BO2 1st Set of Cases

BO2 1st set of cases
G.R. Nos. 116124-25. November 22, 2000.*

BIBIANO O. REYNOSO IV, petitioner, vs. HON. COURT OF APPEALS and GENERAL CREDIT
CORPORATION, respondents.
Corporation Law; Securities & Exchange Commission; Fraud; When the corporate fiction is
used to perpetrate fraud or promote injustice, the law steps in to remedy the problem. When
that happens, the corporate character is not necessarily abrogated. It continues for
legitimate objective. However, it is pierced in order to remedy injustice.It is obvious that
the use by CCC-QC of the same name of Commercial Credit Corporation was intended to
publicly identify it as a component of the CCC group of companies engaged in one and the
same business, i.e., investment and financing. Aside from CCC-Quezon City, other franchise
companies were organized such as CCC-North Manila and CCC-Cagayan Valley. The
organization of subsidiary corporations as what was done here is usually resorted to for the
aggrupation of capital, the ability to cover more territory and population, the
decentralization of activities best decentralized, and the securing of other legitimate
advantages. But when the mother corporation and its subsidiary cease to act in good faith
and honest business judgment, when the corporate device is used by the parent to avoid its
liability for legitimate obligations of the subsidiary, and when the corporate fiction is used to
perpetrate fraud or promote injustice, the law steps in to remedy the problem. When that
happens, the corporate character is not necessarily abrogated. It continues for legitimate
objectives. However, it is pierced in order to remedy injustice, such as that inflicted in this
case.
Same; Same; Same; The ends of justice are not served if further litigation is encouraged
when the issue is determinable based on the records.If the corporate fiction is sustained, it
becomes a handy deception to avoid a judgment debt and work an injustice. The decision
raised to us for review is an invitation to multiplicity of litigation. As we stated in Islamic
Directorate vs. Court of Appeals, the ends of justice are not served if further litigation is
encouraged when the issue is determinable based on the records.
Same; Courts; Contracts; Fraud; Piercing the Veil of Corporate Fiction; Courts have been
organized to put an end to controversy. This purpose should not be negated by an
inapplicable and wrong use of the fiction of the
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* FIRST DIVISION.
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SUPREME COURT REPORTS ANNOTATED
Reynoso IV vs. Court of Appeals
corporate veil.A court judgment becomes useless and ineffective if the employer, in this
case CCC as a mother corporation, is placed beyond the legal reach of the judgment creditor
who, after protracted litigation, has been found entitled to positive relief. Courts have been
organized to put an end to controversy. This purpose should not be negated by an

inapplicable and wrong use of the fiction of the corporate veil.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.

Soo, Gutierrez, Leogardo & Lee for petitioner.
Antonio R. Bautista and Partners for private respondent.
YNARES-SANTIAGO, J.:
Assailed in this petition for review is the consolidated decision of the Court of Appeals dated
July 7, 1994, which reversed the separate decisions of the Regional Trial Court of Pasig City
and the Regional Trial Court of Quezon City in two cases between petitioner Reynoso and
respondent General Credit Corporation (GCC).
Sometime in the early 1960s, the Commercial Credit Corporation (hereinafter, CCC), a
financing and investment firm, decided to organize franchise companies in different parts of
the country, wherein it shall hold thirty percent (30%) equity. Employees of the CCC were
designated as resident managers of the franchise companies. Petitioner Bibiano O. Reynoso,
IV was designated as the resident manager of the franchise company in Quezon City, known
as the Commercial Credit Corporation of Quezon City (hereinafter, CCC-QC).
CCC-QC entered into an exclusive management contract with CCC whereby the latter was
granted the management and full control of the business activities of the former. Under the
contract, CCC-QC shall sell, discount and/or assign its receivables to CCC. Subsequently,
however, this discounting arrangement was discontinued pursuant to the so-called DOSRI
Rule, prohibiting the lending of funds by corporations to its directors, officers, stockholders
and other persons with related interests therein.
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On account of the new restrictions imposed by the Central Bank policy by virtue of the
DOSRI Rule, CCC decided to form CCC Equity Corporation, (hereinafter, CCC-Equity), a
wholly-owned subsidiary, to which CCC transferred its thirty (30%) percent equity in CCC-QC,
together with two seats in the latters Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including petitioner
Reynoso, became employees of CCC-Equity. While petitioner continued to be the Resident
Manager of CCC-QC, he drew his salaries and allowances from CCCEquity. Furthermore,
although an employee of CCC-Equity, petitioner, as well as all employees of CCC-QC,
became qualified members of the Commercial Credit Corporation Employees Pension Plan.
As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and

supervised its employees. The business activities of CCC-QC pertain to the acceptance of
funds from depositors who are issued interest-bearing promissory notes. The amounts
deposited are then loaned out to various borrowers. Petitioner, in order to boost the business
activities of CCC-QC, deposited his personal funds in the company. In return, CCC-QC issued
to him its interest-bearing promissory notes.
On August 15, 1980, a complaint for sum of money with preliminary attachment,1 docketed
as Civil Case No. Q-30583, was instituted in the then Court of First Instance of Rizal by CCCQC against petitioner, who had in the meantime been dismissed from his employment by
CCC-Equity. The complaint was subsequently amended in order to include Hidelita Nuval,
petitioners wife, as a party defendant.2 The complaint alleged that petitioner embezzled the
funds of CCC-QC amounting to P1,300,593.11. Out of this amount, at least P630,000.00 was
used for the purchase of a house and lot located at No. 12 Macopa Street, Valle Verde I,
Pasig City. The property was mortgaged to CCC, and was later foreclosed.
_______________
1 Rollo, pp. 60-63.

2 Ibid.,pp.64-68.
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In his amended Answer, petitioner denied having unlawfully used funds of CCC-QC and
asserted that the sum of P1,300,593.11 represented his money placements in CCC-QC, as
shown by twenty-three (23) checks which he issued to the said company.3
The case was subsequently transferred to the Regional Trial Court of Quezon City, Branch 86,
pursuant to the Judiciary Reorganization Act of 1980.
On January 14, 1985, the trial court rendered its decision, the decretal portion of which
states:
Premises considered, the Court finds the complaint without merit. Accordingly, said
complaint is hereby DISMISSED.
By reason of said complaint, defendant Bibiano Reynoso IV suffered degradation, humiliation
and mental anguish.
On the counterclaim, which the Court finds to be meritorious, plaintiff corporation is hereby
ordered:
a) to pay defendant the sum of P185,000.00 plus 14% interest per annum from October 2,
1980 until fully paid;
b) to pay defendant P3,639,470.82 plus interest thereon at the rate of 14% per annum from
June 24, 1981, the date of filing of Amended Answer, until fully paid; from this amount may
be deducted the remaining obligation of defendant under the promissory note of October 24,
1977, in the sum of P9,738.00 plus penalty at the rate of 1% per month from December 24,
1977 until fully paid;
c) to pay defendants P200,000.00 as moral damages;
d) to pay defendants P100,000.00 as exemplary damages;
e) to pay defendants P25,000.00 as and for attorneys fees; plus costs of the suit.
SO ORDERED.
Both parties appealed to the then Intermediate Appellate Court. The appeal of Commercial
Credit Corporation of Quezon City was dismissed for failure to pay docket fees. Petitioner, on
the other hand, withdrew his appeal.
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3 Id., p. 19.
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Hence, the decision became final and, accordingly, a Writ of Execution was issued on July 24,
1989.4 However, the judgment remained unsatisfied,5 prompting petitioner to file a Motion
for Alias Writ of Execution, Examination of Judgment Debtor, and to Bring Financial Records
for Examination to Court. CCC-QC filed an Opposition to petitioners motion,6 alleging that
the possession of its premises and records had been taken over by CCC.
Meanwhile, in 1983, CCC became known as the General Credit Corporation.
On November 22, 1991, the Regional Trial Court of Quezon City issued an Order directing
General Credit Corporation to file its comment on petitioners motion for alias writ of
execution.7 General Credit Corporation filed a Special Appearance and Opposition on
December 2, 1991,8 alleging that it was not a party to the case, and therefore petitioner
should direct his claim against CCC-QC and not General Credit Corporation. Petitioner filed
his reply,9 stating that the CCC-QC is in adjunct instrumentality, conduit and agency of CCC.
Furthermore, petitioner invoked the decision of the Securities and Exchange Commission in
SEC Case No. 2581, entitled, Avelina G. Ramoso, et al., Petitioner versus General Credit
Corp., et al., Respondents, where it was declared that General Credit Corporation CCCEquity and other franchised companies including CCC-QC were declared as one corporation.
On December 9, 1991, the Regional Trial Court of Quezon City ordered the issuance of an
alias writ of execution.10 On December 20, 1991, General Credit Corporation filed an
Omnibus Motion,11 alleging that SEC Case No. 2581 was still pending appeal, and
maintaining that the levy on properties of the General Credit Corporation by the deputy
sheriff of the court was erroneous.
______________
4 Id., p. 297.
5 Id., p. 299.
6 Id., p. 300.
7 Id., p. 320.
8 Id., pp. 321-324.
9 Id., pp. 331-332.
10 Id., pp. 333-335.
11 Id., pp. 336-342.
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340
In his Opposition to the Omnibus Motion, petitioner insisted that General Credit Corporation
is just the new name of Commercial Credit Corporation; hence, General Credit Corporation
and Commercial Credit Corporation should be treated as one and the same entity.
On February 13, 1992, the Regional Trial Court of Quezon City denied the Omnibus Motion.12
On March 5, 1992, it issued an Order directing the issuance of an alias writ of execution.13
Previously, on February 21, 1992, General Credit Corporation instituted a complaint before
the Regional Trial Court of Pasig against Bibiano Reynoso IV and Edgardo C. Tanangco, in his
capacity as Deputy Sheriff of Quezon City,14 docketed as Civil Case No. 61777, praying that
the levy on its parcel of land located in Pasig, Metro Manila and covered by Transfer
Certificate of Title No. 29940 be declared null and void, and that defendant sheriff be
enjoined from consolidating ownership over the land and from further levying on other
properties of General Credit Corporation to answer for any liability under the decision in Civil
Case No. Q30583.
The Regional Trial Court of Pasig, Branch 167, did not issue a temporary restraining order.
Thus, General Credit Corporation instituted two (2) petitions for certiorari with the Court of
Appeals, docketed as CA-G.R. SP No. 2751815 and CA-G.R. SP No. 27683. These cases were
later consolidated.
On July 7, 1994, the Court of Appeals rendered a decision in the two consolidated cases, the
dispositive portion of which reads:
WHEREFORE, in SP No. 27518 we declare the issue of the respondent courts refusal to issue
a restraining order as having been rendered moot by our Resolution of 7 April 1992 which,
by way of injunctive relief, provided that the respondents and their representatives are
hereby enjoined from conducting an auction sale (on execution) of petitioners properties as
well as initiating similar acts of levying (upon) and selling on
_______________
12 Id., pp. 382-383.

13 Id., pp. 384-385.
14 Id., pp. 386-400.
15 Id., pp. 402-425.
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execution other properties of said petitioner. The injunction thus granted, as modified by
the words in parenthesis, shall remain in force until Civil Case No. 61777 shall have been
finally terminated.
In SP No. 27683, we grant the petition for certiorari and accordingly NULLIFY and SET ASIDE,
for having been issued in excess of jurisdiction, the Order of 13 February 1992 in Civil Case
No. Q-30583 as well as any other order or process through which the petitioner is made
liable under the judgment in said Civil Case No. Q-30583.
No damages and no costs.
SO ORDERED.16
Hence, this petition for review anchored on the following arguments:
1. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27683 WHEN IT NULLIFIED
AND SET ASIDE THE 13 FEBRUARY 1992 ORDER AND OTHER ORDERS OR PROCESS OF
BRANCH 86 OF THE REGIONAL TRIAL COURT OF QUEZON CITY THROUGH WHICH GENERAL
CREDIT CORPORATION IS MADE LIABLE UNDER THE JUDGMENT THAT WAS RENDERED IN
CIVIL CASE NO. Q-30583.
2. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27518 WHEN IT ENJOINED
THE AUCTION SALE ON EXECUTION OF THE PROPERTIES OF GENERAL CREDIT CORPORATION
AS WELL AS INITIATING SIMILAR ACTS OF LEVYING UPON AND SELLING ON EXECUTION OF
OTHER PROPERTIES OF GENERAL CREDIT CORPORATION.
3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT GENERAL CREDIT
CORPORATION IS A STRANGER TO CIVIL CASE NO. Q-30583, INSTEAD OF, DECLARING THAT
COMMERCIAL CREDIT CORPORATION OF QUEZON CITY IS THE ALTER EGO,
INSTRUMENTALITY, CONDUIT OR ADJUNCT OF COMMERCIAL CREDIT CORPORATION AND ITS
SUCCESSOR GENERAL CREDIT CORPORATION.
At the outset, it must be stressed that there is no longer any controversy over petitioners
claims against his former employer, CCC-QC, inasmuch as the decision in Civil Case No. Q30583 of the
_______________
16 Id., pp. 57-58.

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Reynoso TV vs. Court of Appeals
Regional Trial Court of Quezon City has long become final and executory. The only issue,
therefore, to be resolved in the instant petition is whether or not the judgment in favor of
petitioner may be executed against respondent General Credit Corporation. The latter
contends that it is a corporation separate and distinct from CCC-QC and, therefore, its
properties may not be levied upon to satisfy the monetary judgment in favor of petitioner. In
short, respondent raises corporate fiction as its defense. Hence, we are necessarily called
upon to apply the doctrine of piercing the veil of corporate entity in order to determine if
General Credit Corporation, formerly CCC, may be held liable for the obligations of CCCQC.
The petition is impressed with merit.
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.17 It is an artificial being invested by law with a personality separate and distinct
from those of the persons composing it as well as from that of any other legal entity to
which it may be related.18 It was evolved to make possible the aggregation and assembling
of huge amounts of capital upon which big business depends. It also has the advantage of
non-dependence on the lives of those who compose it even as it enjoys certain rights and
conducts activities of natural persons.
Precisely because the corporation is such a prevalent and dominating factor in the business
life of the country, the law has to look carefully into the exercise of powers by these artificial
persons it has created.
Any piercing of the corporate veil has to be done with caution. However, the Court will not
hesitate to use its supervisory and adjudicative powers where the corporate fiction is used
as an unfair device to achieve an inequitable result, defraud creditors, evade contracts and
obligations, or to shield it from the effects of a
______________
17 CORPORATION CODE, Section 2.

18 Yu v. National Labor Relations Commission, 245 SCRA 134 [1995].
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court decision. The corporate fiction has to be disregarded when necessary in the interest of
justice.
In First Philippine International Bank v. Court of Appeals, et al.,19 we held:
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, the veil with
which the law covers and isolates the corporation from the members or stockholders who
compose it will be lifted to allow for its consideration merely as an aggregation of
individuals.
Also in the above-cited case, we stated that this Court has pierced the veil of corporate
fiction in numerous cases where it was used, among others, to avoid a judgment credit;20 to
avoid inclusion of corporate assets as part of the estate of a decedent;21 to avoid liability
arising from debt;22 when made use of as a shield to perpetrate fraud and/or confuse
legitimate issues;23 or to promote unfair objectives or otherwise to shield them.24
In the appealed judgment, the Court of Appeals sustained respondents arguments of
separateness and its character as a different corporation which is a non-party or stranger to
this case.
The defense of separateness will be disregarded where the business affairs of a subsidiary
corporation are so controlled by the mother corporation to the extent that it becomes an
instrument or agent of its parent. But even when there is dominance over the affairs of the
subsidiary, the doctrine of piercing the veil of corpo_______________
19 252 SCRA 259, 287-288 [1996].

20 Sibagat Timber Corp. v. Garcia, 216 SCRA 470 [1992]; Tan Boon Bee & Co., Inc. v.
Jarencio, 163 SCRA 205 [1988].
21 Cease v. CA, 93 SCRA 483 [1979].
22 Arcilla v. CA, 215 SCRA 120 [1992]; Philippine Bank of Communications v. CA, 195 SCRA
567 [1991].
23 Jacinto v. CA, 198 SCRA 211 [1991].
24 Villanueva v. Adre, 172 SCRA 876 [1989].
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rate fiction applies only when such fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime.25
We stated in Tomas Lao Construction v. National Labor Relations Commission,26 that the
legal fiction of a corporation being a judicial entity with a distinct and separate personality
was envisaged for convenience and to serve justice. Therefore, it should not be used as a
subterfuge to commit injustice and circumvent the law.
Precisely for the above reasons, we grant the instant petition.
It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation
was intended to publicly identify it as a component of the CCC group of companies engaged
in one and the same business, i.e., investment and financing. Aside from CCCQuezon City,
other franchise companies were organized such as CCC-North Manila and CCC-Cagayan
Valley. The organization of subsidiary corporations as what was done here is usually resorted
to for the aggrupation of capital, the ability to cover more territory and population, the
decentralization of activities best decentralized, and the securing of other legitimate
advantages. But when the mother corporation and its subsidiary cease to act in good faith
and honest business judgment, when the corporate device is used by the parent to avoid its
liability for legitimate obligations of the subsidiary, and when the corporate fiction is used to
perpetrate fraud or promote injustice, the law steps in to remedy the problem. When that
happens, the corporate character is not necessarily abrogated. It continues for legitimate
objectives. However, it is pierced in order to remedy injustice, such as that inflicted in this
case.
Factually and legally, the CCC had dominant control of the business operations of CCC-QC.
The exclusive management contract insured that CCC-QC would be managed and controlled
by CCC and would not deviate from the commands of the mother corporation. In addition to
the exclusive management contract,
_______________
25 Union Bank of the Philippines v. Court of Appeals, 290 SCRA 198 [1998].
26 278SCRA716 [1997].
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CCC appointed its own employee, petitioner, as the resident manager of CCC-QC.
Petitioners designation as resident manager implies that he was placed in CCC-QC by a
superior authority. In fact, even after his assignment to the subsidiary corporation, petitioner
continued to receive his salaries, allowances, and benefits from CCC, which later became
respondent General Credit Corporation. Not only that. Petitioner and the other permanent
employees of CCC-QC were qualified members and participants of the Employees Pension
Plan of CCC.
There are other indications in the record which attest to the applicability of the identity rule
in this case, namely: the unity of interests, management, and control; the transfer of funds
to suit their individual corporate conveniences; and the dominance of policy and practice by
the mother corporation insure that CCC-QC was an instrumentality or agency of CCC.
As petitioner stresses, both CCC and CCC-QC were engaged in the same principal line of
business involving a single transaction process. Under their discounting arrangements, CCC
financed the operations of CCC-QC. The subsidiary sold, discounted, or assigned its accounts
receivables to CCC.
The testimony of Joselito D. Liwanag, accountant and auditor of CCC since 1971, shows the
pervasive and intensive auditing function of CCC over CCC-QC.27 The two corporations also
shared the same office space. CCC-QC had no office of its own.
The complaint in Civil Case No. Q-30583, instituted by CCC-QC, was even verified by the
director-representative of CCC. The lawyers who filed the complaint and amended complaint
were all inhouse lawyers of CCC.
The challenged decision of the Court of Appeals states that CCC, now General Credit
Corporation, is not a formal party in the case. The reason for this is that the complaint was
filed by CCC-QC against petitioner. The choice of parties was with CCC-QC. The judgment
award in this case arose from the counterclaim which petitioner set up against CCC-QC.
_______________
27 TSN, March 24, 1982; Rollo, pp. 69-150.

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The circumstances which led to the filing of the aforesaid complaint are quite revealing. As
narrated above, the discounting agreements through which CCC controlled the finances of
its subordinates became unlawful when Central Bank adopted the DOSRI prohibitions. Under
this rule the directors, officers, and stockholders are prohibited from borrowing from their
company. Instead of adhering to the letter and spirit of the regulations by avoiding DOSRI
loans altogether, CCC used the corporate device to continue the prohibited practice. CCC
organized still another corporation, the CCC-Equity Corporation. However, as a wholly owned
subsidiary, CCC-Equity was in fact only another name for CCC. Key officials of CCC, including
the resident managers of subsidiary corporations, were appointed to positions in CCC-Equity.
In order to circumvent the Central Banks disapproval of CCCQCs mode of reducing its
DOSRI lender accounts and its directive to follow Central Bank requirements, resident
managers, including petitioner, were told to observe a pseudo-compliance with the phasing
out orders. For his unwillingness to satisfactorily conform to these directives and his
reluctance to resort to illegal practices, petitioner earned the ire of his employers.
Eventually, his services were terminated, and criminal and civil cases were filed against him.
Petitioner issued twenty-three checks as money placements with CCC-QC because of
difficulties faced by the firm in implementing the required phase-out program. Funds from
his current account in the Far East Bank and Trust Company were transferred to CCCQC.
These monies were alleged in the criminal complaints against him as having been stolen.
Complaints for qualified theft and estafa were brought by CCC-QC against petitioner. These
criminal cases were later dismissed. Similarly, the civil complaint which was filed with the
Court of First Instance of Pasig and later transferred to the Regional Trial Court of Quezon
City was dismissed, but his counterclaims were granted.
Faced with the financial obligations which CCC-QC had to satisfy, the mother firm closed
CCC-QC, in obvious fraud of its creditors. CCC-QC, instead of opposing its closure,
cooperated in its own demise. Conveniently, CCC-QC stated in its opposition to the mo347

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tion for alias writ of execution that all its properties and assets had been transferred and
taken over by CCC.
Under the foregoing circumstances, the contention of respondent General Credit
Corporation, the new name of CCC, that the corporate fiction should be appreciated in its
favor is without merit.
Paraphrasing the ruling in Claparols v. Court of Industrial Relations,28 reiterated in Concept
Builders, Inc. v. National Labor Relations Commission,29 it is very obvious; that respondent
seeks the protective shield of a corporate fiction whose veil the present case could, and
should, be pierced as it was deliberately and maliciously designed to evade its financial
obligation of its employees.
If the corporate fiction is sustained, it becomes a handy deception to avoid a judgment debt
and work an injustice. The decision raised to us for review is an invitation to multiplicity of
litigation. As we stated in Islamic Directorate of the Phils. vs. Court of Appeals,30 the ends of
justice are not served if further litigation is encouraged when the issue is determinable
based on the records.
A court judgment becomes useless and ineffective if the employer, in this case CCC as a
mother corporation, is placed beyond the legal reach of the judgment creditor who, after
protracted litigation, has been found entitled to positive relief. Courts have been organised
to put an end to controversy. This purpose should not be negated by an inapplicable and
wrong use of the fiction of the corporate veil.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and SET ASIDE. The
injunction against the holding of an auction sale for the execution of the decision in Civil
Case No. Q-30583 of properties of General Credit Corporation, and the levying upon and
selling on execution of other properties of General Credit Corporation, is LIFTED.
SO ORDERED.
Davide, Jr. (C.J., Chairman), Puno, Kapunan and Pardo, JJ., concur.
_______________
28 65 SCRA 613 11975].

29 257 SCRA 149 [1996].
30 272 SCRA 454 [1997].
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348
Veterans Federation of the Philippines vs. Court of Appeals
Judgment reversed and set aside.
Notes.Basic in corporation law is the principle that a corporation has a separate
personality distinct from its stockholders and from other corporations to which it may be
connected. (Francisco Motors Corporation vs. Court of Appeals, 309 SCRA 72 [1999])
The rationale behind piercing a corporations identity in a given case is to remove the barrier
between the corporation from the persons comprising it to thwart the fraudulent and illegal
schemes of those who use the corporate personality as a shield for undertaking certain
proscribed activities. (Ibid.)
o0o [Reynoso IV vs. Court of Appeals, 345 SCRA 335(2000)]
242
Tayag vs. Benguet Consolidated, Inc.
No. L-23145. November 29, 1968.
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary
administrator-appellee, vs. BENGUET CONSOLIDATED. INC., oppositor-appellant.
Special proceedings; Principal administration and ancillary administration distinguished;
When ancillary administration is proper; Reason.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 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 (Johannes v.
Harvey, 43 Phil. 175). Ancillary administration is necessary or the reason for such
administration is because a grant of administration does not ex proprio vigore have any
effect beyond the limits of the country in which it is granted. Hence, an administrator
appointed in a foreign state has no authority in the Philippines,
Settlement of estate of a decedent; Ancillary administrator; Scope of his power and

authority.No one could dispute the power of an ancillary administrator to gain control and
possession of all assets of the decedent within the jurisdiction of the Philippines. Such a
power is inherent in his duty to settle her estate and satisfy the claims of local creditors
(Rule 84, Sec. 3, Rules of Court. Cf. Pavia v. De la Rosa, 8 Phil. 70; Liwanag v. Reyes, L-19159,
Sept. 29, 1964; Ignacio v. Elchico, L-18937, May 16, 1967; etc.). 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 la another state or country" (Leon and Ghezzi v. Manufacturers Life Ins. Co., 90 Phil.
459).
Same; Refusal of domiciliary administrator to deliver shares of stock despite judicial order;
Case at bar.Since, in the case at bar, there is a refusal, persistently adhered to by the
domiciliary administrator in New York, to deIiver the shares of stocks of appellant
corporation owned by the decedent to fee 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
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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 a party or entity.
In this connection, our Supreme Court held: "Our attention has not been called to any law or
treaty that would make the findings of the Veterans' Administrator (of the United States), in
actions where he is a party, conclusive on our courts. That, in effect, would deprive our
tribunals of judicial descretion and render them subordinate instrumentalities of the
Veterans' Administrator" (Viloria v. Administrator of Veterans Affairs, 101 Phil. 762).
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.
Corporation law; Corporation; Concept and nature.A corporation is an artificial being
created by operation of law (Sec. 2, Act No. 1459). A corporation as known to Philippine
jurisprudence is a creature without any existence until it has received the imprimatur of the
state acting 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.
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 icial person distinct and
separate from its individual stockholders (1 Fletcher, Cyclopedia Corporations, pp. 19-20).
APPEAL from an order of the Court of First Instance of Manila.

Cirilo F. Asperillo, Jr. for ancillary administratorappellee.
Ross. Salcedo, Del Rosario, Bito & Misa for oppositorappellant.
FERNANDO, J.:
Confronted by an obstinate and adamant refusal of the

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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
________________
1 Statement of the Case and Issues Involved, Brief for the Oppositor-Appellant, p. 2.
245

245
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 f urther that appellant Benguet Consolidated, Inc. admits that "it is
immaterial" as far as it is concerned as to "who is entitled to the possession of the stock
certificates in question; appellant opposed the petition of the ancillary administrator
because the said stock certificates are in existence, they are today in the possession of the
domiciliary administrator, the County Trust Company; in New York, U.S.A. x x x."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 ad________________
2 Ibid, p. 3.
3 Ibid, pp. 3 to 4,
4 Ibid, p. 4.
246
246

ministrator 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, 1968.
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
________________
5 Rule 84. Sec. 3, Rules of Court. Cf. Pavia v. De la Rosa. 8 Phil. 70 (1907); Suiliong and Co. v.
Chio Taysan, 12 Phil, 13 (1908); Malahacan v. Ignacio, 19 Phil. 434 (1911); McMic
247

247
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 rigore have any
effect beyond the limits of the country in which it is granted. Hence, an administrator
appointed in a foreign state has no authority in the [Philippines]. The ancillary administration
is proper, whenever a person dies, leaving in a country other than that of his last domicile,
property to be administered in the nature of assets of the deceased liable for his individual
debts or to be distributed among his heirs."7
________________
king v. Sy Conbieng, 21 Phil. 211 (1912); In re Estate of De Dios, 24 Phil. 573 (1913); Santos
v. Manarang, 27 Phil. 209 (1914); Jaucian v. Querol, 38 Phil. 707 (1918); Buenaventura v.
Ramos, 43 Phil. 704 (1922); Roxas v. Pecson, 82 Phil. 407 (1948) ; De Borja v. De Borja, 83
Phil. 405 (1949); Barraca v. Zayco. 88 Phil. 774 (1951); Pabilonia v. Santiago, 93 Phil. 516
(1953); Sison v. Teodoro, 98 Phil. 680 (1956); Ozaeta v. Palanca, 101 Phil. 976 (1957);
Natividad Castelvi de Raquiza v. Castelvi, et al. L-17630, Oct. 31, 1963; Habana v. Imbo, L15598 & L-15726, March 31, 1964; Gliceria Liwanag v. Hon. Luis Reyes, L-19159, Sept. 29,
1964; Ignacio v. Elchico, L-18937, May 16, 1967.
6 Leon and Ghezzi v. Manufacturers Life, Inc, Co., 990 Phil. 459 (1951),
7 Johannes v. Harvey, 43 Phil. 175, 177-178 (1922),
248
248
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 x x x standing in
her name in the books of [appellant] Benguet Consolidated, Inc. x x x" 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, x x x."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
________________
8 70 Phil. 325 (1940). Cf. Perkins v. Dizon, 69 Phil. 186 (1939).

9 Brief for Oppositor-Appellant, p. 5. The Assignment of Error reads: "The lower court erred in
entering its order of May 18, 1964, (1) considering as lost the stock certificates covering
33,002 shares of Benguet belonging to the deceased Idonah Slade Perkins, (2) ordering the
said certificates cancelled, and (3) ordering appellant to issue new certificates in lieu thereof
and to deliver them to the ancillary administrator of the estate of the deceased Idonah Slade
Perkins or to the probate division of the lower court."
249

249
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 that fictions "were
devices to advance the ends of justice, [even if] clumsy and at times offen-
_________________
10 Ibid, pp. 5 to 6.
11 Nashville C. St. Louis Ry v. Browning, 310 US 362 (1940).
250
250
sive."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 ref
lection 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 f urther refinement in
the catholicity of its condemnation of such judicial technique. If ever an occasion did call for
the employment of a legal f iction 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
_________________
12 Cardozo, The Paradoxes of Legal Science, 34 (1928).

13 Ibid, p. 34.
14 Ibid, p. 34. The late Professor Gray in his The Nature and Sources of the Law,
distinguished, following Ihering, historic fictions from dogmatic fictions, the former being
devices to allow the addition of new law to old without changing the form of the old law and
the latter being intended to arrange recognized and established doctrines under the most
convenient forms. pp. 30, 36 (1909) Speaking of historic fictions, Gray added: "Such fictions
have had their field of operation largely in the domain of procedure, and have consisted in
pretending that a person or thing was other than that which he or it was in .truth (or that an
event had occurred which had not in fact occurred) for the purpose of thereby giving an
action at law to or against a person who did not really come within the class to or against
which the old action was confined." Ibid, pp. 30-31. See also Pound, The Philosophy of Law,
pp. 179, 180, 274 (1922).
251

251
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 a bylaw. 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 x x x who is entitled to the possession of the stock
certificates x x x." 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 bylaw 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 def erence, when appropriately invoked and
deemed applicable. It would be most highly unortho dox, 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.
_________________
15 This is what the particular by-law provides: Section 10. Lost, Stolen or Destroyed
Certificates.Any registered stockholder claiming a certificate or certificates of stock to be
lost, stolen or destroyed shall file an affidavit in triplicate with the Secretary of the Company
or with one of its Transfer Agents, setting forth, if possible, the circumstances as to how,
when and where said certif icate or certif icates was or were lost, stolen or destroyed, the
number of shares represented by the certif icate or by each of the certificates, the serial
number or numbers of the certificate or certificates, and the name of this Company. The
registered stockholder shall also submit such other information and evidence which he may
deem necessary.
XXX.
If a contest is presented to the Company, or if an action is pending in court regarding the
ownership of said certificate or certificates of stock which have been claimed to have been
lost, stolen or destroyed, the issuance of the new certificate or certificates in lieu of that or
those claimed to have been lost, stolen or destroyed, shall be suspended until final decision
by the court regarding the ownership of said certificate or certificates. Brief for OppositorAppellant, pp. 8-10.
252
252
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 f raught 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 x x
x."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."17 As 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. x x x 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
________________
16 Sec. 2, Act No. 1459 (1906).

17 Berle, The Theory of Enterprise Entity, 47 Co Law Rev 343 (1907).
18 Dartmouth College v. Woodward, 4 Wheat, 518 (1819). Cook would trace such a concept
to Lord Coke. See 1 Cook on Corporations, p. 2 (1923).
253

253
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 acting
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 f act, 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 Vet_________________
19 1 Fletcher, Cyclopedia Corporations, pp. 19-20 (1931). Chancellor Kent and Chief Justice
Baldwin of Connecticut were likewise cited to the same -effect. At pp. 12-13.
20 4 Pound on Jurisprudence, pp. 207-209 (1959).
21 Friedmann, Legal Theory, pp. 164-168 (1947). See also Holdsworth, English Corporation
Law, 31 Yale Law Journal, 382 (1922).
254
254
erans 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 U.S. Veterans' Administrator final and conclusive when
made on claims properly 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, determina________________
22 101 Phil. 762 (1957).

23 38 USCA. Sec. 808.
255

255
Detective & Protective Bureau, Inc. vs. Cloribel
tions 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 jurisdic-tion, 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 ef f ect, 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-appellant
Benguet Consolidated, Inc.
Makalintal, Zaldivar and Capistrano, JJ., concur.
Concepcion, CJ., Reyes, J.B.L., Dizon, Sanchez and Castro, JJ., concur in the result.
Order affirmed.
[Tayag vs. Benguet Consolidated, Inc., 26 SCRA 242(1968)]
674
International Express Travel & Tour Services, Inc. vs. Court of Appeals
G.R. No. 119020. October 19, 2000.*
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT OF
APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION, respondents.
Corporation Law; National Sports Associations; Statutes; R.A. 3135 and P.D. No. 604
recognized the juridical existence of national sports associations.As correctly observed by
the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical existence of
national sports associations. This may be gleaned from the powers and functions granted to
these associations.
Same; Same; The powers and functions granted to national sports associations clearly
indicate that these entities may acquire a juridical personality.The above powers and
functions granted to national sports associations clearly indicate that these entities may
acquire a juridical personality. The power to purchase, sell, lease and encumber property are
acts which may only be done by persons, whether natural or artificial, with juridical capacity.
However, while we agree with the appellate court
_______________
* FIRST DIVISION.
675
VOL. 343, OCTOBER 19, 2000

675
that national sports associations may be accorded corporate status, such does not
automatically take place by the mere passage of these laws.
Same; Same; Philippine Football Association; It is a basic postulate that before a corporation
may acquire juridical personality, the State must give its consent either in the form of a
special law or a general enabling act; The Court cannot agree with the view of the Court of
Appeals that the Philippine Football Association came into existence upon the passage of RA.
3135 or P.D. 604.It is a basic postulate that before a corporation may acquire juridical
personality, the State must give its consent either in the form of a special law or a general
enabling act. We cannot agree with the view of the appellate court and the private
respondent that the Philippine Football Federation came into existence upon the passage of
these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the
Philippine Football Federation. These laws merely recognized the existence of national sports
associations and provided the manner by which these entities may acquire juridical
personality.
Same; Same; Same; The statutory provisions require that before an entity may be
considered as a national sports association, such entity must be recognized by the
accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and
the Department of Youth and Sports Development under P.D. 604.Clearly the above cited
provisions require that before an entity may be considered as a national sports association,
such entity must be recognized by the accrediting organization, the Philippine Amateur
Athletic Federation under R.A. 3135, and the Department of Youth and Sports Development
under P.D. 604. This fact of recognition, however, Henri Kahn failed to substantiate. In
attempting to prove the juridical existence of the Federation, Henri Kahn attached to his
motion for reconsideration before the trial court a copy of the constitution and by-laws of the
Philippine Football Federation. Unfortunately, the same does not prove that said Federation
has indeed been recognized and accredited by either the Philippine Amateur Athletic
Federation or the Department of Youth and Sports Development. Accordingly, we rule that
the Philippine Football Federation is not a national sports association within the purview of
the aforementioned laws and does not have a corporate existence of its own.
Same; It is a settled principle in corporation law that any person acting or purporting to act
on behalf of a corporation which has no valid existence assumes such privileges and
obligations and becomes personally liable for contracts entered into or for such other acts
performed as such agent.This being said, it follows that private respondent Henry Kahn
676
676
should be held liable for the unpaid obligations of the unincorporated Philippine Football
Federation. It is a settled principle in corporation law that any person acting or purporting to
act on behalf of a corporation which has no valid existence assumes such privileges and
obligations and becomes personally liable for contracts entered into or for other acts
performed as such agent. As president of the Federation, Henri Kahn is presumed to have
known about the corporate existence or non-existence of the Federation. We cannot
subscribe to the position taken by the appellate court that even assuming that the
Federation was defectively incorporated, the petitioner cannot deny the corporate existence
of the Federation because it had contracted and dealt with the Federation in such a manner
as to recognize and in effect admit its existence.
Same; Doctrine of Corporation by Estoppel; The doctrine of corporation by estoppel applies
to a third party only when he tries to escape liability on a contract from which he has
benefited on the irrelevant ground of defective incorporation.The doctrine of corporation
by estoppel is mistakenly applied by the respondent court to the petitioner. The application
of the doctrine applies to a third party only when he tries to escape liability on a contract
from which he has benefited on the irrelevant ground of defective incorporation. In the case
at bar, the petitioner is not trying to escape liability from the contract but rather is the one
claiming from the contract.

Vicente R. Solis for petitioner.
Romulo Atencia for respondent Khan.

KAPUNAN, J.:
On June 30, 1989, petitioner International Express Travel and Tour Services, Inc., through its
managing director, wrote a letter to the Philippine Football Federation (Federation), through
its president private respondent Henri Kahn, wherein the former offered its services as a
travel agency to the latter.1 The offer was accepted.
_______________
1 Records, p. 10.
677
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677
Petitioner secured the airline tickets for the trips of the athletes and officials of the
Federation to the South East Asian Games in Kuala Lumpur as well as various other trips to
the Peoples Republic of China and Brisbane. The total cost of the tickets amounted to
P449,654.83. For the tickets received, the Federation made two partial payments, both in
September of 1989, in the total amount of P176,467.50.2
On 4 October 1989, petitioner wrote the Federation, through the private respondent a
demand letter requesting for the amount of P265,894.33.3 On 30 October 1989, the
Federation, through the Project Gintong May, paid the amount of P31,603.00.4
On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as
partial payment for the outstanding balance of the Federation.5 Thereafter, no further
payments were made despite repeated demands.
This prompted petitioner to file a civil case before the Regional Trial Court of Manila.
Petitioner sued Henri Kahn in his personal capacity and as President of the Federation and
impleaded the Federation as an alternative defendant. Petitioner sought to hold Henri Kahn
liable for the unpaid balance for the tickets purchased by the Federation on the ground that
Henri Kahn allegedly guaranteed the said obligation.6
Henri Kahn filed his answer with counterclaim. While not denying the allegation that the
Federation owed the amount P207,524.20, representing the unpaid balance for the plane
tickets, he averred that the petitioner has no cause of action against him either in his
personal capacity or in his official capacity as president of the Federation. He maintained
that he did not guarantee payment but merely acted as an agent of the Federation which
has a separate and distinct juridical personality.7
_______________
2 Id., at 12-13.
3 Id., at 14.
4 Id., at 15.
5 Id., at 18.
6 Id., at 1-9.
7 Id., at 29-34.
678
678
On the other hand, the Federation failed to file its answer, hence, was declared in default by
the trial court.8
In due course, the trial court rendered judgment and ruled in favor of the petitioner and
declared Henri Kahn personally liable for the unpaid obligation of the Federation. In arriving
at the said ruling, the trial court rationalized:
Defendant Henri Kahn would have been correct in his contentions had it been duly
established that defendant Federation is a corporation. The trouble, however, is that neither
the plaintiff nor the defendant Henri Kahn has adduced any evidence proving the corporate
existence of the defendant Federation. In paragraph 2 of its complaint, plaintiff asserted that
Defendant Philippine Football Federation is a sports association x x x. This has not been
denied by defendant Henri Kahn in his Answer. Being the President of defendant Federation,
its corporate existence is within the personal knowledge of defendant Henri Kahn. He could
have easily denied specifically the assertion of the plaintiff that it is a mere sports
association, if it were a domestic corporation. But he did not.
xxx
A voluntary unincorporated association, like defendant Federation has no power to enter
into, or to ratify, a contract. The contract entered into by its officers or agents on behalf of
such association is not binding on, or enforceable against it. The officers or agents are
themselves personally liable.
x x x9
The dispositive portion of the trial courts decision reads:
WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff the
principal sum of P207,524.20, plus the interest thereon at the legal rate computed from July
5, 1990, the date the complaint was filed, until the principal obligation is fully liquidated; and
another sum of P15,000.00 for attorneys fees.
The complaint of the plaintiff against the Philippine Football Federation and the
counterclaims of the defendant Henri Kahn are hereby dismissed.
_______________
8 Id., at 40.
9 Rollo, pp. 195-196.
679
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679
With the costs against defendant Henri Kahn.10
Only Henri Kahn elevated the above decision to the Court of Appeals. On 21 December
1994, the respondent court rendered a decision reversing the trial court, the decretal portion
of said decision reads:
WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and
SET ASIDE and another one is rendered dismissing the complaint against defendant Henri S.
Kahn.11
In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the
Federation. It rationalized that since petitioner failed to prove that Henri Kahn guaranteed
the obligation of the Federation, he should not be held liable for the same as said entity has
a separate and distinct personality from its officers. Petitioner filed a motion for
reconsideration and as an alternative prayer pleaded that the Federation be held liable for
the unpaid obligation. The same was denied by the appellate court in its resolution of 8
February 1995, where it stated that:
As to the alternative prayer for the Modification of the Decision by expressly declaring in the
dispositive portion thereof the Philippine Football Federation (PFF) as liable for the unpaid
obligation, it should be remembered that the trial court dismissed the complaint against the
Philippine Football Federation, and the plaintiff did not appeal from this decision. Hence, the
Philippine Football Federation is not a party to this appeal and consequently, no judgment
may be pronounced by this Court against the PFF without violating the due process clause,
let alone the fact that the judgment dismissing the complaint against it, had already become
final by virtue of the plaintiffs failure to appeal therefrom. The alternative prayer is therefore
similarly DENIED.12
Petitioner now seeks recourse to this Court and alleges that the respondent court committed
the following assigned errors:13
_______________
10 Id., at 196.
11 Id., at 48.
12 Id., at 50.
13 Id., at 16-17.
680
680
A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD DEALT
WITH THE PHILIPPINE FOOTBALL FEDERATION (PFF) AS A CORPORATE ENTITY AND IN NOT
HOLDING THAT PRIVATE RESPONDENT HENRI KAHN WAS THE ONE WHO REPRESENTED THE
PFF AS HAVING A CORPORATE PERSONALITY.
B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT
HENRI KAHN PERSONALLY LIABLE FOR THE OBLIGATION OF THE UNINCORPORATED PFF,
HAVING NEGOTIATED WITH PETITIONER AND CONTRACTED WITH PETITIONER AND
CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL PAYMENT AND
ASSURED PETITIONER OF FULLY SETTLING THE OBLIGATION.
C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY LIABLE,
THE HONORABLE COURT OF APPEALS ERRED IN NOT EXPRESSLY DECLARING IN ITS DECISION
THAT THE PFF IS SOLELY LIABLE FOR THE OBLIGATION.
The resolution of the case at bar hinges on the determination of the existence of the
Philippine Football Federation as a juridical person. In the assailed decision, the appellate
court recognized the existence of the Federation. In support of this, the CA cited Republic Act
3135, otherwise known as the Revised Charter of the Philippine Amateur Athletic Federation,
and Presidential Decree No. 604 as the laws from which said Federation derives its
existence.
As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the
juridical existence of national sports associations. This may be gleaned from the powers and
functions granted to these associations. Section 14 of R.A. 3135 provides:
SEC. 14. Functions, powers and duties of Associations.The National Sports Association shall
have the following functions, powers and duties:
1. To adopt a constitution and by-laws for their internal organization and government;
2. To raise funds by donations, benefits, and other means for their purposes;
3. To purchase, sell, lease or otherwise encumber property both real and personal, for the
accomplishment of their purpose;
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681
4. To affiliate with international or regional sports Associations after due consultation with
the executive committee;
xxx
13. To perform such other acts as may be necessary for the proper accomplishment of their
purpose and not inconsistent with this Act.
Section 8 of P.D. 604, grants similar functions to these sports associations.
SEC. 8. Functions, Powers, and Duties of National Sports Association.The National Sports
Associations shall have the following functions, powers, and duties:
1. Adopt a Constitution and By-Laws for their internal organization and government which
shall be submitted to the Department and any amendment thereto shall take effect upon
approval by the Department: Provided, however, That no team, school, club, organization, or
entity shall be admitted as a voting member of an association unless 60 per cent of the
athletes composing said team, school, club, organization, or entity are Filipino citizens;
2. Raise funds by donations, benefits, and other means for their purpose subject to the
approval of the Department;
3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for the
accomplishment of their purpose;
4. Conduct local, interport, and international competitions, other than the Olympic and Asian
Games, for the promotion of their sport;
5. Affiliate with international or regional sports associations after due consultation with the
Department;
xxx
13. Perform such other functions as may be provided by law.
The above powers and functions granted to national sports associations clearly indicate that
these entities may acquire a juridical personality. The power to purchase, sell, lease and
encumber property are acts which may only be done by persons, whether natural or
artificial, with juridical capacity. However, while we agree with the appellate court that
national sports associations may be accorded corporate status, such does not automatically
take place by the mere passage of these laws.
682
682
It is a basic postulate that before a corporation may acquire juridical personality, the State
must give its consent either in the form of a special law or a general enabling act. We cannot
agree with the view of the appellate court and the private respondent that the Philippine
Football Federation came into existence upon the passage of these laws. Nowhere can it be
found in R.A. 3135 or P.D. 604 any provision creating the Philippine Football Federation.
These laws merely recognized the existence of national sports associations and provided the
manner by which these entities may acquire juridical personality. Section 11 of R.A. 3135
provides:
SEC. 11. National Sports Association; organization and recognition.A National Association
shall be organized for each individual sports in the Philippines in the manner hereinafter
provided to constitute the Philippine Amateur Athletic Federation. Applications for
recognition as a National Sports Association shall be filed with the executive committee
together with, among others, a copy of the constitution and by-laws and a list of the
members of the proposed association, and a filing fee of ten pesos.
The Executive Committee shall give the recognition applied for if it is satisfied that said
association will promote the purposes of this Act and particularly section three thereof. No
application shall be held pending for more than three months after the filing thereof without
any action having been taken thereon by the executive committee. Should the application
be rejected, the reasons for such rejection shall be clearly stated in a written communication
to the applicant. Failure to specify the reasons for the rejection shall not affect the
application which shall be considered as unacted upon: Provided, however, That until the
executive committee herein provided shall have been formed, applications for recognition
shall be passed upon by the duly elected members of the present executive committee of
the Philippine Amateur Athletic Federation. The said executive committee shall be dissolved
upon the organization of the executive committee herein provided: Provided, further That
the functioning executive committee is charged with the responsibility of seeing to it that
the National Sports Associations are formed and organized within six months from and after
the passage of this Act.
Section 7 of P.D. 604, similarly provides:
SEC. 7. National Sports Associations.Application for accreditation or recognition as a
national sports association for each individual sport in the Philippines shall be filed with the
Department together with,
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683
among others, a copy of the Constitution and By-Laws and a list of the members of the
proposed association.
The Department shall give the recognition applied for if it is satisfied that the national sports
association to be organized will promote the objectives of this Decree and has substantially
complied with the rules and regulations of the Department: Provided, That the Department
may withdraw accreditation or recognition for violation of this Decree and such rules and
regulations formulated by it.
The Department shall supervise the national sports association: Provided, That the latter
shall have exclusive technical control over the development and promotion of the particular
sport for which they are organized.
Clearly the above cited provisions require that before an entity may be considered as a
national sports association, such entity must be recognized by the accrediting organization,
the Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth
and Sports Development under P.D. 604. This fact of recognition, however, Henri Kahn failed
to substantiate. In attempting to prove the juridical existence of the Federation, Henri Kahn
attached to his motion for reconsideration before the trial court a copy of the constitution
and by-laws of the Philippine Football Federation. Unfortunately, the same does not prove
that said Federation has indeed been recognized and accredited by either the Philippine
Amateur Athletic Federation or the Department of Youth and Sports Development.
Accordingly, we rule that the Philippine Football Federation is not a national sports
association within the purview of the aforementioned laws and does not have corporate
existence of its own.
This being said, it follows that private respondent Henry Kahn should be held liable for the
unpaid obligations of the unincorporated Philippine Football Federation. It is a settled
principle in corporation law that any person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such privileges and obligations and
becomes personally liable for contracts entered into or for other acts performed as such
agent.14 As
_______________
14 Albert vs. University Publishing Co., Inc., 13 SCRA 84, 87 (1965) citing Salvatierra vs.
Garlitos, 56 O.G. 3069.
684
684
president of the Federation, Henri Kahn is presumed to have known about the corporate
existence or non-existence of the Federation. We cannot subscribe to the position taken by
the appellate court that even assuming that the Federation was defectively incorporated,
the petitioner cannot deny the corporate existence of the Federation because it had
contracted and dealt with the Federation in such a manner as to recognize and in effect
admit its existence.15 The doctrine of corporation by estoppel is mistakenly applied by the
respondent court to the petitioner. The application of the doctrine applies to a third party
only when he tries to escape liability on a contract from which he has benefited on the
irrelevant ground of defective incorporation.16 In the case at bar, the petitioner is not trying
to escape liability from the contract but rather is the one claiming from the contract.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the
Regional Trial Court of Manila, Branch 35, in Civil Case No. 90-53595 is hereby REINSTATED.
SO ORDERED.
Davide, Jr. (C.J., Chairman), Puno, Pardo and Ynares-Santiago, JJ., concur.
Appealed Judgment reversed and set aside, decision of the trial court reinstated.
Notes.Corporation by estoppel is founded on principles of equity and is designed to
prevent injustice and unfairness, and where there is no third person involved and the conflict
arises only among those assuming the form of a corporation, who know that it has not been
registered, there is no corporation by estoppel. (Lozano vs. De los Santos, 274 SCRA 452
[1997])
An unincorporated association which represents itself to be a corporation will be estopped

from denying its corporate capacity in a suit against it by a third person who relies in good
faith on such
_______________
15 CA Decision, p. 11, Rollo, p. 46.

