assert that franchise laws should be construed to apply the distribution scheme specifically and exclusively to the racing days enumerated in Sec. 5 of R.A. 6631, and Sec. 7 of R.A. 6632. They claim that disposition of breakages under these laws should be limited to races conducted on "all Saturdays, Sundays, and official holidays of the year, except, on those official holidays where the law expressly provides that no horse races are to be held", hence, there is no doubt that the breakages of Wednesday races shall belong to the racing clubs concerned. 21 They even advance the view that "where a statute by its terms is expressly limited to certain matters, it may not by interpretation or construction be extended to other matters" 22 However, respondent PHILRACOM contends that R.A. Nos. 6631 and 6632 are laws intended primarily to grant petitioners their respective franchises to construct, operate, and maintain a race track for horse racing. 23 When PHILRACOM added mid-week races, the franchises given to the petitioners remained the same. Logically, what applies to races authorized under Republic Act Nos. 6631 and 6632 should also apply to races additionally authorized by PHILRACOM, namely mid-week races, because these are general provisions which apply general rues and procedures governing the operation of the races. Consequently, if the authorized racing days are extended, these races must therefore be governed by the same rules and provisions generally provided therein. We find petitioners' position on the main issue lacking in merit and far from persuasive. Franchise laws are privileges 24 conferred by the government on corporations to do that "which does not belong to the citizens of the country generally by common right". 25 As a rule, a franchise springs from contracts between the sovereign power and the private corporation for purposes of individual advantage as well as public benefit. 26Thus, a franchise partakes of a double nature and character. 27 In so far as it affects or concerns the public, it ispublic juris and subject to governmental control. 28 The legislature may prescribe the conditions and terms upon which it may be held, and the duty of grantee to the public exercising it. 29 As grantees of a franchise, petitioners derive their existence from the same. Petitioners' operations are governed by all existing rules relative to horse racing provided they are not inconsistent with each other and could be reasonably harmonized. Therefore, the applicable laws are R.A. 309, as amended, R.A. 6631 and 6632, as amended by E.O. 88 and 89, P.D. 420 and the orders issued PHILRACOM. Consequently, every statute should be construed in such a way that will harmonize it with existing laws. This principle is expressed in the legal maxim "interpretare et concordare leges legibus est optimus interpretandi", that is, to interpret and to do it in such a way as to harmonize laws with laws is the best method of interpretation. 30

A reasonable reading of the horse racing laws favors the determination that the entities enumerated in the distribution scheme provided under R.A. Nos. 6631 and 6632, as amended by Executive Orders 88 and 89, are the rightful beneficiaries of breakages from mid-week races. Petitioners should therefore remit the proceeds of breakages to those benefactors designated by the aforesaid laws. The holding of horse races on Wednesdays is in addition to the existing schedule of races authorized by law. Since this new schedule became part of R.A. 6631 and 6632 the set of procedures in the franchise laws applicable to the conduct of horse racing business must likewise be applicable to Wednesday or other mid-week races. A fortiori, the granting of the mid-week races does not require another legislative act to reiterate the manner of allocating the proceeds of betting tickets. Neither does the allocation of breakages under the same provision need to be isolated to construe another distribution scheme. No law can be viewed in a condition of isolation or as the beginning of a new legal system. 31 A supplemental law becomes an addition to the existing statutes, or a section thereof; and its effect is not to change in any way the provisions of the latter but merely to extend the operation thereof, or give additional power to enforce its provisions, as the case may be. In enacting a particular statute, legislators are presumed to have full knowledge and to taken full cognizance of the existing laws on the same subject or those relating thereto. Proceeding to the subsidiary issue, the period for the remittance of breakages to the beneficiaries should have commenced from the time PHILRACOM authorized the holding of mid-week races because R.A. Nos. 6631 and 6632 were ready in effect then. The petitioners contend that they cannot be held retroactively liable to respondent PHILRACOM for breakages prior to the effectivity of E.O. Nos. 88 and 89. They assert that the real intent behind E.O. Nos. 88 and 89 was to favor the respondent PHILRACOM anew with the benefits which formerly had accrued in favor of Philippine Amateur Athletic Federation (PAAF). They opine that since laws operate prospectively unless the legislator intends to give them retroactive effect, the accrual of these breakages should start on December 16, 1986, the date of effectivity of E.O. Nos. 88 and 89. 