16 Campos, p. 107, citing Lowell-Woodward Hardware vs. Woods, et al., Partners As The
Superior Leasing Company, Supreme Court of Kansas, 1919, 104 Kan. 729, 180 p. 734.
685
VOL. 343, OCTOBER 19, 2000

685
People vs. Baltazar
representation. (Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc., 317 SCRA 728
[1999])
o0o [International Express Travel & Tour Services, Inc. vs. Court of Appeals, 343
SCRA 674(2000)]
ABS CBN 301 SCRA 589

VOL. 301, JANUARY 21 1999
571
People vs. Court of Appeals
572
ABS-CBN Broadcasting Corporation vs. Court of Appeals
G.R. No. 128690. January 21, 1999.*
ABS-CBN BROADCASTING CORPORATION, petitioner, vs. HONORABLE COURT OF APPEALS,
REPUBLIC BROADCASTING CORP., VIVA PRODUCTIONS, INC., and VICENTE DEL ROSARIO,
respondents.
Civil Law; Contracts; A contract is a meeting of minds between two persons whereby one
binds himself to give something or to render some service to another for a consideration.
The first issue should be resolved against 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 for a consideration. There is no contract unless the following requisites
concur: (1) consent of the contracting parties; (2) object certain which is the subject of the
contract; and (3) cause of the obligation, which is established. A contract undergoes three
stages: (a) preparation, conception, or generation, which is the period of negotiation and
bargaining, ending at the moment of agreement of the parties; (b) perfection or birth of the
contract, which is the moment when the parties come to agree on the terms of the contract;
and (c) consummation or death, which is the fulfillment or performance of the terms agreed
upon in the contract.
Same; Same; Contracts that are consensual in nature are perfected upon mere meeting of
the minds. Once there is concurrence between the offer and the acceptance upon the
subject matter, consideration, and terms of payment a contract is produced.Contracts that
are consensual in nature are perfected upon mere meeting of the minds. Once there is
concurrence between the offer and the acceptance upon the subject matter, consideration,
and terms of payment a contract is produced. The offer must be certain. To convert the offer
into a contract, the acceptance must be absolute and must not qualify the terms of the offer;
it must be plain, unequivocal, unconditional, and without variance of any sort from the
proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counteroffer 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
_________________
* FIRST DIVISION.
573

573
consent because any modification or variation from the terms of the offer annuls the offer.
Same; Same; Acceptance of an Offer; Words and Phrases; The acceptance of an offer must
be unqualified and absolute, i.e., it must be identical in all respects with that of the offer so
as to produce consent or meeting of the minds.ABS-CBNs reliance in Limketkai Sons
Milling, Inc. v. Court of Appeals and Villonco Realty Company v. Bormaheco, Inc., is
misplaced. In these cases, it was held that an acceptance may contain a request for certain
changes in the terms of the offer and yet be a binding acceptance as long as it is clear that
the meaning of the acceptance is positively and unequivocally to accept the offer, whether
such request is granted or not. This ruling was, however, reversed in the resolution of 29
March 1996, which ruled that the acceptance of an offer must be unqualified and absolute,
i.e., it must be identical in all respects with that of the offer so as to produce consent or
meeting of the minds.
Commercial Law; Corporation Code; Board of Directors; Under the Corporation Code, unless
otherwise provided by said Code, corporate powers, such as the power to enter into
contracts, are exercised by the Board of Directors. However, the Board may delegate such
powers to either an executive committee or officials or contracted managers. Under the
Corporation Code, unless otherwise provided by said Code, corporate powers, such as the
power to enter into contracts, are exercised by the Board of Directors. However, the Board
may delegate such powers to either an executive committee or officials or contracted
managers. The delegation, except for the executive committee, must be for specific
purposes. Delegation to officers makes the latter agents of the corporation; accordingly, the
general rules of agency as to the binding effects of their acts would apply. For such officers
to be deemed fully clothed by the corporation to exercise a power of the Board, the latter
must specially authorize them to do so. That Del Rosario did not have the authority to accept
ABS-CBNs counter-offer was best evidenced by his submission of the draft contract to VIVAs
Board of Directors for the latters approval. In any event, there was between Del Rosario and
Lopez III no meeting of minds.
Civil Law; Contracts; Damages; Except as provided by law or by stipulation, one is entitled to
compensation for actual damages
574
574
only for such pecuniary loss suffered by him as he has duly proved. We find for ABS-CBN
on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII, Book
IV of the Civil Code is the specific law on actual or compensatory damages. Except as
provided by law or by stipulation, one is entitled to compensation for actual damages only
for such pecuniary loss suffered by him as he has duly proved. The indemnification shall
comprehend not only the value of the loss suffered, but also that of the profits that the
obligee failed to obtain. In contracts and quasi-contracts the damages which may be
awarded are dependent on whether the obligor acted with good faith or otherwise. In case of
good faith, the damages recoverable are those which are the natural and probable
consequences of the breach of the obligation and which the parties have foreseen or could
have reasonably foreseen at the time of the constitution of the obligation. If the obligor
acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation. In
crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural
and probable consequences of the act or omission complained of, whether or not such
damages have been foreseen or could have reasonably been foreseen by the defendant.
Same; Same; Same; Actual damages may likewise be recovered for loss or impairment of
earning capacity in cases of temporary or permanent personal injury, or for injury to the
plaintiffs business standing or commercial credit.Actual damages may likewise be
recovered for loss or impairment of earning capacity in cases of temporary or permanent
personal injury, or for injury to the plaintiffs business standing or commercial credit. The
claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or
quasidelict. It arose from the fact of filing of the complaint despite ABS-CBNs alleged
knowledge of lack of cause of action.
Same; Same; Same; In cases where a writ of preliminary injunction is issued, the damages
which the defendant may suffer by reason of the writ are recoverable from the injunctive
bond.It may further be observed that in cases where a writ of preliminary injunction is
issued, the damages which the defendant may suffer by reason of the writ are recoverable
from the injunctive bond. In this case, ABS-CBN had not yet filed the required bond; as a
matter of fact, it asked for reduction of the bond and even went to the Court of Ap575

575
peals to challenge the order on the matter. Clearly then, it was not necessary for RBS to file
a counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS paid for
the counterbond.
Same; Same; Same; The general rule is that attorneys fees cannot be recovered as part of
damages because of the policy that no premium should be placed on the right to litigate.
As regards attorneys fees, the law is clear that in the absence of stipulation, attorneys fees
may be recovered as actual or compensatory damages under any of the circumstances
provided for in Article 2208 of the Civil Code. The general rule is that attorneys fees cannot
be recovered as part of damages because of the policy that no premium should be placed on
the right to litigate. They are not to be awarded every time a party wins a suit. The power of
the court to award attorneys fees under Article 2208 demands factual, legal, and equitable
justification. Even when a claimant is compelled to litigate with third persons or to incur
expenses to protect his rights, still attorneys fees may not be awarded where no sufficient
showing of bad faith could be reflected in a partys persistence in a case other than an
erroneous conviction of the righteousness of his cause.
Same; Same; Same; Moral damages are in the category of an award designed to
compensate the claimant for actual injury suffered and not to impose a penalty on the
wrongdoer.Moral damages are in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The award
is not meant to enrich the complainant at the expense of the defendant, but to enable the
injured party to obtain means, diversion, or amusements that will serve to obviate the moral
suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of
the spiritual status quo ante, and should be proportionate to the suffering inflicted. Trial
courts must then guard against the award of exorbitant damages; they should exercise
balanced restrained and measured objectivity to avoid suspicion that it was due to passion,
prejudice, or corruption on the part of the trial court.
Same; Same; Same; The award of moral damages cannot be granted in favor of a
corporation because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience
physical suffering and mental anguish, which can be experienced only by one
576
576
having a nervous system.The award of moral damages cannot be granted in favor of a
corporation because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience
physical suffering and mental anguish, which can be experienced only by one having a
nervous system. The statement in People v. Manero and Mambulao Lumber Co. v. PNB that a
corporation may recover moral damages if it has a good reputation that is debased,
resulting in social humiliation is an obiter dictum. On this score alone the award for
damages must be set aside, since RBS is a corporation.
Same; Same; Same; The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII,
Book IV of the Civil Code.The basic law on exemplary damages is Section 5, Chapter 3,
Title XVIII, Book IV of the Civil Code. These are imposed by way of example or correction for
the public good, in addition to moral, temperate, liquidated, or compensatory damages.
They are recoverable in criminal cases as part of the civil liability when the crime was
committed with one or more aggravating circumstances; in quasi-delicts, if the defendant
acted with gross negligence; and in contracts and quasicontracts, if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner.
Same; Same; Same; Bad Faith; Malice or bad faith is at the core of Articles 19, 20, and 21.
Malice or bad faith implies a conscious and intentional design to do a wrongful act for a
dishonest purpose or moral obliquity. Such must be substantiated by evidence.It may be
reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract,
delict, or 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 preju-dicing or injuring another. Article 20 speaks
of the general sanction for all other provisions of law which do not especially provide for
their own sanction; while Article 21 deals with acts contra bonus mores, and has the
following elements: (1) there is an act which is legal, (2) but which is contrary to morals,
good custom, public order, or public policy, and (3) and it is done with intent to injure. Verily
then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies
a conscious and intentional design to do
577

577
a wrongful act for a dishonest purpose or moral obliquity. Such must be substantiated by
evidence.
Same; Same; Same; The adverse result of an action does not per se make the action
wrongful and subject the actor to damages, for the law could not have meant to impose a
penalty on the right to litigate. If damages result from a persons exercise of a right, it is
damnum absque injuria.There is no adequate proof that ABS-CBN was inspired by malice
or bad faith. It was honestly convinced of the merits of its cause after it had undergone
serious negotiations culminating in its formal submission of a draft contract. Settled is the
rule that the adverse result of an action does not per se make the action wrongful and
subject the actor to damages, for the law could not have meant to impose a penalty on the
right to litigate. If damages result from a persons exercise of a right, it is damnum absque
injuria.
PETITION for review or certiorari of a decision of the Court of Appeals.
Gancayco Law Offices for petitioners.

Peaflor & Perez Law Offices and Belo, Gozon, Elma, Parel, Asuncion & Lucila for Republic
Broadcasting System, Inc.
Bengzon, Narciso, Cadula, Jimenez, Gonzales & Liwanag for VIVA Productions and V. del
Rosario
DAVIDE, JR., C.J.:
In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter
ABS-CBN) seeks to reverse and set aside the decision1 of 31 October 1996 and the
resolution2 of 10 March 1997 of the Court of Appeals in CA___________________
1 Per Adefuin-De la Cruz, J., with Lantin and Tayao-Jaguros, JJ., concurring; Rollo, 49-60.
2 Rollo, 62.
578
578
G.R. CV No. 44125. The former affirmed with modification the decision3 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 aforesaid agreement (Exhs. 1 par. 2, 2, 2-A and 2-BViva). ABS-CBN, however through Mrs. Concio, can tick off only ten (10) titles (from the
list) we can purchase (Exh. 3-Viva) and therefore did not accept said list (TSN, June 8,
1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case at bar
except the film Maging Sino Ka Man.
For further enlightenment, this rejection letter dated January 06, 1992 (Exh. 3-Viva) is
hereby quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to express my
difficulty in recommending the purchase of the three film packages you are offering ABSCBN.
___________________
3 Per Judge Efren N. Ambrosio; Rollo, 134-161.
579

579
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 prime-time. In line with this I wish to
mention that I have not scheduled for telecast several action pictures in our very first
contract because of the cheap production value of these movies as well as the lack of big
action stars. As a film producer, I am sure you understand what I am trying to say as Viva
produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only schedule
them in 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)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms. Concio, with a list
consisting of 52 original movie titles (i.e. not yet aired on television) including the 14 titles
subject of the present case, as well as 104 re-runs (previously aired on television) from
which ABS-CBN may choose another 52 titles, as a total of 156
580
580
titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 reruns for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth
of television spots (Exhs. 4 to 4-C-Viva; 9-Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager, Eugenio Lopez III,
met at the Tamarind Grill Restaurant in Quezon City to discuss the package proposal of Viva.
What transpired in that lunch meeting is the subject of conflicting versions. Mr. Lopez
testified that he and Mr. Del Rosario allegedly agreed that ABS-CBN was granted exclusive
film rights to fourteen (14) films for a total consideration of P36 million; that he allegedly put
this agreement as to the price and number of films in a napkin and signed it and gave it to
Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand, Del Rosario
denied having made any agreement with Lopez regarding the 14 Viva films; denied the
existence of a napkin in which Lopez wrote something; and insisted that what he and Lopez
discussed at the lunch meeting was Vivas film package offer of 104 films (52 originals and
52 re-runs) for a total price of P60 million. Mr. Lopez promising [sic] to make a counter
proposal which came in the form of a proposal contract Annex C of the complaint (Exh.
1-Viva; Exh. C-ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for
Finance discussed the terms and conditions of Vivas offer to sell the 104 films, after the
rejection of the same package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note
from Ms. Concio, (Exh. 5-Viva), which reads: Heres the draft of the contract. I hope you
find everything in order, to which was attached a draft exhibition agreement (Exh. C-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 film rights to 53 films and
contains a right of first refusal to 1992 Viva Films. The said counter proposal was however
rejected by Vivas Board of Directors [in the] evening of the same day, April 7, 1992, as Viva
would not sell anything less than the package of 104 films for P60 million pesos (Exh. 9Viva), 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
581

581
Vivas President Teresita Cruz, in consideration of P60 million, signed a letter of agreement
dated April 24, 1992, granting RBS the exclusive right to air 104 Viva-produced and/or
acquired films (Exh. 7-A -RBS; Exh. 4-RBS) including the fourteen (14) films subject of the
present case.4
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a
prayer for a writ of preliminary injunction and/or temporary restraining order against private
respondents Republic Broadcasting Corporation5 (hereafter RBS), Viva Productions
(hereafter VIVA), and Vicente del Rosario. The complaint was docketed as Civil Case No. Q92-12309.
On 28 May 1992, the RTC issued a temporary restraining order6 enjoining private
respondents from proceeding with the airing, broadcasting, and televising of the fourteen
VIVA films subject of the controversy, starting with the film Maging Sino Ka Man, which was
scheduled to be shown on private respondent RBS channel 7 at seven oclock in the evening
of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an order7 directing the
issuance of a writ of preliminary injunction upon ABS-CBNs posting of a P35 million bond.
ABS-CBN moved for the reduction of the bond,8 while private respondents moved for
reconsideration of the order and offered to put up a counterbond.9
_________________
4 RTC Decision, Rollo, 146-149.

5 This should be Republic Broadcasting System, now GMA Network, Inc., upon approval by
the Securities and Exchange Commission of the change in corporate name on 20 February
1996.
6 Vol. 1, Original Record (OR), Civil Case No. Q-92-12309, 27-28. Hereafter, OR shall refer to
the record of this case.
7 Vol. 1, OR, 170-173.
8 Vol. 1, OR, 217-220.
9 Id., 184-216.
582
582
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 order11 dissolving the writ of preliminary injunction
upon the posting by RBS of a P30 million counterbond to answer for whatever damages ABSCBN might suffer by virtue of such dissolution. However, it reduced petitioners injunction
bond to P15 million as a condition precedent for the reinstatement of the writ of preliminary
injunction should private respondents be unable to post a counterbond.
At the pre-trial12 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 reconsideration14 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 petition17 challenging the RTCs Orders of 3 August and 15 October 1992 and praying for
the issuance of a writ of preliminary injunction to
______________________
10 Id., 177-183 (VIVA and Del Rosario); 222-228 (RBS).

11 Id., 331-332.
12 Id., 369.
13 Id., 397.
14 Id., 398-402, 403-404.
15 Id., 406-409.
16 Id., 453-454.
17 Vol. 2, OR, 465-484.
583

583
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 order18 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 decision19 dismissing the

petition in CA-G.R. SP No. 29300 for being premature. ABS-CBN challenged the dismissal in a
petition for review filed with this Court on 19 January 1993, which was docketed as G.R. No.
108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-92-12309.
Thereafter, on 28 April 1993, it rendered a decision20 in favor of RBS and VIVA and against
ABS-CBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is rendered
in favor of defendants and against the plaintiff.
(1) The complaint is hereby dismissed.
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00, the amount of premium paid by RBS to the surety which issued defendant
RBSs bond to lift the injunction;
b) P191,843.00 for the amount of print advertisement for Maging Sino Ka Man in various
newspapers;
c) Attorneys fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of
reasonable attorneys fees.
___________________
18 Id., 464.
19 Id., 913-928.
20 Id., 1140-1166; Rollo, 134-161.
584
584
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the offer. The
alleged agreement between Lopez III and Del Rosario was subject to the approval of the VIVA
Board of Directors, and said agreement was disapproved during the meeting of the Board on
7 April 1992. Hence, there was no basis for ABS-CBNs demand that VIVA signed the 1992
Film Exhibition Agreement. Furthermore, the right of first refusal under the 1990 Film
Exhibition Agreement had previously been exercised per Ms. Concios letter to Del Rosario
ticking off ten titles acceptable to them, which would have made the 1992 agreement an
entirely new contract.
On 21 June 1993, this Court denied21 ABS-CBNs petition for review in G.R. No. 108363, as
no reversible error was committed by the Court of Appeals in its challenged decision and the
case had become moot and academic in view of the dismissal of the main action by the
court a quo in its decision of 28 April 1993.
Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals claiming that
there was a perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive
right to exhibit the subject films. Private respondents VIVA and Del Rosario also appealed
seeking moral and exemplary damages and additional attorneys fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the
contract between ABS-CBN and VIVA had not been perfected, absent the approval by the
VIVA Board of Directors of whatever Del Rosario, its agent, might have agreed with Lopez III.
The appellate court did not even believe ABS-CBNs evidence that Lopez III actually wrote
down such an agreement on a napkin, as the same was never produced in court. It
likewise rejected ABS-CBNs
_______________
21 Vol. 2, OR, 2030-2035.

585

585
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-CBNs letter of rejection Exhibit 3 (Records, p. 89) stated that it can
only tick off ten (10) films, and the draft contract Exhibit C accepted only fourteen (14)
films, while parag. 1.4 of Exhibit A speaks of the next twenty-four (24) films. The offer of
VIVA was sometime in December 1991 (Exhibits 2, 2-A, 2-B; Records, pp. 86-88; Decision, p.
11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to ABSCBN.
The Vice President of ABS-CBN, Mrs. Charo Santos-Concio, sent a letter dated January 6,
1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by rejecting the
offer of VIVA. As aptly observed by the trial court, with the said letter of Mrs. Concio of
January 6, 1992, ABS-CBN had lost its right of first refusal. And even if We reckon the fifteen
(15) day period from February 27, 1992 (Exhibits 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 ABSCBN shall exercise its right of first refusal has already expired.22
____________
22 Rollo, 55.
586
586
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 RBSs 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 reputation was debased by the filing of the
complaint in Civil Case No. Q-92-12309 and by the non-showing of the film Maging Sino Ka
Man. Respondent court also held that exemplary damages were correctly imposed by way
of example or correction for the public good in view of the filing of the complaint despite
petitioners knowledge that the contract with VIVA had not been perfected. It also upheld the
award of attorneys fees, reasoning that with ABS-CBNs act of instituting Civil Case No. Q92-12309, 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 attorneys
fees to P500,000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosarios appeal
because it was RBS and not VIVA which was actually prejudiced when the complaint was
filed by ABS-CBN.
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case,
contending that the Court of Appeals gravely erred in
I
. . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND

PRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONDERANCE OF EVIDENCE ADDUCED
BY PETITIONER TO THE CONTRARY.
II
. . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE

RESPONDENT RBS.
587

587
III
. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT

RBS.
IV
. . . IN AWARDING ATTORNEYS 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 Lopezs testimony that he and Del Rosario met at the
Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the 1992
Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper napkin.
It also asserts that the contract has already been effective, as the elements thereof, namely,
consent, object, and consideration were established. It then concludes that the Court of
Appeals pronouncements were not supported by law and jurisprudence, as per our decision
of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of Appeals,23 which cited Toyota
Shaw, Inc. v. Court of Appeals;24 Ang Yu Asuncion v. Court of Appeals;25 and Villonco Realty
Company v. Bormaheco, Inc.26
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent
for the premium on the counterbond of its own volition in order to negate the injunction
issued by the trial court after the parties had ventilated their respective positions during the
hearings for the purpose. The filing of the counterbond was an option available to RBS, but it
can hardly be argued that ABS-CBN compelled RBS to incur such expense. Besides, RBS had
another available option, i.e., move for the dissolution of the injunction; or if it was
_________________
23 250 SCRA 523 [1995].

24 244 SCRA 320 [1995].
25 238 SCRA 602 [1994].
26 65 SCRA 352 [1975].

588
588
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 of 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 from the filing of the complaint, it is damnum absque injuria.30 Besides,
_________________
27 Citing Francel Realty Corp. v. Court of Appeals, 252 SCRA 127, 134 [1996].
28 Citing Tan v. Court of Appeals, 131 SCRA 397, 404 [1984].
29 Citing Auyong Hian v. Court of Tax Appeals, 59 SCRA 110, 134 [1974].
30 Citing Ilocos Norte Electric Company v. Court of Appeals, 179 SCRA 5 [1989].
589

589
moral damages are generally not awarded in favor of a juridical person, unless it enjoys a
good reputation that was debased by the offending party resulting in social humiliation.31
As regards the award of attorneys fees, ABS-CBN maintains that the same had no factual,
legal, or equitable justification. In sustaining the trial courts award, the Court of Appeals
acted in clear disregard of the doctrine laid down in Buan v. Camaganacan32 that the text of
the decision should state the reason why attorneys fees are being awarded; otherwise, the
award should be disallowed. Besides, no bad faith has been imputed on, much less proved
as having been committed by, ABS-CBN. It has been held that where no sufficient showing
of bad faith would be reflected in a partys persistence in a case other than an erroneous
conviction of the righteousness of his cause, attorneys fees shall not be recovered as
cost.33
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and
VIVA absent any meeting of minds between them regarding the object and consideration of
the alleged contract. It affirms that ABS-CBNs claim of a right of first refusal was correctly
rejected by the trial court. RBS insists the premium it had paid for the counterbond
constituted a pecuniary loss upon which it may recover. It was obliged to put up the
counterbond due to the injunction procured by ABS-CBN. Since the trial court found that
ABS-CBN had no cause of action or valid claim against RBS and, therefore not entitled to the
writ of injunction, RBS could recover from ABS-CBN the premium paid on the counterbond.
Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive, as the
loss would be equivalent to the cost
___________________
31 Citing People v. Manero, 218 SCRA 85, 96-97 [1993]; citing Simex International (Manila),
Inc. v. Court of Appeals, 183 SCRA 360 [1990].
32 16 SCRA 321 [1966].
33 See Gonzales v. National Housing Corp., 94 SCRA 786 [1979]; Servicewide Specialists,
Inc. v. Court of Appeals, 256 SCRA 649 [1996].
590
590
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 as series to be shown on a periodic basis. Hence, the print advertisements were
good and relevant for the particular date of showing, and since the film could not be shown
on that particular date and hour because of the injunction, the expenses for the
advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and
secured injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then
to Articles 19 and 21 of the Civil Code, ABS-CBN must be held liable for such damages.
Citing Tolentino,34 damages may be awarded in cases of abuse of rights even if the act done
is not illicit, and there is abuse of rights where a plaintiff institutes an action purely for the
purpose of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages,
private respondent RBS cited People v. Manero,35 where it was stated that such entity may
recover moral and exemplary damages if it has a good reputation that is debased resulting
in social humiliation. It then ratiocinates; thus:
There can be no doubt that RBS reputation has been debased by ABS-CBNs acts in this
case. When RBS was not able to fulfill its commitment to the viewing public to show the film
Maging Sino Ka Man on the scheduled dates and times (and on two occasions that RBS
advertised), it suffered serious embarrassment and social hu_____________
34 I ARTURO M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF

THE PHILIPPINES 63, 66 (1983 ed.).
35 Supra note 31.
591

591
miliation. When the showing was canceled, irate viewers called up RBS offices and
subjected RBS to verbal abuse (Announce kayo ng announce, hindi ninyo naman ilalabas,
nanloloko yata kayo) (Exh. 3-RBS, par. 3). This alone was not something RBS brought upon
itself. It was exactly what ABS-CBN had 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 in extent. RBS operations as a
broadcasting company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of
those who own and watch television. It is not an exaggeration to state, and it is a matter of
judicial notice that almost every other person in the country watches television. The
humiliation suffered by RBS is multiplied by the number of televiewers who had anticipated
the showing of the film Maging Sino Ka Man on May 28 and November 3, 1992 but did not
see it owing to the cancellation. Added to this are the advertisers who had placed
commercial spots for the telecast and to whom RBS had a commitment in consideration of
the placement to show the film in the dates and times specified.
The second is that it is a competitor that caused RBS 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-CBNs claim that there was a perfected
contract. Such factual findings can no longer be disturbed in this petition for review under
Rule 45, as only questions of law can be raised, not questions of fact. On the issue of
damages and attorneys fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract between
VIVA and ABS-CBN, and (2) whether RBS is entitled to damages and attorneys fees. It may
be noted that the award of attorneys fees of P212,000 in favor of VIVA is not assigned as
another error.
_________________
36 Rollo, 191.
592
592
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 another37 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
_________________
37 Art. 1305, Civil Code.
38 Art. 1318, Civil Code.

39 Toyota Shaw, Inc. v. Court of Appeals, supra note 24, at 329.
593

593
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 VIVAs 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 VIVAs offer, for it was met by a counter-offer which
substantially varied the terms of the offer.
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of Appeals 41 and Villonco Realty
Company v. Bormaheco, Inc.,42 is misplaced. In these cases, it was held that an acceptance
may contain a request for certain changes in the terms of the offer and yet be a binding
acceptance as long as it is clear that the meaning of the acceptance is positively and
unequivocally to accept the offer, whether such request is granted or not. This ruling was,
however, reversed in the resolution of 29 March 1996,43 which ruled that the acceptance of
an offer must be unqualified and absolute, i.e., it must be identical in all respects with that
of the offer so as to produce consent or meeting of the minds.
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised
counter-offer were not material but merely clarificatory of what had previously been agreed
upon. It cited the statement in Stuart v. Franklin Life Insur___________________
40 See IV ARTURO M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE

OF THE PHILIPPINES 450 (6th ed., 1996).
41 Supra note 23.
42 Supra note 26.
43 255 SCRA 626, 639 [1996].
594
594

ance Co.44 that a vendors change in a phrase of the offer to purchase, which change does
not essentially change the terms of the offer, does not amount to a rejection of the offer and
the tender of a counter-offer.45 However, when any of the elements of the contract is
modified upon acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer. Hence, they
underwent 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 the Corporation Code,46 unless otherwise provided by said Code, corporate powers,
such as the power to enter into contracts, are exercised by the Board of Directors. However,
the Board may delegate such powers to either an execu-tive committee or officials or
contracted managers. The delegation, except for the executive committee, must be for
specific purposes.47 Delegation to officers makes the latter agents of the corporation;
accordingly, the general rules of agency as to the binding effects of their acts would apply.48
For such officers to be deemed fully clothed by the corporation to exercise a power of the
Board, the latter must specially authorize them to do so. That Del Rosario did not have the
authority to accept ABS-CBNs counter-offer was best evidenced by his submission of the
draft contract to VIVAs Board of Directors for the latters approval. In any event, there was
between Del
_________________
44 165 Fed. 2nd 965, citing Sec. 79 Williston on Contracts.

45 Villonco Realty Company v. Bormaheco, Inc., supra note 25, at 365-366.
46 B.P. Blg. 68, Sec. 23.
47 JOSE C. VITUG, PANDECT OF COMMERCIAL LAW AND JURISPRUDENCE 356 (Revised ed.
1990).
48 I JOSE C. CAMPOS, JR., and MARIA CLARA LOPEZ-CAMPOS, THE CORPORATION CODE 384385 (1990 ed.).
595

595
Rosario and Lopez III no meeting of minds. The following findings of the trial court are
instructive:
A number of considerations militate against ABS-CBNs claim that a contract was perfected
at that lunch meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the
price and the number of films, which he wrote on a napkin. However, Exhibit C contains
numerous provisions which were not discussed at the Tamarind Grill, if Lopez testimony was
to be believed nor could they have been physically written on a napkin. There was even
doubt as to whether it was a paper napkin or 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 Exhibit C reflected the true intent of the
parties, then ABS-CBNs claim for 14 films in its complaint is false or if what it alleged in the
complaint is true, then Exhibit C did not reflect what was agreed upon by the parties. This
underscores the fact that there was no meeting of the minds as to the subject matter of the
contract, so as to preclude perfection thereof. For settled is the rule that there can be no
contract where there is no object certain which is its subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. D) states:
We were able to reach an agreement. VIVA gave us the exclusive license to show these
fourteen (14) films, and we agreed to pay Viva the amount of P16,050,000.00 as well as
grant Viva commercial slots worth P19,950,000.00. We had already earmarked this
P16,050,000.00.
which gives a total consideration of P36 million (P19,950,000.00 plus P16,050,000.00 equals
P36,000,000.00).
On cross-examination Mr. Lopez testified:
596
596
Q
What was written in this napkin?
A
The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the
other 7 Viva movies because the price was broken down accordingly. The none [sic] Viva and
the seven other Viva movies and the sharing between the cash portion and the concerned
spot portion in the total amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBNs claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit C to Mr.
Del Rosario with a handwritten note, describing said Exhibit C as a draft. (Exh. 5-Viva;
tsn, pp. 23-24, June 08, 1992). The said draft has a well defined meaning.
...
Since Exhibit C is only a draft, or a tentative, provisional or preparatory writing prepared
for discussion, the terms and conditions thereof could not have been previously agreed upon
by ABS-CBN and Viva. Exhibit C could not therefore legally bind Viva, not having agreed
thereto. In fact, Ms. Concio admitted that the terms and conditions embodied in Exhibit C
were prepared by ABS-CBNs lawyers and there was no discussion on said terms and
conditions . . . .
As the parties had not yet discussed the proposed terms and conditions in Exhibit C, and
there was no evidence whatsoever that Viva agreed to the terms and conditions thereof,
said document cannot be a binding contract. The fact that Viva refused to sign Exhibit C
reveals only two [sic] well that it did not agree on its terms and conditions, and this court
has no authority to compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the
Tamarind Grill was only provisional, in the sense that it was subject to approval by the Board
of Directors of Viva. He testified:
Q
Now, Mr. Witness, and after that 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 fsDirectors.
597

597
Q
And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?
A
Yes, sir.
Q
So, he was going to forward that to the board of Directors for approval?
A
Yes, sir. (Tsn, pp. 42-43, June 8, 1992)
...
Q
Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A
Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no
authority to bind Viva to a contract with ABS-CBN until and unless its Board of Directors
approved it. The complaint, in fact, alleges that Mr. Del Rosario is the Executive Producer of
defendant Viva which is a corporation. (par. 2, complaint). As a mere agent of Viva, Del
Rosario could not bind Viva unless what he did is ratified by its 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 104 films be maintained
(Exh. 7-1-Viva).49
The contention that ABS-CBN had yet to fully exercise its right of first refusal over twentyfour films under the 1990
_________________
49 RTC Decision, Rollo, 153-156.

598
598
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, ABSCBNs right of first refusal had already been exercised when Ms. Concio wrote to VIVA ticking
off ten films. Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was
for an entirely different package. Ms. Concio herself admitted on cross-examination to
having used or exercised the right of first refusal. She stated that the list was not acceptable
and was indeed not accepted by ABS-CBN, (TSN, June 8, 1992, pp. 8-10). Even Mr. Lopez
himself admitted that the right of first refusal may have been already exercised by Ms.
Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself knew and
understand [sic] that ABS-CBN has lost its right of first refusal when his list of 36 titles were
rejected (Tsn, June 9, 1992, pp. 10-11).50
II
However, we find for ABS-CBN on the issue of damages. We shall first take up actual
damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or
compensatory damages. Except as provided by law or by stipulation, one is entitled to
compensation for actual damages only for such pecuniary loss suffered by him as he has
duly proved.51 The indemnification shall comprehend not only the value of the loss suffered,
but also that of the profits that the obligee failed to obtain.52 In contracts and quasicontracts the damages which may be awarded are dependent on whether the obligor acted
with good faith or otherwise. In case of good faith, the damages recoverable are those which
are the natural and probable consequences of the breach of the obligation and which the
parties have foreseen or could have reasonably foreseen at the time of the constitution of
the obligation. If the
_______________
50 Id., 158.
51 Article 2199, Civil Code.
52 Article 2200, id.
599

599
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 have been foreseen or could have reasonably been foreseen by the defendant.54
Actual damages may likewise be recovered for loss or impairment of earning capacity in
cases of temporary or permanent personal injury, or for injury to the plaintiffs business
standing or commercial credit.55
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or
quasi-delict. It arose from the fact of filing of the complaint despite ABS-CBNs alleged
knowledge of lack of cause of action. Thus paragraph 12 of RBSs Answer with Counterclaim
and Cross-claim under the heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action against
RBS. As a result thereof, RBS suffered actual damages in the amount of P6,621,195.32.56
Needless to state the award of actual damages cannot be comprehended under the above
law on actual damages. RBS could only probably take refuge under Articles 19, 20, and 21 of
the Civil Code, which read as follows:
ART. 19. Every person must, in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good faith.
_________________

56 Vol. 1, OR, 225.
600
600
ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to
another, shall indemnify the latter for the same.
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary
to morals, good customs or public policy shall compensate the latter for the damage.
It may further be observed that in cases where a writ of preliminary injunction is issued, the
damages which the defendant may suffer by reason of the writ are recoverable from the
injunctive bond.57 In this case, ABS-CBN had not yet filed the required bond; as a matter of
fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge
the order on the matter. Clearly then, it was not necessary for RBS to file a counterbond.
Hence, ABS-CBN cannot be held responsible for the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for Maging Sino Ka Man for
lack of sufficient legal basis. The RTC issued a temporary restraining order and later, a writ
of preliminary injunction on the basis of its determination that there existed sufficient
ground for the issuance thereof. Notably, the RTC did not dissolve the injunction on the
ground of lack of legal and factual basis, but because of the plea of RBS that it be allowed to
put up a counterbond.
As regards attorneys fees, the law is clear that in the absence of stipulation, attorneys fees
may be recovered as actual or compensatory damages under any of the circumstances
provided for in Article 2208 of the Civil Code.58
________________
57 Section 4 in relation to Section 8, Rule 58, 1997 Rules of Civil Procedure.
58 It reads as follows:
ART. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other
than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendants act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;
601

601
The general rule is that attorneys fees cannot be recovered as part of damages because of
the policy that no premium should be placed on the right to litigate.59 They are not to be
awarded every time a party wins a suit. The power of the court to award attorneys fees
under Article 2208 demands factual, legal, and equitable justification.60 Even when a
claimant is compelled to litigate with third persons or to incur expenses to protect his rights,
still attorneys fees may not be awarded where no sufficient showing of bad faith could be
reflected in a partys persistence in a case other than an erroneous conviction of the
righteousness of his cause.61
_______________
(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmens compensation and employers liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorneys fees and
expenses of litigation should be recovered.
In all cases, the attorneys fees and expenses of litigation must be reasonable.
59 Firestone Tire & Rubber Company of the Philippines v. Ines Chaves & Co. Ltd., 18 SCRA
356, 358 [1966]; Philippine Air Lines v. Miano, 242 SCRA 235, 240 [1995].
60 Scott Consultants & Resource Development Corporation, Inc. v. Court of Appeals, 242
SCRA 393, 406 [1995].
61 Gonzales v. National Housing Corp., 94 SCRA 786, 792 [1979]; Servicewide Specialists,
Inc. v. Court of Appeals, supra note 33, at 655.
602
602
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code.
Article 2217 thereof defines what are included in moral damages, while Article 2219
enumerates the cases where they may be recovered. Article 2220 provides that moral
damages may be recovered in breaches of contract where the defendant acted fraudulently
or in bad faith. RBSs claim for moral damages could possibly fall only under item (10) of
Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
Moral damages are in the category of an award designed to compensate the claimant for
actual injury suffered and not to impose a penalty on the wrongdoer.62 The award is not
meant to enrich the complainant at the expense of the defendant, but to enable the injured
party to obtain means, diversion, or amusements that will serve to obviate the moral
suffering he has undergone. It is aimed at the restoration, within the limits of the possible, of
the spiritual status quo ante, and should be proportionate to the suffering inflicted.63 Trial
courts must then guard against the award of exorbitant damages; they should exercise
balanced restrained and measured objectivity to avoid suspicion that it was due to passion,
prejudice, or corruption 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
_________________
62 Pagsuyuin v. Intermediate Appellate Court, 193 SCRA 547, 555 [1991].

63 Visayan Sawmill Company v. Court of Appeals, 219 SCRA 378, 392 [1993], citing R & B
Security Insurance Co., Inc. v. Intermediate Appellate Court, 129 SCRA 736 [1984]; De la
Serna v. Court of Appeals, 233 SCRA 325, 329-330 [1994].
64 People v. Wenceslao, 212 SCRA 560, 569 [1992], citing Filinvest Credit Corp. v.
Intermediate Appellate Court, 166 SCRA 155 [1988].
603

603
suffering and mental anguish, which can be experienced only by one having a nervous
system.65 The statement in People v. Manero 66 and Mambulao Lumber Co. v. PNB 67 that a
corporation may recover moral damages if it has a good reputation that is debased,
resulting in social humiliation is an obiter dictum. On this score alone the award for
damages must be set aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil
Code. These are imposed by way of example or correction for the public good, in addition to
moral, temperate, liquidated, or compensatory damages.68 They are recoverable in criminal
cases as part of the civil liability when the crime was committed with one or more
aggravating circumstances;69 in quasi-delicts, if the defendant acted with gross
negligence;70 and in contracts and quasicontracts, 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 quasidelict. Hence, the claims for moral and exemplary damages can only
be based on Articles 19, 20, and 21 of the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the existence of a legal
right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or
injuring another. Article 20 speaks of the general sanction for all other provisions of law
which do not especially provide for their own sanction; while Article 21 deals with
_________________
65 Prime White Cement Corp. v. Intermediate Appellate Court, 220 SCRA 103, 113-114
[1993]; LBC Express, Inc. v. Court of Appeals, 236 SCRA 602, 607 [1994]; Acme Shoe, Rubber
and Plastic Corp. v. Court of Appeals, 260 SCRA 714, 722 [1996].
66 Supra note 31.
67 130 Phil. 366 [1968].
604
604
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 persons exercise of a right, it is damnum absque injuria.75
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of
Appeals in CA-G.R. CV No. 44125 is hereby REVERSED except as to unappealed award of
attorneys fees in favor of VIVA Productions, Inc.
No pronouncement as to costs.
SO ORDERED.
Melo, Kapunan, Martinez and Pardo, JJ., concur.
Petition granted, judgment reversed.
_________________
72 Albenson Enterprises Corp. v. Court of Appeals, 217 SCRA 16, 25 [1993].

73 Far East Bank and Trust Company v. Court of Appeals, 241 SCRA 671, 675 [1995].
74 Philippine Air Lines v. Miano, supra note 59.
75 Tierra International Construction Corp. v. NLRC, 211 SCRA 73, 81 [1992], citing Saba v.
Court of Appeals, 189 SCRA 50, 55 [1990].
605

605
Maralit vs. Imperial
Notes.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. (Solid Homes, Inc. vs. Court of Appeals, 275 SCRA 267 [1997])
The essential elements of a contract of sale are the following: (a) Consent or meeting of the
minds, that is, consent to transfer ownership in exchange for the price; (b) Determinate
subject matter; and (c) Price certain in money or its equivalent. (Coronel vs. Court of
Appeals, 263 SCRA 151 [1996])
The injunction bond answers only for damages which may be sustained by the party against
whom the injunction is issued, the reason of the issuance thereof, and not to answer for
damages caused by actuations of plaintiff, which may or may not be related at all to the
implementation of the injunction. (Valencia vs. Court of Appeals, 263 SCRA 275 [1996])
o0o [ABS-CBN Broadcasting Corporation vs. Court of Appeals, 301 SCRA 572(1999)]
VOL. 218, JANUARY 29, 1993

85
People vs. Manero, Jr.
G.R. Nos. 86883-85. January 29, 1993.*
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. NORBERTO MANERO, JR., EDILBERTO
MANERO, ELPIDIO MANERO, SEVERINO LINES, RUDY LINES, EFREN PLEAGO, ROGER
BEDAO, RODRIGO ESPIA, ARSENIO VILLAMOR, JR., JOHN DOE and PETER DOE, accused.
SEVERINO LINES, RUDY LINES, EFREN PLEAGO and ROGER BENDAO, accused-appellants.
Criminal Law; Murder; Defense of Alibi; Requirement of physi-cal impossibility for accused to
be at the scene of the crime.It is axiomatic that the accused interposing the defense of
alibi must not only be at some other place but that it must also be physically impossible for
him to be at the scene of the crime at the time of its commission. Considering the failure of
appellants to prove the required physical impossibility of being present at the crime scene,
as
________________
* FIRST DIVISION.
86
86
can be readily deduced from the proximity between the places where accused-appellants
were allegedly situated at the time of the commission of the offenses and the locus criminis,
the defense of alibi is definitely feeble. After all, it has been the consistent ruling of this
Court that no physical impossibility exists in instances where it would take the accused only
fifteen to twenty minutes by jeep or tricycle, or some one-and-a half hours by foot, to
traverse the distance between the place where he allegedly was at the time of commission
of the offense and the scene of the crime. Recently, We ruled that there can be no physical
impossibility even if the distance between two places is merely two (2) hours by bus. More
important, it is wellsettled that the defense of alibi cannot prevail over the positive
identification of the authors of the crime by the prosecution witnesses.
Same; Same; Conspiracy.There is conspiracy when two or more persons come to an
agreement to commit a crime and decide to commit it. It is not essential that all the accused
commit together each and every act constitutive of the offense. It is enough that an accused
participates in an act or deed where there is singularity of purpose, and unity in its execution
is present. The findings of the court a quo unmistakably show that there was indeed a
community of design as evidenced by the concerted acts of all the accused.
Same; Civil liability arising from criminal acts; Moral damages; Juridical person not entitled to
moral damages.The award of moral damages in the amount of P100,000.00 to the
congregation, the Pontifical Institute of Foreign Mission (PIME) Brothers, is not proper. There
is nothing on record which indicates that the deceased effectively severed his civil relations
with his family, or that he disinherited any member thereof, when he joined his religious
congregation. As a matter of fact, Fr. Peter Geremias of the same congregation, who was
then a parish priest of Kidapawan, testified that "the religious family belongs to the natural
family of origin." Besides, as We already held, a juridical person is not 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 or moral shock. It is
only when a juridical person has a good reputation that is debased, resulting in social
humiliation, that moral damages may be awarded.
Same; Same; Same; Heirs must prove moral suffering; Award of exemplary damages proper.
It is elementary that in order that moral damages may be awarded there must be proof of
moral suffer87
VOL. 218, JANUARY 29, 1993

87
ing. However, considering that the brutal slaying of Fr. Tulio Favali was attended with abuse
of superior strength, cruelty and ignominy by deliberately and inhumanly augmenting the
pain and anguish of the victim, outraging or scoffing at his person or corpse, exemplary
damages may be awarded to the lawful heirs, even though not proved nor expressly pleaded
in the complaint, and the amount of P100.000.00 is considered reasonable.
APPEAL from the judgment of the Regional Trial Court of Kidapawan, Cotabato. Estaol, J.
The Solicitor General for plaintiff-appellee.
Romeo P. Jorge for accused-appellants.
BELLOSILLO, J.:
This was gruesome murder in a main thoroughfare an hour before sundown. A hapless
foreign religious minister was riddled with bullets, his head shattered into bits and pieces
amidst the revelling of his executioners as they danced and laughed around their quarry,
chanting the tune "Mutya Ka Baleleng", a popular regional folk song, kicking and scoffing at
his prostrate, miserable, spiritless figure that was gasping its last. Seemingly unsatiated with
the ignominy of their manslaughter, their leader picked up pieces of the splattered brain and
mockingly displayed them before horrified spectators. Some accounts swear that acts of
cannibalism ensued, although they were not sufficiently demonstrated. However, for their
outrageous feat, the gangleader already earned the monicker "cannibal priestkiller". But
what is indubitable is that Fr. Tulio Favali1 was senselessly killed for no apparent reason than
that he was one of the Italian Catholic missionaries laboring in their vineyard in the
hinterlands of Mindanao.2
In the aftermath of the murder, police authorities launched

_____________
1 "Tulio" is variably spelled as "Tullio" in certain parts of the records. Incidentally, the name
"Fr. Peter Geremias" is likewise interchangeably referred to as "Fr. Peter Geremia."
2 TSN, 24 October 1985, pp. 55-56.
88
88
a massive manhunt which resulted in the capture of the perpetrators except Arsenio
Villamor, Jr., and two unidentified persons who eluded arrest and still remain at large.
Informations for Murder,3 Attempted Murder4 and Arson5 were accordingly filed against
those responsible for the frenzied orgy of violence that fateful day of 11 April 1985. As these
cases arose from the same occasion, they were all consolidated in Branch 17 of the Regional
Trial Court of Kidapawan, Cotabato.6
After trial, the court a quo held
"WHEREFORE x x x the Court finds the accused Norberto Manero, Jr. alias Commander
Bucay, Edilberto Manero alias Edil, Elpidio Manero, Severino Lines, Rudy Lines, Rodrigo Espia
alias Rudy, Efren Pleago and Roger Bedao GUILTY beyond reasonable doubt of the offense
of Murder, and with the aggravating circumstances of superior strength and treachery,
hereby sentences each of them to a penalty of imprisonment of reclusion perpetua; to pay
the Pontifical Institute of Foreign Mission (PIME) Brothers, the congregation to which Father
Tulio Favali belonged, a civil indemnity of P12,000.00; attorney's fees in the sum of
P50,000.00 for each of the eight (8) accused or a total sum of P400,000.00; court
appearance fee of P10,000.00 for every day the case was set for trial; moral damages in the
sum of P100,000.00; and to pay proportionately the costs.
"Further, the Court finds the accused Norberto Manero, Jr. alias Commander Bucay GUILTY
beyond reasonable doubt of the offense of Arson and with the application of the
Indeterminate Sentence Law, hereby sentences him to an indeterminate penalty of
imprisonment of not less than four (4) years, nine (9) months, one (1)
______________
3 Docketed as Crim. Case No. 1881 for the murder of Fr. Tulio Favali. Those charged are
Norberto Manero, Jr., Edilberto Manero, Elpidio Manero, Severino Lines, Rudy Lines, Efren
Pleago, Rogelio Bedao and Rodrigo Espia.
4 Docketed as Crim. Case No. 1884 for the attempted murder of Rufino Robles. Those
charged are the same accused in Crim. Case No. 1881 except Arsenio Villamor, Jr., John Doe
and Peter Doe.
5 Docketed as Crim. Case No. 1883 for arson for the burning of the motorcycle of Fr. .Tulio
Favali. The lone accused is Norberto Manero, Jr.
6 See Records, p. 445.
89
VOL. 218, JANUARY 29, 19993

89
day of prision correccional, as minimum, to six (6) years of prision correccional, as
maximum, and to indemnify the Pontifical Institute of Foreign Mission (PIME) Brothers, the
congregation to which Father Tulio Favali belonged, the sum of P19,000.00 representing the
value of the motorcycle and to pay the costs.
Finally, the Court finds the accused Norberto Manero, Jr. alias Commander Bucay, Edilberto
Manero alias Edil, Elpidio Manero, Severino Lines, Rudy Lines, Rodrigo Espia alias Rudy, Efren
Pleago and Roger Bedao GUILTY beyond reasonable doubt of the offense of Attempted
Murder and with the application of the Indeterminate Sentence Law, hereby sentences each
of them to an indeterminate penalty of imprisonment of not less than two (2) years, four (4)
months and one (1) day of prision correccional, and minimum, to eight (8) years and twenty
(20) days of prision mayor, as maximum, and to pay the complainant Rufino Robles the sum
of P20,000.00 as attorney's fees and P2,000.00 as court appearance fee for every day of
trial and to pay proportionately the costs.
"The foregoing penalties shall be served by the said accused successively in the order of
their respective severity in accordance with the provisions of Article 70 of the Revised Penal
Code, as amended."7
From this judgment of conviction only accused Severino Lines, Rudy Lines, Efren Pleago and
Roger Bedao appealed with respect to the cases for Murder and Attempted Murder. The
Manero brothers as well as Rodrigo Espia did not appeal; neither did Norberto Manero, Jr., in
the Arson case. Consequently, the decision as against them already became final.
Culled from the records, the facts are: On 11 April 1985, around 10:00 o'clock in the
morning, the Manero brothers Norberto, Jr., Edilberto and Elpidio, along with Rodrigo Espia,
Severino Lines, Rudy Lines, Efren Pleago and Roger Bedao, were inside the eatery of one
Reynaldo Diocades at Km. 125, La Esperanza, Tulunan, Cotabato. They were conferring with
Arsenio Villamor, Jr., private secretary to the Municipal Mayor of Tulunan, Cotabato, and his
two (2) unidentified bodyguards. Plans to liquidate a number of suspected communist
sympathizers were discussed. Arsenio Villamor, Jr. scribbled on a
___________
7 Penned by Judge Benjamin M. Estaol, Regional Trial Court, Branch 17, Kidapawan,
Cotabato; Records, pp. 860-61.
90
90
cigarette wrapper the following: "NPA v. NPA, starring Fr. Peter, Domingo Gomez, Bantil, Fred
Gapate, Rene alias Tabagac and Villaning." "Fr. Peter" is Fr. Peter Geremias, an Italian priest
suspected of having links with the communist movement; "Bantil" is Rufino Robles, a
Catholic lay leader who is the complaining witness in the Attempted Murder; Domingo
Gomez is another lay leader, while the others are simply "messengers". On the same
occasion, the conspirators agreed to Edilberto Manero's proposal that should they fail to kill
Fr. Peter Geremias, another Italian priest would be killed in his stead.8
At about 1:00 o'clock that afternoon, Elpidio Manero with two (2) unidentified companions
nailed a placard on a streetpost beside the eatery of Deocades. The placard bore the same
inscriptions as those found on the cigarette wrapper except for the additional phrase "versus
Bucay, Edil and Palo." Some two (2) hours later, Elpidio also posted a wooden placard
bearing the same message on a street cross-sign close to the eatery.9
Later, at 4:00 o'clock, the Manero brothers, together with Espia and the four (4) appellants,
all with assorted firearms, proceeded to the house of "Bantil", their first intended victim,
which was also in the vicinity of Deocades' carinderia. They were met by "Bantil" who
confronted them why his name was included in the placards. Edilberto brushed aside the
query; instead, he asked "Bantil" if he had any qualms about it, and without any
provocation, Edilberto drew his revolver and fired at the forehead of "Bantil." "Bantil" was
able to parry the gun, albeit his right ring finger and the lower portion of his right ear were
hit. Then they grappled for its possession until "Bantil" was extricated by his wife from the
fray. But, as he was running away, he was again fired upon by Edilberto. Only his trousers
were hit. "Bantil" however managed to seek refuge in the house of a certain Domingo
Gomez.10 Norberto, Jr., ordered his men to surround the house and not to allow any one to
get out so that "Bantil" would die of hemorrhage. Then Edilberto went back to the restaurant
of Deocades and pistol-whipped
_______________
8 See Note 2.
9 Id., pp. 68-70.
10 Id., pp. 70-79.
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91
him on the face and accused him of being a communist coddler, while appellants and their
cohorts relished the unfolding drama.11
Moments later, while Deocades was feeding his swine, Edilberto strewed him with a burst of
gunfire from his M-14 Armalite. Deocades cowered in fear as he knelt with both hands
clenched at the back of his head. This again drew boisterous laughter and ridicule from the
dreaded desperados.
At 5:00 o'clock, Fr. Tulio Favali arrived at Km. 125 on board his motorcycle. He entered the
house of Gomez. While inside, Norberto, Jr., and his co-accused Pleago towed the
motorcycle outside to the center of the highway. Norberto, Jr., opened the gasoline tank,
spilled some fuel, lit a fire and burned the motorcycle. As the vehicle was ablaze, the felons
raved and rejoiced.12
Upon seeing his motorcycle on fire, Fr. Favali accosted Norberto, Jr. But the latter simply
stepped backwards and executed a thumbs-down signal. At this point, Edilberto asked the
priest: "Ano ang gusto mo, padre (What is it you want, Father)? Gusto mo, Father, bukon ko
ang ulo mo (Do you want me, Father, to break your head)? Thereafter, in a flash, Edilberto
fired at the head of the priest. As Fr. Favali dropped to the ground, his hands clasped against
his chest, Norberto, Jr., taunted Edilberto if that was the only way he knew to kill a priest.
Slighted over the remark, Edilberto jumped over the prostrate body three (3) times, kicked it
twice, and fired anew. The burst of gunfire virtually shattered the head of Fr. Favali, causing
his brain to scatter on the road. As Norberto, Jr., flaunted the brain to the terrified onlookers,
his brothers danced and sang "Mutya Ka Baleleng" to the delight of their comrades-in-arms
who now took guarded positions to isolate the victim from possible assistance.13
In seeking exculpation from criminal liability, appellants Severino Lines, Rudy Lines, Efren
Pleago and Roger Bendao contend that the trial court erred in disregarding their respec______________
11 ld., pp. 57-60.

12 Id., pp. 82-89.
13 TSN, 4 October 1985, pp. 91-108; TSN, 6 November 1985, pp. 68-78.
92
92
tive defenses of alibi which, if properly appreciated, would tend to establish that there was
no prior agreement to kill; that the intended victim was Fr. Peter Geremias, not Fr. Tulio
Favali; that there was only one (1) gunman, Edilberto; and, that there was absolutely no
showing that appellants cooperated in the shooting of the victim despite their proximity at
the time to Edilberto.
But the evidence on record does not agree with the arguments of accused-appellants.
On their defense of alibi, accused brothers Severino and Rudy Lines claim that they were
harvesting palay the whole day of 11 April 1985 some one kilometer away from the crime
scene. Accused Roger Bedao alleges that he was on an errand for the church to buy lumber
and nipa in M'lang, Cotabato, that morning of 11 April 1985, taking along his wife and sick
child for medical treatment and arrived in La Esperanza, Tulunan, past noontime.
Interestingly, all appellants similarly contend that it was only after they heard gunshots that
they rushed to the house of Norberto Manero, Sr., Barangay Captain of La Esperanza, where
they were joined by their fellow CHDF members and coaccused, and that it was only then
that they proceeded together to where the crime took place at Km. 125.
It is axiomatic that the accused interposing the defense of alibi must not only be at some
other place but that it must also be physically impossible for him to be at the scene of the
crime at the time of its commission.14
Considering the failure of appellants to prove the required physical impossibility of being
present at the crime scene, as can be readily deduced from the proximity between the
places where accused-appellants were allegedly situated at the time of the commission of
the offenses and the locus criminis,15 the defense of alibi is definitely feeble.16 After all, it
has been the
______________
14 People v. Pugal, G.R. No. 90637, 29 October 1992.

15 All accused-appellants allege that they were in Tulunan, Cotabato, the town where the
offenses were committed, albeit not at the very scene of the crime in Km. 125.
16 People v. Baez, G.R. No. 95456, 18 September 1992, citing
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93
consistent ruling of this Court that no physical impossibility exists in instances where it
would take the accused only fifteen to twenty minutes by jeep or tricycle, or some one-and-a
half hours by foot, to traverse the distance between the place where he allegedly was at the
time of commission of the offense and the scene of the crime.17 Recently, We ruled that
there can be no physical impossibility even if the distance between two places is merely two
(2) hours by bus.18 More important, it is wellsettled that the defense of alibi cannot prevail
over the positive identification of the authors of the crime by the prosecution witnesses.19
In the case before Us, two (2) eyewitnesses, Reynaldo Deocades and Manuel Bantolo,
testified that they were both inside the eatery at about 10:00 o'clock in the morning of 11
April 1985 when the Manero brothers, together with appellants, first discussed their plan to
kill some communist sympathizers. The witnesses also testified that they still saw the
appellants in the company of the Manero brothers at 4:00 o'clock in the afternoon when
Rufino Robles was shot. Further, at 5:00 o'clock that same afternoon, appellants were very
much at the scene of the crime, along with the Manero brothers, when Fr. Favali was brutally
murdered.20 Indeed, in the face of such positive declarations that appellants were at the
locus criminis from 10:00 o'clock in the morning up to about 5:00 o'clock in the afternoon,
the alibi of appellants that they were somewhere else, which is negative in nature, cannot
prevail.21 The presence of appellants in the eatery at Km. 125 having been positively
established, all doubts that they were not privy to the plot to liquidate alleged communist
sympathizers are therefore removed. There was direct proof to link them to the conspiracy.
There is conspiracy when two or more persons come to an
___________________
People v. Sabater, No. L-38169, 23 February 1978, 81 SCRA 110.

17 People v. De Guzman, G.R. No. 105964, 4 November 1992.
18 People v. Abuyan Jr., G.R. Nos. 95254-55, 21 July 1992.
19 People v. Antud, G.R. No. 95684, 27 October 1992.
20 Decision, p. 36; Rollo, p. 230.
21 People v. Serdan, G.R. No. 87318, 2 September 1992.
94
94
agreement to commit a crime and decide to commit it.22 It is not essential that all the
accused commit together each and every act constitutive of the offense.23 It is enough that
an accused participates in an act or deed where there is singularity of purpose, and unity in
its execution is present.24
The findings of the court a quo unmistakably show that there was indeed a community of
design as evidenced by the concerted acts of all the accused. Thus
"The other six accused,25 all armed with high powered firearms, were positively identified
with Norberto Manero, Jr. and Edilberto Manero in the carinderia of Reynaldo Deocades in La
Esperanza, Tulunan, Cotabato at 10:00 o'clock in the morning of 11 April 1985 x x x they
were outside of the carinderia by the window near the table where Edilberto Manero,
Norberto Manero, Jr., Jun Villamor, Elpidio Manero and unidentified members of the airborne
from Cotabato were grouped together. Later that morning, they all went to the cockhouse
nearby to finish their plan and drink tuba. They were seen again with Edilberto Manero and
Norberto Manero, Jr., at 4:00 o'clock in the afternoon of that day near the house of Rufino
Robles (Bantil) when Edilberto Manero shot Robles. They surrounded the house of Domingo
Gomez where Robles fled and hid, but later left when Edilberto Manero told them to leave as
Robles would die of hemorrhage. They followed Fr. Favali to Domingo Gomez' house,
witnessed and enjoyed the burning of the motorcycle of Fr. Favali and later they stood guard
with their firearms ready on the road when Edilberto Manero shot to death Fr. Favali. Finally,
they joined Norberto Manero, Jr. and Edilberto Manero in their enjoyment and merriment on
the death of the priest."26
From the foregoing narration of the trial court, it is clear that appellants were not merely
innocent bystanders but were in fact vital cogs in perpetrating the savage murder of Fr.
______________
22 People v. Hasiron, G.R. No. 100797, 15 October 1992, citing Art. 8, Revised Penal Code.
23 People v. Sabornido, G.R. No. 102141, 18 September 1992.
24 People v. Martinado, G.R. No. 92020, 19 October 1992.
25 Accused-appellants together with two (2) other unidentified persons.
26 Decision, p. 30; Rollo, p. 224.
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VOL. 218, JANUARY 29, 1993

95
Favali and the attempted murder of Rufino Robles by the Manero brothers and their
militiamen. For sure, appellants all assumed a fighting stance to discourage if not prevent
any attempt to provide assistance to the fallen priest. They surrounded the house of
Domingo Gomez to stop Robles and the other occupants from leaving so that the wounded
Robles may die of hemorrhage.27 Undoubtedly, these were overt acts to ensure success of
the commission of the crimes and in furtherance of the aims of the conspiracy. The
appellants acted in concert in the murder of Fr. Favali and in the attempted murder of Rufino
Robles. While accused-appellants may not have delivered the fatal shots themselves, their
collective action showed a common intent to commit the criminal acts.
While it may be true that Fr. Favali was not originally the intended victim, as it was Fr. Peter
Geremias whom the group targetted for the kill, nevertheless, Fr. Favali was deemed a good
substitute in the murder as he was an Italian priest. On this, the conspirators expressly
agreed. As witness Manuel Bantolo explained28
"Q
Aside from those persons listed in that paper to be killed, were there other persons who
were to be liquidated?
"A
There were some others.
"Q
Who were they?
"A
They said that if they could not kill those persons listed in that paper then they will (sic) kill
anyone so long as he is (sic) an Italian and if they could not kill the persons they like to kill
they will (sic) make Reynaldo Deocades as their sample."
That appellants and their co-accused reached a common understanding to kill another
Italian priest in the event that Fr. Peter Geremias could not be spotted was elucidated by
Bantolo thus29
"Q
Who suggested that Fr. Peter be the first to be killed?
"A
All of them in the group.
_______________
27 TSN, 28 August 1986, pp. 93-94.

28 TSN, 4 October 1985, p. 118.
29 TSN, 6 November 1985, pp. 36-43.
96
96
"Q
What was the reaction of Norberto Manero with respect to the plan to kill Fr. Peter?
"A
He laughed and even said, 'amo ina' meaning 'yes, we will kill him ahead.'
xxxx
"Q
What about Severino Lines? What was his reaction?
"A
He also laughed and so conformed and agreed to it.
"Q
Rudy Lines?
"A
He also said 'yes'.
"Q
What do you mean 'yes"?
"A
He also agreed and he was happy and said 'yes' we will kill him.
xxxx
"Q
What about Efren Pleago?
"A
He also agreed and even commented laughing 'go ahead'.
"Q
Roger Bedao, what was his reaction to that suggestion that should they fail to kill Fr. Peter,
they will (sic) kill anybody provided he is an Italian and if not, they will (sic) make Reynaldo
Deocades an example?
"A
He also agreed laughing."
Conspiracy or action in concert to achieve a criminal design being sufficiently shown, the act
of one is the act of all the other conspirators, and the precise extent or modality of
participation of each of them becomes secondary.30
The award of moral damages in the amount of P100,000.00 to the congregation, the
Pontifical Institute of Foreign Mission (PIME) Brothers, is not proper. There is nothing on
record which indicates that the deceased effectively severed his civil relations with his
family, or that he disinherited any member thereof, when he joined his religious
congregation. As a matter of fact, Fr. Peter Geremias of the same congregation, who was
then a parish priest of Kidapawan, testified that "the religious family belongs to the natural
family of origin."31 Besides, as We already held,32 a juridical person is not entitled to moral
dam______________
30 People v. de los Reyes, No. L-44112, 22 October 1992, citing People v. Degoma, G.R. Nos.
89404-05, 22 May 1992.
31 See TSN, 28 August 1986, p. 51.
32 Simex International (Manila), Inc. v. Court of Appeals, G.R. No. 88013, 19 March 1990,
183 SCRA 360.
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97
ages because, not being a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. It is only
when a juridical person has a good reputation that is debased, resulting in social humiliation,
that moral damages may be awarded.
Neither can We award moral damages to the heirs of the deceased who may otherwise be
lawfully entitled thereto pursuant to par. (3), Art. 2206, of the Civil Code,33 for the reason
that the heirs never presented any evidence showing that they suffered mental anguish;
much less did they take the witness stand. It has been held34 that moral damages and their
causal relation to the defendant's acts should be satisfactorily proved by the claimant. It is
elementary that in order that moral damages may be awarded there must be proof of moral
suffering.35 However, considering that the brutal slaying of Fr. Tulio Favali was attended with
abuse of superior strength, cruelty and ignominy by deliberately and inhumanly augmenting
the pain and anguish of the victim, outraging or scoffing at his person or corpse, exemplary
damages may be awarded to the lawful heirs,36 even though not proved nor expressly
pleaded in the complaint,37 and the amount of P100,000.00 is considered reasonable.
_______________
33 Art. 2206 (3) provides: "The spouse, legitimate and illegitimate descendants and
ascendants of the deceased may demand moral damages for mental anguish by reason of
the death of the deceased."
34 Raagas v. Traya, 130 Phil. 846 (1968).
35 Darang v. Belizar, No. L-19487, 31 January 1967, 19 SCRA 214.
36 Art. 2230 provides: "In criminal offenses, exemplary damages as a part of the civil liability
may be imposed when the crime was committed with one or more aggravating
circumstances. Such damages are separate and distinct from fines and shall be paid to the
offended party" (Civil Code); see also Dempsey v. RTC, Br. 75, G.R. Nos. 77737-38, 15 August
1988,164 SCRA 384, and People v. Marciales, G.R. No. 61961, 18 October 1988, 166 SCRA
436.
37 Singson v. Aragon, 92 Phil. 514 (1953); PAL v. CA, G.R. Nos. 50504-05, 13 August
1990,188 SCRA 461, citing Kapoe v. Masa, G.R. No. 50473, 21 January 1985, 134 SCRA 231.
98
98
People vs. Danguilan
With respect to the civil indemnity of P12,000.00 for the death of Fr. Tulio Favali, the amount
is increased to P50,000.00 in accordance with existing jurisprudence, which should be paid
to the lawful heirs, not the PIME as the trial court ruled.
WHEREFORE, the judgment appealed from being in accord with law and the evidence is
AFFIRMED with the modification that the civil indemnity which is increased from P12,000.00
to P50,000.00 is awarded to the lawful heirs of the deceased plus exemplary damages of
P100,000.00; however, the award of moral damages is deleted.
Costs against accused-appellants.

SO ORDERED.
Cruz (Chairman), Padilla and Grio-Aquino, JJ,, concur.
Judgment affirmed with modification.
o0o [People vs. Manero, Jr., 218 SCRA 85(1993)]
[No. 20214. March 17, 1923]

G. C. ARNOLD, plaintiff and appellant, vs. WILLITS & PATTERSON, LTD., defendant and
appellee.
1.CONSTRUCTION OF CONTRACT.Where A entered into a written contract with the firm of
W & P by which he was employed as agent of the firm for a period of five years, and a
dispute arose between them as to the compensation which A should receive for his services,
and A wrote a letter, known in the record as Exhibit B, which clearly defined and specified
the compensation which he was to receive, to which one member of the firm gave his
"conforme," A's compensation for his services is measured and controlled by Exhibit B.
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635
Arnold vs. Willits & Patterson
2.WHEN CONTRACT WITH FIRM BINDS CORPORATION.Where A entered upon the discharge
of his duties under a contract with the firm of W & P, and the firm organized a corporation,
which took over all of its assets and continued to conduct the business of the firm as a
corporation and which dealt with and treated A as its agent, in the same manner as the firm
had previously done, the corporation is bound by the contract which the firm made with A.
3.WHEN CONTRACT BY INDIVIDUAL BINDS CORPORATION.Where a contract is made with A
by W in his own name, and W is the owner of all of the capital stock of the corporation, and
the corporation deals with A as its agent under the contract, the contract which W made
with A becomes a contract between A and the corporation, and the corporation is bound by
the contract.
4.IN THE ABSENCE OF FRAUD "CREDITORS' COMMITTEE" OF INSOLVENT CORPORATION
CANNOT RESCIND CONTRACT OF CORPORATION.Where a corporation becomes insolvent,
and its affairs were placed in the hands of a "creditors' committee," the "committee" is
bound by any valid contract made between A and the corporation, and, in the absence of
fraud, the "creditors' committee" has no power to rescind the contract.
APPEAL from a judgment of the Court of First Instance of Manila. Imperial, J.
The facts are stated in the opinion of the court.
Fisher, DeWitt, Perkins & Brady for appellant.
Ross & Lawrence for appellee.
STATEMENT
For a number of years prior to the times alleged in the complaint, the plaintiff was in the
employ of the International Banking Corporation of Manila, and it is conceded that he is a
competent and experienced business man. July 31, 1916, C. D. Willits and I. L. Patterson
were partners doing business in San Francisco, California, under the name of Willits &
Patterson. The plaintiff was then in San Francisco, and as a result of negotiations the plaintiff
and the firm entered into a written contract, known in the record as Exhibit A, by which the
plaintiff was -employed as the agent of the firm in the Philippine Islands
636
636
PHILIPPINE REPORTS ANNOTATED
for certain purposes for the period of five years at a minimum salary of $200 per month and
travelling expenses. The plaintiff returned to Manila and entered on the discharge of his
duties under the contract. As a result of plaintiff's employment and world war conditions, the
business of the firm in the Philippines very rapidly increased and grew beyond the fondest
hopes of either party. A dispute arose between the plaintiff and the firm as to the
construction of Exhibit A as to the amount which plaintiff should receive for his services.
Meanwhile Patterson retired from the firm and Willits became the sole owner of its assets.
For convenience of operation and to serve his own purpose, Willits organized a corporation
under the laws of California with its principal office at San Francisco, in and by which he
subscribed for, and became the exclusive owner of, all the capital stock, except a few shares
for organization purposes-only, and the name of the firm was used as the name of the
corporation. A short time after that Willits came to Manila and organized a corporation here
known as Willits & Patterson, Ltd., in and to which he again subscribed for all of the capital
stock except the nominal shares necessary to qualify the directors. In legal effect, the San
Francisco corporation took over and acquired all of the assets and liabilities of the Manila
corporation. At the time that Willits was in Manila and while to all intents and purposes he
was the sole owner of the stock of corporations, there was a conference between him and
the plaintiff over the disputed construction of Exhibit A. As a result of which another
instrument, known in the record as Exhibit B, was prepared in the form of a letter which the
plaintiff addressed to Willits at Manila on November 10,-1919, the purpose of which was to
more clearly define and specify the compensation which the plaintiff was to receive for his
services. Willits received and confirmed this letter by signing the name of Willits & Patterson,
By C. D. Willits. At that time both corporations were legally organized, and there is nothing in
the corporate
637
VOL. 44, MARCH 17, 1923

637
minutes to show that Exhibit B was ever formally ratified or approved by either corporation.
After its organization, the Manila corporation employed a regular accountant whose duty it
was to audit the accounts of the company and render financial statements both for the use
of the local banks and the local and parent corporations at San Francisco. From time to time
and in the ordinary course of business such statements of account were prepared by the
accountant and duly forwarded to the home office, and among other things was a statement
of July 31, 1921, showing that there was due and owing the plaintiff under Exhibit B the sum
of P106,277.50. A short time previous to that date, the San Francisco corporation became
involved in financial trouble, and all of its assets were turned over to a "creditors'
committee." When this statement was received, the "creditors' committee" immediately
protested its allowance. An attempt was made without success to adjust the matter on a
friendly basis and without litigation. January 10, 1922, the plaintiff brought this action to
recover from the defendant the sum of P106,277.50 with legal interest and costs, and the
written instruments known in the record as Exhibits A and B were attached to, and made a
part of, the complaint.
For answer, the defendant admits the formal parts of the complaint, the execution of Exhibit
A and denies each and every other allegation, except as specifically admitted, and alleges
that what is known as Exhibit B was signed by Willits without the authority of the defendant
corporation or the firm of Willits & Patterson, and that it is not an agreement which was ever
entered into with the plaintiff by the defendant or the firm, and, as a separate defense and
counterclaim, it alleges that on the 30th of June, 1920, there was a balance due and owing
the plaintiff from the defendant under the contract Exhibit A of the sum of P8,741.05. That
his salary from June 30, 1920, to July 31, 1921, under Exhibit A was $400 per month, or a
total of P10,400. That about July 6, 1921, the plaintiff wrong638
638
fully took P30,000 from the assets of the firm, and that he is now indebted to the firm in the
sum of P10,858.95, with interest and costs, from which it prays judgment.
The plaintiff admits that he withdrew the P30,000, but alleges that it was with the consent
and authority of the defendant, and denies all other new matter in the answer.
Upon such issues a trial was had, and the lower court rendered judgment in favor of the
defendant, as prayed for in its counterclaim, from which the plaintiff appeals, contending
that the trial court erred in not holding that the contract between the parties is that which is
embodied in Exhibits A and B, and that the defendant assumed all partnership obligations,
and in failing to render judgment for the plaintiff, as prayed for, and in dismissing his
complaint, and denying plaintiff's motion for a new trial.
JOHNS, J.:
In their respective briefs opposing counsel agree that the important questions involved are
"what was the contract under which the plaintiff rendered services for five years ending July
31, 1921," and "what is due the plaintiff under that contract." Plaintiff contends that his
services were performed under Exhibits A and B, and that the defendant assumed all of the
obligations of the original partnership under Exhibit A, and is now seeking to deny its liability
under, and repudiate, Exhibit B. The defendant admits that Exhibit A was the original
contract between Arnold and the firm of Willits & Patterson by which he came to the
Philippine Islands, and that it was therein agreed that he was to be employed for a period of
five years as the agent of Willits & Patterson in the Philippine Islands to operate a certain oil
mill, and to do such other business as might be deemed advisable, for which he was to
receive, first, the traveling expenses of his wife and self from San Francisco to Manila,
second, the minimum salary of $200 per month, third, a brokerage of 1 per cent upon all
purchases and sales of merchandise, except for the account of the coconut oil mill, fourth,
one
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VOL. 44, MARCH 17, 1923

639
half of the profits on any transaction in the name of the firm or himself not provided for in
the agreement. That the agreement also provided that if it be found that the business was
operated at a loss, Arnold should receive a monthly salary of $400 during such period. That
the business was operated at a loss from June 30, 1920, to July 31, 1921, and that for such
reason, he was entitled to nothing more than a salary of $400 per month, or for that period
P10,400. Adding this amount to the P8,741.05, which the defendant admits he owed Arnold
on June 30, 1920, makes a total of P19,141.05, leaving a balance due the defendant as set
out in the counterclaim. In other words, that the plaintiff's compensation was measured by,
and limited to, the above specified provisions in the contract Exhibit A, and that the
defendant corporation is not bound by the terms or provisions of Exhibit B, which is as
follows:
"WILLITS & PATTERSON, LTD.
MANILA, P. I., Nov. 10,1919.
"CHAS. D. WILLITS, Esq.,
"Present.
"DEAR MR. WILLITS : My understanding of the intent of my agreement with Willits &
Patterson is as under:
"Commissions. Willits & Patterson, San Francisco, pay me a commission of one per cent on
all purchases made for them in the Philippines or sales made to them by Manila and one per
cent on all sales made for them in the Philippines, or purchases made from them by Manila.
If such purchases or sales are on an f. o. b. basis the commission is on the f. o. b. price; if on
a c. i. f. basis the commission is computed on the c. i. f. price.
"These commissions are credited to me in San Francisco. "I do not participate in any profits
on business transacted between Willits & Patterson, San Francisco, and Willits & Patterson,
Ltd., Manila.
"Profits. On all business transacted between Willits & Patterson, Ltd. and others than Willits
& Patterson, San Francisco, half the profits are to be credited to my account
640
640
and half to the Profit & Loss account of Willits & Patterson, Ltd., Manila.
"On all other business, such as the Cooperative Coconut Products Co. account, or any other
business we may undertake as agents or managers, half the profits are to be credited to my
account and half to the Profit & Loss account of Willits & Patterson, Ltd., Manila.
"Where Willits & Patterson, San Francisco, or Willits & Patterson, Ltd., Manila, have their own
funds invested in the capital stock or a corporation, I of course do not participate in the
earnings of such stock, any more than Willits & Patterson would participate in the earnings
of stock held by me on my own account.
"If the foregoing conforms to your understanding of our agreement, please confirm below.
"Yours faithfully,
(Sgd.) "G. C. ARNOLD
"Confirmed:
"WILLITS & PATTERSON
"By (Sgd.) CHAS. D. WILLITS"
There is no dispute about any of the following facts: That at the inception C. D. Willits and I.
L. Patterson constituted the firm of Willits & Patterson doing business in the City of San
Francisco; that later Patterson retired f rom the firm, and Willits acquired all of his interests
and thereafter continued the business under the name and style of Willits & Patterson; that
the original contract Exhibit A was made between the plaintiff and the old firm at San
Francisco on July 31, 1916, to cover a period of five years from that date; that plaintiff
entered upon the discharge of his duties and continued his services in the Philippine Islands
to someone for the period of five years; that on November 10, 1919, and as a result of
conferences between Willits and the plaintiff, Exhibit B was addressed and signed in the
manner and form above stated in the City of Manila. A short time prior to that date Willits
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VOL. 44, MARCH 17, 1923

641

organized a corporation in San Francisco, in the State of California, which took over and
acquired all of the assets of the firm's business in California then being conducted under the
name and style of Willits & Patterson; that he subscribed for all of the capital stock of the
corporation, and that in truth and in fact he was the owner of all of its capital stock. After
this was done he caused a new corporation to be organized under the laws of the Philippine
Islands with principal office at Manila, which took over and acquired all the business and
assets of the firm of Willits & Patterson in the Philippine Islands, in and to which, in legal
effect, he subscribed for all of its capital stock, and was the owner of all of its stock. After
both corporations were organized the above letter was drafted and signed. The plaintiff
contends that the signing of Exhibit B in the manner and under the conditions in which it
was signed, and through the subsequent acts and conduct of the parties, was ratified and, in
legal effect, became and is now binding upon the defendant.
It will be noted that Exhibit B was executed in Manila, and that at the time it was signed by
Willits, he was to all intents and purposes the legal owner of all the stock in both
corporations. It also appears from the evidence that the parent corporation at San Francisco
took over and acquired all of the assets and liabilities of the local corporation at Manila. That
after it was organized the Manila corporation kept separate records and account books of its
own, and that from time to time financial statements were made and forwarded to the home
office, from which it conclusively appears that plaintiff was basing his claim for services upon
Exhibit A, as it was modified by Exhibit B. That at no time after Exhibit B was signed was
there ever any dispute between plaintiff and Willits as to the compensation for plaintiff's
services. That is to say, as between the plaintiff and Willits, Exhibit B was approved, followed
and at all times in force and effect, after it was signed November 10, 1919. It appears from
an analysis of
642
642
Exhibit B that it was for the mutual interests of both parties. From a small beginning, the
business was then in a very flourishing condition and growing fast, and the profits were very
large and were running into big money.
Among other things, Exhibit A provided: "(a) That the net profits from said coconut oil
business shall be divided in equal shares between the said parties hereto; (b) that Arnold
should receive a brokerage of 1 per cent from all purchases and sales of merchandise,
except for the account of the coconut mills; (c) that the net profits from all other business
should be divided in equal half shares between the parties hereto."
Under the above provisions, the plaintiff might well contend that he was entitled to one-half
of all the profits and a brokerage of 1 per cent f rom all purchases and sales, except those
for the account of the coconut oil mills, which under the volume of business then existing
would run into a very large sum of money. It was for such reason and after personal
conferences between them, and to settle all disputed questions, that Exhibit B was prepared
and signed.
The record recites that "the defendant admits that from July 31, 1916 to July 31, 1921, the
plaintiff faithfully performed all the duties incumbent upon him under his contract of
employment, it being understood, however, that this admission does not include an
admission that the plaintiff placed a proper interpretation upon his right to remuneration
under said contract of employment."
It being admitted that the plaintiff worked "under his contract of employment" for the period
of five years, the question naturally arises, for whom was he working? His contract was
made with the original firm of Willits & Patterson, and that firm was dissolved and it ceased
to exist, and all of its assets were merged in, and taken over by, the parent corporation at
San Francisco. In the very nature of things, after the corporation was formed, the plaintiff
could not and did not continue to work for the firm, and, yet, he continued his employment
for the full
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643
period of five years. For whom did he work after the partnership was merged in the
corporation and ceased to exist?
It is very apparent that, under the conditions then existing, the signing of Exhibit B was f or
the mutual interests of both parties, and that if the contract Exhibit A was to be enf orced
according to its terms, that Arnold might well contend for a much larger sum of money for
his services. In truth and in fact Willits and both corporations recognized his employment
and accepted the benefits of his services. He continued his employment and rendered his
services after the corporations were organized and Exhibit E was signed .just the same as he
did before, and both corporations recognized and accepted his services. Although. the
plaintiff was president of the local corporation, the testimony is conclusive that both of them
were what is known as a one man corporation, and Willits, as the owner of all of the stock,
was the force and dominant power which controlled them. After Exhibit B was signed it was
recognized by Willits that the plaintiff's services were to be performed and measured by its
terms and provisions, and there never was any dispute between plaintiff and Willits upon
that question.
The controversy first arose after the corporation was in financial trouble and the
appointment of what is known in the record as a "creditors' committee." There is no claim or
pretense that there was any fraud or collusion between plaintiff and Willits, and it is very
apparent that Exhibit B was to the mutual interests of both parties. It is elementary law that
if Exhibit B is a binding contract between the plaintiff and Willits and the corporations, it is
equally binding upon the creditors' committee. It would not have any higher or better legal
right than the corporation itself, and could not make any defense which it could not make. It
is very significant that the claim or defense which is now interposed by the creditors'
committee was never made or asserted at any previous time by the defendant, and 643
644
644

that it never was made by Willis, and it is very apparent that if he had remained in control of
the corporation, it would never have made the defense which is now made by the creditors'
committee. The record is conclusive that at the time he signed Exhibit B, Willits was, in legal
effect, the owner and holder of all the stock in both corporations, and that he approved it in
their interest, and to protect them from the plaintiff having and making a much larger claim
under Exhibit A. As a matter of fact, it appears from the statement of Mr. Larkin, the
accountant, in the record that if plaintiff's cause of action was now founded upon Exhibit A,
he would have a claim for more than P160,000.
Thompson on Corporations, 2d ed., vol. I, section 10, says:
"The proposition that a corporation has an existence separate and distinct from its
membership has its limitations. It must be noted that this separate existence is for particular
purposes. It must also be remembered that there can be no corporate existence without
persons to compose it; there can be no association without associates. This separate
existence is to a certain extent a legal fiction. Whenever necessary for the interests of the
public or for the protection or enforcement of the rights of the membership, courts will
disregard this legal fiction and operate upon both the corporation and the persons
composing it."
In the same section, the author quotes from a decision in 49 Ohio State, 137 1; 15 L. R. A.,
145, in which the Supreme Court of Ohio says:
" 'So long as a proper use is made of the fiction that a corporation is an entity apart from its
shareholders, it is harmless, and, because convenient, should not be called in question; but
where it is urged to an end subversive of its policy, or such is the issue, the fiction must be
ignored, and the question determined whether the act in question, though
_______________
1 State ex rel. vs. Standard Oil Co.

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645
done by shareholders,that is to say, by the persons uniting in one body,was one simply
as individuals, and with respect to their individual interests as shareholders, or was done
ostensibly as such, but, as a matter of fact, to control the corporation, and affect the
transaction of its business, in the same manner as if the act had been clothed with all the
formalities of a corporate act. This must be so, because, the stockholders having a dual
capacity, and capable of acting in either, and a possible interest to conceal their character
when acting in their corporate capacity, the absence of the formal evidence of the character
of the act cannot preclude judicial inquiry on the subject. If it were otherwise, then in that
department of the law f raud would enjoy an immunity awarded to it in no other.'"
"Where the stock of a corporation is owned by one person whereby the corporation f
unctions only f or the benefit of such individual owner, the corporation and the individual
should be deemed to be the same." (U. S. Gypsum Co. vs. Mackay Wall Plaster Co., 199 Pac.,
249.)
Ruling Case Law, vol. 7, section 663, says:
"While of course a corporation cannot ratify a contract which is strictly ultra vires, and which
it in the first instance could not have made, it may by ratification render binding on it a
contract, entered into on its behalf by its officers or agents without authority. As a general
rule such ratification need not be manifested by any vote or formal resolution of the
corporation or be authenticated by the corporate seal; no higher degree of evidence is
requisite in establishing ratification on the part of a corporation, than is requisite in showing
an antecedent authorization.
*
"SEC. 666. The assent or approval of a corporation to acts done on its account may be
inferred in the same manner that the assent of a natural person may be, and it is well
settled that where a corporation with f ull knowledge of the unauthorized act of its officers or
agents acquiesces
646
646
in and consents to such acts, it thereby ratifies them, especially where the acquiescence
results in prejudice to a third person.
*
"SEC. 669. So, when, in the usual course of business of a corporation, an officer has been
allowed in his official capacity to manage its affairs, his authority to represent the
corporation may be inferred from the manner in which he has been permitted by the
directors to transact its business."
"SEC. 656. In accordance with a well-known rule of the law of agency, notice to corporate
officers or agents within the scope or apparent scope of their authority is attributed to the
corporation."
*
"SEC. 667. As a general rule, if a corporation with knowledge of its agent's unauthorized act
receives and enjoys the benefits thereof, it impliedly ratifies the unauthorized act if it is one
capable of ratification by parol."
In its article on corporations, Corpus Juris, in section 2241 says:

"Ratification by a corporation of a transaction not previously authorized is more easily
inferred where the corporation receives and retains property under it, and as a general rule
where a corporation, through its proper officers or board, takes and retains the benefits, of
the unauthorized act or contract of an officer or agent, with full knowledge of all the material
facts, it thereby ratifies and becomes bound by such act or contract, together with all the
liabilities and burdens resulting therefrom, and in some jurisdictions this rule is, in effect,
declared by statute. Thus the corporation is liable on the ground of ratification where, with
knowledge of the facts, it accepts the benefit of services rendered under an unauthorized
contract of employment * * *."
Applying the law to the facts.
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647
Mr. Larkin, an experienced accountant, was employed by the local corporation, and from
time to time and in the ordinary course of business made and prepared financial statements
showing its assets and liabilities, true copies of which were sent to the home office in San
Francisco. It appears upon their face that plaintiff's compensation was made and f ounded
on Exhibit B, and that such statements were made and prepared by the accountant on the
assumption that Exhibit B was in full force and effect as between the plaintiff and the
defendant. In the course of business in the early part of 1920, plaintiff, as manager of the
defendant, sold 500 tons of oil for future delivery at P740 per ton. Due to a break in the
market, plaintiff was able to purchase the oil at P380 per ton or a profit of P180,000.
It appears from Exhibit B under the heading of "Profits" that:
"On all business transacted between Willits & Patterson, Ltd. and others than Willits &
Patterson, San Francisco, half the profits are to be credited to my account and half to the
Profit & Loss account of Willits & Patterson, Ltd., Manila."
The purchasers paid P105,000 on the contract and gave their notes for P75,000, and it was
agreed that all of the oil purchased should be held as security for the full payment of the
purchase price. As a result, the defendant itself received the P105,000 in cash, P75,000 in
notes, and still holds the 500 tons of oil as security for the balance of the purchase price.
This transaction was shown in the semi-annual financial statement for the period ending
December 31, 1920. That is to say, the business was transacted by and through the plaintiff,
and the defendant received and accepted all of the profits on the deal, and the statement
which was rendered gave him a credit for P90,737.88, or half the profit as provided in the
contract Exhibit B, with interest.
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648

Although the previous financial statements show upon their face that the account of plaintiff
was credited with several small items on the same basis, it was not until the 23d of March,
1921, that any objection was ever made by anyone, and objection was made for the first
time by the creditors' committee in a cable of that date.
As we analyze the facts Exhibit B was, in legal effect, ratified and approved and is now
binding upon the defendant corporation, and the plaintiff is entitled to recover for his
services on that writing as it modified the original contract Exhibit A.
It appears from the statement prepared by accountant Larkin founded upon Exhibit B that
the plaintiff is entitled to recover P106,277.50. It is very apparent that his statement was
based upon the assumption that there was a net profit of ?180,000 on the 500 tons of oil, of
which the plaintiff was entitled to one-half.
In the absence of any other proof, we have the right to assume that the 500 tons of oil was
worth the amount which the defendant paid f or them at the time of the purchase or P380
per ton, and the record shows that the defendant took and now has the possession of all of
the oil to secure the payment of the price at which it was sold. Hence, the profit on the deal
to the defendant at the time of the sale would amount to the difference between what the
defendant paid for the oil and the amount which it received for the oil at the time it sold the
oil. It appears that at the time of the sale the defendant only received P105,000 in cash, and
that it took and accepted the promissory notes of Cruz & Tan Chong Say, the purchasers, for
P75,000 more which have not been collected and may never be. Hence, it must follow that
the amount evidenced by the notes cannot now be deemed or treated as profits on the deal
and cannot be until such time as the notes are paid.
The judgment of the lower court is reversed, and a money judgment will be entered here in
favor of the plaintiff and against the defendant for the sum of P68,527.50, with
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649
Murphy vs. Trinidad
interest thereon at the rate of 6 per cent per annum f rom the 10th day of January, 1922. In
addition thereto, judgment will be rendered against the defendant in substance and to the
effect that the plaintiff is the owner of an undivided one-half interest in the promissory notes
for P75,000, which were executed by Cruz & Tan Chong Say, as a part of the purchase price
of the oil, and that he is entitled to have and receive one-half of all the proceeds from the
notes or either of them, and that also he have judgment against the defendant for costs. So
ordered.
Araullo, C. J., Street, Malcolm, Avancea, Ostrand, and Romualdez, JJ., concur.
Judgment reversed.
_______________ [Arnold vs. Willits & Patterson, 44 Phil. 634(1923)]
232
Philippine Stock Exchange, Inc. vs. Court of Appeals
G.R. No. 125469. October 27, 1997.*
PHILIPPINE STOCK EXCHANGE, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS,
SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL LAND, INC., respondents.
Corporation Law; Securities and Exchange Commission; Stock Exchanges; The SEC is the
entity with the primary say as to whether or not securities, including shares of stock of a
corporation, may be traded or not in the stock exchange.We affirm that the SEC is the
entity with the primary say as to whether or not securities, including shares of stock of a
corporation, may be traded or not in the stock exchange. This is in line with the SECs
mission to ensure proper compliance with the laws, such as the Revised Securities Act and to
regulate the sale and disposition of securities in the country. As the appellate court explains:
Paramount policy also supports the authority of the public respondent to review petitioners
denial of the listing. Being a stock exchange, the petitioner performs a function that is vital
to the national economy, as the business is affected with public interest. As a matter of fact,
it has often been said that the economy moves on the basis of the rise and fall of stocks
being traded. By its economic power, the petitioner certainly can dictate which and how
many users are allowed to sell securities thru the facilities of a stock exchange, if allowed to
interpret its own rules liberally as it may please. Petitioner can either allow or deny the entry
to the market of securities. To repeat, the monopoly, unless accompanied by control,
becomes subject to abuse; hence, considering public interest, then it should be subject to
government regulation.
Same; Same; Same; Philippine Stock Exchange; The PSEs management prerogatives are not
under the absolute control of the SEC, for the PSE is, after all, a corporation authorized by its
corporate franchise to engage in its proposed and duly approved business.This is not to
say, however, that the PSEs management prerogatives are under the absolute control of the
SEC. The PSE is, after all, a corporation authorized by its corporate franchise to engage in its
proposed and duly approved business. One of the PSEs main concerns, as such, is still the
generation of profit for its stock_______________
* SECOND DIVISION.
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233
holders. Moreover, the PSE has all the rights pertaining to corporations, including the right to
sue and be sued, to hold property in its own name, to enter (or not to enter) into contracts
with third persons, and to perform all other legal acts within its allocated express or implied
powers.
Same; Same; Same; Same; Questions of policy and of management are left to the honest
decision of the officers and directors of a corporation, and the courts are without authority to
substitute their judgment for that of the board of directorsthe board is the business
manager of the corporation, and so long as it acts in good faith, its orders are not reviewable
by the courts.A corporation is but an association of individuals, allowed to transact under
an assumed corporate name, and with a distinct legal personality. In organizing itself as a
collective body, it waives no constitutional immunities and perquisites appropriate to such a
body. As to its corporate and management decisions, therefore, the state will generally not
interfere with the same. Questions of policy and of management are left to the honest
decision of the officers and directors of a corporation, and the courts are without authority to
substitute their judgment for the judgment of the board of directors. The board is the
business manager of the corporation, and so long as it acts in good faith, its orders are not
reviewable by the courts.
Same; Same; Same; Same; Notwithstanding the regulatory power of the SEC over the PSE,
and the resultant authority to reverse the PSEs decision in matters of application for listing
in the market, the SEC may exercise such power only if the PSEs judgment is attended by
bad faith.Thus, notwithstanding the regulatory power of the SEC over the PSE, and the
resultant authority to reverse the PSEs decision in matters of application for listing in the
market, the SEC may exercise such power only if the PSEs judgment is attended by bad
faith. In Board of Liquidators vs. Kalaw, it was held that bad faith does not simply connote
bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and
conscious doing of wrong. It means a breach of a known duty through some motive or
interest of ill will, partaking of the nature of fraud.
Same; Same; Same; Same; As the primary market for securities, the PSE had established its
name and goodwill, and it has the right to protect such goodwill by maintaining a reasonable
standard of propriety in the entities who choose to transact through its facilities; The
concept of government absolutism is a thing of the past, and
234
234
should remain so.Also, as the primary market for securities, the PSE has established its
name and goodwill, and it has the right to protect such goodwill by maintaining a reasonable
standard of propriety in the entities who choose to transact through its facilities. It was
reasonable for the PSE, therefore, to exercise its judgment in the manner it deems
appropriate for its business identity, as long as no rights are trampled upon, and public
welfare is safeguarded. In this connection, it is proper to observe that the concept of
government absolutism is a thing of the past, and should remain so.
Same; Same; Same; Same; The SEC had acted arbitrarily in arrogating unto itself the
discretion of approving the application for listing of Puerto Azul Land, Inc., since this is a
matter addressed to the sound discretion of the PSE, a corporate entity, whose business
judgments are respected in the absence of bad faith.In any case, for the purpose of
determining whether PSE acted correctly in refusing the application of PALI, the true
ownership of the properties of PALI need not be determined as an absolute fact. What is
material is that the uncertainty of the properties ownership and alienability exists, and this
puts to question the qualification of PALIs public offering. In sum, the Court finds that the
SEC had acted arbitrarily in arrogating unto itself the discretion of approving the application
for listing in the PSE of the private respondent PALI, since this is a matter addressed to the
sound discretion of the PSE, a corporate entity, whose business judgments are respected in
the absence of bad faith.
Same; Same; Same; The question as to what policy is, or should be relied upon in approving
the registration and sale of securities in the PSE is not for the Supreme Court to determine,
but is left to the sound discretion of the Securities and Exchange Commission.The question
as to what policy is, or should be relied upon in approving the registration and sale of
securities in the PSE is not for the Court to determine, but is left to the sound discretion of
the Securities and Exchange Commission. In mandating the SEC to administer the Revised
Securities Act, and in performing its other functions under pertinent laws, the Revised
Securities Act, under Section 3 thereof, gives the SEC the power to promulgate such rules
and regulations as it may consider appropriate in the public interest for the enforcement of
the said laws. The second paragraph of Section 4 of the said law, on the other hand,
provides that no security, unless exempt by law, shall be issued, endorsed, sold, transferred
or in any other manner conveyed to the public, unless registered in accordance
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235
with the rules and regulations that shall be promulgated in the public interest and for the
protection of investors by the Commission. Presidential Decree No. 902-A, on the other hand,
provides that the SEC, as regulatory agency, has supervision and control over all
corporations and over the securities market as a whole, and as such, is given ample
authority in determining appropriate policies.
Same; Same; Same; The absolute reliance on the full disclosure method in the registration of
securities is untenable.A reading of the foregoing grounds reveals the intention of the
lawmakers to make the registration and issuance of securities dependent, to a certain
extent, on the merits of the securities themselves, and of the issuer, to be determined by
the Securities and Exchange Commission. This measure was meant to protect the interests
of the investing public against fraudulent and worthless securities, and the SEC is mandated
by law to safeguard these interests, following the policies and rules therefore provided. The
absolute reliance on the full disclosure method in the registration of securities is, therefore,
untenable. As it is, the Court finds that the private respondent PALI, on at least two points
(Nos. 1 and 5) has failed to support the propriety of the issue of its shares with unfailing
clarity, thereby lending support to the conclusion that the PSE acted correctly in refusing the
listing of PALI in its stock exchange. This does not discount the effectivity of whatever
method the SEC, in the exercise of its vested authority, chooses in setting the standard for
public offerings of corporations wishing to do so. However, the SEC must recognize and
implement the mandate of the law, particularly the Revised Securities Act, the provisions of
which cannot be amended or supplanted by mere administrative issuance.