32 Now, even if one of the benefactors of breakages, the PAAF, as provided by R.A. 6631 and 6632 had ceased operation, it is still not proper for the petitioners to presume that they were entitled to PAAF's share. When the petitioners mistakenly appropriated the breakages for themselves, they became the implied trustees for those legally entitled to the proceeds. This is in consonance with Article 1456 of the Civil Code, which provides that: Art. 1456 If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. The petitioners should have properly set aside amount for the defunct PAAF, until an alternative beneficiary was designated, which as subsequently provided for by Executive Order Nos. 88 and 89, is PHILRACOM: xxx xxx xxx Secs. 2 All the cash balances and accumulated amounts corresponding to the share of the Philippine Amateur Athletic Federation/Ministry of Youth and Sports Development, pursuant to Section 6 of Republic Act No. 6632, not remitted by the Philippine Racing Club, Inc./Manila Jockey Club Inc., are hereby transferred to the Philippine Racing Commission to be constituted into a TRUST FUND to be used exclusively for the payment of additional prizes for races sponsored by the Commission and for necessary outlays and other expenses relative to horsebreeding activities of the National Stud Farm. . . . . . . [E.O. No. 88]

xxx xxx xxx Sec. 2. Any provision of law to the contrary notwithstanding, all cash balances and accumulated amounts corresponding to the share of the Philippine Amateur Athletic Federation/Ministry of Youth and Sports Development, pursuant to Republic Act No. 6631, not remitted by the Manila Jockey Club, Inc., are hereby constituted into a TRUST FUND to be used exclusively for the payment of additional prizes for races sponsored by the Philippine Racing Commission and for the necessary capital outlays and other expenses relative to horsebreeding activities of the National Stud Farm. . . . . . . . [E.O. No. 89] While herein petitioners might have relied on a prior opinion issued by an administrative body, the well-entrenched principle is that the State could not be estopped by a mistake committed by its officials or agents. 33 Well-settled also is the rule that the erroneous application of the law by public officers does not prevent a subsequent correct application of the law. 34 Although there was an initial interpretation of the law by PHILRACOM, a court of law could not be precluded from setting that interpretation aside if later on it is shown to be inappropriate. Moreover, the detrimental consequences of depriving the city hospitals and other institutions of the funds needed for rehabilitation of drug dependents and other patients are all too obvious. It goes without saying that the allocation of breakages in favor of said institutions is a policy decision in pursuance of social development goals worthy of judicial approbation. Nor could we be oblivious to the reality that horse racing although authorized by law is still a form of gambling. Gambling is essentially antagonistic to the aims of enhancing national productivity and self-reliance. 35 For this reason, legislative franchises impose limitations on horse racing and betting. Petitioner's contention that a gambling franchise is a public contract protected by the Constitutional provision on non-impairment of contract could not be left unqualified. For as well said in Lim vs. Pacquing: 36 . . . it should be remembered that a franchise is not in the strict sense a simple contract but rather it is, more importantly, a mere privilege specially in matters which are within the government's power to regulate and even prohibit through the exercise of the police power. Thus, a gambling franchise is always subject to the exercise of police power for the public welfare. 37 That is why we need to stress anew that a statute which authorizes a gambling activity or business should be strictly construed, and every reasonable doubt be resolved so as to limit rather than expand the powers and rights claimed by franchise holders under its authority. 38 WHEREFORE, there being no reversible error, the appealed decision and the resolution of the respondent Court of Appeals in CA-G.R. SP No. 25251, are hereby AFFIRMED, and the instant petition is hereby DENIED for lack of merit. Costs against petitioners.