Berenguer & Guno Law Firm and Siguion Reyna, Montecillo & Ongsiako for petitioner.
Herminio F. Valerio for Puerto Azul Land, Inc.
TORRES, JR., J.:
The Securities and Exchange Commission is the government agency, under the direct
general supervision of the Of236
236
fice of the President,1 with the immense task of enforcing the Revised Securities Act, and all
other duties assigned to it by pertinent laws. Among its inumerable functions, and one of the
most important, is the supervision of all corporations, partnerships or associations, who are
grantees of primary franchise and/or a license or permit issued by the government to
operate in the Philippines.2 Just how far this regulatory authority extends, particularly, with
regard to the Petitioner Philippine Stock Exchange, Inc. is the issue in the case at bar.
In this Petition for Review on Certiorari, petitioner assails the resolution of the respondent
Court of Appeals, dated June 27, 1996, which affirmed the decision of the Securities and
Exchange Commission ordering the petitioner Philippine Stock Exchange, Inc. to allow the
private respondent Puerto Azul Land, Inc. to be listed in its stock market, thus paving the
way for the public offering of PALIs shares.
The facts of the case are undisputed, and are hereby restated in sum.
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its
shares to the public in order to raise funds allegedly to develop its properties and pay its
loans with several banking institutions. In January, 1995, PALI was issued a Permit to Sell its
shares to the public by the Securities and Exchange Commission (SEC). To facilitate the
trading of its shares among investors, PALI sought to course the trading of its shares through
the Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with the said stock
exchange an application to list its shares, with supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALIs application,
recommended to the PSEs Board of Governors the approval of PALIs listing application.
_______________
1 Section 1, Presidential Decree No. 902-A.

2 Section 3, Ibid.
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237
On February 14, 1996, before it could act upon PALIs application, the Board of Governors of
the PSE received a letter from the heirs of Ferdinand E. Marcos, claiming that the late
President Marcos was the legal and beneficial owner of certain properties forming part of the
Puerto Azul Beach Hotel and Resort Complex which PALI claims to be among its assets and
that the Ternate Development Corporation, which is among the stockholders of PALI, likewise
appears to have been held and continue to be held in trust by one Rebecco Panlilio for then
President Marcos and now, effectively for his estate, and requested PALIs application to be
deferred. PALI was requested to comment upon the said letter.
PALIs answer stated that the properties forming part of the Puerto Azul Beach Hotel and
Resort Complex were not claimed by PALI as its assets. On the contrary, the resort is actually
owned by Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct
from PALI. Furthermore, the Ternate Development Corporation owns only 1.20% of PALI. The
Marcoses responded that their claim is not confined to the facilities forming part of the
Puerto Azul Hotel and Resort Complex, thereby implying that they are also asserting legal
and beneficial ownership of other properties titled under the name of PALI.
On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of the Presidential
Commission on Good Government (PCGG) requesting for comments on the letters of the PALI
and the Marcoses. On March 4, 1996, the PSE was informed that the Marcoses received a
Temporary Restraining Order on the same date, enjoining the Marcoses from, among others,
further impeding, obstructing, delaying or interfering in any manner by or any means with
the consideration, processing and approval by the PSE of the initial public offering of PALI.
The TRO was issued by Judge Martin S. Villarama, Executive Judge of the RTC of Pasig City in
Civil Case No. 65561, pending in Branch 69 thereof.
In its regular meeting held on March 27, 1996, the Board of Governors of the PSE reached its
decision to reject PALIs application, citing the existence of serious claims, issues and
238
238
circumstances surrounding PALIs ownership over its assets that adversely affect the
suitability of listing PALIs shares in the stock exchange.
On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting Chairman,
Perfecto R. Yasay, Jr., bringing to the SECs attention the action taken by the PSE in the
application of PALI for the listing of its shares with the PSE, and requesting that the SEC, in
the exercise of its supervisory and regulatory powers over stock exchanges under Section
6(j) of P.D. No. 902-A, review the PSEs action on PALIs listing application and institute such
measures as are just and proper under the circumstances.
On the same date, or on April 11, 1996, the SEC wrote to the PSE, attaching thereto the
letter of PALI and directing the PSE to file its comments thereto within five days from its
receipt and for its authorized representative to appear for an inquiry on the matter. On
April 22, 1996, the PSE submitted a letter to the SEC containing its comments to the April
11, 1996 letter of PALI.
On April 24, 1996, the SEC rendered its Order, reversing the PSEs decision. The dispositive
portion of the said order reads:
WHEREFORE, premises considered, and invoking the Commissioners authority and
jurisdiction under Section 3 of the Revised Securities Act, in conjunction with Section 3, 6(j)
and 6(m) of Presidential Decree No. 902-A, the decision of the Board of Governors of the
Philippine Stock Exchange denying the listing of shares of Puerto Azul Land, Inc., is hereby
set aside, and the PSE is hereby ordered to immediately cause the listing of the PALI shares
in the Exchange, without prejudice to its authority to require PALI to disclose such other
material information it deems necessary for the protection of the investing public.
This Order shall take effect immediately.
SO ORDERED.
PSE filed a motion for reconsideration of the said order on April 29, 1996, which was,
however denied by the Commission in its May 9, 1996 Order which states:
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239
WHEREFORE, premises considered, the Commission finds no compelling reason to
reconsider its order dated April 24, 1996, and in the light of recent developments on the
adverse claim against the PALI properties, PSE should require PALI to submit full disclosure of
material facts and information to protect the investing public. In this regard, PALI is hereby
ordered to amend its registration statements filed with the Commission to incorporate the
full disclosure of these material facts and information.
Dissatisfied with this ruling, the PSE filed with the Court of Appeals on May 17, 1996 a
Petition for Review (with Application for Writ of Preliminary Injunction and Temporary
Restraining Order), assailing the above mentioned orders of the SEC, submitting the
following as errors of the SEC:
I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN ISSUING THE
ASSAILED ORDERS WITHOUT POWER, JURISDICTION, OR AUTHORITY; SEC HAS NO POWER
TO ORDER THE LISTING AND SALE OF SHARES OF PALI WHOSE ASSETS ARE SEQUESTERED
AND TO REVIEW AND SUBSTITUTE DECISIONS OF PSE ON LISTING APPLICATIONS;
II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN FINDING THAT
PSE ACTED IN AN ARBITRARY AND ABUSIVE MANNER IN DISAPPROVING PALIS LISTING
APPLICATION;
III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING FURTHER
DISPOSITION OF propertIES IN CUSTODIA LEGIS AND WHICH FORM PART OF NAVAL/MILITARY
RESERVATION; AND
IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED AND ITS
IMPLEMENTATION AND application IN THIS CASE VIOLATES THE DUE PROCESS CLAUSE OF
THE Constitution.
On June 4, 1996, PALI filed its Comment to the Petition for Review and subsequently, a
Comment and Motion to Dismiss. On June 10, 1996, PSE filed its Reply to Comment and
Opposition to Motion to Dismiss.
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On June 27, 1996, the Court of Appeals promulgated its Resolution dismissing the PSEs
Petition for Review. Hence, this Petition by the PSE.
The appellate court had ruled that the SEC had both jurisdiction and authority to look into
the decision of the petitioner PSE, pursuant to Section 33 of the Revised Securities Act in
relation to Section 6(j) and 6(m)4 of P.D. No. 902-A, and Section 38(b)5 of the Revised
Securities Act, and for the purpose
_______________
3 Sec. 3. Administrative Agency.This Act shall be administered by the (Securities and

Exchange) Commission which shall continue to have the organization, powers, and functions
provided by Presidential Decree Numbered 902-A, 1653, 1758, and 1799 and Executive
Order No. 708. The Commission shall, except as otherwise expressly provided, have the
power to promulgate such rules and regulations as it may consider appropriate in the public
interest for the enforcement of the provisions hereof.
4 Sec. 6. In order to effectively exercise such jurisdiction, the (Securities and Exchange)
Commission shall possess the following powers:
xxx
(j) To authorize the establishment and operation of stock exchanges, commodity exchanges
and such other similar organizations and to supervise and regulate the same; including the
authority to determine their number, size and location, in the light of national or regional
requirements for such activities with the view to promote, conserve or rationalize
investment;
xxx
(m) To exercise such other powers as may be provided by law as well as those which may be
implied from, or which the necessary or incidental to the carrying out of, the express powers
granted to the Commission or to achieve the objectives and purposes of this Decree.
5 Sec. 38. Powers with respect to exchanges and securities.(a) x x x

(b) The Commission is further authorized, if after making appropriate request in writing to a
securities exchange that such exchange effect on its own behalf specified changes in the
rules and practices and, after appropriate notice and opportunity for hearing, it determines
that such exchange has not made the changes so requested, and that such changes are
necessary or appropriate for the
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of ensuring fair administration of the exchange. Both as a corporation and as a stock
exchange, the petitioner is subject to public respondents jurisdiction, regulation and control.
Accepting the argument that the public respondent has the authority merely to supervise or
regulate, would amount to serious consequences, considering that the petitioner is a stock
exchange whose business is impressed with public interest. Abuse is not remote if the public
respondent is left without any system of control. If the securities act vested the public
respondent with jurisdiction and control over all corporations; the power to authorize the
establishment of stock exchanges; the right to supervise and regulate the same; and the
power to alter and supplement rules of the exchange in
_______________
protection of investors or to insure fair dealing in securities traded upon such exchange, by
rules or regulations or by order, to alter or supplement the rules of such exchange (insofar
as necessary or appropriate to effect such changes) in respect of such matters as
(1) Safeguards in respect of the financial responsibility of members and adequate provision
against the evasion of financial responsibility through the use of corporate forms or special
partnerships;
(2) The limitation or prohibition of the registration or trading in any security within a
specified period after the issuance or primary distribution thereof;
(3) The listing or striking from listing of any security;
(4) Hours of trading;
(5) The manner, method, and place of soliciting business;
(6) Fictitious accounts;
(7) The time and method of making settlements, payments, and deliveries, and of closing
accounts;
(8) The reporting of transactions on the exchange upon tickets maintained by or with the
consent of the exchange, including the method of reporting short sales, stopped sales, sales
of securities of issuers in default, bankruptcy or receivership, and sales involving other
special circumstances;
(9) The fixing of reasonable rates of commission, interests, listing, and other charges;
(10) Minimum units of trading;
(11) Odd-lot purchases and sales; and
(12) Minimum deposits on margin accounts.
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the listing or delisting of securities, then the law certainly granted to the public respondent
the plenary authority over the petitioner; and the power of review necessarily comes within
its authority.
All in all, the court held that PALI complied with all the requirements for public listing,
affirming the SECs ruling to the effect that:
x x x the Philippine Stock Exchange has acted in an arbitrary and abusive manner in
disapproving the application of PALI for listing of its shares in the face of the following
considerations:
1. PALI has clearly and admittedly complied with the Listing Rules and full disclosure
requirements of the Exchange;
2. In applying its clear and reasonable standards on the suitability for listing of shares, PSE
has failed to justify why it acted differently on the application of PALI, as compared to the
IPOs of other companies similarly situated that were allowed listing in the Exchange;
3. It appears that the claims and issues on the title to PALIs properties were even less
serious than the claims against the assets of the other companies in that, the assertions of
the Marcoses that they are owners of the disputed properties were not substantiated enough
to overcome the strength of a title to properties issued under the Torrens System as
evidence of ownership thereof;
4. No action has been filed in any court of competent jurisdiction seeking to nullify PALIs
ownership over the disputed properties, neither has the government instituted recovery
proceedings against these properties. Yet the import of PSEs decision in denying PALIs
application is that it would be PALI, not the Marcoses, that must go to court to prove the
legality of its ownership on these properties before its shares can be listed.
In addition, the argument that the PALI properties belong to the Military/Naval Reservation
does not inspire belief. The point is, the PALI properties are now titled. A property loses its
public character the moment it is covered by a title. As a matter of fact, the titles have long
been settled by a final judgment; and the final decree having been registered, they can no
longer be re-opened considering that the one year period has already passed. Lastly, the
determination of what
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standard to apply in allowing PALIs application for listing, whether the discretion method or
the system of public disclosure adhered to by the SEC, should be addressed to the Securities
Commission, it being the government agency that exercises both supervisory and regulatory
authority over all corporations.
On August 15, 1996, the PSE, after it was granted an extension, filed the instant Petition for
Review on Certiorari, taking exception to the rulings of the SEC and the Court of Appeals.
Respondent PALI filed its Comment to the petition on October 17, 1996. On the same date,
the PCGG filed a Motion for Leave to file a Petition for Intervention. This was followed up by
the PCGGs Petition for Intervention on October 21, 1996. A supplemental Comment was
filed by PALI on October 25, 1997. The Office of the Solicitor General, representing the SEC
and the Court of Appeals, likewise filed its Comment on December 26, 1996. In answer to
the PCGGs motion for leave to file petition for intervention, PALI filed its Comment thereto
on January 17, 1997, whereas the PSE filed its own Comment on January 20, 1997.
On February 25, 1996, the PSE filed its Consolidated Reply to the comments of respondent
PALI (October 17, 1996) and the Solicitor General (December 26, 1996). On May 16, 1997,
PALI filed its Rejoinder to the said consolidated reply of PSE.
PSE submits that the Court of Appeals erred in ruling that the SEC had authority to order the
PSE to list the shares of PALI in the stock exchange. Under presidential decree No. 902-A, the
powers of the SEC over stock exchanges are more limited as compared to its authority over
ordinary corporations. In connection with this, the powers of the SEC over stock exchanges
under the Revised Securities Act are specifically enumerated, and these do not include the
power to reverse the decisions of the stock exchange. Authorities are in abundance even in
the United States, from which the countrys security policies are patterned, to the effect of
giving the Securities Commission less control over stock exchanges, which in turn are given
more lee-way in making the decision whether or not to allow corporations to offer their stock
to the
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public through the stock exchange. This is in accord with the business judgment rule
whereby the SEC and the courts are barred from intruding into business judgments of
corporations, when the same are made in good faith. The said rule precludes the reversal of
the decision of the PSE to deny PALIs listing application, absent a showing of bad faith on
the part of the PSE. Under the listing rules of the PSE, to which PALI had previously agreed to
comply, the PSE retains the discretion to accept or reject applications for listing. Thus, even
if an issuer has complied with the PSE listing rules and requirements, PSE retains the
discretion to accept or reject the issuers listing application if the PSE determines that the
listing shall not serve the interests of the investing public.
Moreover, PSE argues that the SEC has no jurisdiction over sequestered corporations, nor
with corporations whose properties are under sequestration. A reading of Republic of the
Philippines vs. Sandiganbayan, G.R. No. 105205, 240 SCRA 376, would reveal that the
properties of PALI, which were derived from the Ternate Development Corporation (TDC) and
the Monte del Sol Development Corporation (MSDC) are under sequestration by the PCGG,
and subject of forfeiture proceedings in the Sandiganbayan. This ruling of the Court is the
law of the case between the Republic and TDC and MSDC. It categorically declares that the
assets of these corporations were sequestered by the PCGG on March 10, 1986 and April 4,
1988.
It is, likewise, intimated that the Court of Appeals sanction that PALIs ownership over its
properties can no longer be questioned, since certificates of title have been issued to PALI
and more than one year has since lapsed, is erroneous and ignores well settled
jurisprudence on land titles. That a certificate of title issued under the Torrens System is a
conclusive evidence of ownership is not an absolute rule and admits certain exceptions. It is
fundamental that forest lands or military reservations are non-alienable. Thus, when a title
covers a forest reserve or a government reservation, such title is void.
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PSE, likewise, assails the SECs and the Court of Appeals reliance on the alleged policy of
full disclosure to uphold the listing of PALIs shares with the PSE, in the absence of a clear
mandate for the effectivity of such policy. As it is, the case records reveal the truth that PALI
did not comply with the listing rules and disclosure requirements. In fact, PALIs documents
supporting its application contained misrepresentations and misleading statements, and
concealed material information. The matter of sequestration of PALIs properties and the fact
that the same form part of military/naval/forest reservations were not reflected in PALIs
application.
It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is
clothed with the markings of a corporate entity, it functions as the primary channel through
which the vessels of capital trade ply. The PSEs relevance to the continued operation and
filtration of the securities transactions in the country gives it a distinct color of importance
such that government intervention in its affairs becomes justified, if not necessary. Indeed,
as the only operational stock exchange in the country today, the PSE enjoys a monopoly of
securities transactions, and as such, it yields an immense influence upon the countrys
economy.
Due to this special nature of stock exchanges, the countrys lawmakers has seen it wise to
give special treatment to the administration and regulation of stock exchanges.6
These provisions, read together with the general grant of jurisdiction, and right of
supervision and control over all corporations under Sec. 3 of P.D. 902-A, give the SEC the
special mandate to be vigilant in the supervision of the affairs of stock exchanges so that
the interests of the investing public may be fully safeguarded.
Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the
SECs challenged control authority over the petitioner PSE even as it provides that the
Commission shall have absolute jurisdiction, supervision, and control over all corporations,
partnerships or associations,
_______________
6 See Sec. 6(j), PD. 902-A; Sec. 8, Revised Securities Act.

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who are the grantees of primary franchises and/or a license or permit issued by the
government to operate in the Philippines . . . The SECs regulatory authority over private
corporations encompasses a wide margin of areas, touching nearly all of a corporations
concerns. This authority springs from the fact that a corporation owes its existence to the
concession of its corporate franchise from the state.
The SECs power to look into the subject ruling of the PSE, therefore, may be implied from or
be considered as necessary or incidental to the carrying out of the SECs express power to
insure fair dealing in securities traded upon a stock exchange or to ensure the fair
administration of such exchange.7 It is, likewise, observed that the principal function of the
SEC is the supervision and control over corporations, partnerships and associations with the
end in view that investment in these entities may be encouraged and protected, and their
activities pursued for the promotion of economic develop-ment.8
Thus, it was in the alleged exercise of this authority that the SEC reversed the decision of
the PSE to deny the application for listing in the stock exchange of the private respondent
PALI. The SECs action was affirmed by the Court of Appeals.
We affirm that the SEC is the entity with the primary say as to whether or not securities,
including shares of stock of a corporation, may be traded or not in the stock exchange. This
is in line with the SECs mission to ensure proper compliance with the laws, such as the
Revised Securities Act and to regulate the sale and disposition of securities in the country.9
As the appellate court explains:
Paramount policy also supports the authority of the public respondent to review petitioners
denial of the listing. Being a stock
_______________
7 Section 6(m), Presidential Decree No. 902-A.

8 Abad vs. CFI of Pangasinan, Branch VIII, et al., G.R. Nos. 58507-08, February 26, 1992, 206
SCRA 567.
9 Securities and Exchange Commission vs. Court of Appeals, G.R. Nos. 106425 & 106431-32,
July 21, 1995, 246 SCRA 738.
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exchange, the petitioner performs a function that is vital to the national economy, as the
business is affected with public interest. As a matter of fact, it has often been said that the
economy moves on the basis of the rise and fall of stocks being traded. By its economic
power, the petitioner certainly can dictate which and how many users are allowed to sell
securities thru the facilities of a stock exchange, if allowed to interpret its own rules liberally
as it may please. Petitioner can either allow or deny the entry to the market of securities. To
repeat, the monopoly, unless accompanied by control, becomes subject to abuse; hence,
considering public interest, then it should be subject to government regulation.
The role of the SEC in our national economy cannot be minimized. The legislature, through
the Revised Securities Act, Presidential Decree No. 902-A, and other pertinent laws, has
entrusted to it the serious responsibility of enforcing all laws affecting corporations and
other forms of associations not otherwise vested in some other government office.10
This is not to say, however, that the PSEs management prerogatives are under the absolute
control of the SEC. The PSE is, after all, a corporation authorized by its corporate franchise to
engage in its proposed and duly approved business. One of the PSEs main concerns, as
such, is still the generation of profit for its stockholders. Moreover, the PSE has all the rights
pertaining to corporations, including the right to sue and be sued, to hold property in its own
name, to enter (or not to enter) into contracts with third persons, and to perform all other
legal acts within its allocated express or implied powers.
A corporation is but an association of individuals, allowed to transact under an assumed
corporate name, and with a distinct legal personality. In organizing itself as a collective
body, it waives no constitutional immunities and perquisites appropriate to such a body.11
As to its corporate and manage_______________
10 Pineda vs. Lantin, No. L-15350, November 30, 1962, 6 SCRA 757.
11 Bache & Co. (Phils.), Inc. vs. Hon. Judge Ruiz, et al., No. L-32409, February 27, 1971, 37
SCRA 823.
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ment decisions, therefore, the state will generally not interfere with the same. Questions of
policy and of management are left to the honest decision of the officers and directors of a
corporation, and the courts are without authority to substitute their judgment for the
judgment of the board of directors. The board is the business manager of the corporation,
and so long as it acts in good faith, its orders are not reviewable by the courts.12
Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant
authority to reverse the PSEs decision in matters of application for listing in the market, the
SEC may exercise such power only if the PSEs judgment is attended by bad faith. In Board
of Liquidators vs. Kalaw,13 it was held that bad faith does not simply connote bad judgment
or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing
of wrong. It means a breach of a known duty through some motive or interest of ill will,
partaking of the nature of fraud.
In reaching its decision to deny the application for listing of PALI, the PSE considered
important facts, which, in the general scheme, brings to serious question the qualification of
PALI to sell its shares to the public through the stock exchange. During the time for receiving
objections to the application, the PSE heard from the representative of the late President
Ferdinand E. Marcos and his family who claim the properties of the private respondent to be
part of the Marcos estate. In time, the PCGG confirmed this claim. In fact, an order of
sequestration has been issued covering the properties of PALI, and suit for reconveyance to
the state has been filed in the Sandiganbayan Court. How the properties were effectively
transferred, despite the sequestration order, from the TDC and MSDC to Rebecco Panlilio,
and to the private respondent PALI, in only a short span of time, are not yet explained to the
Court, but it is clear that such circumstances
_______________
12 Sales vs. Securities and Exchange Commission, G.R. No. 54330, January 13, 1989, 169
SCRA 109.
13 No. L-18805, August 14, 1967, 20 SCRA 987.
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give rise to serious doubt as to the integrity of PALI as a stock issuer. The petitioner was in
the right when it refused application of PALI, for a contrary ruling was not to the best interest
of the general public. The purpose of the Revised Securities Act, after all, is to give adequate
and effective protection to the investing public against fraudulent representations, or false
promises, and the imposition of worthless ventures.14
It is to be observed that the U.S. Securities Act emphasized its avowed protection to acts
detrimental to legitimate business, thus:
The Securities Act, often referred to as the truth in securities Act, was designed not only
to provide investors with adequate information upon which to base their decisions to buy
and sell securities, but also to protect legitimate business seeking to obtain capital through
honest presentation against competition from crooked promoters and to prevent fraud in the
sale of securities. (Tenth Annual Report, U.S. Securities and Exchange Commission, p. 14).
As has been pointed out, the effects of such an act are chiefly (1) prevention of excesses
and fraudulent transactions, merely by requirement of that their details be revealed; (2)
placing the market during the early stages of the offering of a security a body of information,
which operating indirectly through investment services and expert investors, will tend to
produce a more accurate appraisal of a security. x x x Thus, the Commission may refuse to
permit a registration statement to become effective if it appears on its face to be incomplete
or inaccurate in any material respect, and empower the Commission to issue a stop order
suspending the effectiveness of any registration statement which is found to include any
untrue statement of a material fact or to omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. (Idem).
Also, as the primary market for securities, the PSE has established its name and goodwill,
and it has the right to protect such goodwill by maintaining a reasonable standard of
propriety in the entities who choose to transact through its
_______________
14 Makati Stock Exchange, Inc. vs. Securities and Exchange Commission, No. L-23004, June
30, 1965, 14 SCRA 620.
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facilities. It was reasonable for the PSE, therefore, to exercise its judgment in the manner it
deems appropriate for its business identity, as long as no rights are trampled upon, and
public welfare is safeguarded.
In this connection, it is proper to observe that the concept of government absolutism is a
thing of the past, and should remain so.
The observation that the title of PALI over its properties is absolute and can no longer be
assailed is of no moment. At this juncture, there is the claim that the properties were owned
by TDC and MSDC and were transferred in violation of sequestration orders, to Rebecco
Panlilio and later on to PALI, besides the claim of the Marcoses that such properties belong to
the Marcos estate, and were held only in trust by Rebecco Panlilio. It is also alleged by the
petitioner that these properties belong to naval and forest reserves, and therefore beyond
private dominion. If any of these claims is established to be true, the certificates of title over
the subject properties now held by PALI may be disregarded, as it is an established rule that
a registration of a certificate of title does not confer ownership over the properties described
therein to the person named as owner. The inscription in the registry, to be effective, must
be made in good faith. The defense of indefeasibility of a Torrens Title does not extend to a
transferee who takes the certificate of title with notice of a flaw.
In any case, for the purpose of determining whether PSE acted correctly in refusing the
application of PALI, the true ownership of the properties of PALI need not be determined as
an absolute fact. What is material is that the uncertainty of the properties ownership and
alienability exists, and this puts to question the qualification of PALIs public offering. In sum,
the Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion of
approving the application for listing in the PSE of the private respondent PALI, since this is a
matter addressed to the sound discretion of the PSE, a corporate entity, whose business
judgments are respected in the absence of bad faith.
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The question as to what policy is, or should be relied upon in approving the registration and
sale of securities in the PSE is not for the Court to determine, but is left to the sound
discretion of the Securities and Exchange Commission. In mandating the SEC to administer
the Revised Securities Act, and in performing its other functions under pertinent laws, the
Revised Securities Act, under Section 3 thereof, gives the SEC the power to promulgate such
rules and regulations as it may consider appropriate in the public interest for the
enforcement of the said laws. The second paragraph of Section 4 of the said law, on the
other hand, provides that no security, unless exempt by law, shall be issued, endorsed, sold,
transferred or in any other manner conveyed to the public, unless registered in accordance
with the rules and regulations that shall be promulgated in the public interest and for the
protection of investors by the Commission. Presidential Decree No. 902-A, on the other hand,
provides that the SEC, as regulatory agency, has supervision and control over all
corporations and over the securities market as a whole, and as such, is given ample
authority in determining appropriate policies. Pursuant to this regulatory authority, the SEC
has manifested that it has adopted the policy of full material disclosure where all
companies, listed or applying for listing, are required to divulge truthfully and accurately, all
material information about themselves and the securities they sell, for the protection of the
investing public, and under pain of administrative, criminal and civil sanctions. In connection
with this, a fact is deemed material if it tends to induce or otherwise effect the sale or
purchase of its securities.15 While the employment of this policy is recognized and
sanctioned by the laws, nonetheless, the Revised Securities Act sets substantial and
procedural standards which a proposed issuer of securi_______________
15 See SEC Rules Requiring Disclosure of Material Facts by Corporations Whose Securities
are Listed in Any Stock Exchange or Registered/Licensed under the Revised Securities Act.
(Approved by the SEC Chairman on February 8, 1973, and published in the Bulletin Today on
February 19, 1973).
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ties must satisfy.16 Pertinently, Section 9 of the Revised Securities Act sets forth the possible
Grounds for the Rejection of the registration of a security:
The Commission may reject a registration statement and refuse to issue a permit to sell
the securities included in such registration statement if it finds that
(1)The registration statement is on its face incomplete or inaccurate in any material respect
or includes any untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading; or
(2) The issuer or registrant
(i) is not solvent or not in sound financial condition;
(ii) has violated or has not complied with the provisions of this Act, or the rules promulgated
pursuant thereto, or any order of the Commission;
(iii) has failed to comply with any of the applicable requirements and conditions that the
Commission may, in the public interest and for the protection of investors, impose before the
security can be registered;
(iv) has been engaged or is engaged or is about to engage in fraudulent transactions;
(v) is in any way dishonest or is not of good repute; or
(vi) does not conduct its business in accordance with law or is engaged in a business that is
illegal or contrary to government rules and regulations.
(3) The enterprise or the business of the issuer is not shown to be sound or to be based on
sound business principles;
(4) An officer, member of the board of directors, or principal stockholder of the issuer is
disqualified to be such officer, director or principal stockholder; or
(5)The issuer or registrant has not shown to the satisfaction of the Commission that the sale
of its security would not work to the prejudice of the public interest or as a fraud upon the
purchasers or investors. (Emphasis Ours)
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16 See Sections 4, 8, 9, 10, and 11, Revised Securities Act.

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A reading of the foregoing grounds reveals the intention of the lawmakers to make the
registration and issuance of securities dependent, to a certain extent, on the merits of the
securities themselves, and of the issuer, to be determined by the Securities and Exchange
Commission. This measure was meant to protect the interests of the investing public against
fraudulent and worthless securities, and the SEC is mandated by law to safeguard these
interests, following the policies and rules therefore provided. The absolute reliance on the
full disclosure method in the registration of securities is, therefore, untenable. As it is, the
Court finds that the private respondent PALI, on at least two points (nos. 1 and 5) has failed
to support the propriety of the issue of its shares with unfailing clarity, thereby lending
support to the conclusion that the PSE acted correctly in refusing the listing of PALI in its
stock exchange. This does not discount the effectivity of whatever method the SEC, in the
exercise of its vested authority, chooses in setting the standard for public offerings of
corporations wishing to do so. However, the SEC must recognize and implement the
mandate of the law, particularly the Revised Securities Act, the provisions of which cannot
be amended or supplanted by mere administrative issuance.
In resum, the Court finds that the PSE has acted with justified circumspection, discounting,
therefore, any imputation of arbitrariness and whimsical animation on its part. Its action in
refusing to allow the listing of PALI in the stock exchange is justified by the law and by the
circumstances attendant to this case.
ACCORDINGLY, in view of the foregoing considerations, the Court hereby GRANTS the
Petition for Review on Certiorari. The Decisions of the Court of Appeals and the Securities
and Exchange Commission dated July 27, 1996 and April 24, 1996, respectively, are hereby
REVERSED and SET ASIDE, and a new Judgment is hereby ENTERED, affirming the decision
of the Philippine Stock Exchange to deny the application for listing of the private respondent
Puerto Azul Land, Inc.
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254
Larranaga vs. Court of Appeals
SO ORDERED.
Regalado (Chairman) and Puno, JJ., concur.
Mendoza, J., In the result.
Petition granted, decisions of Court of Appeals and Securities and Exchange Commission
reversed and set aside.
Note.An otherwise ordinary action for recovery of certain properties and sum of money
with damages is transposed into an intracorporate controversy calling for the adjudicative
powers of the SEC when the complaint alleges that an officer employed devices or schemes
tantamount to fraud and misrepresentation in order to divert corporate funds and assets for
his personal use. (Alleje vs. Court of Appeals, 240 SCRA 495 [1995])
o0o [Philippine Stock Exchange, Inc. vs. Court of Appeals, 281 SCRA 232(1997)]
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257
National Development Company vs. Philippine Veterans Bank
G.R. Nos. 84132-33. December 10, 1990.*

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.
Constitutional Law; Police Power; A legislative act based on the police power requires the
concurrence of a lawful subject and a lawful method.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.
Same; Same; Due Process; Private property cannot simply be taken by law from one person
and given to another without any compensation and any known public purpose.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.
Same; Same; Same; Same; Impairment Clause; While it is true that 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.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.
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
_______________
* EN BANC.
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therefore no warrant to amend their provisions and deprive the private respondent of its
vested property rights.
Same; Same; Presidential Decree No. 1717; Presidential Decree 1717 is an invalid exercise of
police power, not being in conformity with the traditional requirements of a lawful subject
and a lawful method.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.
PETITION to review the decision of the Regional Trial Court of Calamba, Laguna, Br. 34.

Vicente Pascual, Jr. and Lope E. Feble for Philippine Veterans Bank.
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.
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
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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.
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
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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.
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.
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.
________________
1 G.R. No. 62259, April 19,1989.

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261
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
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262
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.
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 arbi________________
2 U.S. v. Toribio, 15 Phil. 85; Fabie v. City of Manila, 21 Phil. 486; Case v. Board of Health, 24
Phil. 256; Bautista v. Juinio, 127 SCRA 329; Ynot v. IAC, 148 SCRA 659.
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263
trarily 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.
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
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264
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
_______________
3 Yick Wo v. Hopkins, 118 U.S. 356.

4 Reworded in Art. XII, Sec. 16, 1987 Constitution.
5 Stone v. Mississippi, 101 U.S. 814.
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265
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.
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
_______________
6 G.R. Nos. 82763-64, March 19,1990.

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266
People vs. Tasarra
the petitioners.
SO ORDERED.
Fernan (C.J.), Narvasa, Gutierrez, Jr., Paras, Gancayco, Padilla, Bidin, Sarmiento, GrioAquino, Medialdea and Regalado, JJ., concur.
Melencio-Herrera, J., In the result. In Dumlao v. COMELEC, 95 SCRA 392 (1980), a portion
of the second paragraph of section 4 of Batas Pambansa Blg. 52 was declared null and void
for being unconstitutional.
Feliciano, J., On leave.
Petition dismissed.
Note.The police power of the state has been described as the most essential, insistent,
illimitable of powers which enables it to prohibit all things hurtful to the comfort, safety and
welfare of society. (Lozano vs. Martinez, 146 SCRA 323.)
o0o [National Development Company vs. Philippine Veterans Bank, 192 SCRA
257(1990)]
760
Republic vs. Sandiganbayan
G.R. No. 128606. December 4, 2000.*
REPUBLIC OF THE PHILIPPINES, petitioner, vs. SANDIGANBAYAN (3RD DIVISION), JOSE L.
AFRICA, UNIMOLCO, ROBERTO BENEDICTO, ANDRES AFRICA and SMART COMMUNICATIONS,
respondents.
Civil Law; Sale; Purpose of the notice requirement in Article 10 of the ETPI Articles of
Incorporation is to give the stockholders knowledge of the intended sale of shares of stock of
the corporation, in order that they may exercise their preemptive right.The purpose of the
notice requirement in Article 10 of the ETPI Articles of Incorporation is to give the
stockholders knowledge of the intended sale of shares of stock of the corporation, in order
that they may exercise their preemptive right. Where it is shown that a stockholder had
actual knowledge of the intended sale within the period prescribed to exercise the right, the
notice requirement had been sufficiently met. In the case at bar, PCGG had actual
knowledge of UNIMOLCOs offer to sell its shares of stock. In fact, it issued Resolution No. 96142 enjoining the sale of the said shares of stock to Smart. Petitioner, thus, cannot feign lack
of notice.
Same; Same; Obligations; For compensation to take place, a distinction must be made
between a debt and a mere claim.For compensation to take place, a distinction must be
made between a debt and a mere claim. A debt is a claim which has been formally passed
upon by the highest authority to which it can in law be submitted and has been declared to
be a debt. A claim, on the other hand, is a debt in embryo. It is mere evidence of a debt and
must pass through the process prescribed by law before it develops into what is properly
called a debt. There being no two debts for which either party may be said as principally
bound to each other, again, there can be no set-off.
Corporation Law; Piercing the Corporate Veil; Mere majority ownership of the stocks of a
corporation is not per se a cause for piercing the corporate veil.Petitioner counters that
UNIMOLCOs corporate fiction should be pierced since it is also owned by Benedicto.
However, mere majority ownership of the stocks of a corporation is not per se a cause for
piercing the corporate veil. There was no evidence that UNIMOLCOs corporate entity was
used by respondent Benedicto to commit fraud or to do wrong on petitioner; neither was it
shown that the corporate entity was
________________
* FIRST DIVISION.
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761
merely a farce and that it was used as an alter ego, business conduit or instrumentality of a
person or another entity or that piercing the corporation fiction is necessary to achieve
justice or equity. Only in these instances may the fiction be pierced and disregarded. Being
the party that invoked it, petitioner has the burden of substantiating by clear and convincing
evidence that UNIMOLCOs corporate veil must be pierced.
PETITION for review on certiorari of a decision of the Sandiganbayan.
Jose de Vera for petitioner PCGG.

Rilloraza, Africa, De Ocampo and Africa for private respondents.
Victor Africa intervenor.
YNARES-SANTIAGO, J.:
This is a petition for review assailing the Resolutions1 of the Sandiganbayan dated
December 6, 19962 and March 17, 19973 in Civil Case No. 0009, entitled Republic of the
Philippines, Plaintiff versus Jose L. Africa, et al, Defendants, which upheld the sale by
Universal Molasses Corporation (UNIMOLCO) of its shares of stock in Eastern
Telecommunications Philippines, Inc. (ETPI), to Smart Communications. Petitioner contends
that the sale violated its preemptive right as stockholder of ETPI, which is guaranteed in the
Articles of Incorporation.
ETPI was one of the corporations sequestered by the Presidential Commission on Good
Government (PCGG). Among its stockholders were Roberto S. Benedicto and UNIMOLCO.
Sometime in 1990, PCGG and Benedicto entered into a compromise agreement whereby
Benedicto ceded to the government 204,000 shares of stock in ETPI, representing his fiftyone percent
________________
1 Penned by Associate Justice Cipriano A. del Rosario, concurred in by Associate Justices

Sabino R. de Leon, Jr. and Leonardo I. Cruz.
2 Petition, Annex A; Rollo, pp. 72-96.
3 Petition, Annex B; Rollo, pp. 99-111.
762
762
(51%) equity therein. The other forty-nine percent (49%), consisting of 196,000 shares of
stock, were released from sequestration and adjudicated by final judgment to Benedicto and
UNIMOLCO. Furthermore, the government agreed to withdraw the cases filed against
Benedicto and free him from further criminal prosecution.
In a written notice received on April 24, 1996 by Melquiades Gutierrez, the President and
Chairman of the Board of ETPI, UNIMOLCO offered to sell to ETPI its 196,000 shares of stock
therein.
Meanwhile, on motion of petitioner, through the PCGG, the Sandiganbayan issued a
Resolution, dated May 7, 1996, authorizing the entry in the Stock and Transfer Book of ETPI
of the transfer of ownership of 204,000 shares of stock to petitioner, to be taken out of the
shareholdings of UNIMOLCO. On June 5, 1996, Benedicto filed a Manifestation and Motion
with the Sandiganbayan, praying that the Resolution dated May 7, 1996 be modified such
that the entry of the 204,000 shares of stock of petitioner in ETPI be taken out of the
shareholdings of UNIMOLCO and/or Roberto S. Benedicto.
On June 21, 1996, PCGG issued Resolution No. 96-142 enjoining all stockholders of ETPI from
selling shares of stock therein without the written conformity of the PCGG.4
Subsequently, on July 24, 1996, UNIMOLCO and Smart Communications executed a Deed of
Absolute Sale whereby UNIMOLCO sold its 196,000 shares of stock in ETPI to Smart.5 Prior to
the sale, Smart was not a stockholder of ETPI.
Thus, on August 8, 1996, petitioner filed with the Sandiganbayan a Motion to Cite
Defendant Benedicto and the Parties to the Sale of UNIMOLCO Shares in ETPI in Contempt of
Court and to Rescind and or Annul Said Sale. Petitioner alleged that the sale of the 196,000
shares of stock of UNIMOLCO to Smart was in defiance of the May 7, 1996 Resolution of the
Sandiganbayan, which provided that the 204,000 shares of the government shall come from
the shareholdings of UNIMOLCO, and it interfered with the proceedings thereon. In support
of its prayer for the rescission and
________________
4 Rollo, pp. 136-137.

5 Petition, Annex F; Rollo, pp. 138-140.
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763
annulment of the sale, petitioner argued that the same violated its right of first refusal to
purchase shares of stock in ETPI.
The right of first refusal is contained in Article 10 of the Articles of Incorporation of ETPI,
which states:
ARTICLE TENTH: In the event any stockholder (hereinafter referred to as the Offeror)
desires to dispose, transfer, sell or assign any shares of stock of the Corporation (hereinafter
referred to as the Offered Stock), except in the case of any disposal, transfer, sale or
assignment between or among the incorporators or to corporation controlled by the
incorporators, the Offeror shall give a right of first refusal to the Corporation and, thereafter
in the event that the Corporation shall refuse or fail to accept all of the Offered Stock to all
then stockholders of record of the Corporation (except the Offeror) to purchase the Offered
Stock pro rota, at a price and upon terms and conditions specified by the Offeror based upon
a firm, bona fide, written cash offer from a bona fide purchaser.
The Corporation shall be entitled to exercise its right of first refusal with respect to all, but
not less than all, of the Offered Stock for a period (hereinafter referred to as the First
Period) of thirty (30) days, from the receipt by it of a written offer to sell from the Offeror.
If the Corporation shall fail or refuse within the First Period to accept the offer for all of the
Offered Stock, then on or before the end of such First Period, the Secretary of the
Corporation shall transmit by registered mail and by telegram or cable a copy of such offer
to each stockholder of record (other than the Offeror) at his/its address appearing on the
books of the Corporation and shall also notify each stockholder of the expiry date of such
offer (such expiry date being thirty [30] days after the end of the First Period). All then
stockholders of record of the Corporation, other than the Offeror, shall be entitled for a
period (hereinafter referred to as the Second Period) ending thirty (30) days after the First
Period to exercise their rights of first refusal with respect to all or any portion of the Offered
Stock for which they have a right of first refusal and may in addition offer to purchase any
shares thereof not subscribed for by the other stockholders pursuant to rights of first refusal.
Such shares shall be allocated among stockholders offering to purchase such shares, pro
rata, up to the limits, if any, specified by such purchasing stockholders. Each such
purchasing stockholder shall transmit to the Corporation with his/its acceptance cash, or a
certified check or checks drawn on a Philippine bank or banks, in an amount sufficient to
meet the terms of the offer corresponding to such number of shares of Offered Stock
specified in his/its acceptance.
764
764
In its Resolution dated December 6, 1996, the Sandiganbayan denied petitioners motion for
contempt and to rescind or annul the sale of the 196,000 ETPI shares of stock to Smart.6
Petitioner filed a motion for reconsideration but the same was denied in a Resolution dated
March 17, 1997.7
Hence, this petition for review raising the following grounds:
I. THE SANDIGANBAYAN ERRED IN NOT RECOGNIZING PETITIONER PCGGS EXERCISE OF ITS
RIGHT OF FIRST REFUSAL AS STOCKHOLDER, TO PURCHASE THE 196,000 ETPI SHARES
REGISTERED IN THE NAME OF UNIMOLCO.
II. THE SANDIGANBAYAN ERRED IN APPROVING/RATIFYING THE SALE OF THE 196,000
SHARES BY PRIVATE RESPONDENTS UNIMOLCO, BENEDICTO AND AFRICA IN FAVOR OF
SMART.
Petitioner argues that it received the notice of UNIMOLCOs offer to sell its shares of stock
only on August 30, 1996. The written notice, issued by Atty. Bayani K. Tan, ETPI Corporate
Secretary, gave the stockholders, including petitioner, until September 26, 1996 within
which to exercise their preemptive right. On September 24, 1996, petitioner sent a letter to
the Corporate Secretary stating that the government is exercising its right of first refusal and
offering payment thereof in the form of compensation or set-off against the assets of
respondent Benedicto still due to the Philippine government under the Compromise
Agreement.
Respondents UNIMOLCO, Benedicto and Andres L. Africa filed their Comment,8 arguing that
petitioners offer of payment by way of set-off was invalid, inasmuch as the Articles of
Incorporation of ETPI specifically provided that tender of payment should be in cash,
certified check or checks drawn on a Philippine bank.
Respondent SMART filed its Comment,9 likewise arguing that petitioners proposal to off-set
the purchase price for the shares of
________________
6 Op. cit., note 2.

7 Op. cit, note 3.
8 Rollo, pp. 167-182.
9 Rollo, pp. 195-203.
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765
stock with assets of Benedicto did not constitute a valid tender of payment. Moreover,
petitioner cannot use assets recovered as illgotten wealth for the purchase of the shares of
stock because under Section 63 of Republic Act No. 6657, any amounts derived therefrom
shall be appropriated to fund the Comprehensive Agrarian Reform Program.
On October 2, 1997, Victor Africa filed a Motion for Leave to Intervene and a Comment-inIntervention.10 He alleges that petitioners exercise of the right of first refusal is
preconditioned on its being a stockholder of ETPI. However, intervenor has a pending motion
before the Sandiganbayan precisely questioning petitioners right to become a transferee of
ETPI shares and to enjoin the registration of petitioner as a legitimate stockholder in the
Stock and Transfer Book of ETPI. On December 10, 1997, the motion for leave to intervene
was granted and the Comment-in-Intervention was admitted.11
The petition is without merit.
The records of the case clearly show that the written notice by UNIMOLCO, the Offeror, of its
intention to sell its 196,000 shares of stock was duly received on April 24, 1996 by the
President and Chairman of the Board of ETPI. The Sandiganbayan correctly held that this was
valid service of the written offer to the corporation, applying by analogy the Rules of Court
provisions on service of summons. Petitioner does not dispute that the written notice to the
President and Chairman of the Board of ETPI was service to the corporation. It merely argues
that after receipt of the offer, ETPI did not act in accordance with the procedure laid down in
the Articles of Incorporation. Thus, in its petition for review, petitioner states:
The April 24, 1996 offer sent to ETPI Chairman and President Melquiades Gutierrez did not
become valid and effective as it was not able to completely comply with the requirements of
Article 10 of the ETPI Articles of Incorporation. Indeed, after receipt by ETPI of the April 24,
1996 offer, ETPI never acted on it. Assuming that ETPI, as a corpora________________
10 Rollo, pp. 207-219.

11 Rollo, p. 252.
766
766
tion did not exercise its right of first refusal within the first thirty day period pursuant to
Article 10, it did not send notices to then stockholders of record of ETPI about the offered
sale and their privilege to exercise their rights of first refusal. In other words, the ETPI
stockholders were denied of its formal notice from ETPI about the said offer to sell the
196,000 share of stock.12
Hence, the First Period of thirty days contemplated in the Articles of Incorporation
commenced to run on April 24, 1996, giving the corporation until May 24, 1996 within which
to exercise the right of first refusal. ETPIs inaction simply means that it did not desist to
purchase the shares of stock. The stockholders right of first refusal, thus accrued upon the
expiration of the First Period and within the succeeding thirty days, known as the Second
Period. The Sandiganbayan held that the First Period and the Second Period are continuous
in character because the Second Period ends, in the very words of Article 10 of the ETPI
Articles, thirty (30) days after the First Period, and the expiry date being thirty (30) days
after the end of the First Period. 13 The Second Period, therefore, covered the period from
May 24, 1996 to June 23, 1996.
Petitioner maintains that under the Articles of Incorporation, the Corporate Secretary of ETPI
should have given the stockholders written notice of the offer to sell on or before the
expiration of the First Period. However, Resolution No. 96-142, adopted by PCGG on June 21,
1996, states among others:
WHEREAS, on 4 June 1996, the PCGG received copy of a letter of 29 May 1996 from Atty.
Juan de Ocampo, alleging that he is the Corporate Secretary of ETPI, copy of which is hereto
attached, stating that under Article Tenth of the ETPI Articles of Incorporation, all
stockholders of record have the right of first refusal to purchase pro rata to their holdings in
ETPI to expire 20 days (supposed to be 30) from expiry date of ETPIs right of first refusal
which was allegedly 24 May 1996, giving the Government up to 18 June 1996 to exercise the
right of first refusal to purchase up to 22,148 shares of stock.14
________________
12 Petition for Review, p. 9; Rollo, p. 60; emphasis ours; italics copied.

13 Resolution dated March 17, 1997, pp. 6-7; Rollo, pp. 104-105; italics copied.
14 Rollo, p. 26.
767

767
From the above, it clearly appears that, by petitioners own admission and contrary to its
belated protestation, the procedure outlined in the Articles of Incorporation relating to the
right of first refusal was observed. But petitioner takes exception to Atty. De Ocampos
authority to act as Corporate Secretary of ETPI. In this connection, the Sandiganbayan held:
x x x. The question of who are the legitimate directors and officers of ETPI has been elevated
to the Supreme Court but has not yet been finally resolved. This should not, however,
detract from the fact that PCGG has actually been informed of the intended sale.15
We agree with the Sandiganbayan. The purpose of the notice requirement in Article 10 of the
ETPI Articles of Incorporation is to give the stockholders knowledge of the intended sale of
shares of stock of the corporation, in order that they may exercise their preemptive right.
Where it is shown that a stockholder had actual knowledge of the intended sale within the
period prescribed to exercise the right, the notice requirement had been sufficiently met. In
the case at bar, PCGG had actual knowledge of UNIMOLCOs offer to sell its shares of stock.
In fact, it issued Resolution No. 96-142 enjoining the sale of the said shares of stock to
Smart. Petitioner, thus, cannot feign lack of notice.16
Parenthetically, PCGG had no more authority to enjoin the sale of UNIMOLCOs 196,000
shares of stock, as it endeavored to do in Resolution No. 96-142. As correctly found by the
Sandiganbayan, since the 196,000 shares of stock had already been adjudicated by final
judgment to Benedicto and UNIMOLCO, PCGG could no longer exercise power and authority
over the same.17
Therefore, we sustain the Sandiganbayans ruling that petitioners right of first refusal was
not seasonably exercised.18 Even on the assumption that petitioner exercised its right of
first refusal on time, it nonetheless failed to follow the requirement in the Articles of
Incorporation that payment must be tendered in
________________
15 Resolution dated December 6, 1996, pp. 13-14; Rollo, pp. 84-85.

16 Cf: Bunye v. Sandiganbayan, 306 SCRA 663, 676 (1999).
17 Resolution dated December 6, 1996; Rollo, p. 86.
18 Resolution dated March 17, 1997, p. 5; Rollo, p. 103.
768
768
cash or certified checks or checks drawn on a Philippine bank or banks. The set-off or
compensation it proposed does not fall under any of the recognized modes of payment in
the Articles. In order that compensation may be proper, Article 1279 of the Civil Code
requires:
(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things are consumable, they be of
the same kind, and also of the same quality if the later has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable; and
(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.
Petitioner sought the offsetting of the price of the shares of stock with assets of respondent
Benedicto, whom it claimed was indebted to it for certain lands and dividends due to it
under their Compromise Agreement. Benedicto was only a stockholder of UNIMOLCO, the
Offeror. While he may be the majority stockholder, UNIMOLCO cannot be said to be liable for
Benedictos supposed obligations to petitioner. To be sure, Benedicto and UNIMOLCO are
separate and distinct persons. On the basis of this alone, there can be no valid set-off.
Petitioner and UNIMOLCO are not principal debtors and creditors of each other.
Petitioner counters that UNIMOLCOs corporate fiction should be pierced since it is also
owned by Benedicto. However, mere majority ownership of the stocks of a corporation is not
per se a cause for piercing the corporate veil. There was no evidence that UNIMOLCOs
corporate entity was used by respondent Benedicto to commit fraud or to do wrong on
petitioner; neither was it shown that the corporate entity was merely a farce and that it was
used as an alter ego, business conduit or instrumentality of a person or another entity or
that piercing the corporation fiction is necessary
769

769
to achieve justice or equity.19 Only in these instances may the fiction be pierced and
disregarded.20 Being the party that invoked it, petitioner has the burden of substantiating
by clear and convincing evidence that UNIMOLCOs corporate veil must be pierced.
Besides, petitioners claims on the lands and dividends allegedly due it from respondent
Benedictos other business holdings are not enforceable in court. Only liquidated debts are
enforceable in court, there being no apparent defenses inherent in them.21 For
compensation to take place, a distinction must be made between a debt and a mere claim. A
debt is a claim which has been formally passed upon by the highest authority to which it can
in law be submitted and has been declared to be a debt. A claim, on the other hand, is a
debt in embryo. It is mere evidence of a debt and must pass through the process prescribed
by law before it develops into what is properly called a debt.22 There being no two debits
for which either party may be said as principally bound to each other, again, there can be no
set-off.
In the final analysis, the resolution of this case hinges on questions of fact. It is axiomatic
that factual findings of the Sandiganbayan are conclusive on the Supreme Court.23 None of
the exceptions to this rule24 is present in this case.
________________
19 Umali v. Court of Appeals, 189 SCRA 529 (1990); R.F. Sugay v. Reyes, 12 SCRA 700
(1964).
20 Palay, Inc. v. Clave, 124 SCRA 638 (1983); cited in ARB Construction v. Court of Appeals,
G.R. No. 126554, May 31, 2000, 332 SCRA 427.
21 IV Tolentino, CIVIL CODE OF THE PHILIPPINES, p. 371 (1986).
22 Vallarta v. Court of Appeals, 163 SCRA 587, 594 (1988); cited in E.G.V. Realty
Development Corporation vs. Court of Appeals, G.R. No. 120236, July 20, 1999, 310 SCRA
657.
23 Resoso v. Sandiganbayan, G.R. No. 124140, November 25, 1999, 319 SCRA 238, citing
Pareo v. Sandiganbayan, 256 SCRA 242 (1996); Cesar v. Sandiganbayan, 134 SCRA 105
(1985).
24 The exceptions are: 1) where the conclusion is a finding grounded entirely on speculation,
surmise and conjectures; 2) where the inference made is manifestly mistaken; 3) where
there is grave abuse of discretion; and 4) where the judgment is based on misapprehension
of facts, and the findings of fact of the SB are premised on the absence of evidence and are
770
770
WHEREFORE, the petition is DENIED. The Resolutions of the Sandiganbayan dated December
6, 1996 and March 17, 1997 in Civil Case No. 0009 are AFFIRMED.
SO ORDERED,
Davide, Jr. (C.J., Chairman), Puno, Kapunan and Pardo, JJ., concur.
Petition denied, resolutions affirmed.
Note.Even if the corporate fiction of a juridical entity is disregarded, still private individuals
cannot be divested of their shares of stock unless, in a proper forum, they have been shown
to have committed some wrongdoing in acquiring them. (Republic vs. Sandiganbayan, 266
SCRA 515 [1997])
o0o
________________ [Republic vs. Sandiganbayan, 346 SCRA 760(2000)]
102
Lim vs. Court of Appeals
G.R. No. 124715. January 24, 2000.*
RUFINA LUY LIM, petitioner, vs. COURT OF APPEALS, AUTO TRUCK TBA CORPORATION, SPEED
DISTRIBUTING, INC., ACTIVE DISTRIBUTORS, ALLIANCE MARKETING CORPORATION, ACTION
COMPANY, INC., respondents.
Succession; Testate and Intestate Proceedings; Probate Courts; Jurisdiction; The
determination of which court exercises jurisdiction over matters of probate depends upon
the gross value of the estate of the decedent.The determination of which court exercises
jurisdiction over matters of probate depends upon the gross value of the estate of the
decedent.
Same; Same; Corporation Law; Ownership; Land Titles; Where real properties included in the
inventory of the estate of a decedent are in the possession of and are registered in the name
of corporations, in the absence of any cogency to shred the veil of corporate fiction, the
presumption of conclusiveness of said titles in favor of said corporations should stand
undisturbed.Inasmuch as the real properties included in the inventory of the estate of the
late Pastor Y. Lim are in the possession of and are registered in the name of private
respondent corporations, which under the law possess a personality
________________
* SECOND DIVISION.
103
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103
separate and distinct from their stockholders, and in the absence of any cogency to shred
the veil of corporate fiction, the presumption of conclusiveness of said titles in favor of
private respondents should stand undisturbed.
Corporation Law; Piercing the Veil of Corporate Fiction Doctrine; Rudimentary is the rule that
a corporation is invested by law with a personality distinct and separate from its
stockholders or membersby legal fiction and convenience it is shielded by a protective
mantle and imbued by law with a character alien to the persons comprising it.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. Rudimentary is the rule that a corporation is invested by law with a
personality distinct and separate from its stockholders or members. In the same vein, a
corporation by legal fiction and convenience is an entity shielded by a protective mantle and
imbued by law with a character alien to the persons comprising it.
Same; Same; Piercing the veil of corporate fiction requires the court to see through the
protective shroud which exempts its stockholders from liabilities that ordinarily, they could
be subject to, or distinguishes one corporation from a seemingly separate one, were it not
for the existing corporate fiction.Nonetheless, the shield is not at all times invincible. Thus,
in First Philippine International Bank vs. Court of Appeals, We enunciated: x x x 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, the veil with
which the law covers and isolates the corporation from the members or stockholders who
compose it will be lifted to allow for its consideration merely as an aggregation of
individuals, x x xPiercing the veil of corporate entity requires the court to see through the
protective shroud which exempts its stockholders from liabilities that ordinarily, they could
be subject to, or distinguishes one corporation from a seemingly separate one, were it not
for the existing corporate fiction. The corporate mask may be lifted and the corporate veil
may be pierced when a corporation is just but the alter ego of a person or of another
corporation. Where badges of fraud exist; where public convenience is
104
104
defeated; where a wrong is sought to be justified thereby, the corporate fiction or the notion
of legal entity should come to naught.
Same; Same; Test in determining the applicability of the doctrine of piercing the veil of
corporate fiction.The test in determining the applicability of the doctrine of piercing the
veil of corporate fiction 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
right; and (3) The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of. The absence of any of these elements prevent piercing the
corporate veil.
Same; Same.Mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities.
Same; Same.Moreover, to disregard the separate juridical personality of a corporation, the
wrong-doing must be clearly and convincingly established. It cannot be presumed.
Same; Same; Evidence; Hearsay Rule; Affidavits; Affidavits are inadmissible in evidence
where the affiants were not presented during the course of the proceedings.Granting
arguendo that the Regional Trial Court in this case was not merely acting in a limited
capacity as a probate court, petitioner nonetheless failed to adduce competent evidence

that would have justified the court to impale the veil of corporate fiction. Truly, the reliance
reposed by petitioner on the affidavits executed by Teresa Lim and Lani Wenceslao is
unavailing considering that the aforementioned documents possess no weighty probative
value pursuant to the hearsay rule. Besides it is imperative for us to stress that such
affidavits are inadmissible in evidence inasmuch as the affiants were not at all presented
during the course of the proceedings in the lower court. To put it differently, for this Court to
uphold the admissibility of said documents would
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105
be to relegate from Our duty to apply such basic rule of evidence in a manner consistent
with the law and jurisprudence.

Antonio F. Navarrete for petitioner.
Paul Bernard T. Irao for private respondents.
BUENA, J.:
May a corporation, in its universality, be the proper subject of and be included in the
inventory of the estate of a deceased person?
Petitioner disputes before us through the instant petition for review on certiorari, the
decision1 of the Court of Appeals promulgated on 18 April 1996, in CA-GR SP No. 38617,
which nullified and set aside the orders dated 04 July 1995,2 12 September 19953 and 15
September 19954 of the Regional Trial Court of Quezon City, Branch 93, sitting as a probate
court.
Petitioner Rufina Luy Lim is the surviving spouse of the late Pastor Y. Lim whose estate is the
subject of probate proceedings in Special Proceedings Q-95-23334, entitled, In Re: Intestate
Estate of Pastor Y. Lim Rufina Luy Lim, represented by George Luy, Petitioner.
________________
1 In CA GR SP No. 38617, promulgated on 18 April 1996, penned by Justice Ramon A.

Barcelona and concurred in by Justice Artemon D. Luna and Justice Portia AlinoHormachuelos, Thirteenth Division.
2 Rollo, p. 83.
3 Rollo, pp. 92-94.

4 Ibid., 95-97.
106
106
Private respondents Auto Truck Corporation, Alliance Marketing Corporation, Speed
Distributing, Inc., Active Distributing, Inc. and Action Company are corporations formed,
organized and existing under Philippine laws and which owned real properties covered under
the Torrens system.
On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving spouse and duly
represented by her nephew George Luy, filed on 17 March 1995, a joint petition5 for the
administration of the estate of Pastor Y. Lim before the Regional Trial Court of Quezon City.
Private respondent corporations, whose properties were included in the inventory of the
estate of Pastor Y. Lim, then filed a motion6 for the lifting of lis pendens and motion7 for
exclusion of certain properties from the estate of the decedent.
In an order8 dated 08 June 1995, the Regional Trial Court of Quezon City, Branch 93, sitting
as a probate court, granted the private respondents twin motions, in this wise:
Wherefore, the Register of Deeds of Quezon City is hereby ordered to lift, expunge or delete
the annotation of lis pendens on Transfer Certificates of Title Nos. 116716, 116717, 116718,
116719 and 5182 and it is hereby further ordered that the properties covered by the same
titles as well as those properties by (sic) Transfer Certificate of Title Nos. 613494, 363123,
236236 and 263236 are excluded from these proceedings.
SO ORDERED.
Subsequently, Rufina Luy Lim filed a verified amended petition9 which contained the
following averments: 3. The late Pastor Y. Lim personally owned during his lifetime the
following business entities, to wit:
________________
5 Docketed as Special Proceedings No. Q-95-23334; Rollo, pp. 76-82.

6 Rollo, p. 32.
7 Rollo, pp. 84-87.
8 Rollo, p. 33.
9 Ibid.
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107
Business Entity
Address:
xxxx
Alliance Marketing, Inc.
Block 3, Lot 6, Dacca
BF Homes, Paraaque, Metro Manila.
xxxx
Speed Distributing, Inc.
910 Barrio Niog,
Aguinaldo Highway,
Bacoor, Cavite.
xxxx
Auto Truck TBA Corp.
2251 Roosevelt Avenue,
Quezon City.
xxxx
Active Distributors, Inc.
Block 3, Lot 6, Dacca BF
Homes, Paraaque, Metro Manila.
xxxx
Action Company
100 20th Avenue Murphy, Quezon City
or 92-D Mc-Arthur Highway Valenzuela Bulacan.
3.1 Although the above business entities dealt and engaged in business with the public as
corporations, all their capital, assets and equity were however, personally owned by the late
Pastor Y. Lim. Hence the alleged stockholders and officers appearing in the respective
articles of incorporation of the above business entities were mere dummies of Pastor Y. Lim,
and they were listed therein only for purposes of registration with the Securities and
Exchange Commission.
4. Pastor Lim, likewise, had Time, Savings and Current Deposits with the following banks:
(a) Metrobank, Grace Park, Caloocan City and Quezon Avenue, Quezon City Branches and (b)
First Intestate Bank (formerly Producers Bank), Rizal Commercial Banking Corporation and in
other banks whose identities are yet to be determined.
5. That the following real properties, although registered in the name of the above entities,
were actually acquired by Pastor Y. Lim during his marriage with petitioner, to wit:
108
108
Corporation
Title
Location
xxxx
k.
Auto Truck TBA Corporation Cainta, Rizal
TCT No. 617726
Sto. Domingo
q.
Alliance Marketing
TCT No. 27896
Prance, Metro Manila
Copies of the above-mentioned Transfer Certificate of Title and/or Tax Declarations are
hereto attached as Annexes Cto W.
xxxx
7. The aforementioned properties and/or real interests left by the late Pastor Y. Lim, are all
conjugal in nature, having been acquired by him during the existence of his marriage with
petitioner.
8. There are other real and personal properties owned by Pastor Y. Lim which petitioner
could not as yet identify. Petitioner, however will submit to this Honorable Court the
identities thereof and the necessary documents covering the same as soon as possible.
On 04 July 1995, the Regional Trial Court acting on petitioners motion issued an order,10
thus:
Wherefore, the order dated 08 June 1995 is hereby set aside and the Registry of Deeds of
Quezon City is hereby directed to reinstate the annotation of lis pendens in case said
annotation had already been deleted and/or cancelled said TCT Nos. 116716, 116717,
116718, 116719 and 51282.
Further more (sic), said properties covered by TCT Nos. 613494, 365123, 236256 and
236237 by virtue of the petitioner are included in the instant petition.
SO ORDERED.
On 04 September 1995, the probate court appointed Rufina Lim as special administrator11
and Miguel Lim and Lawyer
________________
10 Ibid., p. 35.
11 Order dated 04 September 1995, issued by RTC-Quezon City Branch 93, Presiding Judge
Amado M. Costales, in SP Proc. No. Q-95-23334; Rollo, pp. 88-91.
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109
Donald Lee, as co-special administrators of the estate of Pastor Y. Lim, after which letters of
administration were accordingly issued.
In an order12 dated 12 September 1995, the probate court denied anew private
respondents motion for exclusion, in this wise:
The issue precisely raised by the petitioner in her petition is whether the corporations are
the mere alter egos or instrumentalities of Pastor Lim, Otherwise (sic) stated, the issue
involves the piercing of the corporate veil, a matter that is clearly within the jurisdiction of
this Honorable Court and not the Securities and Exchange Commission. Thus, in the case of
Cease vs. Court of Appeals, 93 SCRA 483, the crucial issue decided by the regular court was
whether the corporation involved therein was the mere extension of the decedent. After
finding in the affirmative, the Court ruled that the assets of the corporation are also assets of
the estate. A reading of P.D. 902, the law relied upon by oppositors, shows that the SECs
exclusive (sic) applies only to intra-corporate controversy. It is simply a suit to settle the
intestate estate of a deceased person who, during his lifetime, acquired several properties
and put up corporations as his instrumentalities.
SO ORDERED.
On 15 September 1995, the probate court acting on an ex parte motion filed by petitioner,
issued an order13 the dispositive portion of which reads:
Wherefore, the parties and the following banks concerned hereinunder enumerated are
hereby ordered to comply strictly with this order and to produce and submit to the special
administrators, through this Honorable Court within (5) five days from receipt of
________________
12 Order dated 12 September 1995, issued by RTC-Quezon City, Branch 93, Presiding Judge
Amado M. Costales, in SP Proc. No. Q-9523334; Rollo, pp. 92-94.
13 Order dated 15 September, issued by RTC-Quezon City, Branch 93, Presiding Judge
Amado M. Costales, in SP Proc. No. Q-95-23334; Rollo, pp. 95-97.
110
110
this order their respective records of the savings/current accounts/time deposits and other
deposits in the names of Pastor Lim and/or corporations above-mentioned, showing all the
transactions made or done concerning savings/current accounts from January 1994 up to
their receipt of this court order.
xxx
xxx
xxx
SO ORDERED.
Private respondent filed a special civil action for certiorari,14 with an urgent prayer for a
restraining order or writ of preliminary injunction, before the Court of Appeals questioning
the orders of the Regional Trial Court, sitting as a probate court.
On 18 April 1996, the Court of Appeals, finding in favor of herein private respondents,
rendered the assailed decision,15 the decretal portion of which declares:
Wherefore, premises considered, the instant special civil action for certiorari is hereby
granted. The impugned orders issued by respondent court on July 4, 1995 and September
12, 1995 are hereby nullified and set aside. The impugned order issued by respondent on
September 15, 1995 is nullified insofar as petitioner corporations bank accounts and
records are concerned.
SO ORDERED.
Through the expediency of Rule 45 of the Rules of Court, herein petitioner Rufina Luy Lim
now comes before us with a lone assignment of error:16
The respondent Court of Appeals erred in reversing the orders of the lower court which
merely allowed the preliminary or provisional inclusion of the private respondents as part of
the estate of the late deceased (sic) Pastor Y. Lim with the respondent Court of Appeals
arrogating unto itself the power to repeal, to disobey or to ignore the clear and explicit
provisions of Rules 81, 83, 84 and 87 of
________________
14 Rollo, p. 32.
15 Ibid., pp. 32-40.
16 Petition for Review in GR No. 124715; Rollo, pp. 20-21.
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111
the Rules of Court and thereby preventing the petitioner, from performing her duty as
special administrator of the estate as expressly provided in the said Rules.
Petitioners contentions tread on perilous grounds. In the instant petition for review,
petitioner prays that we
affirm the orders issued by the probate court which were subsequently set aside by the
Court of Appeals.
Yet, before we delve into the merits of the case a review of the rules on jurisdiction over
probate proceedings is indeed in order.
The provisions of Republic Act 7691,17 which introduced amendments to Batas Pambansa
Blg. 129, are pertinent:
Section 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the Judiciary
Reorganization Act of 1980,is hereby amended to read as follows:
Section 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive
jurisdiction:
xxx
xxx
xxx
(4) In all matters of probate, both testate and intestate, where the gross value of the estate
exceeds One Hundred Thousand Pesos (P100,000) or, in probate matters in Metro Manila,
where such gross value exceeds Two Hundred Thousand Pesos (P200,000);
xxx
xxx
xxx
Section 3. Section 33 of the same law is. hereby amended to read as follows:
Section 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts in Civil Cases.Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts shall exercise:
________________
17 Republic Act 7691, otherwise known as An Act Expanding the Jurisdiction of the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, Amending
for the Purpose Batas Pambansa Blg. 129, Otherwise Known as the Judiciary Reorganization
Act of 1980,approved on 25 March 1994.
112
112
1. Exclusive original jurisdiction over civil actions and probate proceedings, testate and
intestate, including the grant of provisional remedies in proper cases, where the value of the
personal property, estate or amount of the demand does not exceed One Hundred Thousand
Pesos (P100,000) or, in Metro Manila where such personal property, estate or amount of the
demand does not exceed Two Hundred Thousand Pesos (P200,000), exclusive of interest,
damages of whatever kind, attorneys fees, litigation expenses and costs, the amount of
which must be specifically alleged, Provided, that interest, damages of whatever kind,
attorneys, litigation expenses and costs shall be included in the determination of the filing
fees, Provided further, that where there are several claims or causes of actions between the
same or different parties, embodied in the same complaint, the amount of the demand shall
be the totality of the claims in all the causes of action, irrespective of whether the causes of
action arose out of the same or different transactions;
xxx
xxx
x x x
Simply put, the determination of which court exercises jurisdiction over matters of probate
depends upon the gross value of the estate of the decedent.
As to the power and authority of the probate court, petitioner relies heavily on the principle
that a probate court may pass upon title to certain properties, albeit provisionally, for the
purpose of determining whether a certain property should or should not be included in the
inventory.
In a litany of cases, We defined the parameters by which the court may extend its probing
arms in the determination of the question of title in probate proceedings.
This Court, in Pastor, Jr. vs. Court of Appeals,18 held:
x x x As a rule, the question of ownership is an extraneous matter which the probate court
cannot resolve with finality. Thus, for the purpose of determining whether a certain property
should or should not be included in the inventory of estate properties, the
_______________
18 GR No. L-56340, 24 June 1983, 122 SCRA 885.

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113
Probate Court may pass upon the title thereto, but such determination is provisional, not
conclusive, and is subject to the final decision in a separate action to resolve title.
We reiterated the rule in Pereira vs. Court of Appeals:19
x x x The function of resolving whether or not a certain property should be included in the
inventory or list of properties to be administered by the administrator is one clearly within
the competence of the probate court. However, the courts determination is only provisional
in character, not conclusive, and is subject to the final decision in a separate action which
may be instituted by the parties.
Further, in Morales vs. CFI of Cavite20 citing Cuizon vs. Ramolete,21 We made an exposition
on the probate courts limited jurisdiction:
It is a well-settled rule that a probate court or one in charge of proceedings whether testate
or intestate cannot adjudicate or determine title to properties claimed to be a part of the
estate and which are equally claimed to belong to outside parties. All that the said court
could do as regards said properties is to determine whether they should or should not be
included in the inventory or list of properties to be administered by the administrator. If
there is no dispute, well and good; but if there is, then the parties, the administrator and the
opposing parties have to resort to an ordinary action for a final determination of the
conflicting claims of title because the probate court cannot do so.
Again, in Valera vs. Inserto,22 We had occasion to elucidate, through Mr. Justice Andres
Narvasa:23
________________
19 GR No. L-81147, 20 June 1989, 174 SCRA 154.

20 GR No. L-47125, 29 December 1986, 146 SCRA 373.
21 129 SCRA 495.
22 GR No. L-56504, May 7, 1987, 149 SCRA 533.
23 Later Chief Justice of the Supreme Court.
114
114

Settled is the rule that a Court of First Instance (now Regional Trial Court), acting as a
probate court, exercises but limited jurisdiction, and thus has no power to take cognizance of
and determine the issue of title to property claimed by a third person adversely to the
decedent, unless the claimant and all other parties having legal interest in the property
consent, expressly or impliedly, to the submission of the question to the probate court for
adjudg-ment, or the interests of third persons are not thereby prejudiced, the reason for the
exception being that the question of whether or not a particular matter should be resolved
by the court in the exercise of its general jurisdiction or of its limited jurisdiction as a special
court (e.g. probate, and registration, etc.), is in reality not a jurisdictional but in essence of
procedural one, involving a mode of practice which may be waived, x x x
x x x. These considerations assume greater cogency where, as here, the Torrens title is not
in the decedents name but in others, a situation on which this Court has already had
occasion to rule x x x.(emphasis Ours)
Petitioner, in the present case, argues that the parcels of land covered under the Torrens
system and registered in the name of private respondent corporations should be included in
the inventory of the estate of the decedent Pastor Y. Lim, alleging that after all the
determination by the probate court of whether these properties should be included or not is
merely provisional in nature, thus, not conclusive and subject to a final determination in a
separate action brought for the purpose of adjudging once and for all the issue of title.
Yet, under the peculiar circumstances, where the parcels of land are registered in the name
of private respondent corporations, the jurisprudence pronounced in Bolisay vs. Alcid24 is of
great essence and finds applicability, thus:
It does not matter that respondent-administratrix has evidence purporting to support her
claim of ownership, for, on the other hand, petitioners have a Torrens title in their favor,
which under the law is endowed with incontestability until after it has been set aside
________________
24 GR No. L-45494, August 31, 1978, 85 SCRA 213.

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115
in the manner indicated in the law itself, which, of course, does not include, bringing up the
matter as a mere incident in special proceedings for the settlement of the estate of
deceased persons, x x x x x x. In regard to such incident of inclusion or exclusion, We hold
that if a property covered by Torrens title is involved, the presumptive conclusiveness of
such title should be given due weight, and in the absence of strong compelling evidence to
the contrary, the holder thereof should be considered as the owner of the property in
controversy until his title is nullified or modified in an appropriate ordinary action,
particularly, when as in the case at bar, possession of the property itself is in the persons
named in the title, x x x
A perusal of the records would reveal that no strong compelling evidence was ever
presented by petitioner to bolster her bare assertions as to the title of the deceased Pastor Y.
Lim over the properties. Even so, P.D. 1529, otherwise known as, The Property Registration
Decree,proscribes collateral attack on Torrens Title, hence:
x x x
xxx
xxx
Section 48. Certificate not subject to collateral attack.A certificate of title shall not be subject
to collateral attack. It cannot be altered, modified or cancelled except in a direct proceeding
in accordance with law.
In Cuizon vs. Ramolete, where similarly as in the case at bar, the property subject of the
controversy was duly registered under the Torrens system, We categorically stated:
x x x Having been apprised of the fact that the property in question was in the possession
of third parties and more important, covered by a transfer certificate of title issued in the
name of such third parties, the respondent court should have denied the motion of the
respondent administrator and excluded the property in question from the inventory of the
property of the estate. It had no authority to deprive such third persons of their possession
and ownership of the property, x x x
116
116
Inasmuch as the real properties included in the inventory of the estate of the late Pastor Y.
Lim are in the possession of and are registered in the name of private respondent
corporations, which under the law possess a personality separate and distinct from their
stockholders, and in the absence of any cogency to shred the veil of corporate fiction, the
presumption of conclusiveness of said titles in favor of private respondents should stand
undisturbed.
Accordingly, the probate court was remiss in denying private respondents motion for
exclusion. While it may be true that the Regional Trial Court, acting in a restricted capacity
and exercising limited jurisdiction as a probate court, is competent to issue orders involving
inclusion or exclusion of certain properties in the inventory of the estate of the decedent,
and to adjudge, albeit, provisionally the question of title over properties, it is no less true
that such authority conferred upon by law and reinforced by jurisprudence, should be
exercised judiciously, with due regard and caution to the peculiar circumstances of each
individual case.
Notwithstanding that the real properties were duly registered under the Torrens system in
the name of private respondents, and as such were to be afforded the presumptive
conclusiveness of title, the probate court obviously opted to shut its eyes to this gleamy fact
and still proceeded to issue the impugned orders.
By its denial of the motion for exclusion, the probate court in effect acted in utter disregard
of the presumption of conclusiveness of title in favor of private respondents. Certainly, the
probate court through such brazen act transgressed the clear provisions of law and infringed
settled jurisprudence on this matter.
Moreover, petitioner urges that not only the properties of private respondent corporations
are properly part of the decedents estate but also the private respondent corporations
themselves. To rivet such flimsy contention, petitioner cited that the late Pastor Y. Lim during
his lifetime, organized and
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117
wholly-owned the five corporations, which are the private respondents in the instant case.25
Petitioner thus attached as Annexes F26 and G27 of the petition for review affidavits
executed by Teresa Lim and Lani Wenceslao which among others, contained averments that
the incorporators of Uniwide Distributing, Inc. included on the list had no actual participation
in the organization and incorporation of the said corporation. The affiants added that the
persons whose names appeared on the articles of incorporation of Uniwide Distributing, Inc.,
as incorporators thereof, are mere dummies since they have not actually contributed any
amount to the capital stock of the corporation and have been merely asked by the late
Pastor Y. Lim to affix their respective signatures thereon.
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.28
Rudimentary is the rule that a corporation is invested by law with a personality distinct and
separate from its stockholders or members. In the same vein, a corporation by legal fiction
and convenience is an entity shielded by a protective mantle and imbued by law with a
character alien to the persons comprising it.
Nonetheless, the shield is not at all times invincible. Thus, in First Philippine International
Bank vs. Court of Appeals,29 We enunciated:
________________
25 Rollo, p. 17.
26 Affidavit executed by Teresa T. Lim, dated 13 January 1995; Rollo, p. 74.
27 Affidavit executed by Lani G. Wenceslao; Rollo, p. 75.
28 Mataguina Integrated Wood Products, Inc. vs. Court of Appeals, 263 SCRA 490.
29 252 SCRA 259.
118
118

x x x 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,
the veil with which the law covers and isolates the corporation from the members or
stockholders who compose it will be lifted to allow for its consideration merely as an
aggregation of individuals, x x x
Piercing the veil of corporate entity requires the court to see through the protective shroud
which exempts its stockholders from liabilities that ordinarily, they could be subject to, or
distinguishes one corporation from a seemingly separate one, were it not for the existing
corporate fiction.30
The corporate mask may be lifted and the corporate veil may be pierced when a corporation
is just but the alter ego of a person or of another corporation. Where badges of fraud exist,
where public convenience is defeated; where a wrong is sought to be justified thereby, the
corporate fiction or the notion of legal entity should come to naught:31
Further, the test in determining the applicability of the doctrine of piercing the veil of
corporate fiction 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 right; and
(3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of. The absence of any of these elements prevent piercing the corporate
veil.32
________________
30 Traders Royal Bank vs. Court of Appeals, 269 SCRA 15.

31 Concept Builders, Inc vs. NLRC, 257 SCRA 149.
32 257 SCRA 149.
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VOL. 323, JANUARY 24, 2000

119
Mere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself a sufficient reason for disregarding the fiction of
separate corporate personalities.33
Moreover, to disregard the separate juridical personality of a corporation, the wrong-doing
must be clearly and convincingly established. It cannot be presumed.34
Granting arguendo that the Regional Trial Court in this case was not merely acting in a
limited capacity as a probate court, petitioner nonetheless failed to adduce competent
evidence that would have justified the court to impale the veil of corporate fiction. Truly, the
reliance reposed by petitioner on the affidavits executed by Teresa Lim and Lani Wenceslao
is unavailing considering that the aforementioned documents possess no weighty probative
value pursuant to the hearsay rule. Besides it is imperative for us to stress that such
affidavits are inadmissible in evidence inasmuch as the affiants were not at all presented
during the course of the proceedings in the lower court. To put it differently, for this Court to
uphold the admissibility of said documents would be to relegate from Our duty to apply such
basic rule of evidence in a manner consistent with the law and jurisprudence.
Our pronouncement in Peoples Bank and Trust Company vs. Leonidas35 finds pertinence:
Affidavits are classified as hearsay evidence since they are not generally prepared by the
affiant but by another who uses his own language in writing the affiants statements, which
may thus be either omitted or misunderstood by the one writing them. Moreover, the
adverse party is deprived of the opportunity to cross-examine the affiants. For this reason,
affidavits are generally rejected for being hearsay, unless the affiant themselves are placed
on the witness stand to testify thereon.
_______________
33 Traders Royal Bank vs. Court of Appeals, 269 SCRA 15.

34 Mataguina Integrated Wood Products, Inc. vs. Court of Appeals, 263 SCRA 491, citing Del
Rosario vs. NLRC, GR No. 85416, 24 July 1990, 187 SCRA 777,
35 207 SCRA 164.
120
120
As to the order36 of the lower court, dated 15 September 1995, the Court of Appeals
correctly observed that the Regional Trial Court, Branch 93 acted without jurisdiction in
issuing said order. The probate court had no authority to demand the production of bank
accounts in the name of the private respondent corporations.
WHEREFORE, in view of the foregoing disquisitions, the instant petition is hereby DISMISSED
for lack of merit and the decision of the Court of Appeals which nullified and set aside the
orders issued by the Regional Trial Court, Branch 93, acting as a probate court, dated 04 July
1995 and 12 September 1995 is AFFIRMED.
SO ORDERED.
Bellosillo (Chairman), Mendoza, Quisumbing and De Leon, Jr., JJ., concur.
Petition dismissed, judgment affirmed.
Notes.The question of whether a corporation is a mere alter ego, a mere sheet or paper
corporation, a sham or a subterfuge is purely one of fact. (Concept Builders, Inc. vs. National
Labor Relations Commission, 257 SCRA 149 [1996])
For the separate juridical personality of a corporation to be disregarded, the wrongdoing
must be clearly and convincingly establishedit cannot be presumed. (Matuguina Integrated
Wood Products, Inc. vs. Court of Appeals, 263 SCRA 490 [1996])
Even if the corporate fiction of a juridical entity is disregarded, still private individuals cannot
be divested of their shares of stock unless, in a proper forum, they have been shown to have
committed some wrongdoing in acquiring them. (Republic vs. Sandiganbayan, 266 SCRA 515
[1997])
o0o
_______________ [Lim vs. Court of Appeals, 323 SCRA 102(2000)]
VOL. 310, JULY 19, 1999

403
Complex Electronics Employees Association vs. NLRC
G.R. No. 121315. July 19, 1999.*
COMPLEX ELECTRONICS EMPLOYEES ASSOCIATION (CEEA) represented by its union president
CECILIA TALAVERA, GEORGE ARSOLA, MARIO DIAGO AND SOCORRO BONCAYAO, petitioners,
vs. THE NATIONAL LABOR RELATIONS COMMISSION, COMPLEX ELECTRONICS CORPORATION,
IONICS CIRCUIT, INC., LAWRENCE QUA, REMEDIOS DE JESUS, MANUEL GONZAGA, ROMY
DELA ROSA, TERESITA ANDINO, ARMAN CABACUNGAN, GERRY GABANA, EUSEBIA MARANAN
and BERNADETH GACAD, respondents.
G.R. No. 122136. July 19, 1999.*
COMPLEX ELECTRONICS CORPORATION, petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION, COMPLEX ELECTRONICS EMPLOYEES ASSOCIATION (CEEA), represented by
Union President, CECILIA TALAVERA, respondents.
____________________________
* FIRST DIVISION.
404
404
Labor Law; Unfair Labor Practices; Strikes; Words and Phrases; A runaway shop is an
industrial plant moved by its owners from one location to another to escape union labor
regulations or state laws, but the term is also used to describe a plant removed to a new
location in order to discriminate against employees at the old plant because of their union
activities.A runaway shop is defined as an industrial plant moved by its owners from one
location to another to escape union labor regulations or state laws, but the term is also used
to describe a plant removed to a new location in order to discriminate against employees at
the old plant because of their union activities. It is one wherein the employer moves its
business to another location or it temporarily closes its business for anti-union purposes. A
runaway shop in this sense, is a relocation motivated by anti-union animus rather than for
business reasons. In this case, however, Ionics was not set up merely for the purpose of
transferring the business of Complex. At the time the labor dispute arose at Complex, Ionics
was already existing as an independent company. As earlier mentioned, it has been in
existence since July 5, 1984. It cannot, therefore, be said that the temporary closure in
Complex and its subsequent transfer of business to Ionics was for anti-union purposes. The
Union failed to show that the primary reason for the closure of the establishment was due to
the union activities of the employees.
Same; Corporation Law; Piercing the Veil of Corporate Fiction; The mere fact that one or
more corporations are owned or controlled by the same or single stockholder is not a
sufficient ground for disregarding separate corporate personalities.The mere fact that one
or more corporations are owned or controlled by the same or single stockholder is not a
sufficient ground for disregarding separate corporate personalities. Thus, in Indophil Textile
Mill Workers Union vs. Calica, we ruled that: [I]n the case at bar, petitioner seeks to pierce
the veil of corporate entity of Acrylic, alleging that the creation of the corporation is a devise
to evade the application of the CBA between petitioner Union and private respondent
company. While we do not discount the possibility of the similarities of the businesses of
private respondent and Acrylic, neither are we inclined to apply the doctrine invoked by
petitioner in granting the relief sought. The fact that the businesses of private respondent
and Acrylic are related, that some of the employees of the private respondent are the same
persons manning and providing for auxiliary services to the units of Acrylic, and that the
physical plants, offices
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405
Complex Electronis Employees Association vs. NLRC
and facilities are situated in the same compound, it is our considered opinion that these
facts are not sufficient to justify the piercing of the corporate veil of Acrylic.
Same; Same; Same; To disregard the separate juridical personality of a corporation, the
wrongdoing must be clearly and convincingly established.Ionics may be engaged in the
same business as that of Complex, but this fact alone is not enough reason to pierce the veil
of corporate fiction of the corporation. Well-settled is the rule that a corporation has a
personality separate and distinct from that of its officers and stockholders. This fiction of
corporate entity can only be disregarded in certain cases such as when it is used to defeat
public convenience, justify wrong, protect fraud, or defend crime. To disregard said separate
juridical personality of a corporation, the wrongdoing must be clearly and convincingly

established.
Same; Same; Same; The mere fact that both of the corporations have the same president is
not in itself sufficient to pierce the veil of corporate fiction of the two corporations.As to
the additional documentary evidence which consisted of a newspaper clipping filed by
petitioner Union, we agree with respondent Ionics that the photo/ newspaper clipping itself
does not prove that Ionics and Complex are one and the same entity. The photo/newspaper
clipping merely showed that some plants of Ionics were recertified to ISO 9002 and does not
show that there is a relation between Complex and Ionics except for the fact that Lawrence
Qua was also the president of Ionics. However, as we have stated above, the mere fact that
both of the corporations have the same president is not in itself sufficient to pierce the veil
of corporate fiction of the two corporations.
Same; Unfair Labor Practices; Lockouts; Words and Phrases; Lockout is the temporary refusal
of employer to furnish work as a result of an industrial or labor dispute.We, likewise,
disagree with the Union that there was in this case an illegal lockout/illegal dismissal.
Lockout is the temporary refusal of employer to furnish work as a result of an industrial or
labor dispute. It may be manifested by the employers act of excluding employees who are
union members. In the present case, there was a complete cessation of the business
operations at Complex not because of the labor dispute. It should be recalled that, before
the labor dispute, Complex had already informed the employees that they would be closing
the Lite-On Line. The employees, however, demanded for a separation pay equivalent
406
406
to one (1) month salary for every year of service which Complex refused to give. When
Complex filed a notice of closure of its Lite-On Line, the employees filed a notice of strike
which greatly alarmed the customers of Complex and this led to the pull-out of their
equipment, machinery and materials from Complex. Thus, without the much needed
equipment, Complex was unable to continue its business. It was left with no other choice
except to shut down the entire business. The closure, therefore, was not motivated by the
union activities of the employees, but rather by necessity since it can no longer engage in
production without the much needed materials, equipment and machinery.
Same; Same; Same; Management Prerogatives; Closure of Establishment; Whether or not an
employer is incurring great losses, it is still one of the managements prerogative to close
down its business as long as it is done in good faith.As to the claim of petitioner Union that
Complex was gaining profit, the financial statements for the years 1990, 1991 and 1992
issued by the auditing and accounting firm Sycip, Gorres and Velayo readily show that
Complex was indeed continuously experiencing deficit and losses. Nonetheless, whether or
not Complex was incurring great losses, it is still one of the managements prerogative to
close down its business as long as it is done in good faith. Thus, in Catatista, et al. vs. NLRC
and Victorias Milling Co., Inc. we ruled: In any case, Article 283 of the Labor Code is clear
that an employer may close or cease his business operations or undertaking even if he is not
suffering from serious business losses or financial reverses, as long as he pays his
employees their termination pay in the amount corresponding to their length of service. It
would indeed, be stretching the intent and spirit of the law if we were to unjustly interfere in
managements prerogative to close or cease its business operations just because said
business operations or undertaking is not suffering from any loss.
Same; Corporation Law; In the absence of malice or bad faith, a stockholder or an officer of a
corporation cannot be made personally liable for corporate liabilities.Going now to the
issue of personal liability of Lawrence Qua, it is settled that in the absence of malice or bad
faith, a stockholder or an officer of a corporation cannot be made personally liable for
corporate liabilities. In the present case, while it may be true that the equipment, materials
and machinery were pulled-out of Complex and transferred to Ionics during the
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407
night, their action was sufficiently explained by Lawrence Qua in his Comment to the
petition filed by the Union.
Same; Closure of Establishment; One-Month Notice Requirement; The purpose of the onemonth notice requirement is to enable the proper authorities to determine after hearing
whether such closure is being done in good faith, i.e., for bona fide business reasons.The
purpose of the notice requirement is to enable the proper authorities to determine after
hearing whether such closure is being done in good faith, i.e., for bona fide business
reasons, or whether, to the contrary, the closure is being resorted to as a means of evading
compliance with the just obligations of the employer to the employees affected.
Same; Same; Same; While the law acknowledges the management prerogative of closing the
business, it does not, however, allow the business establishment to disregard the
requirements of the law.While the law acknowledges the management prerogative of
closing the business, it does not, however, allow the business establishment to disregard the
requirements of the law. The case of Magnolia Dairy Products v. NLRC is quite emphatic
about this: The law authorizes an employer, like the herein petitioners, to terminate the
employment of any employee due to the installation of labor saving devices. The installation
of these devices is a management prerogative, and the courts will not interfere with its
exercise in the absence of abuse of discretion, arbitrariness, or maliciousness on the part of
management, as in this case. Nonetheless, this did not excuse petitioner from complying
with the required written notice to the employee and to the Department of Labor and
Employment (DOLE) at least one month before the intended date of termination. This
procedure enables an employee to contest the reality or good faith character of the asserted
ground for the termination of his services before the DOLE. The failure of petitioner to serve
the written notice to private respondent and to the DOLE, however, does not ipso facto make
private respondents termination from service illegal so as to entitle her to reinstatement
and payment of backwages. If at all, her termination from service is merely defective
because it was not tainted with bad faith or arbitrariness and was due to a valid cause.
Same; Same; Separation Pay; In case of closures or cessation of operation of business
establishments not due to serious business losses or financial reverses, the employees are
always given separation
408
408
benefits.It is settled that in case of closures or cessation of operation of business
establishments not due to serious business losses or financial reverses, the employees are
always given separation benefits. In the instant case, notwithstanding the financial losses
suffered by Complex, such was, however, not the main reason for its closure. Complex
admitted in its petition that the main reason for the cessation of the operations was the pullout of the materials, equipment and machinery from the premises of the corporation as
dictated by its customers. It was actually still capable of continuing the business but opted
to close down to prevent further losses. Under the facts and circumstances of the case, we
find no grave abuse of discretion on the part of the public respondent in awarding the
employees one (1) month pay for every year of service as termination pay.
SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.

Patricio L. Boncayao, Jr. for Complex Electronics Employees Association.
Antonio H. Abad & Associates for Complex Electronics Corporation.
Siguion Reyna, Montecillo & Ongsiako for Ionics Circuit, Incorporated.
KAPUNAN, J.:
These consolidated cases filed by Complex Electronics Employees Association (G.R. No.
121315) and Complex Electronics Corporation (G.R. No. 122136) assail the Decision of the
NLRC dated March 10, 1995 which set aside the Decision of the Labor Arbiter dated April 30,
1993.
The antecedents of the present petitions are as follows:
Complex Electronics Corporation (Complex) was engaged in the manufacture of electronic
products. It was actually a subcontractor of electronic products where its customers gave
their job orders, sent their own materials and consigned their equipment to it. The
customers were foreign-based companies
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409
with different product lines and specifications requiring the employment of workers with
specific skills for each product line. Thus, there was the AMS Line for the Adaptive Micro
System, Inc., the Heril Line for Heril Co., Ltd., the Lite-On Line for the Lite-On Philippines
Electronics Co., etc.
The rank and file workers of Complex were organized into a union known as the Complex
Electronics Employees Association, herein referred to as the Union.
On March 4, 1992, Complex received a facsimile message from Lite-On Philippines
Electronics Co., requiring it to lower its price by 10%. The full text reads as follows:
This is to inform your office that Taiwan required you to reduce your assembly cost since it is
higher by 50% and no longer competitive with that of mainland China. It is further instructed
that Complex Price be patterned with that of other sources, which is 10% lower.
Please consider and give us your revised rates soon.1
Consequently, on March 9, 1992, a meeting was held between Complex and the personnel of
the Lite-On Production Line. Complex informed its Lite-On personnel that such request of
lowering their selling price by 10% was not feasible as they were already incurring losses at
the present prices of their products. Under such circumstances, Complex regretfully
informed the employees that it was left with no alternative but to close down the operations
of the Lite-On Line. The company, however, promised that:
1) Complex will follow the law by giving the people to be retrenched the necessary 1 month
notice. Hence, retrenchment will not take place until after 1 month from March 09, 1992.
2) The Company will try to prolong the work for as many people as possible for as long as it
can by looking for job slots for them in another line if workload so allows and if their skills
are compatible with the line requirement.
____________________________
1 Rollo, of G.R. No. 122636, p. 270.

410
410
3) The company will give the employees to be retrenched a retrenchment pay as provided
for by law i.e. half a month for every year of service in accordance with Article 283 of the
Labor Code of Philippines.2
The Union, on the other hand, pushed for a retrenchment pay equivalent to one (1) month
salary for every year of service, which Complex refused.
On March 13, 1992, Complex filed a notice of closure of the Lite-On Line with the
Department of Labor and Employment (DOLE) and the retrenchment of the ninety-seven
(97) affected employees.3
On March 25, 1993, the Union filed a notice of strike with the National Conciliation and
Mediation Board (NCMB).
Two days thereafter, or on March 27, 1993, the Union conducted a strike vote which resulted
in a yes vote.
In the evening of April 6, 1992, the machinery, equipment and materials being used for
production at Complex were pulled out from the company premises and transferred to the
premises of Ionics Circuit, Inc. (Ionics) at Cabuyao, Laguna. The following day, a total closure
of company operation was effected at Complex.
A complaint was, thereafter, filed with the Labor Arbitration Branch of the NLRC for unfair
labor practice, illegal closure/illegal lockout, money claims for vacation leave, sick leave,
unpaid wages, 13th month pay, damages and attorneys fees. The Union alleged that the
pull-out of the machinery, equipment and materials from the company premises, which
resulted to the sudden closure of the company was in violation of Sections 3 and 8, Rule XIII,
Book V of the Labor Code of the Philippines4 and the existing CBA. Ionics was impleaded as
a
____________________________
2 Id., at 271.
3 NLRC Decision dated March 10, 1995, rollo of G.R. No. 121315, p. 78.
4 Sec. 3. Notice of strike or lockout.In cases of bargaining deadlocks, a notice of strike or
lockout shall be filed with the re
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411
party defendant because the officers and management personnel of Complex were also
holding office at Ionics with Lawrence Qua as the President of both companies.
Complex, on the other hand, averred that since the time the Union filed its notice of strike,
there was a significant decline in the quantity and quality of the products in all of the
production lines. The delivery schedules were not met prompting the customers to lodge
complaints against them. Fearful that the machinery, equipment and materials would be
rendered inoperative and unproductive due to the impending strike of the workers, the
customers ordered their pull-out and transfer to Ionics. Thus, Complex was compelled to
cease operations.
Ionics contended that it was an entity separate and distinct from Complex and had been in
existence since July 5, 1984 or eight (8) years before the labor dispute arose at Complex.
Like Complex, it was also engaged in the semi-conductor business where the machinery,
equipment and materials were consigned to them by their customers. While admitting that
Lawrence Qua, the President of Complex was also the President of Ionics, the latter denied
having Qua as their owner since he had no recorded subscription of P1,200,000.00 in Ionics
as
____________________________
gional branch of the Board at least thirty (30) days before the intended dated thereof, a copy
of said notice having been served on the other party concerned. In case of unfair labor
practices, the period of notice shall be fifteen (15) days. However, in case of unfair labor
practice involving the dismissal from employment of union officers duly elected in
accordance with the union constitution and by-laws which may constitute union-busting
where the existence of the union is threatened, the fifteen-day cooling-off period shall not
apply and the union may take action immediately after the strike vote is conducted and the
results thereof submitted to the Department of Labor and Employment.
Sec. 8. Declaration of strike and lockout.Should the dispute remain unsettled after the
lapse of the requisite number of days from the filing of the notice of strike or lockout and the
results of the election required in the preceding section, the labor union may strike or the
employer may lockout its workers. The regional branch or the Board shall continue
mediating and conciliating.
412
412
claimed by the Union. Ionics further argued that the hiring of some displaced workers of
Complex was an exercise of management prerogatives. Likewise, the transfer of the
machinery, equipment and materials from Complex was the decision of the owners who
were common customers of Complex and Ionics.
On April 30, 1993, the Labor Arbiter rendered a decision the dispositive portion of which
reads:
WHEREFORE, all the foregoing premises being considered, judgment is hereby rendered
ordering the respondent Complex Electronics Corporation and/or Ionics Circuit Incorporated
and/or Lawrence Qua, to reinstate the 531 above-listed employees to their former position
with all the rights, privileges and benefits appertaining thereto, and to pay said
complainants-employees the aggregate backwages amounting P26,949,891.80 as of April 6,
1993 and to such further backwages until their actual reinstatement. In the event
reinstatement is no longer feasible for reasons not attributable to the complainants, said
respondents are also liable to pay complainantsemployees their separation pay to be
computed at the rate of one (1) month pay for every year of service, a fraction of at least six
(6) months to be considered as one whole year.
Further, the aforenamed three (3) respondents are hereby ordered to pay jointly and
solidarily the complainants-employees an aggregate moral damages in the amount of
P1,062,000.00 and exemplary damages in the aggregate sum of P531,000.00.
And finally, said respondents are ordered to pay attorneys fees equivalent to ten percent
(10%) of whatever has been adjudicated herein in favor of the complainants.
The charge of slowdown strike filed by respondent Complex against the union is hereby
dismissed for lack of merit.
SO ORDERED.5
Separate appeals were filed by Complex, Ionics and Lawrence Qua before the respondent
NLRC which rendered the questioned decision on March 10, 1995, the decretal portion of
which states:
____________________________
5 Rollo of G.R. 121315, pp. 72-73.

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WHEREFORE, premises considered, the assailed decision is hereby ordered vacated and set
aside, and a new one entered ordering respondent Complex Electronics Corporation to pay
531 complainants equivalent to one month pay in lieu of notice and separation pay
equivalent to one month pay for every year of service and a fraction of six months
considered as one whole year.
Respondents Ionics Circuit Incorporated and Lawrence Qua are hereby ordered excluded as
parties solidarily liable with Complex Electronics Corporation.
The award of moral damages is likewise deleted for lack of merit.
Respondent Complex, however, is hereby ordered to pay attorneys fees equivalent to ten
(10%) percent of the total amount of award granted the complainants.
SO ORDERED.6
Complex, Ionics and the Union filed their motions for reconsideration of the above decision
which were denied by the respondent NLRC in an Order dated July 11, 1995.7
Hence these petitions.
In G.R. No. 121315, petitioner Complex Electronics Employees Association asseverates that
the respondent NLRC erred when it:
I
SET ASIDE THE DECISION DATED APRIL 30, 1993 ISSUED BY THE HON. LABOR ARBITER JOSE
DE VERA.
II
EXCLUDED PRIVATE RESPONDENTS IONICS CIRCUITS, INCORPORATED AND LAWRENCE QUA

AS PARTIES SOLIDARILY LIABLE WITH COMPLEX ELECTRONICS CORPORATION.
____________________________
6 Id., at 99-100.
7 Id., at 102-106.
414
414
III
FOUND THAT COMPLEX ELECTRONICS CORPORATION WAS NOT GUILTY OF ILLEGAL CLOSURE
AND ILLEGAL DISMISSAL OF THE PETITIONERS.
IV
REMOVED THE AWARD FOR BACKWAGES, REINSTATEMENT AND DAMAGES IN THE DECISION
DATED APRIL 30, 1993 ISSUED BY THE HON. LABOR ARBITER JOSE DE VERA.8
On the other hand, in G.R. No. 122136, petitioner Complex Electronics Corporation raised the
following issues, to wit:
I
PUBLIC RESPONDENT NLRC ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK

OF OR IN EXCESS OF JURISDICTION IN PROMULGATING ITS DECISION AND ORDER DATED 10
MARCH 1995, AND 11 JULY 1995, RESPECTIVELY, THE SAME BEING IN CONTRAVENTION OF
THE EXPRESS MANDATE OF THE LAW GOVERNING THE PAYMENT OF ONE MONTH PAY IN LIEU
OF NOTICE, SEPARATION PAY AND ATTORNEYS FEES.
II
THERE IS NO APPEAL, NOR ANY PLAIN, SPEEDY AND ADEQUATE REMEDY IN THE ORDINARY
COURSE OF LAW.9
On December 23, 1996, the Union filed a motion for consolidation of G.R. No. 122136 with
G.R. No. 121315.10 The motion was granted by this Court in a Resolution dated June 23,
1997.11
On November 10, 1997, the Union presented additional documentary evidence which
consisted of a newspaper clip____________________________
8 Id., at 31.
9 Rollo of G.R. No. 122136, p. 21.
10 Rollo of G.R. No. 121315, pp. 273-274.
11 Rollo of G.R. No. 122136, p. 597.
415
VOL. 310, JULY 19, 1999

415
ping in the Manila Bulletin, dated August 18, 1997 bearing the picture of Lawrence Qua with
the following inscription:
RECERTIFICATION. The Cabuyao (Laguna) operation of Ionic Circuits, Inc. consisting of plants
2, 3, 4 and 5 was recertified to ISO 9002 as electronics contract manufacturer by the TUV, a
rating firm with headquarters in Munich, Germany. Lawrence Qua, Ionics president and chief
executive officer, holds the plaque of recertification presented by Gunther Theisz (3rd from
left), regional manager of TUV Products Services Asia during ceremonies held at Sta. Elena
Golf Club. This is the first of its kind in the country that four plants were certified at the same
time.12
The Union claimed that the said clipping showed that both corporations, Ionics and Complex
are one and the same.
In answer to this allegation, Ionics explained that the photo which appeared at the Manila
Bulletin issue of August 18, 1997 pertained only to respondent Ionics recertification of ISO
9002. There was no mention about Complex Electronics Corporation. Ionics claimed that a
mere photo is insufficient to conclude that Ionics and Complex are one and the same.13
We shall first delve on the issues raised by the petitioner Union.
The Union anchors its position on the fact that Lawrence Qua is both the president of
Complex and Ionics and that both companies have the same set of Board of Directors. It
claims that business has not ceased at Complex but was merely transferred to Ionics, a
runaway shop. To prove that Ionics was just a runaway shop, petitioner asserts that out of
the 80,000 shares comprising the increased capital stock of Ionics, it was Complex that owns
majority of said shares with P1,200,000.00 as its capital subscription and P448,000.00 as its
paid up investment, compared to P800,000.00 subscription and P324,560.00 paid-up owing
to the other stockholders,
____________________________
12 Rollo of G.R. No. 121315, pp. 383-386.

13 Id., at 287-291.
416
416
combined. Thus, according to the Union, there is a clear ground to pierce the veil of
corporate fiction.
The Union further posits that there was an illegal lockout/illegal dismissal considering that as
of March 11, 1992, the company had a gross sales of P61,967,559 from a capitalization of
P1,500,000.00. It even ranked number thirty among the top fifty corporations in Muntinlupa.
Complex, therefore, cannot claim that it was losing in its business which necessitated its
closure.
With regards to Lawrence Qua, petitioner maintains that he should be made personally liable
to the Union since he was the principal player in the closure of the company, not to mention
the clandestine and surreptitious manner in which such closure was carried out, without
regard to their right to due process.
The Unions contentions are untenable.
A runaway shop is defined as an industrial plant moved by its owners from one location to
another to escape union labor regulations or state laws, but the term is also used to describe
a plant removed to a new location in order to discriminate against employees at the old
plant because of their union activities.14 It is one wherein the employer moves its business
to another location or it temporarily closes its business for anti-union purposes.15 A
runaway shop in this sense, is a relocation motivated by anti-union animus rather than for
business reasons. In this case, however, Ionics was not set up merely for the purpose of
transferring the business of Complex. At the time the labor dispute arose at Complex, Ionics
was already existing as an independent company. As earlier mentioned, it has been in
existence since July 5, 1984. It cannot, therefore, be said that the temporary closure in
Complex and its subsequent transfer of business to Ionics was
____________________________
14 See Textile Workers Union v. Darlington Mfg. Co., 380 US 263, 12 L Ed. 2d 827, 85, S Ct
994.
15 William P. Statsky, WESTS LEGAL THESAURUS/DICTIONARY, Special Deluxe Edition, p.
671.
417
VOL. 310, JULY 19, 1999

417
for anti-union purposes. The Union failed to show that the primary reason for the closure of
the establishment was due to the union activities of the employees.
The mere fact that one or more corporations are owned or controlled by the same or single
stockholder is not a sufficient ground for disregarding separate corporate personalities.
Thus, in Indophil Textile Mill Workers Union vs. Calica,16 we ruled that:
[I]n the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging
that the creation of the corporation is a devise to evade the application of the CBA between
petitioner Union and private respondent company. While we do not discount the possibility of
the similarities of the businesses of private respondent and Acrylic, neither are we inclined
to apply the doctrine invoked by petitioner in granting the relief sought. The fact that the
businesses of private respondent and Acrylic are related, that some of the employees of the
private respondent are the same persons manning and providing for auxiliary services to the
units of Acrylic, and that the physical plants, offices and facilities are situated in the same
compound, it is our considered opinion that these facts are not sufficient to justify the
piercing of the corporate veil of Acrylic.
Likewise, in Del Rosario vs. National Labor Relations Commission,17 the Court stated that
substantial identity of the incorporators of two corporations does not necessarily imply that
there was fraud committed to justify piercing the veil of corporate fiction.
In the recent case of Santos vs. National Labor Relations Commission,18 we also ruled that:
The basic rule is still that which can be deduced from the Courts pronouncement in Sunio
vs. National Labor Relations Commission, thus:
____________________________
16 205 SCRA 697 (1992).

17 187 SCRA 777 (1990).
18 254 SCRA 673 (1996).
418
418
x x x. Mere ownership by a single stockholder or by another corporation of all or nearly all of
the capital stock of a corporation is not of itself sufficient ground for disregarding the
separate corporate personality.
Ionics may be engaged in the same business as that of Complex, but this fact alone is not
enough reason to pierce the veil of corporate fiction of the corporation. Well-settled is the
rule that a corporation has a personality separate and distinct from that of its officers and
stockholders. This fiction of corporate entity can only be disregarded in certain cases such as
when it is used to defeat public convenience, justify wrong, protect fraud, or defend
crime.19 To disregard said separate juridical personality of a corporation, the wrongdoing
must be clearly and convincingly established.20
As to the additional documentary evidence which consisted of a newspaper clipping filed by
petitioner Union, we agree with respondent Ionics that the photo/newspaper clipping itself
does not prove that Ionics and Complex are one and the same entity. The photo/newspaper
clipping merely showed that some plants of Ionics were recertified to ISO 9002 and does not
show that there is a relation between Complex and Ionics except for the fact that Lawrence
Qua was also the president of Ionics. However, as we have stated above, the mere fact that
both of the corporations have the same president is not in itself sufficient to pierce the veil
of corporate fiction of the two corporations.
We, likewise, disagree with the Union that there was in this case an illegal lockout/illegal
dismissal. Lockout is the temporary refusal of employer to furnish work as a result of
____________________________
19 Concept Builders, Inc. v. National Labor Relations Commission, 257 SCRA 149 (1996);
Philippine International Bank v. Court of Appeals, 252 SCRA 259 (1996); Yu v. National Labor
Relations Commission, 245 SCRA 134 (1995).
20 Matuguina Integrated Wood Products, Inc. v. Court of Appeals, 263 SCRA 490 (1996).
419
VOL. 310, JULY 19, 1999

419
an industrial or labor dispute.21 It may be manifested by the employers act of excluding
employees who are union members.22 In the present case, there was a complete cessation
of the business operations at Complex not because of the labor dispute. It should be recalled
that, before the labor dispute, Complex had already informed the employees that they would
be closing the Lite-On Line. The employees, however, demanded for a separation pay
equivalent to one (1) month salary for every year of service which Complex refused to give.
When Complex filed a notice of closure of its Lite-On Line, the employees filed a notice of
strike which greatly alarmed the customers of Complex and this led to the pull-out of their
equipment, machinery and materials from Complex. Thus, without the much needed
equipment, Complex was unable to continue its business. It was left with no other choice
except to shut down the entire business. The closure, therefore, was not motivated by the
union activities of the employees, but rather by necessity since it can no longer engage in
production without the much needed materials, equipment and machinery. We quote with
approval the findings of the respondent NLRC on this matter:
At first glance after reading the decision a quo, it would seem that the closure of
respondents operation is not justified. However, a deeper examination of the records along
with the evidence, would show that the closure, although it was done abruptly as there was
no compliance with the 30-day prior notice requirement, said closure was not intended to
circumvent the provisions of the Labor Code on termination of employment. The closure of
operation by Complex on April 7, 1992 was not without valid reasons. Customers of
respondent alarmed by the pending labor dispute and the imminent strike to be foisted by
the union, as shown by their strike vote, directed respondent Complex to pull-out its
equipment, machinery and materials to other safe bonded warehouse. Respondent being
mere con-
____________________________
21 Art. 212 (p), LABOR CODE OF THE PHILIPPINES.

22 Sta. Mesa Slipways & Engineering Co. v. CIR, 48 O.G. 3353, as cited in II C.A. Azucena,
THE LABOR CODE WITH COMMENTS AND CASES, Revised 1993 Ed., p. 296.
420
420
signees of the equipment, machinery and materials were without any recourse but to oblige
the customers directive. The pull-out was effected on April 6, 1992. We can see here that
Complexs action, standing alone, will not result in illegal closure that would cause the illegal
dismissal of the complainant workers. Hence, the Labor Arbiters conclusion that since there
were only two (2) of respondents customers who have expressed pull-out of business from
respondent Complex while most of the customers have not and, therefore, it is not justified
to close operation cannot be upheld. The determination to cease operation is a prerogative
of management that is usually not interfered with by the State as no employer can be
required to continue operating at a loss simply to maintain the workers in employment. That
would be taking of property without due process of law which the employer has the right to
resist. (Columbia Development Corp. vs. Minister of Labor and Employment, 146 SCRA 421)
As to the claim of petitioner Union that Complex was gaining profit, the financial statements
for the years 1990, 1991 and 1992 issued by the auditing and accounting firm Sycip, Gorres
and Velayo readily show that Complex was indeed continuously experiencing deficit and
losses.23 Nonetheless, whether or not Complex was incurring great losses, it is still one of
the managements prerogative to close down its business as long as it is done in good faith.
Thus, in Catatista, et al. vs. NLRC and Victorias Milling Co., Inc.,24 we ruled:
In any case, Article 283 of the Labor Code is clear that an employer may close or cease his
business operations or undertaking even if he is not suffering from serious business losses or
financial reverses, as long as he pays his employees their termination pay in the amount
corresponding to their length of service. It would indeed, be stretching the intent and spirit
of the law if we were to unjustly interfere in managements prerogative to close or cease its
business operations just because said business operations or undertaking is not suffering
from any loss.
____________________________
23 Records pp. 427-434.

24 247 SCRA 46 (1995).
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421
Going now to the issue of personal liability of Lawrence Qua, it is settled that in the absence
of malice or bad faith, a stockholder or an officer of a corporation cannot be made personally
liable for corporate liabilities.25 In the present case, while it may be true that the
equipment, materials and machinery were pulledout of Complex and transferred to Ionics
during the night, their action was sufficiently explained by Lawrence Qua in his Comment to
the petition filed by the Union. We quote:
The fact that the pull-out of the machinery, equipment and materials was effected during
nighttime is not per se an indicia of bad faith on the part of respondent Qua since he had no
other recourse, and the same was dictated by the prevailing mood of unrest as the laborers
were already vandalizing the equipment, bent on picketing the company premises and
threats to lock out the company officers were being made. Such acts of respondent Qua
were, in fact, made pursuant to the demands of Complexs customers who were already
alarmed by the pending labor dispute and imminent strike to be stage by the laborers, to
have their equipment, machinery and materials pull out of Complex. As such, these acts
were merely done pursuant to his official functions and were not, in any way, made with
evident bad faith.26
We perceive no intention on the part of Lawrence Qua and the other officers of Complex to
defraud the employees and the Union. They were compelled to act upon the instructions of
their customers who were the real owners of the equipment, materials and machinery. The
prevailing labor unrest permeating within the premises of Complex left the officers with no
other choice but to pull them out of Complex at night to prevent their destruction. Thus, we
see no reason to declare Lawrence Qua personally liable to the Union.
____________________________
25 AHS/Philippines, Inc. vs. Court of Appeals, 257 SCRA 319 (1996).

26 Rollo of G.R. No. 121315, p. 182.
422
422
Anent the award of damages, we are inclined to agree with the NLRC that there is no basis
for such award. We again quote the respondent NLRC with favor:
By and large, we cannot hold respondents guilty of unfair labor practice as found by the
Labor Arbiter since the closure of operation of Complex was not established by strong
evidence that the purpose of said closure was to interfere with the employees right to
selforganization and collective bargaining. As very clearly established, the closure was
triggered by the customers pull-out of their equipment, machinery and materials, who were
alarmed by the pending labor dispute and the imminent strike by the union, and as a
protection to their interest pulled-out of business from Complex who had no recourse but to
cease operation to prevent further losses. The indiscretion committed by the Union in filing
the notice of strike, which to our mind is not the proper remedy to question the amount of
benefits due the complainants who will be retrenched at the closure of the Lite-On Line,
gave a wrong signal to customers of Complex, which consequently resulted in the loss of
employment of not only a few but to all of the workers. It may be worth saying that the right
to strike should only be a remedy of last resort and must not be used as a show of force
against the employer.27
We shall now go to the issues raised by Complex in G.R. No. 122136.
Complex claims that the respondent NLRC erred in ordering them to pay the Union one (1)
month pay as indemnity for failure to give notice to its employees at least thirty (30) days
before such closure since it was quite clear that the employees were notified of the
impending closure of the Lite-On Line as early as March 9, 1992. Moreover, the abrupt
cessation of operations was brought about by the sudden pull-out of the customers which
rendered it impossible for Complex to observe the required thirty (30) days notice.
Article 283 of the Labor Code provides that:
____________________________
27 Id., at 97-98.
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423
ART. 283. Closure of establishment and reduction of personnel.The employer may also
terminate the employment of any employee due to the installation of labor saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the workers and the Ministry of Labor
and Employment at least one (1) month before the intended date thereof. x x x. (Italics
ours.)
The purpose of the notice requirement is to enable the proper authorities to determine after
hearing whether such closure is being done in good faith, i.e., for bona fide business
reasons, or whether, to the contrary, the closure is being resorted to as a means of evading
compliance with the just obligations of the employer to the employees affected.28
While the law acknowledges the management prerogative of closing the business, it does
not, however, allow the business establishment to disregard the requirements of the law.
The case of Magnolia Dairy Products v. NLRC29 is quite emphatic about this:
The law authorizes an employer, like the herein petitioners, to terminate the employment of
any employee due to the installation of labor saving devices. The installation of these
devices is a management prerogative, and the courts will not interfere with its exercise in
the absence of abuse of discretion, arbitrariness, or maliciousness on the part of

management, as in this case. Nonetheless, this did not excuse petitioner from complying
with the required written notice to the employee and to the Department of Labor and
Employment (DOLE) at least one month before the intended date of termination. This
procedure enables an employee to contest the reality or good faith character of the asserted
ground for the termination of his services before the DOLE.
The failure of petitioner to serve the written notice to private respondent and to the DOLE,
however, does not ipso facto make
____________________________
28 Coca Cola Bottlers (Phils.), Inc. v. NLRC, 194 SCRA 592 (1991).
29 252 SCRA 483 (1996).
424
424
private respondents termination from service illegal so as to entitle her to reinstatement
and payment of backwages. If at all, her termination from service is merely defective
because it was not tainted with bad faith or arbitrariness and was due to a valid cause.
The well settled rule is that the employer shall be sanctioned for non-compliance with the
requirements of, or for failure to observe due process in terminating from service its
employee. In Wenphil Corp. v. NLRC, we sanctioned the employer for this failure by ordering
it to indemnify the employee the amount of P1,000.00. Similarly, we imposed the same
amount as indemnification in Rubberworld (Phils.), Inc. v. NLRC, and, Aurelio v. NLRC and
Alhambra Industries, Inc. v. NLRC. Subsequently, the sum of P5,000.00 was awarded to an
employee in Worldwide Papermills, Inc. v. NLRC, and P2,000.00 in Sebuguero, et al. v. NLRC,
et al. Recently, the sum of P5,000.00 was again imposed as indemnify against the employer.
We see no valid and cogent reason why petitioner should not be likewise sanctioned for its
failure to serve the mandatory written notice. Under the attendant facts, we find the amount
of P5,000.00, to be just and reasonable.
We, therefore, find no grave abuse of discretion on the part of the NLRC in ordering Complex
to pay one (1) month salary by way of indemnity. It must be borne in mind that what is at
stake is the means of livelihood of the workers so they are at least entitled to be formally
informed of the management decisions regarding their employment.30
Complex, likewise, maintains that it is not liable for the payment of separation pay since
Article 283 of the Labor Code awards separation pay only in cases of closure not due to
serious business reversals. In this case, the closure of Complex was brought about by the
losses being suffered by the corporation.
We disagree.
Article 283 further provides:
x x x. In case of termination due to the installation of labor saving devices or redundancy,

the worker affected thereby shall be
____________________________
30 PAL v. NLRC, 225 SCRA 301 (1993).

425
VOL. 310, JULY 19, 1999

425
entitled to a separation pay equivalent to at least his one (1) month pay or to at least one
(1) month pay for every year of service, whichever is higher. In case of retrenchment to
prevent losses and in case of cessation of operations of establishment or undertaking not
due to serious business losses or financial reverses, the separation pay shall be equivalent
to one (1) month pay or at least one-half (1/2) month pay for every year of service,
whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole
year.
It is settled that in case of closures or cessation of operation of business establishments not
due to serious business losses or financial reverses,31 the employees are always given
separation benefits.
In the instant case, notwithstanding the financial losses suffered by Complex, such was,
however, not the main reason for its closure. Complex admitted in its petition that the main
reason for the cessation of the operations was the pull-out of the materials, equipment and
machinery from the premises of the corporation as dictated by its customers. It was actually
still capable of continuing the business but opted to close down to prevent further losses.
Under the facts and circumstances of the case, we find no grave abuse of discretion on the
part of the public respondent in awarding the employees one (1) month pay for every year
of service as termination pay.
WHEREFORE, premises considered, the assailed decision of the NLRC is AFFIRMED.
SO ORDERED.
Davide, Jr. (C.J., Chairman), Melo, Pardo and YnaresSantiago, JJ., concur.
Assailed decision affirmed.
____________________________
31 North Davao Mining Corp. vs. NLRC, 254 SCRA 721 (1996); See also: State Investment
House, Inc. vs. Court of Appeals, 206 SCRA 348 (1992); Mindanao Terminal and Brokerage
Service, Inc. vs. The Hon. Minister of Labor and Employment, 238 SCRA 77 (1994).
426
426
People vs. Tadeje
Notes.Where the employer corporation is no longer existing and is unable to satisfy the
judgment in favor of the employee, the officer should be held liable for acting on behalf of
the corporation. (Valderama vs. National Labor Relations Commission, 256 SCRA 466 [1996])
The rule is that obligations incurred by the corporation, acting through its directors, officers
and employees, are its sole liabilities. (Equitable Banking Corporation vs. National Labor
Relations Commission, 273 SCRA 352 [1997])
Where it appears that three business enterprises are owned, conducted and controlled by
the same parties, both law and equity will, when necessary to protect the rights of third
persons, disregard the legal fiction that the three corporations are distinct entities, and treat
them as identical. (Tomas Lao Construction vs. National Labor Relations Commission, 278
SCRA 716 [1997])
o0o [Complex Electronics Employees Association vs. NLRC, 310 SCRA 403(1999)]
VOL. 290, JUNE 5, 1998

639
Presidential Commission on Good Government vs. Sandiganbayan
G.R. No. 125788. June 5, 1998.*
THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG), petitioner, vs. HON.
SANDIGANBAYAN and AEROCOM INVESTORS & MANAGERS, INC., respondents.
Sequestration; Actions; Pleadings and Practice; Certiorari; The Sandiganbayans finding to
the effect that a corporation was not validly sequestered is a final adjudication on the merits
which is reviewable by the appellate court only through an appeal under Rule 45 of the Rules
of Court and not a petition for certiorari.There is merit in the initial point amplified by
Aerocom in its comment that the instant certiorari proceedings brought by the PCGG is an
improper remedy under the circumstances. From a reading of its January 31, 1996 Resolution
granting Aerocoms Manifestation and Motion, (as heretofore quoted), as well as the May 7,
1996 Resolution denying the motion for reconsideration, the Sandiganbayan has virtually
passed upon the pivotal issue involved in Aerocoms complaint for the declaration of nullity
of the writ of sequestration (Civil Case No. 0044)i.e., whether or not Aerocoms
sequestration was in order. That courts finding to the effect that Aerocom was not validly
sequestered, clearly, was a final adjudication on the merits which is reviewable by the
appellate court only through an appeal under Rule 45 of the Rules of Court. The PCGG should
have availed of the remedy of appeal filed within the statutory fifteen (15)-day period and
not a petition for certiorari, as the arguments the PCGG propounds in support of its
challenge on the Sandiganbayan Resolutions would amount to a digging into the merits and
unearthing errors of judgment. At this juncture, [i]t must emphatically be reiterated, to
borrow the words of Mr. Justice Regalado in Purefoods Corp. vs. NLRC, since so often is it
overlooked, that the special civil action for certiorari is a remedy designed for the correction
of errors of jurisdiction and not errors of judgment. The reason for the rule is simple. When a
court exercises its jurisdiction, an error committed while so engaged does not deprive it of
the jurisdiction being exercised when the error is committed. If it did, every error committed
by a court would deprive it of its jurisdiction and every erroneous judgment would be a void
judgment. This cannot be allowed. The administration of justice would not survive such a
rule. Consequently, an error
_______________
* SECOND DIVISION.
640
640
of judgment that the court may commit in the exercise of its jurisdiction is not correctable
through the original civil action of certiorari.
Same; Both the issuance of the writ and notification to, or more precisely, the acquisition of
jurisdiction over the entity/entities to be sequestered via valid service thereof, must be
effected within the 18-month period provided for in Section 26, Article XVIII of the
Constitution.The obvious intendment behind the 18-month period, as well as the six (6)month time-limit for the filing of the corresponding judicial action, is to ensure the protection
of property rights and to serve as a necessary safeguard against an overzealous exercise by
the State, acting as bounty-hunters so to speak, of its power of sequestration which, as
described by Justice Ameurfina Melencio-Herrera in her concurring opinion in BASECO v.
PCGG, is an extraordinary, harsh and severe remedy. For this reason, (I)t should be
confined, J. Herrera continues, to its lawful parameters and exercised, with due regard, in
the words of its enabling laws, to the requirements of fairness, due process, and Justice.
The probable evil of governmental abuse is best avoided and the dictates of fairness, due
process and Justice are truly heeded under an interpretation of Section 26, Article XVIII as
requiring both the issuance of the writ and notification to, or more precisely, the acquisition
of jurisdiction over the entity/entities to be sequestered via valid service thereof, to be
effected within the 18-month period. A writ of sequestration, therefore, runs the risk of being
struck down as invalid if and when the twin requirements of issuance and service are not
satisfied within the deadline.
Same; Corporation Law; Due Process; The suit against certain shareholders cannot ipso facto
be a suit against the unimpleaded corporation itself without violating the fundamental
principle that a corporation has a legal personality distinct and separate from its
stockholders.There is no existing sequestration to talk about in this case, as the writ
issued against Aerocom, to repeat, is invalid for reasons hereinbefore stated. Ergo, the suit
in Civil Case No. 0009 against Mr. Nieto and Mr. Africa as shareholders in Aerocom is not and
cannot ipso facto be a suit against the unimpleaded Aerocom itself without violating the
fundamental principle that a corporation has a legal personality distinct and separate from
its stockholders. Such is the ruling laid down in PCGG v. Interco reiterated anew in a case of
more recent vintageRepublic v. Sandiganbayan, Sipalay Trading Corp. and Allied Banking
Corp. where this Court, speaking
641
VOL. 290, JUNE 5, 1998

641
through Mr. Justice Ricardo J. Francisco, hewed to the lone dissent of Mr. Justice Teodoro R.
Padilla in the very same Republic v. Sandiganbayan case herein invoked by the PCGG, to wit:
x x x failure to implead these corporations as defendants and merely annexing a list of such
corporations to the complaints is a violation of their right to due process for it would in effect
be disregarding their distinct and separate personality without a hearing.
Same; Estoppel; While the State is immune from estoppel, this concept is understood to
refer to acts and mistakes of its officials especially those which are irregular.The PCGGs
contention is not persuasive under the attendant circumstances. While we agree with the
statement that the State is immune from estoppel, this concept, as clarified by this Court
thru Mr. Justice Melo in Republic v. Sandiganbayan, et al. is understood to refer to acts and
mistakes of its officials especially those which are irregular. Here, other than its bare
assertion that Atty. Sanchezs Opinion is illegal and prejudicial, the PCGG has not
presented convincing evidence to prove irregularity or negligence on the part of Atty.
Sanchez in rendering his Opinion favorable to Aerocom. In fact, no less than PCGG
Chairman Magtanggol Gunigundo and the rest of the Commissioners clearly heeded the
recommendation of Atty. Sanchez by affixing their signatures on Resolution No. 94-066
allowing the release of the cash dividends declared in 1993 accruing to Aerocoms shares of
stock in POTC. Elementary notions of consistency and fair play call upon the PCGG to honor
the release of the cash dividends presently requested by Aerocom, after a similar
commitment has been collectively confirmed by its commissioners in black and white. A
ruling to the contrary, in the erudite language of Justice Escareal of the Sandiganbayan as
adopted in Republic v. Sandiganbayan, 226 SCRA 314, is not only illogical and irrational, but
inequitable and pernicious as well, for it may open the door for capricious adventurism on
the part of the policy-makers of the land, and disregard for the majesty of the law, which
could ultimately bring about the citizenrys loss of faith and confidence in the sincerity of the
government in its dealings with the governed.
PETITION for review on certiorari of a decision of the Sandiganbayan.

642
642
Legal Department and Edgardo L. Kilayko for petitioner.
Demaree J.B. Raval and Luis K. Lokin, Jr. for private respondent.
MARTINEZ, J.:
In its continuing search for ill-gotten wealth, herein petitioner Presidential Commission on
Good Government (PCGG) filed in the Sandiganbayan on July 22, 1987 a case (Civil Case No.
0009) for reconveyance, reversion, accounting, restitution and damages against Manuel H.
Nieto, Jose L. Africa, Roberto S. Benedicto, Potenciano Ilusorio, Juan Ponce Enrile and
Ferdinand Marcos, Jr. alleging, in substance, that said defendants acted as dummies of the
late strongman and devised schemes and stratagems to monopolize the
telecommunications industry. Annexed to the complaint is a listing of the assets of
defendants Nieto and Africa, among which are their shares of stock in private respondent
Aerocom Investors and Managers, Inc. (Aerocom).1
Almost a year later, the PCGG sought to sequester Aerocom under a writ of sequestration
dated June 15, 1988,2 which was served on and received under protest by Aerocoms
president on August 3, 1988.3
Seven (7) days after receipt of the sequestration order, Aerocom on August 10, 1988 filed a
complaint against the PCGG (docketed as Civil Case No. 0044)4 urging the Sandiganbayan
to nullify the same on the ground that it was served on Aerocom beyond the eighteen (18)month period from the ratification of the 1987 Constitution as provided for in Section 26,
Article XVIII thereof which reads:
Sec. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3
dated March 25, 1986 in relation to
_______________
1 Petition, pp. 3-5; Rollo, pp. 4-6.

2 Rollo, p. 37, Annex C.
3 Rollo, p. 38, Annex D.
4 Rollo, pp. 42-49, Annex F.
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the recovery of ill-gotten wealth shall remain operative for not more than eighteen months
after the ratification of this Constitution. However, in the national interest, as certified by the
President, the Congress may extend said period.
A sequestration or freeze order shall be issued only upon showing of a prima facie case. The
order and the list of the sequestered or frozen properties shall forthwith be registered with
the proper court. For orders issued before the ratification of this Constitution, the
corresponding judicial action or proceeding shall be filed within six months from its
ratification. For those issued after such ratification, the judicial action or proceeding shall be
commenced within six months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial action or

proceeding is commenced as herein provided.
In its amended answer dated May 19, 1992,5 the PCGG specifically alleged that Aerocom
has no cause of action against it since the issuance of the writ of sequestration on June 15,
1988 was well-within the 18-month constitutional deadline counted from February 2, 1987,
the date when the people, in a plebiscite, overwhelmingly ratified the 1987 Constitution.
During the pendency of Civil Case No. 0044, Aerocom filed on July 5, 1995 a Manifestation
and Motion6 praying that the Sandiganbayan direct the PCGG to release and distribute the
dividends pertaining to the shares of Aerocom in all corporations where it owns shares of
stock. Commenting thereon,7 the PCGG opposed the release of the dividends on the
argument that the fact that plaintiff (Aerocom) is mentioned in Annex A of the complaint
filed in Civil Case No. 0009 is a clear indication that the shares thereof are likewise
sequestered.
_______________
5 Rollo, pp. 54-59, Annex G.

6 Rollo, pp. 60-63, Annex H.
7 Rollo, pp. 66-67, Annex I.
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The Sandiganbayan in its Resolution promulgated on January 31, 19968 acted favorably on
Aerocoms Manifestation and Motion and thus ordered the PCGG to release the dividends
pertaining to Aerocom except the dividends on the sequestered shares of stock registered in
the names of Manuel Nieto and Jose Africa in POTC, ETPI and Aerocom, on the following
findings:
A close scrutiny of Annex A of the complaint in Civil Case No. 0009, entitled Republic of
the Philippines vs. Jose L. Africa, Manuel H. Nieto, Jr., and Roberto S. Benedicto, does not
show, that herein plaintiff Aerocom Investors & Managers, Inc., as a corporation, was itself
sequestered. What was sequestered are the shares of stock of Manuel H. Nieto, Jr. and Jose
L. Africa in Aerocom Investors & Managers, Inc.
Defendant PCGG is under estoppel from denying that it has in fact recognized and
confirmed the non-sequestration status of herein plaintiff, as a corporation, by releasing the
cash dividends due to the plaintiff from Philippine Overseas Telecommunications Corporation
(POTC for short) per its Resolutions dated June 29, 1993 and May 6, 1994. The said PCGG
Resolution, dated June 29, 1993 (Annex A, Manifestation and Motion, p. 330, record) refers
to its approval to release the POTC cash dividends declared in 1989 and 1991 pertaining to
the shares of herein plaintiff Aerocom Investors & Managers, Inc. in Philippine Overseas
Telecommunications Corporation. On the other hand, PCGG Resolution No. 94-066 dated May
6, 1994 refers to its approval releasing the POTC cash dividends declared in 1993 and
accruing to the shares of stocks in POTC, registered under the name of Aerocom Investors &
Managers, Inc., except cash dividends pertaining to the personal shares of Mr. Manuel H.
Nieto, Jr. in POTC and likewise his shares of stocks in Aerocom Investors & Managers, Inc.
(Annex B, Manifestation and Motion, p. 331, record).
There is no dispute that herein plaintiff, as a corporation, has a juridical personality
separate and distinct from its stockholders.
After a motion for reconsideration thereof was denied by the Sandiganbayan per Resolution
promulgated on May 7,
_______________
8 Rollo, pp. 22-27, Annex A.

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1996,9 the PCGG filed the present petition for certiorari on August 16, 1996 assailing the
Sandiganbayan order for the release of the dividends as having been issued with grave
abuse of discretion. In compliance with the Resolution of this Court dated September 2,
199610 which also granted the temporary restraining order prayed for by the PCGG,
Aerocom filed its comment on the petition on September 11, 199611 to which, the PCGG on
November 21, 1996 filed a reply.12
The petition must fail.
There is merit in the initial point amplified by Aerocom in its comment that the instant
certiorari proceedings brought by the PCGG is an improper remedy under the circumstances.
From a reading of its January 31, 1996 Resolution granting Aerocoms Manifestation and
Motion, (as heretofore quoted), as well as the May 7, 1996 Resolution denying the motion for
reconsideration, the Sandiganbayan has virtually passed upon the pivotal issue involved in
Aerocoms complaint for the declaration of nullity of the writ of sequestration (Civil Case No.
0044)i.e., whether or not Aerocoms sequestration was in order. That courts finding to the
effect that Aerocom was not validly sequestered, clearly, was a final adjudication on the
merits which is reviewable by the appellate court only through an appeal under Rule 45 of
the Rules of Court. The PCGG should have availed of the remedy of appeal filed within the
statutory fifteen (15)-day period and not a petition for certiorari, as the arguments the PCGG
propounds in support of its challenge on the Sandiganbayan Resolutions would amount to a
digging into the merits and unearthing errors of judgment.13 At this juncture, [i]t must
emphatically be reiter_______________
9 Rollo, pp. 28-36, Annex B.

10 Rollo, p. 82.
11 Rollo, pp. 91-111.

12 Rollo, pp. 132-138.
13 Valdez, Jr. v. COMELEC, G.R. No. 85129, Jan. 31, 1989, En Banc Minute Resolution, citing
Padilla v. Commission on Elections, 137 SCRA 424, Batino, Jr. v. Commission on Elections,
137 SCRA 698, Francis N. Tolentino, et al. v. Commission on Elections, et al., G.R. Nos.
83071-72, July 28, 1988.
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ated, to borrow the words of Mr. Justice Regalado in Purefoods Corp. vs. NLRC,14 since so
often is it overlooked, that the special civil action for certiorari is a remedy designed for the
correction of errors of jurisdiction and not errors of judgment. The reason for the rule is
simple. When a court exercises its jurisdiction, an error committed while so engaged does
not deprive it of the jurisdiction being exercised when the error is committed. If it did, every
error committed by a court would deprive it of its jurisdiction and every erroneous judgment
would be a void judgment. This cannot be allowed. The administration of justice would not
survive such a rule. Consequently, an error of judgment that the court may commit in the
exercise of its jurisdiction is not correctable through the original civil action of certiorari.
Equally worth recalling is that certiorari is not and cannot be made a substitute for an appeal
where the latter remedy is available15 but was lost thru the fault or negligence of
petitioner,16 as in this case.
Even if we disregard such procedural flaw, the substantial contentions of the PCGG fail to
invite judgment in its favor.
First. We cannot subscribe to the PCGGs theory that, as the first paragraph of Section 26,
Article XVIII of the Constitution speaks only of The authority to issue. . ., then there is
faithful compliance with the 18-month constitutional deadline by the mere issuance of the
writ of sequestration within that time-frame (June 15, 1988) even if service thereof on
Aerocom was effected thereafter (August 3, 1988).
The obvious intendment behind the 18-month period, as well as the six (6)-month time-limit
for the filing of the corresponding judicial action, is to ensure the protection of property
rights and to serve as a necessary safeguard against an overzealous exercise by the State,
acting as bounty-hunters so to speak, of its power of sequestration which, as described
_______________
14 171 SCRA 415.

15 Del Rosario v. Balagot, 166 SCRA 429.
16 Jose v. Zulueta, 2 SCRA 574; Ago v. Buslon, 10 SCRA 202; Florendo v. CFI, 104 Phil. 661;
Dela Cruz v. IAC, 134 SCRA 417.
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by Justice Ameurfina Melencio-Herrera in her concurring opinion in BASECO v. PCGG,17 is an
extra-ordinary, harsh and severe remedy. For this reason, (I)t should be confined, J.
Herrera continues, to its lawful parameters and exercised, with due regard, in the words of
its enabling laws, to the requirements of fairness, due process, and Justice. The probable
evil of governmental abuse is best avoided and the dictates of fairness, due process and
Justice are truly heeded under an interpretation of Section 26, Article XVIII as requiring
both the issuance of the writ and notification to, or more precisely, the acquisition of
jurisdiction over the entity/entities to be sequestered via valid service thereof, to be effected
within the 18-month period. A writ of sequestration, therefore, runs the risk of being struck
down as invalid if and when the twin requirements of issuance and service are not satisfied
within the deadline.
Such is the fate of the subject writ of sequestration, unfortunately. Whether the 18-month
period expired on July 26, 1988 (as claimed by Aerocom, in line with the computation of time
under Article 13 of the Civil Code and the ruling in National Marketing Corp. v. Tecson, 29
SCRA 70) or on August 2, 1988 (the PCGGs position), the fact remains that service of the
writ on Aerocom on August 3, 1988 was made beyond these dates. The PCGGs theory that
the mere issuance of the writ within the 18-month deadline will suffice, is just too dangerous
to accept. Imagine a scenario where the PCGG may have actually tarried in the issuance of
the sequestration order to the prejudice of the would-be sequestered entity, and all that the
PCGG has to do to cover its mistake is to conveniently ante-date the writ so as to feign
timely compliance. That would, in effect, be allowing the PCGG to employ a subterfuge to
validate what may in fact be a purely whimsical, unfounded and an afterthought takeover
of corporate property. The Constitution does not and can never tolerate such a deceptive
maneuver. Service of the writ of sequestration within the 18-month period, then, is an
impera_______________
17 150 SCRA 181, May 27, 1987.

648
648
tive measure to guard against this kind of mischief, for it will certainly give the assurance
that the writ was genuinely issued within that constitutional deadline.
Second. The PCGG cannot justify its failure, as found by the Sandiganbayan,18 to file the
corresponding judicial action against Aerocom within the six (6)-month period as provided
for under the same constitutional provision in focus (Section 26, Article XVIII, second
paragraph) by the fact that Aerocom was mentioned in the complaint of the PCGG in Civil
Case No. 0009 (the Nieto, Africa, et al. case) and in Annex A thereof notwithstanding that
Aerocom was not impleaded as party-defendant, and on the argument that the filing of Civil
Case No. 0009 against the Nieto, Africa, et al. group is enough compliance with the
judicial action requirement. The case of Republic v. Sandiganbayan, 240 SCRA 376, January
23, 1995, relied upon by the PCGG, has no rightful application, inasmuch as this Courts
pronouncements therein, in answer to this crucial question:
DOES INCLUSION IN THE COMPLAINTS FILED BY THE PCGG BEFORE THE SANDIGANBAYAN
OF SPECIFIC ALLEGATIONS OF CORPORATIONS BEING DUMMIES OR UNDER THE CONTROL
OF ONE OR ANOTHER OF THE DEFENDANTS NAMED THEREIN AND USED AS INSTRUMENTS
FOR ACQUISITION, OR AS BEING DEPOSITARIES OR PRODUCTS, OF ILL-GOTTEN WEALTH; OR
THE ANNEXING TO SAID COMPLAINTS OF A LIST OF SAID FIRMS, BUT WITHOUT ACTUALLY
IMPLEADING THEM AS DEFENDANTS, SATISFY THE CONSTITUTIONAL REQUIREMENT THAT IN
ORDER TO MAINTAIN A SEIZURE EFFECTED IN ACCORDANCE WITH EXECUTIVE ORDER NO. 1,
s. 1986, THE CORRESPONDING JUDICIAL ACTION OR PROCEEDING SHOULD BE FILED
WITHIN THE SIX-MONTH PERIOD PRESCRIBED IN SECTION 26, ARTICLE XVIII, OF THE (1987)
CONSTITUTION?,
presuppose a valid and existing sequestration of the unimpleaded corporation/s concerned.
Thus
_______________
18 Resolution of May 7, 1996 denying the PCGGs motion for reconsideration, p. 6.

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1) Section 26, Article XVIII of the Constitution does not, by its terms or any fair
interpretation thereof, require that corporations or business enterprises alleged to be
repositories of ill-gotten wealth, as the term is used in said provision, be actually and
formally impleaded in the actions for the recovery thereof, in order to maintain in effect
existing sequestrations thereof;
2) complaints for the recovery of ill-gotten wealth which merely identify and/or allege said
corporations or enterprises to be the instruments, repositories or the fruits of ill-gotten
wealth, without more, come within the meaning of the phrase corresponding judicial action
or proceeding contemplated by the constitutional provision referred to; the more so, that
normally, said corporations, as distinguished from their stockholders or members, are not
generally suable for the latters illegal or criminal actuations in the acquisition of the assets
invested by them in the former;
3) even assuming the impleading of said corporations to be necessary and proper so that
judgment may comprehensively and effectively be rendered in the actions, amendment of
the complaints to implead them as defendants may, under existing rules of procedure, be
done at any time during the pendency of the actions thereby initiated, and even during the
pendency of an appeal to the Supreme Courta procedure that, in any case, is not
inconsistent with or proscribed by the constitutional time limits to the filing of the
corresponding complaints fori.e., with regard or in relation to, in respect of, or in
connection with, or concerningorders of sequestration, freezing, or provisional takeover. x
xx
xxx
x x x (italics supplied)
There is no existing sequestration to talk about in this case, as the writ issued against
Aerocom, to repeat, is invalid for reasons hereinbefore stated. Ergo, the suit in Civil Case No.
0009 against Mr. Nieto and Mr. Africa as shareholders in Aerocom is not and cannot ipso
facto be a suit against the unimpleaded Aerocom itself without violating the fundamental
principle that a corporation has a legal personality distinct and separate from its
stockholders. Such is the ruling laid down in PCGG v. Interco 19 reiterated anew in a case of
more recent vintageRepublic v. Sandiganbayan, Sipalay Trading
_______________
19 G.R. No. 92755, July 26, 1991, En Banc Minute Resolution.

650
650
Corp. and Allied Banking Corp.20 where this Court, speaking through Mr. Justice Ricardo J.
Francisco,21 hewed to the lone dissent of Mr. Justice Teodoro R. Padilla22 in the very same
Republic v. Sandiganbayan case herein invoked by the PCGG, to wit:
x x x failure to implead these corporations as defendants and merely annexing a list of such
corporations to the complaints is a violation of their right to due process for it would in effect
be disregarding their distinct and separate personality without a hearing.
In cases where stocks of a corporation were allegedly the fruits of ill-gotten wealth, it
should be remembered that in most of these cases the stocks involved constitute a
substantial if not controlling interest in the corporations. The basic tenets of fair play
demand that these corporations be impleaded as defendants since a judgment in favor of
the government will undoubtedly substantially and decisively affect the corporations as
distinct entities. The judgment could strip them of everything without being previously heard
as they are not parties to the action in which the judgment is rendered.
x x x. Holding that the corresponding judicial action or proceeding contemplated by the
Constitution is any action concerning or involving the corporation under sequestration is
oversimplifying the solution, the result of which is antagonistic to the principles of justice
and fair play.
x x x the actions contemplated by the Constitution should be those which include the
corporation not as a mere annex to the complaint but as defendant. This is the minimum
requirement of the due process guarantee. Short of being impleaded, the corporation has no
standing in the judicial action. It cannot adequately defend itself. It may not even be heard.
On the x x x opinion that alternatively the corporations can be impleaded as defendants by
amendment of the complaint, Section 26, Article XVIII of the Constitution would appear to
preclude this procedure, for allowing amendment of the complaint to implead theretofore
unimpleaded corporations would in effect allow com_______________
20 255 SCRA 438, March 29, 1996.

21 Retired on February 13, 1998.
22 Retired on August 24, 1997.
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651
plaints against the corporation to be filed beyond the periods fixed by said Section 26.
xxx
xxx
xxx
While government efforts to recover illegally amassed wealth should have support from all
its branches, eagerness and zeal should not be allowed to run berserk, overriding in the
process the very principles that it is sworn to uphold. In our legal system, the ends do not
always justify the means. Wrongs are never corrected by committing other wrongs, and as
above-discussed the recovery of ill-gotten wealth does not and should never justify
unreasonable intrusions into constitutionally forbidden grounds. x x x.
The last area of discussion touches on the doctrine of estoppel. Let us rewind the events for
a clear understanding of the issue involved.
During the pendency of the Aerocom complaint against the PCGG, the latter approved the
release of the cash dividends declared in the years 1989, 1991 and 1993 accruing to the
shares of stock of Aerocom in the Philippine Overseas Telecommunications Co. (POTC) per
PCGG Certification dated June 29, 199323 and Resolution No. 94-066 dated May 6, 1994
which read, respectively:
OFFICE OF THE PRESIDENT
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
CERTIFICATION
This is to certify that the following is an excerpt of the Minutes of the Executive Committee
Meeting held on June 18, 1993 at the PCGG Commission Room, 6th Floor, Philcomcen Bldg.,
Pasig, Metro Manila:
03 POTC/AEROCOM INVESTORS, INC./MANUEL NIETO, JR.
After deliberation on the letter-request dated May 30, 1993 of Aerocom Investors, Inc. and
Mr. Manuel Nieto, Jr. thru counsel, the Commission has resolved to approve the release of the
POTC cash dividends declared in 1989 and 1991.
_______________
23 Rollo, p. 124.
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652
The Chairman further instructed Comm. Guiao to pursue the settlement with Mr. Nieto on
more favorable terms to the government.
Done on this 29th day of June, 1993 at Pasig, Metro Manila, Philippines.
CERTIFIED CORRECT:
(SGD.)
ELIZABETH J. TRINIDAD
Commission Secretary
____________________
______________________
REPUBLIC OF THE PHILIPPINES

OFFICE OF THE PRESIDENT
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
RESOLUTION NO. 94-066
WHEREAS, the request of Polygon Investors, Inc. and Mr. Jose Africa and Aerocom Investors
& Managers, Inc. and Mr. Manuel H. Nieto, Jr. was taken up in the Executive Committee
Meeting of this Commission held on May 5, 1994;
WHEREAS, it appears that Mr. Jose Africa and Mr. Manuel H. Nieto, Jr. are both defendants in
Civil Case No. 009 before the Sandiganbayan, and representation has been made that
Aerocom Investors & Managers, Inc. is not sequestered.
NOW, THEREFORE, RESOLVED, AS IT IS HEREBY RESOLVED, that the PRESIDENTIAL
COMMISSION ON GOOD GOVERNMENT (PCGG) hereby interposes no objection to the release
of the cash dividends declared in 1993 and accruing to the shares of stock in Philippine
Overseas Telecommunications Co. (POTC) registered under the name of Aerocom Investors &
Managers, Inc., except the cash dividends pertaining to the personal shares of stock of Mr.
Manuel Nieto, Jr. in POTC and likewise, his shares of stock in Aerocom Investors & Managers,
Inc.
On the other hand, the release of the cash dividends declared in 1993 and previous years
which are accruing to the shares of stock in POTC registered in the name of Polygon
Investors, Inc. and Mr. Jose Africa is hereby deferred.
DONE this 6th day of May, 1994 at Pasig, Metro Manila.
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(SGD.)
MAGTANGGOL C. GUNIGUNDO
Chairman
(SGD.)
(SGD.)
HERMILO R. ROSAL
REYNALDO S. GUIAO
Commissioner
Commissioner
(SGD.)
(SGD.)
HERMINIO A. MENDOZA
JULIET C. BERTUBEN
Commissioner
Commissioner
The PCGG issued the aforequoted Certification and Resolution 94-066 apparently on the
basis of a Memorandum24 prepared by Atty. Ismael B. Sanchez, former legal counsel of
the PCGG, advising the latter not to interpose any objection to the release of the POTC cash
dividends. A portion of the Memorandum reads:
THE ISSUES:
1. Is there legal basis to withhold the release of the POTC cash dividends declared in 1989
and 1991 in favor of Mr. Nieto and Aerocom?
2. Was the sequestration order over Aerocom issued validly?
As to the first issue.
As resolved by the Sandiganbayan in its Resolution of October 2, 1991 and January 25,
1993, the PCGG has no authority to withhold satisfaction and release of dividends to
stockholders whose shares in POTC are not and have never been sequestered. Thus, the
Sandiganbayan ruled:
We have gone over the pleadings filed by the parties, and we find that herein petitioners,
whose stockholdings in the POTC are not sequestered, have the right to the payment of their
respective dividends. Respondent PCGG has no authority to withhold satisfaction and release
of the same.
There is nothing in the records of the Commission to show that a sequestration order issued
against the shares of Mr. Nieto, Jr. and Aerocom in POTC. A distinction must be made in the
matter of
_______________
24 Rollo, pp. 120-123.

654
654
sequestration of the corporation itself and the sequestration of corporate shareholdings in
another corporation. (Please see NOTE above regarding sequestration of Aerocom) The
sequestration refers to Aerocom as a corporation.
Being similarly situated as the petitioners in Sandiganbayan Civil Case No. 118 and
considering the relevant facts stated above, it is the opinion of the undersigned that the
POTC dividends due Mr. Nieto and Aerocom may be released to them.
As to the second issue.
With respect to the writ of sequestration issued on June 15, 1988 against Aerocom and
served on August 3, 1988, the following points are to be considered:
(1) It may be argued that this writ is a midnight sequestration order considering the date
of its issuance and the date it was served on Aerocom, that is, four (4) days before the
expiration of the authority of PCGG to issue sequestration or freeze order as provided under
Section 26, Article XVIII of the 1987 Constitution.
(2) The sequestration order in question was issued after the effectivity of the 1987
Constitution exactly on June 15, 1988. As such, the sequestration order can only be issued
upon showing a prima facie case of ill-gotten wealth. Nothing was mentioned in the writ
against Aerocom of any ground or basis for its issuance. It just stated that the company is
placed under sequestration.
(3) Even assuming that it was valid when issued, the sequestration order was never
implemented. In fact, in Sandiganbayan Civil Case No. 044, the PCGG through the Office of
the Solicitor General agreed not to implement the sequestration order as earlier discussed.
(4) PCGG has not filed any action against Aerocom. In the Interco case, the Supreme Court,
citing Section 26, Article XVIII of the Constitution, has ruled and held the sequestration or
freeze order is deemed automatically lifted if no judicial action or proceeding is commenced
as herein provided. Any action or proceeding against Aerocom should have been
commenced or filed within six (6) months from June 15, 1988.
CONCLUSION:
IN VIEW OF ALL THE FOREGOING, it is our considered opinion and recommendation that the
Commission interpose no
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655
objection to the release of the POTC cash dividends declared in 1989 and 1991 in favor of
Mr. Nieto, Jr. and Aerocom Investors, Inc.
Furthermore, appropriate instruction be given to the assigned Asset Monitor in POTC to
approve the corresponding checks covering the cash dividends due Mr. Nieto, Jr. and
Aerocom Investors, Inc.
(SGD.)
ISMAEL B. SANCHEZ
Taking into account these documents, the Sandiganbayan thus found the PCGG to be in
estoppel from denying the non-sequestered status of Aerocom and from refusing the release
of cash dividends in favor of the latter. The PCGG takes exception to this finding on the claim
that the State should not be held vulnerable to estoppel for the acts of past officials.
The PCGGs contention is not persuasive under the attendant circumstances. While we agree
with the statement that the State is immune from estoppel, this concept, as clarified by this
Court thru Mr. Justice Melo in Republic v. Sandiganbayan, et al. 25 is understood to refer to
acts and mistakes of its officials especially those which are irregular.26 Here, other than its
bare assertion that Atty. Sanchezs Opinion is illegal and prejudicial, the PCGG has not
presented convincing evidence to prove irregularity or negligence on the part of Atty.
Sanchez in rendering his Opinion favorable to Aerocom. In fact, no less than PCGG
Chairman Magtanggol Gunigundo and the rest of the Commissioners clearly heeded the
recommendation of Atty. Sanchez by affixing their signatures on Resolution No. 94-066
allowing the release of the cash dividends declared in 1993 accruing to Aerocoms shares of
stock in POTC. Elementary notions of consistency and fair play call upon the PCGG to honor
the release of the cash dividends presently requested by Aerocom, after a similar
commitment has been collectively confirmed by its commissioners
_______________
25 226 SCRA 314, September 10, 1993.

26 Citing Sharp International Marketing v. CA, 201 SCRA 299 and Republic v. Aquino, 120
SCRA 186.
656
656
in black and white. A ruling to the contrary, in the erudite language of Justice Escareal of
the Sandiganbayan as adopted in Republic v. Sandiganbayan, 226 SCRA 314, is not only
illogical and irrational, but inequitable and pernicious as well, for it may open the door for
capricious adventurism on the part of the policy-makers of the land, and disregard for the
majesty of the law, which could ultimately bring about the citizenrys loss of faith and
confidence in the sincerity of the government in its dealings with the governed.
WHEREFORE, the instant petition is hereby DISMISSED. The assailed Resolutions of the
Sandiganbayan promulgated on January 31, 1996 and May 7, 1996 are AFFIRMED in their
entirety.
SO ORDERED.
Regalado (Chairman), Puno and Mendoza, JJ., concur.
Melo, J., On leave.
Petition dismissed. Resolutions affirmed in toto.
Notes.Sequestration, etc., in order to be valid, must have factual basis and must accord
due process to the parties thereby affected. (Republic vs. Sandiganbayan, 206 SCRA 506
[1992])
The power to sequester carries with it the corollary duty to make a preliminary
determination of whether there is a reasonable basis for sequestering a property alleged to
be ill-gottenthe PCGG clearly has to use its own judgment in determining the existence of
a prima facie case. (Reyes vs. Sandiganbayan, 258 SCRA 685 [1996])
o0o
[Presidential Commission on Good Government vs. Sandiganbayan, 290 SCRA 639(1998)]
G.R. No. 120077. October 13, 2000.*

THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD., petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION, ARBITER CEFERINA J. DIOSANA AND MARCELO C. SANTOS,
respondents.
Certiorari; Pleadings and Practice; Where the petition involves pure questions of law, the
same may be exempted from the ruling in St. Martin Funeral Home v. NLRC, 295 SCRA 494
(1998).On October 7, 1997, we resolved to give due course to the petition (Rollo, p. 217).
Petitioners filed their memorandum on December 1, 1997. The petition involves pure
questions of law; thus, we except this case from the ruling in St. Martin Funeral Home vs.
NLRC, 295 SCRA 494 [1998]. Rather than refer the case to the Court of Appeals, whose
decision would be appealable to the Supreme Court, our ruling would finally put an end to
the litigation.
______________
* FIRST DIVISION.
2
2
Manila Hotel Corp. vs. National Labor Relations Commission
Conflict of Laws; Forum Non Conveniens; Not all cases involving Filipino citizens can be tried
in the Philippines.The NLRC was a seriously inconvenient forum. We note that the main
aspects of the case transpired in two foreign jurisdictions and the case involves purely
foreign elements. The only link that the Philippines has with the case is that respondent
Santos is a Filipino citizen. The Palace Hotel, and MHICL are foreign corporations. Not all
cases involving our citizens can be tried here. The employment contract.Respondent
Santos was hired directly by the Palace Hotel, a foreign employer, through correspondence
sent to the Sultanate of Oman, where respondent Santos was then employed. He was hired
without the intervention of the POEA or any authorized recruitment agency of the
government.
Same; Same; Requisites before a Philippine court or agency may assume jurisdiction over a
conflict of laws case.Under the rule of forum non conveniens, a Philippine court or agency
may assume jurisdiction over the case if it chooses to do so provided: (1) that the Philippine
court is one to which the parties may conveniently resort to; (2) that the Philippine court is
in a position to make an intelligent decision as to the law and the facts; and (3) that the
Philippine court has or is likely to have power to enforce its decision. The conditions are
unavailing in the case at bar.
Same; Same; Labor Law; The Supreme Court cannot see how the NLRC is a convenient
forum where all the incidents of the casefrom the time of recruitment, to employment to
dismissal occurred outside the Philippines, an inconvenience is compounded by the fact that
the proper defendants are not nationals of the Philippines.We fail to see how the NLRC is a
convenient forum given that all the incidents of the casefrom the time of recruitment, to
employment to dismissal occurred outside the Philippines. The inconvenience is
compounded by the fact that the proper defendants, the Palace Hotel and MHICL are not
nationals of the Philippines. Neither are they doing business in the Philippines. Likewise,
the main witnesses, Mr. Shmidt and Mr. Henk are non-residents of the Philippines.
Same; Same; Same; An intelligent decision cannot be made as to the law governing the
employment contract where the same was perfected in foreign soil.Neither can an
intelligent decision be made as to the law governing the employment contract as such was
perfected in foreign soil. This calls to fore the application of the principle of lex loci
contractus (the law of the place where the contract was made). The employment contract
was not perfected in the Philippines. Respondent Santos signified his
3
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3
acceptance by writing a letter while he was in the Republic of Oman. This letter was sent to
the Palace Hotel in the Peoples Republic of China.
Same; Same; Same; The NLRC cannot determine the facts surrounding the alleged illegal
dismissal where all acts complained of took place in a foreign country.Neither can the
NLRC determine the facts surrounding the alleged illegal dismissal as all acts complained of
took place in Beijing, Peoples Republic of China. The NLRC was not in a position to
determine whether the Tiannamen Square incident truly adversely affected operations of the
Palace Hotel as to justify respondent Santos retrenchment.
Same; Same; Same: Principle of Effectiveness; Jurisdiction; Even if a proper decision could
be reached by the NLRC, the same would not have any binding effect against the foreign
employer, an incorporated under the laws of a foreign state which was not even served with
summons.Even assuming that a proper decision could be reached by the NLRC, such
would not have any binding effect against the employer, the Palace Hotel. The Palace Hotel
is a corporation incorporated under the laws of China and was not even served with
summons. Jurisdiction over its person was not acquired.
Corporation Law; Piercing the Veil of Corporate Fiction; The fact that a corporation owns fifty
percent (50%) of the capital stock of another corporation is not enough to pierce the veil of
corporate fiction between the two corporations.Even if we assume two things: (1) that the
NLRC had jurisdiction over the case, and (2) that MHICL was liable for Santos retrenchment,
still MHC, as a separate and distinct juridical entity, cannot be held liable. True, MHC is an
incorporator of MHICL and owns fifty percent (50%) of its capital stock. However, this is not
enough to pierce the veil of corporate fiction between MHICL and MHC. Piercing the veil of
corporate entity is an equitable remedy. It is resorted to when the corporate fiction is used to
defeat public convenience, justify wrong, protect fraud or defend a crime. It is done only
when a corporation is a mere alter ego or business conduit of a person or another

corporation.
Same; Same; Tests in determining whether the corporate veil may be pierced.The tests in
determining whether the corporate veil may be pierced are: First, the defendant must have
control or complete domination of the other corporations finances, policy and business
practices with regard to the transaction attacked. There must be proof that the other
corporation had no separate mind, will or existence with respect the act complained of.
Second, control must be used by the defendant to commit
4
4
fraud or wrong. Third, the aforesaid control or breach of duty must be the proximate cause
of the injury or loss complained of. The absence of any of the elements prevents the piercing
of the corporate veil.
Same; Same; Evidence; Clear and convincing evidence is needed to pierce the veil of
corporate fiction.It is basic that a corporation has a personality separate and distinct from
those composing it as well as from that of any other legal entity to which it may be related.
Clear and convincing evidence is needed to pierce the veil of corporate fiction. In this case,
we find no evidence to show that MHICL and MHC are one and the same entity.
Evidence; Witnesses; Words and Phrases; When one notes a contract, one is not
expressing his agreement or approval, as a party would the person so noting has merely
taken cognizance of the existence of an act or declaration, without exercising a judicious
deliberation or rendering a decision on the matter.When one notes a contract, one is not
expressing his agreement or approval, as a party would. In Sichangco v. Board of
Commissioners of Immigration, the Court recognized that the term noted means that the
person so noting has merely taken cognizance of the existence of an act or declaration,
without exercising a judicious deliberation or rendering a decision on the matter.
Same; Same; Same; The witnessing part of the document is that which, in a deed or other
formal instrument is that part which comes after the recitals, or where there are no recitals,
after the parties.Mr. Cergueda merely signed the witnessing part of the document. The
witnessing part of the document is that which, in a deed or other formal instrument is
that part which comes after the recitals, or where there are no recitals, after the parties
(emphasis ours). As opposed to a party to a contract, a witness is simply one who, being
present, personally sees or perceives a thing; a beholder, a spectator, or eyewitness. One
who notes something just makes a brief written statement a memorandum or
observation.
Labor Law; Employer-Employee Relationships; Elements.More importantly, there was no
existing employer-employee relationship between Santos and MHICL. In determining the
existence of an employer-employee relationship, the following elements are considered: (1)
the selection and engagement of the employee; (2) the payment of wages; (3) the power
to dismiss; and (4) the power to control employees conduct.
5
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5
Corporation Law; Piercing the Veil of Corporate Fiction; The fact that the Palace Hotel is a
member of the Manila Hotel Group is not enough to pierce the corporate veil.Likewise,
there is no evidence to show that the Palace Hotel and MHICL are one and the same entity.
The fact that the Palace Hotel is a member of the Manila Hotel Group is not enough to
pierce the corporate veil between MHICL and the Palace Hotel.

Office of the Government Corporate Counsel for petitioners.
Genie Castillo Quilas for private respondent.
PARDO, J.:
The case before the Court is a petition for certiorari1 to annul the following orders of the
National Labor Relations Commission (hereinafter referred to as NLRC) for having been
issued without or with excess jurisdiction and with grave abuse of discretion:2
(1)Order of May 31, 1993.3 Reversing and setting aside its earlier resolution of August 28,
1992.4 The questioned order declared that the NLRC, not the Philippine Overseas
Employment Administration (hereinafter referred to as POEA), had jurisdiction over private
respondents complaint;
(2)Decision of December 15, 1994.5 Directing petitioners to jointly and severally pay private
respondent twelve thousand and six hundred dollars (US$12,600.00) representing salaries
for the unexpired portion of his contract; three thousand six hundred dollars (US$3,600.00)
as extra four months salary for the two (2) year
_______________
1 Under Rule 65, 1964 Revised Rules of Court.

2 Rollo, pp. 2-6.
3 In NLRC NCR CA No. 002101-91 (NLRC NCR Case No. 00-02-01058-90), Commissioner
Vicente S.E. Veloso, ponente, concurred in by Commissioners Edna Bonto Perez and Alberto
R. Quimpo.
4 Penned by Commissioner V.S.E. Veloso and concurred in by Commissioners Bartolome S.
Carale and Romeo H. Putong.
5 Penned by Commissioner V.S.E. Veloso and concurred in by Commissioners B.S. Carale and
A.R. Quimpo.
6
period of his contract, three thousand six hundred dollars (US$3,600.00) as 14th month
pay or a total of nineteen thousand and eight hundred dollars (US$19,800.00) or its peso
equivalent and attorneys fees amounting to ten percent (10%) of the total award; and
(3)Order of March 30, 1995.6 Denying the motion for reconsideration of the petitioners.
In May, 1988, private respondent Marcelo Santos (hereinafter referred to as Santos) was
an overseas worker employed as a printer at the Mazoon Printing Press, Sultanate of Oman.
Subsequently, in June 1988, he was directly hired by the Palace Hotel, Beijing, Peoples
Republic of China and later terminated due to retrenchment.
Petitioners are the Manila Hotel Corporation (hereinafter referred to as MHC) and the
Manila Hotel International Company, Limited (hereinafter referred to as MHICL).
When the case was filed in 1990, MHC was still a government-owned and controlled
corporation duly organized and existing under the laws of the Philippines.
MHICL is a corporation duly organized and existing under the laws of Hong Kong.7 MHC is an
incorporator of MHICL, owning 50% of its capital stock.8
By virtue of a management agreement9 with the Palace Hotel (Wang Fu Company
Limited), MHICL10 trained the personnel and staff of the Palace Hotel at Beijing, China.
Now the facts.
During his employment with the Mazoon Printing Press in the Sultanate of Oman, respondent
Santos received a letter dated May
_______________
6 Ibid.
7 With principal office at 18094 Swire House Charter Road. Hongkong, as shown by its
Articles of Association dated May 23, 1986.
8 MHC represented by its President Victor Sison and the Philippine Agency limited
represented by its Director, Francis Cheung Kwoh-Nean are MHICLs incorporators (Rollo, p.
76).
9 The management agreement was terminated on April 1, 1990.
10 Rollo, p. 71.
7
VOL. 343, OCTOBER 13, 2000
7
2, 1988 from Mr. Gerhard R. Shmidt, General Manager, Palace Hotel, Beijing, China. Mr.
Schmidt informed respondent Santos that he was recommended by one Nestor Buenio, a
friend of his.
Mr. Shmidt offered respondent Santos the same position as printer, but with a higher
monthly salary and increased benefits. The position was slated to open on October 1,
1988.11
On May 8, 1988, respondent Santos wrote to Mr. Shmidt and signified his acceptance of the
offer.
On May 19, 1988, the Palace Hotel Manager, Mr. Hans J. Henk mailed a ready to sign
employment contract to respondent Santos. Mr. Henk advised respondent Santos that if the
contract was acceptable, to return the same to Mr. Henk in Manila, together with his
passport and two additional pictures for his visa to China.
On May 30, 1988, respondent Santos resigned from the Mazoon Printing Press, effective June
30, 1988, under the pretext that he was needed at home to help with the familys piggery
and poultry business.
On June 4, 1988, respondent Santos wrote the Palace Hotel and acknowledged Mr. Henks
letter. Respondent Santos enclosed four (4) signed copies of the employment contract
(dated June 4, 1988) and notified them that he was going to arrive in Manila during the first
week of July 1988.
The employment contract of June 4, 1988 stated that his employment would commence
September 1, 1988 for a period of two years.12 It provided for a monthly salary of nine
hundred dollars (US$900.00) net of taxes, payable fourteen (14) times a year.13
On June 30, 1988, respondent Santos was deemed resigned from the Mazoon Printing Press.
On July 1, 1988, respondent Santos arrived in Manila.
On November 5, 1988, respondent Santos left for Beijing, China. He started to work at the
Palace Hotel.14
_______________
11 Ibid., p. 65.
12 Ibid., p. 96.
13 Rollo, p. 65.
14 Ibid., p. 97.
8
8

Subsequently, respondent Santos signed an amended employment agreement with the
Palace Hotel, effective November 5, 1988. In the contract, Mr. Shmidt represented the Palace
Hotel. The Vice President (Operations and Development) of petitioner MHICL Miguel D.
Cergueda signed the employment agreement under the word noted.
From June 8 to 29, 1989, respondent Santos was in the Philippines on vacation leave. He
returned to China and reassumed his post on July 17, 1989.
On July 22, 1989, Mr. Shmidts Executive Secretary, a certain Joanna suggested in a
handwritten note that respondent Santos be given one (1) month notice of his release from
employment.
On August 10, 1989, the Palace Hotel informed respondent Santos by letter signed by Mr.
Shmidt that his employment at the Palace Hotel print shop would be terminated due to
business reverses brought about by the political upheaval in China.15 We quote the letter:16
After the unfortunate happenings in China and especially Beijing (referring to Tiannamen
Square incidents), our business has been severely affected. To reduce expenses, we will not
open/operate printshop for the time being.
We sincerely regret that a decision like this has to be made, but rest assured this does in no
way reflect your past performance which we found up to our expectations.
Should a turnaround in the business happen, we will contact you directly and give you
priority on future assignment.
On September 5, 1989, the Palace Hotel terminated the employment of respondent Santos
and paid all benefits due him, including his plane fare back to the Philippines.
On October 3, 1989, respondent Santos was repatriated to the Philippines.
_______________
15 Rollo, pp. 8-14.

16 Rollo, p. 66.
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9
On October 24, 1989, respondent Santos, through his lawyer, Atty. Ednave wrote Mr. Shmidt,
demanding full compensation pursuant to the employment agreement.
On November 11, 1989, Mr. Shmidt replied, to wit:17
His service with the Palace Hotel, Beijing was not abruptly terminated but we followed the
one-month notice clause and Mr. Santos received all benefits due him.
For your information, the Print Shop at the Palace Hotel is still not operational and with a
low business outlook, retrenchment in various departments of the hotel is going on which is
a normal management practice to control costs.
When going through the latest performance ratings, please also be advised that his
performance was below average and a Chinese National who is doing his job now shows a
better approach.
In closing, when Mr. Santos received the letter of notice, he hardly showed up for work but
still enjoyed free accommodation/laundry/meals up to the day of his departure.
On February 20, 1990, respondent Santos filed a complaint for illegal dismissal with the
Arbitration Branch, National Capital Region, National Labor Relations Commission (NLRC). He
prayed for an award of nineteen thousand nine hundred and twenty three dollars
(US$19,923.00) as actual damages, forty thousand pesos (P40,000.00) as exemplary
damages and attorneys fees equivalent to 20% of the damages prayed for. The complaint
named MHC, MHICL, the Palace Hotel and Mr. Shmidt as respondents.
The Palace Hotel and Mr. Shmidt were not served with summons and neither participated in
the proceedings before the Labor Arbiter.18
On June 27, 1991, Labor Arbiter Ceferina J. Diosana, decided the case against petitioners,
thus:19
_______________
17 Ibid., pp. 66-67.

18 Rollo, p. 72.
19 Ibid., p. 126.
10
10
WHEREFORE, judgment is hereby rendered:
1. directing all the respondents to pay complainant jointly and severally;
a) $20,820 US dollars or its equivalent in Philippine currency as unearned salaries;
b) P50,000.00 as moral damages;
c) P40,000.00 as exemplary damages; and
d) Ten (10) percent of the total award as attorneys fees.
SO ORDERED.
On July 23, 1991, petitioners appealed to the NLRC, arguing that the POEA, not the NLRC had
jurisdiction over the case.
On August 28, 1992, the NLRC promulgated a resolution, stating:20

WHEREFORE, let the appealed Decision be, as it is hereby, declared null and void for want
of jurisdiction. Complainant is hereby enjoined to file his complaint with the POEA.
SO ORDERED.
On September 18, 1992, respondent Santos moved for reconsideration of the afore-quoted
resolution. He argued that the case was not cognizable by the POEA as he was not an
overseas contract worker.21
On May 31, 1993, the NLRC granted the motion and reversed itself. The NLRC directed Labor
Arbiter Emerson Tumanon to hear the case on the question of whether private respondent
was retrenched or dismissed.22
On January 13, 1994, Labor Arbiter Tumanon completed the proceedings based on the
testimonial and documentary evidence presented to and heard by him.23
_______________
20 Rollo, p. 99.
21 Ibid., pp. 91-92.
22 Ibid., pp. 81-83.
23 Rollo, p. 52.
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11
Subsequently, Labor Arbiter Tumanon was re-assigned as trial arbiter of the National Capital
Region, Arbitration Branch, and the case was transferred to Labor Arbiter Jose C. de Vera.24
On November 25, 1994, Labor Arbiter de Vera submitted his report.25 He found that
respondent Santos was illegally dismissed from employment and recommended that he be
paid actual damages equivalent to his salaries for the unexpired portion of his contract.26
On December 15, 1994, the NLRC ruled in favor of private respondent, to wit:27
WHEREFORE, finding that the report and recommendations of Arbiter de Vera are supported
by substantial evidence, judgment is hereby rendered, directing the respondents to jointly
and severally pay complainant the following computed contractual benefits: (1)
US$12,600.00 as salaries for the unexpired portion of the parties contract; (2) US$3,600.00
as extra four (4) months salary for the two (2) years period (sic) of the parties contract; (3)
US$3,600.00 as 14th month pay for the aforesaid two (2) years contract stipulated by the
parties or a total of US$19,800.00 or its peso equivalent, plus (4) attorneys fees of 10% of
complainants total award.
SO ORDERED.
On February 2, 1995, petitioners filed a motion for reconsideration arguing that Labor Arbiter
de Veras recommendation had no basis in law and in fact.28
On March 30, 1995, the NLRC denied the motion for reconsideration.29
Hence, this petition.30
_______________
24 Ibid., p. 63.
25 Ibid.
26 Ibid., pp. 78-79.
27 Ibid., pp. 79-86.
28 Rollo, pp. 51-62.
29 Rollo, pp. 49-50.
30 Filed on May 22, 1995, Rollo, pp. 2-48. On October 7, 1997, we resolved to give due
course to the petition (Rollo, p. 217). Petitioners filed their memorandum on December 1,
1997. The petition involves pure ques12
12
On October 9, 1995, petitioners filed with this Court an urgent motion for the issuance of a
temporary restraining order and/or writ of preliminary injunction and a motion for the
annulment of the entry of judgment of the NLRC dated July 31, 1995.31
On November 20, 1995, the Court denied petitioners urgent motion. The Court required
respondents to file their respective comments, without giving due course to the petition.32
On March 8, 1996, the Solicitor General filed a manifestation stating that after going over
the petition and its annexes, they can not defend and sustain the position taken by the NLRC
in its assailed decision and orders. The Solicitor General prayed that he be excused from
filing a comment on behalf of the NLRC.33
On April 30, 1996, private respondent Santos filed his comment.34
On June 26, 1996, the Court granted the manifestation of the Solicitor General and required
the NLRC to file its own comment to the petition.35
On January 7, 1997, the NLRC filed its comment.
The petition is meritorious.
I. Forum Non-Conveniens
The NLRC was a seriously inconvenient forum.
We note that the main aspects of the case transpired in two foreign jurisdictions and the
case involves purely foreign elements. The only link that the Philippines has with the case is
that respondent Santos is a Filipino citizen. The Palace Hotel and MHICL are tions of law;
thus, we except this case from the ruling in St. Martin Funeral Home vs. NLRC, 295 SCRA 494
[1998]. Rather than refer the case to the Court of Appeals, whose decision would be
appealable to the Supreme Court, our ruling would finally put an end to the litigation.
_______________
31 Rollo, pp. 127-133.

32 Rollo, p. 140.
33 Rollo, pp. 148-149.
34 Rollo, p. 156.
35 Rollo, p. 157.
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13
foreign corporations. Not all cases involving our citizens can be tried here.
The employment contract.Respondent Santos was hired directly by the Palace Hotel, a
foreign employer, through correspondence sent to the Sultanate of Oman, where respondent
Santos was then employed. He was hired without the intervention of the POEA or any
authorized recruitment agency of the government.36
Under the rule of forum non conveniens, a Philippine court or agency may assume
jurisdiction over the case if it chooses to do so provided: (1) that the Philippine court is one
to which the parties may conveniently resort to; (2) that the Philippine court is in a position
to make an intelligent decision as to the law and the facts; and (3) that the Philippine court
has or is likely to have power to enforce its decision.37 The conditions are unavailing in the
case at bar.
Not Convenient.We fail to see how the NLRC is a convenient forum given that all the
incidents of the casefrom the time of recruitment, to employment to dismissal occurred
outside the Philippines. The inconvenience is compounded by the fact that the proper
defendants, the Palace Hotel and MHICL are not nationals of the Philippines. Neither are they
doing business in the Philippines. Likewise, the main witnesses, Mr. Shmidt and Mr. Henk
are non-residents of the Philippines.
No power to determine applicable law.Neither can an intelligent decision be made as to
the law governing the employment contract as such was perfected in foreign soil. This calls
to fore the application of the principle of lex loci contractus (the law of the place where the
contract was made).38
The employment contract was not perfected in the Philippines. Respondent Santos signified
his acceptance by writing a letter
_______________
36 Rollo, p. 82.
37 Communication Materials and Design, Inc. v. Court of Appeals, 260 SCRA 673, 695
(1996).
38 Triple Eight Integrated Services, Inc. v. NLRC, 299 SCRA 608, 618 (1998).
14
14
while he was in the Republic of Oman. This letter was sent to the Palace Hotel in the Peoples
Republic of China.
No power to determine the facts.Neither can the NLRC determine the facts surrounding the
alleged illegal dismissal as all acts complained of took place in Beijing, Peoples Republic of
China. The NLRC was not in a position to determine whether the Tiannamen Square incident
truly adversely affected operations of the Palace Hotel as to justify respondent Santos
retrenchment.
Principle of effectiveness, no power to execute decision.Even assuming that a proper
decision could be reached by the NLRC, such would not have any binding effect against the
employer, the Palace Hotel. The Palace Hotel is a corporation incorporated under the laws of
China and was not even served with summons. Jurisdiction over its person was not acquired.
This is not to say that Philippine courts and agencies have no power to solve controversies
involving foreign employers. Neither are we saying that we do not have power over an
employment contract executed in a foreign country. If Santos were an overseas contract
worker, a Philippine forum, specifically the POEA, not the NLRC, would protect him.39 He is
not an overseas contract worker a fact which he admits with conviction.40
Even assuming that the NLRC was the proper forum, even on the merits, the NLRCs decision
cannot be sustained.
II. MHC Not Liable
Even if we assume two things: (1) that the NLRC had jurisdiction over the case, and (2) that
MHICL was liable for Santos retrenchment, still MHC, as a separate and distinct juridical
entity cannot be held liable.
_______________
39 Eastern Shipping Lines, Inc. v. POEA, 170 SCRA 54, 57 (1989), There was stated that, the
POEA shall have original and exclusive jurisdiction over all cases, including money claims,
involving employer-employee relationship arising out of or by virtue of any law or contract

involving Filipino workers for overseas employment, including seamen.
40 Rollo, pp. 91-92.
15
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15
True, MHC is an incorporator of MHICL and owns fifty percent (50%) of its capital stock.
However, this is not enough to pierce the veil of corporate fiction between MHICL and MHC.
Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend
a crime.41 It is done only when a corporation is a mere alter ego or business conduit of a
person or another corporation.
In Traders Royal Bank v. Court of Appeals,42 we held that the mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation
is not of itself a sufficient reason for disregarding the fiction of separate corporate
personalities.
The tests in determining whether the corporate veil may be pierced are: First, the defendant
must have control or complete domination of the other corporations finances, policy and
business practices with regard to the transaction attacked. There must be proof that the
other corporation had no separate mind, will or existence with respect the act complained of.
Second, control must be used by the defendant to commit fraud or wrong. Third, the
aforesaid control or breach of duty must be the proximate cause of the injury or loss
complained of. The absence of any of the elements prevents the piercing of the corporate
veil.43
It is basic that a corporation has a personality separate and distinct from those composing it
as well as from that of any other legal entity to which it may be related.44 Clear and
convincing evidence is needed to pierce the veil of corporate fiction.45 In this case, we
_______________
41 San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 296 SCRA 631, 649650 (1998); Complex Electronics Employees Association v. NLRC, 310 SCRA 403, 417-418
(1999).
42 269 SCRA 15, 29-30 (1997).
43 Rufina Luy Lim v. Court of Appeals, G.R. No. 124715, January 24, 2000, 323 SCRA 102.
44 ARB Construction Co., Inc. v. Court of Appeals, G.R. No. 126554, May 31, 2000, 332 SCRA
427.
45 Laguio v. National Labor Relations Commission, 262 SCRA 715, 720-721 (1996); De La
Salle University v. De La Salle University Employ-
16
16
find no evidence to show that MHICL and MHC are one and the same entity.
III. MHICL not liable
Respondent Santos predicates MHICLs liability on the fact that MHICL signed his
employment contract with the Palace Hotel. This fact fails to persuade us.
First, we note that the Vice President (Operations and Development) of MHICL, Miguel D.
Cergueda signed the employment contract as a mere witness. He merely signed under the
word noted.
When one notes a contract, one is not expressing his agreement or approval, as a party
would.46 In Sichangco v. Board of Commissioners of Immigration,47 the Court recognized
that the term noted means that the person so noting has merely taken cognizance of the
existence of an act or declaration, without exercising a judicious deliberation or rendering a
decision on the matter.
Mr. Cergueda merely signed the witnessing part of the document. The witnessing part of
the document is that which, in a deed or other formal instrument is that part which comes
after the recitals, or where there are no recitals, after the parties (emphasis ours).48 As
opposed to a party to a contract, a witness is simply one who, being present, personally
sees or perceives a thing; a beholder, a spectator, or eyewitness.49 One who notes
something just makes a brief written statement50 a memorandum or observation.
Second, and more importantly, there was no existing employer-employee relationship
between Santos and MHICL. In determining
_______________
ees Association, G.R. Nos. 109002 and 110072, April 12, 2000, 330 SCRA 363.
46 Halili v. Court of Industrial Relations, 140 SCRA 73, 91 (1985).
47 94 SCRA 61, 69 (1979).
48 Blacks Law Dictionary, Fifth Edition (1979), p. 1438.
49 Ibid.
50 Supra, p. 956.
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17

the existence of an employer-employee relationship, the following elements are
considered:51
(1) the selection and engagement of the employee;
(2) the payment of wages;
(3) the power to dismiss; and
(4) the power to control employees conduct.
MHICL did not have and did not exercise any of the aforementioned powers. It did not select
respondent Santos as an employee for the Palace Hotel. He was referred to the Palace Hotel
by his friend, Nestor Buenio. MHICL did not engage respondent Santos to work. The terms of
employment were negotiated and finalized through correspondence between respondent
Santos, Mr. Schmidt and Mr. Henk, who were officers and representatives of the Palace Hotel
and not MHICL. Neither did respondent Santos adduce any proof that MHICL had the power
to control his conduct. Finally, it was the Palace Hotel, through Mr. Schmidt and not MHICL
that terminated respondent Santos services.
Neither is there evidence to suggest that MHICL was a labor-only contractor.52 There is no
proof that MHICL supplied respondent Santos or even referred him for employment to the
Palace Hotel.
Likewise, there is no evidence to show that the Palace Hotel and MHICL are one and the
same entity. The fact that the Palace Hotel is a member of the Manila Hotel Group is not
enough to pierce the corporate veil between MHICL and the Palace Hotel.
_______________
51 Philippine Airlines, Inc. v. NLRC, 263 SCRA 642, 654 (1996).

52 (a) the person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machinery, work premises, among others; and
(b) the workers recruited and placed by such person are performing activities which are
directly related to the principal business of the employer. Asia Brewery, Inc. v. NLRC, 259
SCRA 185, 189-190 (1996).
18
18
IV. Grave Abuse of Discretion
Considering that the NLRC was forum non-conveniens and considering further that no
employer-employee relationship existed between MHICL, MHC and respondent Santos, Labor
Arbiter Ceferina J. Diosana clearly had no jurisdiction over respondents claim in NLRC NCR
Case No. 00-02-01058-90.
Labor Arbiters have exclusive and original jurisdiction only over the following:53
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those cases that workers may file
involving wages, rates of pay, hours of work and other terms and conditions of employment;
4. Claims for actual, moral, exemplary and other forms of damages arising from employeremployee relations;
5. Cases arising from any violation of Article 264 of this Code, including questions involving
legality of strikes and lockouts; and
6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims, arising from employer-employee relations, including those of
persons in domestic or household service, involving an amount exceeding five thousand
pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement.
In all these cases, an employer-employee relationship is an indispensable jurisdictional
requirement.
The jurisdiction of labor arbiters and the NLRC under Article 217 of the Labor Code is limited
to disputes arising from an employer-employee relationship which can be resolved by
reference to the Labor Code, or other labor statutes, or their collective bargaining
agreements.54
To determine which body has jurisdiction over the present controversy, we rely on the
sound judicial principle that jurisdiction
_______________
53 Labor Code of the Philippines, Article 217.

54 Coca Cola Bottlers Phils., Inc. v. Jose S. Roque, 308 SCRA 215, 220 (1999).
19
VOL. 343, OCTOBER 13, 2000

19
over the subject matter is conferred by law and is determined by the allegations of the
complaint irrespective of whether the plaintiff is entitled to all or some of the claims
asserted therein.55
The lack of jurisdiction of the Labor Arbiter was obvious from the allegations of the
complaint. His failure to dismiss the case amounts to grave abuse of discretion.56
V. The Fallo
WHEREFORE, the Court hereby GRANTS the petition for certiorari and ANNULS the orders
and resolutions of the National Labor Relations Commission dated May 31, 1993, December
15, 1994 and March 30, 1995 in NLRC NCR CA No. 002101-91 (NLRC NCR Case No. 00-0201058-90).
No costs.
SO ORDERED.
Davide, Jr. (C.J., Chairman), Puno, Kapunan and Ynares-Santiago, JJ., concur.
Petition granted, orders and resolutions annulled.
Notes.After having acquired jurisdiction over a plaintiff foreign corporation by virtue of the
filing of the original complaint, the Philippine court now has the discretion, based on the
facts of the case, to either give due course to the suit or dismiss it, on the principle of forum
non conveniens. (Communications Materials and Design, Inc. vs. Court of Appeals, 260 SCRA
673 [1996])
Plaintiff may not, by choice of an inconvenient forum, Vex, liarass, or oppress the
defendant, e.g. by inflicting upon him needless expense or disturbances. But unless the
balance is strongly in favor of the defendant, the plaintiffs choice of forum should rarely be
disturbed. (Saudi Arabian Airlines vs. Court of Appeals, 297 SCRA 469 [1998])
o0o
_______________ [Manila Hotel Corp. vs. National Labor Relations Commission, 343 SCRA
1(2000)]
VOL. 150, MAY 22, 1987

181
Bataan Shipyard & Engineering Co., Inc. vs. Presidential Commission on Good Government
No. L-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.
Constitutional Law; Executive Orders Nos. 1 and 2 issued to implement a constitutional
mandate, valid and constitutionalThe impugned executive orders are avowedly meant to
carry out the explicit command of the Provisional Constitution, ordained by Proclamation No.
3, that the Presidentin the exercise of legislative power which she was authorized to
continue to wield "(u)ntil a legislature is elected and convened under a new
Constitution""shall give priority to measures to achieve the mandate of the people,"
among others to (r)ecover ill-gotten properties amassed by the leaders and supporters of
the previous regime and protect the interest of the people through orders of sequestration or
freezing of assets or accounts."
Same; Same; Executive orders not bill of attainder.Neither will this Court sustain the
theory that the executive orders in question are a bill of attainder. "A bill of attainder is a
legislative act which inflicts punishment without judicial trial." "Its essence is the substitution
of a legislative for a judicial determination of guilt." In the first place, nothing in the
executive orders can be reasonably construed as a determination or declaration of guilt. On
the contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly
clear that any judgment of guilt in the amassing or acquisition of "ill-gotten wealth" is to be
handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed
and prosecuted by the PCGG. In the second place, no punishment is inflicted by the
executive orders, as the merest glance at their provisions will immediately make apparent.
In no sense, therefore, may the executive orders be regarded as a bill of attainder.
_______________
* EN BANC.
182
182
Presidential Commission on Good Government Bataan Shipyard & Engineering Co., Inc. vs.
Same; Same; Same; Right against self-incrimination has no application to juridical persons
and the constitutional safeguard against unreasonable searches and seizures finds no
application to the case at bar either.BASECO also contends that its right against selfincrimination and unreasonable searches and seizures had been transgressed by the Order
of April 18,1986 which required it "to produce corporate records from 1973 to 1986 under
pain of contempt of the Commission if it fails to do so." The order was issued upon the
authority of Section 3 (e) of Executive Order No. 1, treating of the PCGG's power to "issue
subpoenas requiring * * the production of such books, papers, contracts, records, statements
of accounts and other documents as may be material to the investigation conducted by the
Commission," and paragraph (3), Executive Order No. 2 dealing with its power to "(r)equire
all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether
located in the Philippines or abroad, in their names as nominees, agents or trustees, to make
full disclosure of the same **." The contention lacks merit. It is elementary that the right
against self-incrimination has no application to juridical persons. "While an individual may
lawfully refuse to answer incriminating questions unless protected by an immunity statute, it
does not follow that a corporation, vested with special privileges and franchises, may refuse
to show its hand when charged with an abuse of such privileges. * *" At any rate, Executive
Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to
individuals required to produce evidence before the PCGG against any possible violation of
his right against self-incrimination. It gives them immunity from prosecution on the basis of
testimony or information he is compelled to present. As amended, said Section 4 now
provides that"* * * * 'The witness may not refuse to comply with the order on the basis of
his privilege against self-incrimination; but no testimony or other information compelled
under the order (or any information directly or indirectly derived from such testimony, or
other information) may be used against the witness in any criminal case, except a
prosecution for perjury, giving a false statement, or otherwise failing to comply with the
order." The constitutional safeguard against unreasonable searches and seizures finds no
application to the case at bar either. There has been no search undertaken by any agent or
representative of the PCGG, and of course no seizure on the occasion thereof.
PCGG; Its creation and powers.Executive Order No. 1 stresses the "urgent need to recover
all ill-gotten wealth," and pos183
VOL. 150, MAY 22, 1987

183
tulates that "vast resources of the government have been amassed by former President
Ferdinand E. Marcos, his immediate family, relatives, and close associates both here and
abroad." Upon these premises, the Presidential Commission on Good Government was
created, "charged with the task of assisting the President in regard to * * (certain specified)
matters," among which was precisely"* * The recovery of all ill-gotten wealth accumulated
by former President Ferdinand E. Marcos, his immediate family, relatives, subordinates and
close associates, whether located in the Philippines or abroad, including the takeover or
sequestration of all business enterprises and entities owned or controlled by them, during
his administration, directly or through nominees, by taking undue advantage of their public
office and/or using their powers, authority, influence, connections or relationship." In relation
to the takeover or sequestration that it was authorized to undertake in the fulfillment of its
mission, the PCGG was granted "power and authority" to do the following particular acts, to
wit: 1. 'To sequester or place or cause to be placed under its control or possession any
building or office wherein any ill-gotten wealth or properties may be found, and any records
pertaining thereto, in order to prevent their destruction, concealment or disappearance
which would frustrate or hamper the investigation or otherwise prevent the Commission
from accomplishing its task." 2. "To provisionally take over in the public interest or to
prevent the disposal or dissipation, business enterprises and properties taken over by the
government of the Marcos Administration or by entities or persons close to former President
Marcos, until the transactions leading to such acquisition by the latter can be disposed of by
the appropriate authorities." 3. 'To enjoin or restrain any actual or threatened commission of
acts by any person or entity that may render moot and academic, or frustrate or otherwise
make ineffectual the efforts of the Commission to carry out its task under this order." So that
it might ascertain the facts germane to its objectives, it was granted power to conduct
investigations; require submission of evidence by subpoenae ad testificandum and duces
tecum; administer oaths; punish for contempt. It was given power also to promulgate such
rules and regulations as may be necessary to carry out the purposes of * * (its creation)."
Executive Order No. 2 gives additional and more specific data and directions respecting "the
recovery of ill-gotten properties amassed by the leaders and supporters of the previous
regime." It declares that: 1) "* * the Government of the Philippines is in possession of
evidence showing that there are assets and properties purportedly pertaining to former Fer184
184
dinand E. Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives,
subordinates, business associates, dummies, agents or nominees which had been or were
acquired by them directly or indirectly, through or as a result of the improper or illegal use of
funds or properties owned by the government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage
of their office, authority, influence, connections or relationship, resulting in their unjust
enrichment and causing grave damage and prejudice to the Filipino people and the Republic
of the Philippines;" and 2) "* * said assets and properties are in the form of bank accounts,
deposits, trust accounts, shares of stocks, buildings, shopping centers, condominiums,
mansions, residences, estates, and other kinds of real and personal properties in the
Philippines and in various countries of the world." Upon these premises, the President1)
froze "all assets and properties in the Philippines in which former President Marcos and/or his
wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates,
dummies, agents, or nominees have any interest or participation;" 2) prohibited former
President Ferdinand Marcos and/or his wife * *, their close relatives, subordinates, business
associates, dummies, agents, or nominees from transferring, conveying, encumbering,
concealing or dissipating said assets or properties in the Philippines and abroad, pending the
outcome of appropriate proceedings in the Philippines to determine whether any such assets
or properties were acquired by them through or as a result of improper or illegal use of or
the conversion of funds belonging to the Government of the Philippines or any of its
branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue
advantage of their official position, authority, relationship, connection or influence to
unjustly enrich themselves at the expense and to the grave damage and prejudice of the
Filipino people and the Republic of the Philippines;" 3) prohibited "any person from
transferring, conveying, encumbering or otherwise depleting or concealing such assets and
properties or from assisting or taking part in their transfer, encumbrance, concealment or
dissipation under pain of such penalties as are prescribed by law;" and 4) required "all
persons in the Philippines holding such assets or properties, whether located in the
Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure
of the same to the Commission on Good Government within thirty (30) days from publication
of * (the) Executive Order, * *." A third executive order is relevant: Executive Order No. 14,
by which the PCGG is empowered, "with the
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185
assistance of the Office of the Solicitor General and other government agencies, * * to file
and prosecute all cases investigated by it * * as may be warranted by its findings." All such
cases, whether civil or criminal, are to be filed "with the Sandiganbayan, which shall have
exclusive and original jurisdiction thereof." Executive Order No. 14 also pertinently provides
that "(c)ivil suits for restitution, reparation of damages, or indemnification for consequential
damages, forfeiture proceedings provided for under Republic Act No. 1379, or any other civil
actions under the Civil Code or other existing laws, in connection with * * (said Executive
Orders Numbered 1 and 2) may be filed separately from and proceed independently of any
criminal proceedings and may be proved by a preponderance of evidence;" and that,
moreover, the "technical rules of procedure and evidence shall not be strictly applied to * *
(said) civil cases.''
Same; Same; PCGG is not and was never intended to act as a judge; General functions of
PCGG.It should also by now be reasonably evident from what has thus far been said that
the PCGG is not, and was never intended to act as, a judge. Its general function is to conduct
investigations in order to collect evidence establishing instances of "ill-gotten wealth;" issue
sequestration, and such orders as may be warranted by the evidence thus collected and as
may be necessary to preserve and conserve the assets of which it takes custody and control
and prevent their disappearance, loss or dissipation; and eventually file and prosecute in the
proper court of competent jurisdiction all cases investigated by it as may be warranted by its
findings. It does not try and decide, or hear and determine, or adjudicate with any character
of finality or compulsion, cases involving the essential issue of whether or not property
should be forfeited and transferred to the State because "ill-gotten" within the meaning of
the Constitution and the executive orders. This function is reserved to the designated court,
in this case, the Sandiganbayan. There can therefore be no serious regard accorded to the
accusation, leveled by BASECO, that the PCGG plays the perfidious role of prosecutor and
judge at the same time.
Same; Same; Same; PCGG is not an owner but a conservator who can exercise only powers
of administration over property sequestered, frozen or provisionally taken over.One thing
is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion
over property sequestered, frozen or provisionally taken over. As already earlier stressed
with no little insistence, the act of
186
186
Bataan Shipyard & Engineering Co., Inc, vs. Presidential Commission on Good Government
sequestration, freezing or provisional takeover of property does not import or bring about a
divestment of title over said property; does not make the PCGG the owner thereof. In
relation to the property sequestered, frozen or provisionally taken over, the PCGG is a
conservator, not an owner. Therefore, it can not perform acts of strict ownership; and this is
specially true in the situations contemplated by the sequestration rules where, unlike cases
of receivership, for example, no court exercises effective supervision or can upon due
application and hearing, grant authority for the performance of acts of dominion. Equally
evident is that the resort to the provisional remedies in question should entail the least
possible interference with business operations or activities so that, in the event that the
accusation of the business enterprise being "ill-gotten" be not proven, it may be returned to
its rightful owner as far as possible in the same condition as it was at the time of
sequestration. The PCGG may thus exercise only powers of administration over the property
or business sequestered or provisionally taken over, much like a court-appointed receiver,
such as to bring and defend actions in its own name; receive rents; collect debts due; pay
outstanding debts; and generally do such other acts and things as may be necessary to
fulfill its mission as conservator and administrator. In this context, it may in addition enjoin
or restrain any actual or threatened commission of acts by any person or entity that may
render moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out
its task; punish for direct or indirect contempt in accordance with the Rules of Court; and
seek and secure the assistance of any office, agency or instrumentality of the government.
In the case of sequestered businesses generally (i.e., going concerns, businesses in current
operation), as in the case of sequestered objects, its essential role, as already discussed, is
that of conservator, caretaker, "watchdog" or overseer. It is not that of manager, or

innovator, much less an owner.
Same; Same; Same; Same; Need of provisional measures to collect and conserve assets
pending suits; Provisional remedies prescribed by law.Nor may it be gainsaid that pending
the institution of the suits for the recovery of such "ill-gotten wealth" as the evidence at
hand may reveal, there is an obvious and imperative need for preliminary, provisional
measures to prevent the concealment, disappearance, destruction, dissipation, or loss of the
assets and properties subject of the suits, or to restrain or foil acts that may render moot
and academic, or effectively hamper, delay, or negate efforts to recover the same. To
answer this need, the law has prescribed three
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187
(3) provisional remedies. These are: (1) sequestration; (2) freeze orders; and (3) provisional
takeover. Sequestration and freezing are remedies applicable generally to unearthed
instances of "ill-gotten wealth." The remedy of "provisional takeover" is peculiar to cases
where "business enterprises and properties (were) taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos."
Same; Same; Same; Same; Same; Sequestration, Freeze Order and Provisional Takeover,
meaning.By the clear terms of the law, the power of the PCGG to sequester property
claimed to be "illgotten" means to place or cause to be placed under its possession or
control said property, or any building or office wherein any such property and any records
pertaining thereto may be found, including "business enterprises and entities,"for the
purpose of preventing the destruction, concealment or dissipation of, and otherwise
conserving and preserving, the sameuntil it can be determined, through appropriate
judicial proceedings, whether the property was in truth "ill-gotten," i.e., acquired through or
as a result of improper or illegal use of or the conversion of funds belonging to the
Government or any of its branches, instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of official position, authority, relationship,
connection or influence, resulting in unjust enrichment of the ostensible owner and grave
damage and prejudice to the State. And this, too, is the sense in which the term is
commonly understood in other jurisdictions. A "freeze order" prohibits the person having
possession or control of property alleged to constitute "ill-gotten wealth" "from transferring,
conveying, encumbering or otherwise depleting or concealing such property, or from
assisting or taking part in its transfer, encumbrance, concealment, or dissipation." In other
words, it commands the possessor to hold the property and conserve it subject to the orders
and disposition of the authority decreeing such freezing. In this sense, it is akin to a
garnishment by which the possessor or ostensible owner of property is enjoined not to
deliver, transfer, or otherwise dispose of any effects or credits in his possession or control,
and thus becomes in a sense an involuntary depositary thereof, In providing for the remedy
of "provisional takeover," the law acknowledges the apparent distinction between "ill-gotten"
"business enterprises and entities" (going concerns, businesses in actual operation),
generally, as to which the remedy of sequestration applies, it being necessarily inferred that
the remedy entails no interference, or the least possible
188
188
interference with the actual management and operations thereof; and "business enterprises
which were taken over by the government of the Marcos Administration or by entities or
persons close to him," in particular, as to which a "provisional takeover" is authorized, "in
the public interest or to prevent disposal or dissipation of the enterprises." Such a
"provisional takeover" imports something more than sequestration or freezing, more than
the placing of the business under physical possession and control, albeit without or with the
least possible interference with the management and carrying on of the business itself. In a
"provisional takeover," what is taken into custody is not only the physical assets of the
business enterprise or entity, but the business operation as well. It is in fine the assumption
of control not only over things, but over operations or on-going activities. But, to repeat,
such a "provisional takeover" is allowed only as regards "business enterprises * * taken over
by the government of the Marcos Administration or by entities or persons close to former
President t Marcos.''
Same; Same; Same; Same; Same; Same; Same; Remedies maybe resorted to by PCGG only
for a particular exigency. The law was not meant to divest title or right of the owner over the
property sequestered, frozen or takenover.lt may perhaps be well at this point to stress
once again the provisional, contingent character of the remedies just described. Indeed the
law plainly qualifies the remedy of takeover by the adjective, "provisional." These remedies
may be resorted to only for a particular exigency: to prevent in the public interest the
disappearance or dissipation of property or business, and conserve it pending adjudgment in
appropriate proceedings of the primary issue of whether or not the acquisition of title or
other right thereto by the apparent owner was attended by some vitiating anomaly. None of
the remedies is meant to deprive the owner or possessor of his title or any right to the
property sequestered, frozen or taken over and vest it in the sequestering agency, the
Government or other person. This can be done only for the causes and by the processes laid
down by law. That this is the sense in which the power to sequester, freeze or provisionally
take over is to be understood and exercised, the language of the executive orders in
question leaves no doubt. Executive Order No. 1 declares that the sequestration of property
the acquisition of which is suspect shall last "until the transactions leading to such
acquisition * * can be disposed of by the appropriate authorities." Executive Order No. 2
declares that the assets or properties therein mentioned shall remain frozen "pending the
out189
VOL. 150, MAY 27, 1987

189
come of appropriate proceedings in the Philippines to determine whether any such assets or
properties were acquired" by illegal means. Executive Order No. 14 makes clear that judicial
proceedings are essential for the resolution of the basic issue of whether or not particular
assets are "ill-gotten," and resultant recovery thereof by the Government is warranted.
Same; Same; Same; Same; Same; Same; Same; Same; Same; Duration of these provisional
remedies.There is thus no cause for the apprehension voiced by BASECO that
sequestration, freezing or provisional takeover is designed to be an end in itself, that it is the
device through which persons may be deprived of their property branded as "ill-gotten," that
it is intended to bring about a permanent, rather than a passing, transitional state of affairs.
That this is not so is quite explicitly declared by the governing rules. Be this as it may, the
1987 Constitution should allay any lingering fears about the duration of these provisional
remedies. Section 26 of its Transitory Provisions lays down the relevant rule in plain terms,
apart from extending ratification or confirmation (although not really necessary) to the
institution by presidential fiat of the remedy of sequestration and freeze orders: "SEC. 26.
The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March
25, 1986 in rela-tion to the recovery of ill-gotten wealth shall remain operative f or not more
than eighteen months after the ratification of this Constitution. However, in the national
interest, as certified by the President, the Congress may extend said period. "A
sequestration or freeze order shall be issued only upon showing of a prima facie case. The
commenced within six months from the issuance thereof. "The sequestration or freeze order
is deemed automatically lifted if no judicial action or proceeding is commenced as herein
provided." As thus described, sequestration, freezing and provisional takeover are akin to
the provisional remedy of preliminary attachment, or receivership. By attachment, a sheriff
seizes property of a defendant in a civil suit so that it may stand as security for the
satisfaction of any judgment that may be obtained, and not disposed of, or dissipated, or
lost intentionally or otherwise, pending the action. By receivership, property, real or
personal, which is subject of litigation, is
190
190
placed in the possession and control of a receiver appointed by the Court, who shall
conserve it pending final determination of the title or right of possession over it. All these
remediessequestration, freezing, provisional takeover, attachment and receivershipare
provisional, temporary, designed for particular exigencies, attended by no character of
permanency or finality, and always subject to the control of the issuing court or agency.
Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Remedies nonjudicial and writs may be issued exparte.Parenthetically, that writs of sequestration or
freeze or takeover orders are not issued by a court is of no moment. The Solicitor General
draws attention to the writ of distraint and levy which since 1936 the Commissioner of
Internal Revenue has been by law authorized to issue against property of a delinquent
taxpayer. BASECO itself declares that it has not manifested "a rigid insistence on
sequestration as a purely judicial remedy * * (as it feels) that the law should not be ossified
to a point that makes it insensitive to change." What it insists on, what it pronounces to be
its "unyielding position, is that any change in procedure, or the institution of a new one,
should conform to due process and the other prescriptions of the Bill of Rights of the
Constitution." It is, to be sure, a proposition on which there can be no disagreement. Like the
remedy of preliminary attachment and receivership, as well as delivery of personal property
in replevin suits, sequestration and provisional takeover writs may issue ex parte. And as in
preliminary attachment, receivership, and delivery of personalty, no objection of any
significance may be raised to the ex parte issuance of an order of sequestration, freezing or
takeover, given its fundamental character of temporariness or conditionality; and taking
account specially of the constitutionally expressed "mandate of the people to recover illgotten properties amassed by the leaders and supporters of the previous regime and protect
the interest of the people;" as well as the obvious need to avoid alerting suspected
possessors of "ill-gotten wealth" and thereby cause that disappearance or loss of property
precisely sought to be prevented, and the fact, just as self-evident, that "any transfer,
disposition, concealment or disappearance of said assets and properties would frustrate,
obstruct or hamper the efforts of the Government" at the just recovery thereof.
Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Same;
Requisites for validity of sequestration, freeze or
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191
takeover order.What is indispensable is that, again as in the case of attachment and
receivership, there exist a prima facie factual foundation, at least, for the sequestration,
freeze or takeover order, and adequate and fair opportunity to contest it and endeavor to
cause its negation or nullification. Both are assured under the executive orders in question
and the rules and regulations promulgated by the PCGG. Executive Order No. 14 enjoins that
there be "due regard to the requirements of fairness and due process." Executive Order No.
2 declares that with respect to claims on allegedly "ill-gotten" assets and properties, "it is
the position of the new democratic government that President Marcos * * (and other parties
affected) be afforded fair opportunity to contest these claims before appropriate Philippine
authorities." Section 7 of the Commission's Rules and Regulations provides that
sequestration or freeze (and takeover) orders issue upon the authority of at least two
commissioners, based on the affirmation or complaint of an interested party, or motu proprio
when the Commission has reasonable grounds to believe that the issuance thereof is
warranted. A similar requirement is now found in Section 26, Art. XVIII of the 1987
Constitution, which requires that a "sequestration or freeze order shall be issued only upon
showing of a prima facie case." And Sections 5 and 6 of the same Rules and Regulations lay
down the procedure by which a party may seek to set aside a writ of sequestration or freeze
order, viz: "SECTION 5. Who may contendThe person against whom a writ of sequestration
or freeze or hold order is directed may request the lifting thereof in writing, either personally
or through counsel within five (5) days from receipt of the writ or order, or in the case of a
hold order, from date of knowledge thereof. "SECTION 6. Procedure for review of writ or
order.After due hearing or motu proprio for good cause shown, the Commission may lift
the writ or order unconditionally or subject to such conditions as it may deem necessary,
taking into consideration the evidence and the circumstance of the case. The resolution of
the Commission may be appealed by the party concerned to the Office of the President of
the Philippines within fifteen (15) days from receipt thereof." Parenthetically, even if the
requirement for a prima facie showing of "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.
192
192
Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Same; Same;
Remedies and authority of PCGG to issue writs and orders, constitutionality approved and
sanctioned.lf any doubt should still persist in the face of the foregoing considerations as to
the validity and propriety of sequestration, freeze and takeover orders, it should be dispelled
by the fact that these particular remedies and the authority of the PCGG to issue them have
received constitutional approbation and sanction. As already mentioned, the Provisional or
"Freedom" Constitution recognizes the power and duty of the President to enact "measures
to achieve the mandate of the people to * * * (r)ecover ill-gotten properties amassed by the
leaders and supporters of the previous regime and protect the interest of the people through
orders of sequestration or freezing of assets or accounts." And as also already adverted to,
Section 26, Article XVIII of the 1987 Constitution treats of, and ratifies the "authority to issue
sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986." The
institution of these provisional remedies is also premised upon the State's inherent police
power, regarded as "the power of promoting the public welfare by restraining and regulating
the use of liberty and property," and as "the most essential, insistent and illimitable of
powers * * in the promotion of general welfare and the public interest," and said to be "coextensive with self-protection and * * not inaptly termed (also) the 'law of overruling
necessity.' "
SPECIAL CIVIL ACTION for certiorari and prohibition to review the order of the Presidential
Commission on Good Government.

Apostol, Bernas, Gumaru, Ona and Associates for petitioner.
Vicente G. Sison for intervenor A.T. Abesamis.
NARVASA, J.:
Challenged in this special civil action of certiorari and prohibition by a private corporation
known as the Bataan Shipyard and Engineering Co., Inc. are: (1) Executive Orders Numbered
1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986 and March 12,
1986, respectively, and (2) the sequestration, takeover, and other orders issued,
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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
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194
periodically.
Further, you are authorized to request for Military/Security Support from the Military/Police
authorities, and such other acts essential to the achievement of this sequestration order."1
b. Order for Production of Documents
On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG,
addressed a letter dated April 18, 1986 to the President and other officers of petitioner firm,
reiterating an earlier request for the production of certain documents, to wit:
1. Stock Transfer Book
2. Legal documents, such as:
2.1. Articles of Incorporation
2.2. By-Laws
2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986
2.4. Minutes of the Regular and Special Meetings of the Board of Directors from 1973 to
1986
2.5. Minutes of the Executive Committee Meetings from 1973 to 1986
2.6. Existing contracts with suppliers/contractors/others.
3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986
duly certified by the Corporate Secretary.
4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973
to December 31, 1985.
5. Monthly Financial Statements for the current year up to March 31, 1986.
6. Consolidated Cash Position Reports from January to April 15, 1986.
7. Inventory listings of assets updated up to March 31, 1986.
8. Updated schedule of Accounts Receivable and Accounts Payable.
_______________
1 Annex A, petition, rollo, p. 26.

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9. Complete list of depository banks for all funds with the authorized signatories for
withdrawals thereof.
10. Schedule of company investments and placements.2
The letter closed with the warning that if the documents were not submitted within five
days, the officers would be cited for "contempt in pursuance with Presidential Executive
Order Nos. 1 and 2."
c. Orders Re Engineer Island
(1) Termination of Contract for Security Services
A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is
that issued on April 21, 1986 by a Capt. Flordelino B. Zabala, a member of the task force
assigned to carry out the basic sequestration order. He sent a letter to BASECO's VicePresident 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
_______________
2 Annex B, petition, rollo, p. 27.

3 Annex C, petition, rollo, p. 28.
4 Annex D-A, petition, rollo, p. 38.
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196
d. Aborted Contract for Improvement of Wharf at Engineer Island
On July 9,1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of
BASECO with Deltamarine Integrated Port Services, Inc., in virtue of which the latter
undertook to introduce improvements costing approximately P210,000.00 on the BASECO
wharf at Engineer Island, allegedly then in poor condition, avowedly to "optimize its
utilization and in return maximize the revenue which would flow into the government
coffers," in consideration of Deltamarine's being granted "priority in using the improved

portion of the wharf ahead of anybody" and exemption "from the payment of any charges
for the use of wharf including the area where it may install its bagging equipments" "until
the improvement remains in a condition suitable for port operations."5 It seems however
that this contract was never consummated. Capt. Jorge B. Siacunco, "Head-(PCGG) BASECO
Management Team," advised Deltamarine by letter dated July 30, 1986 that "the new
management is not in a position to honor the said contract" and thus "whatever
improvements * * (may be introduced) shall be deemed unauthorized * * and shall be at * *
(Deltamarine's) own risk.''6
e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan
By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent,
Mayor Melba O. Buenaventura, "to plan and implement progress towards maximizing the
continuous operation of the BASECO Sesiman Rock Quarry * * by conventional methods;" but
afterwards, Commissioner Bautista, in representation of the PCGG, authorized another party,
A.T. Abesamis, to operate the quarry, located at Mariveles, Bataan, an agreement to this
effect hav_______________
5 Annex E, petition, rollo, p. 39.

6 Annex F, petition, rollo, p. 41.
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ing 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 aspect s of oper ation of the subj ect companies;
2. Installs key officers, hires and terminates personnel as necessary;
_______________
7 Annex G, petition, rollo, p. 42; Annex G-1, Suppl. Pleading, rollo, pp. 150 et seq.
8 Annex H, petition, rollo, p. 43; see also Suppl. Pleading, rollo, pp. 136-137.
9 Annex J, petition, rollo, p. 56.
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198
3. Enters into contracts related to management and operation of the companies;
4. Ensures that the assets of the companies are not dissipated and used effectively and
efficiently; revenues are duly accounted for; and disburses funds only as may be necessary;
5. Does actions including among others, seeking of military support as may be necessary,
that will ensure compliance to this order;
6. Holds itself fully accountable to the Presidential Commission on Good Government on all
aspects related to this take-over order."
h. Termination of Services of BASECO Officers
Thereafter, Capt. Siacunco sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M.
Valdez, Gilberto Pasimanero, and Benito R. Cuesta I, advising of the termination of their
services by the PCGG.10
2. Petitioner's Plea and Postulates
It is the foregoing specific orders and acts of the PCGG and its members and agents which,
to repeat, petitioner B ASECO would have this Court nullify. More particularly, BASECO prays
that this Court
1) declare unconstitutional and void Executive Orders Numbered 1 and 2;
2) annul the sequestration order dated April 14, 1986, and all other orders subsequently
issued and acts done on the basis thereof, inclusive of the takeover order of July 14,1986
and the termination of the services of the B ASECO executives.11
a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders
While BASECO concedes that "sequestration, without

_______________
10 Annexes K, L, M, N and O, petition, rollo, pp. 57-61.

11 Rollo, p. 23.
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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 1 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. IV, 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
_______________
12 Id., p. 11; emphasis supplied,

13 Id., p. 12.
14 Id., p. 6.
200
200
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 * *
_______________
15 Id., pp. 6-7.

16 Id., p. 7.
17 Id.
18 Id., p. 8.
19 Id., p. 9.
20 Id., pp. 603-605.
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rolls of cable wires, worth P600,000.00 on May 11,1986;"21
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to
have been buried therein.22
3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders
Many misconceptions and much doubt about the matter of sequestration, takeover and
freeze orders have been engendered by misapprehension, or incomplete comprehension if
not indeed downright ignorance of the law governing these remedies. It is needful that these
misconceptions and doubts be dispelled so that uninformed and useless debates about them
may be avoided, and arguments tainted by sophistry or intellectual dishonesty be quickly
exposed and discarded. Towards this end, this opinion will essay an exposition of the law on
the matter. In the process many of the objections raised by B ASECO 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 Presidentin the
exercise of legislative power which she was authorized to continue to wield "(u)ntil a
legislature is elected and convened under a new Constitution""shall give priority to
measures to achieve the mandate of the people," among others to (r)ecover ill-gotten
properties amassed by the leaders and supporters of the previous regime and protect the
interest of the people through orders of sequestration or freezing of assets or accounts. "24
_______________
21 Id., p. 8; Annex I, petition.

22 Id., p. 9.
23 Promulgated on March 25, 1986.
24 ART. II, Sec. 1, d; emphasis supplied.
202
202
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 ill-gotten wealth accumulated by former President Ferdinand E.
Marcos, his immediate family, relatives, subordinates and close associates, whether located
in the Philippines or abroad, including the takeover or sequestration of all business
enterprises and entities owned or controlled by them, during his administration, directly or
through nominees, by taking undue advantage of their public office and/or using their
powers, authority, influence, connections or relationship."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
_______________
25 Whereas Clauses (Preamble).

26 Sec. 1.
27 Sec. 2, a; emphasis supplied.
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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, shop
_______________
28 Sec. 3, [b], [c], and [d]; emphasis supplied.

29 Sec.3, [a], [e], [f].
30 Sec. 3, [h].
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204
ping centers, condominiums, mansions, residences, estates, and other kinds of real and
personal properties in the Philippines and in various countries of the world. "31
Upon these premises, the President
1)froze "all assets and properties in the Philippines in which former President Marcos and/or
his wife, Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business
associates, dummies, agents, or nominees have any interest or participation;"
2)prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives,
subordinates, business associates, dummies, agents, or nominees from transferring,
conveying, encumbering, concealing or dissipating said assets or properties in the
Philippines and abroad, pending the outcome of appropriate proceedings in the Philippines
to determine whether any such assets or properties were acquired by them through or as a
result of improper or illegal use of or the conversion of funds belonging to the Government
of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of their official position, authority, relationship,
connection or influence to unjustly enrich themselves at the expense and to the grave
damage and prejudice of the Filipino people and the Republic of the Philippines;"
3)prohibited "any person from transferring, conveying, encumbering or otherwise depleting

or concealing such assets and properties or from assisting or taking part in their transfer,
encumbrance, concealment or dissipation under pain of such penalties as are prescribed by
law;" and
4)required "all persons in the Philippines holding such assets or properties, whether located
in the Philippines or abroad, in their names as nominees, agents or trustees, to make full
disclosure of the same to the Commission on Good Government within thirty (30) days from
publication of * (the) Executive Order, **."32
d. Executive Order No. 14
A third executive order is relevant: Executive Order No.
_______________
31 First two Whereas Clauses; emphasis supplied.

32 Emphasis supplied.
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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 "(c)ivil suits for restitution,
reparation of damages, or indemnification for consequential damages, forfeiture proceedings
provided for under Republic Act No. 1379, or any other civil actions under the Civil Code or
other existing laws, in connection with * * (said Executive Orders Numbered 1 and 2) may be
filed separately from and proceed independently of any criminal proceedings and may be
proved by a preponderance of evidence;" and that, moreover, the "technical rules of
procedure and evidence shall not be strictly applied to * * (said) civil cases.''36
5. Contemplated Situations
The situations envisaged and sought to be governed are selfevident, these being:
1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the previous
regime";37
a) more particularly, that "(i)ll-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
_______________
33 Effective May 7, 1986.

34 Sec 1; emphasis supplied.
35 Sec. 1; emphasis supplied.
36 Sec. 3.
37 Sec. 1, [d], ART. II, Provisional Constitution, Proclamation No. 3.
206
206
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 Illgotten 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
_______________
38 Sec. 2, [a], Ex. Ord. No. 1.

39 First Whereas Clause, Ex. Ord. No. 2.
40 Second Whereas Clause, Ex. Ord. No. 2.
41 Sec. 3 [c], Ex. Ord. No. 1.

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demonstrable by competent evidence, the recovery from Marcos, his family and his minions
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 factthat an
immense fortune, and "vast resources of the government have been
_______________
42 Tuason, J., in Guido v. Rural Progress Administration, 84 Phil. 847, emphasis supplied.
208
208
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 acquisitionsis 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 se_______________
43 Sec. 3 [c], Ex. Ord. No.1.

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quester property claimed to be "ill-gotten" means to place or cause to be placed under its
possession or control said property, or any building or office wherein any such property and
any records pertaining thereto may be found, including "business enterprises and
entities,"for the purpose of preventing the destruction, concealment or dissipation of, and
otherwise conserving and preserving, the sameuntil it can be determined, through
appropriate judicial proceedings, whether the property was in truth "ill-gotten," i.e., acquired
through or as a result of improper or illegal use of or the conversion of funds belonging to
the Government or any of its branches, instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of official position, authority, relationship,
connection or influence, resulting in unjust enrichment of the ostensible owner and grave
damage and prejudice to the State.44 And this, too, is the sense in which the term is
commonly understood in other jurisdictions.45
_______________
44 Except for the statement as to the duration of the writ of sequestration, this is
substantially the definition of sequestration set out in Section 1 (B) of the Rules and
Regulations of the PCGG (Rollo, pp. 195-196). The term is used in the Revised AntiSubversion Law, (P.D. No. 885, to mean "the seizure of private property or assets in the
hands of any person or entity in order to prevent the utilization, transfer or conveyance of
the same for purposes inimical to national security, or when necessary to protect the
interest of the Government or any of its instrumentalities. It shall include the taking over and
assumption of the management, control and operation of the private property or assets
seized" (reiterated in P.D. No. 1835, the Anti-Subversion Law of 1981, repealed by P.D. No.
1975 prom. on May 2, 1985) (See Phil Law Dictionary, Moreno, 1982 ed., pp. 568569),
45 "As employed under the statutory and code provisions of some states, the writ of
sequestration is merely, but essentially, a conservatory measure, somewhat in the nature of
a judicial deposit. It is a process which may be employed as a conservatory writ whenever
the right of the property is involved, to preserve, pending litigation, specific property subject
to conflicting claims of ownership or liens and privileges * *" 79 C.J.S., 1047. "In Louisiana. A
mandate of the court, ordering the sheriff, in certain cases, to take in his
210
210
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 "illgotten" "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
_______________
possession, and to keep, a thing of which another person has the possession, until after the
decision of a suit, in order that it be delivered to him who shall be adjudged entitled to have
the property or possession of that thing. * *." Bouvier's Law Dictionary, 3rd Rev., Vol. 2, p.
3046. "Sequester" means, according to Black's Law Dictionary, "to deposit a thing which is
the subject of a controversy in the hands of a third person, to hold for the contending
parties; to take a thing which is the subject of a controversy out of the possession of the
contending parties, and deposit it in the hands of a third person."
46 Ex. Ord. No. 2.
47 See e.g., de la Rama v. Villarosa, 8 SCRA 413, citing 5 Am. Jur., 14; Tayabas Land Co. v.
Sharruf, et al., 41 Phil. 382.
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211
thereof; and "business enterprises which were taken over by the government of the Marcos
Administration or by entities or persons close to him," in particular, as to which a
"provisional takeover" is authorized, "in the public interest or to prevent disposal or
dissipation of the enterprises."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
takeover by the adjective, "provisional." These remedies may be resorted to only for a
particular exigency: to prevent in the public interest the disappearance or dissipation of
property or business, and conserve it pending adjudgment in appropriate proceedings of the
primary issue of whether or not the acquisition of title or other right thereto by the apparent
owner was attended by some vitiating anomaly. None of the remedies is meant to deprive
the owner or possessor of his title or any right to the property sequestered, frozen or taken
over and vest it in the sequestering agency, the Government or other person. This can be
done only for the causes and by the processes laid down by law.
_______________
48 Sec. 3 [c], Ex. Ord. No. 1.
212
212
That this is the sense in which the power to sequester, freeze or provisionally take over is to
be understood and exercised, the language of the executive orders in question leaves no
doubt. Executive Order No. 1 declares that the sequestration of property the acquisition of
which is suspect shall last "until the transactions leading to such acquisition * * can be
disposed of by the appropriate authorities."49 Executive "Order No. 2 declares that the
assets or properties therein mentioned shall remain frozen "pending the outcome of
appropriate proceedings in the Philippines to determine whether any such assets or
properties were acquired" by illegal means. Executive Order No. 14 makes clear that judicial
proceedings are essential for the resolution of the basic issue of whether or not particular
assets are "ill-gotten," and resultant recovery thereof by the Government is warranted.
e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command
There is thus no cause for the apprehension voiced by BASECO50 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 Provisions51 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:
_______________
49 Id. Id.
50 Rollo, pp. 693-695.
51 ART. XVIII.
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213
"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 shall remain operative
for not more than eighteen months after the ratification of this Constitution. However, in the
national interest, as certified by the President, the Congress may extend said period.
"A sequestration or freeze order shall be issued only upon showing of a prima facie case. The
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 A ttachment, 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 remediessequestration, freezing, provisional, takeover,
attachment and receivershipare provisional, temporary, designed for particular exigencies,
attended by no character of permanency or finality,
_______________
53 BASECO's counsel agrees (Rollo, p. 690).
54 Rule 57,Rules of Court.
55 Rule 59, Rules of Court.
214
214
and always subject to the control of the issuing court or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a
court is of no moment. The Solicitor General draws attention to the writ of distraint and levy
which since 1936 the Commissioner of Internal Revenue has been by law authorized to issue
against property of a delinquent taxpayer.56 BASECO itself declares that it has not
manifested "a rigid insistence on sequestration as a purely judicial remedy * * (as it feels)
that the law should not be ossified to a point that makes it insensitive to change." What it
insists on, what it pronounces to be its "unyielding position, is that any change in procedure,
or the institution of a new one, should conform to due process and the other prescriptions of
the Bill of Rights of the Constitution."57 It is, to be sure, a proposition on which there can be
no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well as delivery of personal
property in replevin suits, sequestration and provisional takeover writs may issue ex
parte.58 And as in preliminary attachment, receivership, and
_______________
56 C.A. No. 466; Chap. II, Title IX, National Internal Revenue Code of 1977; rollo, pp. 197198.
57 Rollo, p. 692.
58 Secs. 3 and 4, Rule 57; Sec. 3, Rule 59; Secs. 1-3, Rule 60, Rules of Court; see, e.g.,
Filinvest Credit Corp. v. Relova, 117 SCRA 420; see, too, 79 C.J.S., 1047 to the following
effect. "The conservatory writ of sequestration has been held to be a process of the most
extensive application, under which the whole of a person's estate may be seized. This writ of
sequestration, like other conservatory remedies by which the property of defendant is taken
from his possession before judgment without notice, and on the ex parte showing of plaintiff,
is a remedy stricti juris, summary in its nature. * * "
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215
delivery of personalty, no objection of any significance may be raised to the ex parte
issuance of an order of sequestration, freezing or takeover, given its fundamental character
of temporariness or conditionality; and taking account specially of the constitutionally
expressed "mandate of the people to recover ill-gotten properties amassed by the leaders
and supporters of the previous regime and protect the interest of the people;"59 as well as
the obvious need to avoid alerting suspected possessors of "ill-gotten wealth" and thereby
cause that disappearance or loss of property precisely sought to be prevented, and the fact,
just as self-evident, that "any transfer, disposition, concealment or disappearance of said
assets and properties would frustrate, obstruct or hamper the efforts of the Government" at
the just recovery thereof.60
8. Requisites for Validity
What is indispensable is that, again as in the case of attachment and receivership, there
exist a prima facie factual foundation, at least, for the sequestration, freeze or takeover
order, and adequate and fair opportunity to contest it and endeavor to cause its negation or
nullification.61
Both are assured under the executive orders in question and the rules and regulations
promulgated by the PCGG.
a. Prima Facie Evidence as Basis for Orders
Executive Order No. 14 enjoins that there be "due regard to
_______________
59 Sec. 1 [d], ART. II, Freedom Constitution (Proclamation No. 3); Ex. Ord. No. 14.
60 Ex. Ord. No. 1.
61 What is anathema to due process is not so much the absence of previous notice but the
absolute absence thereof and lack of opportunity to be heard. See Caltex (Phil.) v. Castillo, et
al., 21 SCRA 1071, citing Fuentes v. Binamira, L-14965, Aug. 31, 1961; Bermejo v. Barrios, 31
SCRA 764; Cornejo v. Sec. of Justice, et al., 57 SCRA 663; Superior Concrete Products, Inc. v.
WCC, 82 SCRA 270; Tajonera v. Lamaroza, 110 SCRA 440.
216
216
the requirements of fairness and due process."62 Executive Order No. 2 declares that with
respect to claims on allegedly "ill-gotten" assets and properties, "it is the position of the new
democratic government that President Marcos * * (and other parties affected) be afforded
fair opportunity to contest these claims before appropriate Philippine authorities."63 Section
7 of the Commission's Rules and Regulations provides that sequestration or freeze (and
takeover) orders issue upon the authority of at least two commissioners, based on the
affirmation or complaint of an interested party, or motu proprio when the Commission has
reasonable grounds to believe that the issuance thereof is warranted.64 A similar
requirement is now found in Section 26, Art. XVIII of the 1987 Constitution, which requires
that a "sequestration or freeze order shall be issued only upon showing of a prima facie
case.''65
b. Opportunity to Contest
And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by which a
party may seek to set aside a writ of sequestration or freeze order, viz:
"SECTION 5. Who may contend.The person against whom a writ of sequestration or freeze
or hold order is directed may request the lifting thereof in writing, either personally or
through counsel within five (5) days from receipt of the writ or order, or in the case of a hold
order, from date of knowledge thereof.
"SECTION 6. Procedure for review of writ or order.After due hearing or motu proprio for
good cause shown, the Commission may lift the writ or order unconditionally or subject to
such conditions as it may deem necessary, taking into consideration the evidence and the
circumstance of the case. The resolution of the Commission may be appealed by the party
concerned to the Office of the President of the Philippines within fifteen (15) days from
receipt thereof."
_______________
62 Last Whereas Clause.

63 Also, Last Whereas Clause.
64 Rollo, p. 206.
65 See footnote No. 50, supra.
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217
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 * * * * (r)ecover ill-gotten properties amassed by the leaders
and supporters of the previous regime and protect the interest of the people through orders
of sequestration or freezing of assets or accounts." And as also already adverted to, Section
26, Article XVIII of the 1987 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 "the power of promoting the public welfare by restraining and
regulating the use of liberty and property,"68and as "the most essential, insistent and
illimitable of powers * * in the promo_______________
66 "A decision with absolutely nothing to support it is a nullity * *" (Ang Tibay v. C.I.R., 69
Phil. 635, 642, citing Edwards v. McCoy, 22 Phil. 598.
67 Eff., Feb. 2, 1987.
68 Freund, The Police Power (Chicago, 1904), cited by Cruz, I.A., Constitutional Law; 4th ed.,
p. 42.
218
218
tion of general welfare and the public interest"69 and said to be "co-extensive with selfprotection and * * not inaptly termed (also) the 'law of overruling necessity.' "70
10. PCGG not a "Judge"; General Functions
It should also by now be reasonably evident from what has thus far been said that the PCGG
is not, and was never intended to act as, a judge. Its general function is to conduct
investigations in order to collect evidence establishing instances of "ill-gotten wealth;" issue
sequestration, and such orders as may be warranted by the evidence thus collected and as
may be necessary to preserve and conserve the assets of which it takes custody and control
and prevent their disappearance, loss or dissipation; and eventually file and prosecute in the
proper court of competent jurisdiction all cases investigated by it as may be warranted by its
findings. It does not try and decide, or hear and determine, or adjudicate with any character
of finality or compulsion, cases involving the essential issue of whether or not property
should be forfeited and transferred to the State because "ill-gotten" within the meaning of
the Constitution and the executive orders. This function is reserved to the designated court,
in this case, the Sandiganbayan.71 There can therefore be no serious regard accorded to the
accusation, leveled by B ASECO,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
_______________
69 Smith, Bell & Co. v. Natividad, 40 Phil. 136, citing U.S. v. Toribio, 15 Phil. 85; Churchill and
Tait v. Rafferty, 32 Phil. 580, and Rubi v. Provincial Board of Mindoro, 39 Phil. 660.
70 Rubi v. Provincial Board, supra.
71 Ex. Ord. No. 14.
72 Rollo, pp. 695-697.
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219
prayed for will not be issued.
The facts show that the corporation known as B ASECO 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 B ASECO 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 P1
2,000,000.00 have been subscribed, and on said subscription, the aggregate sum of
P3,035,000.00 has been paid by the incorporators.74 The same articles identify the
incorporators, numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3)
Eduardo T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7) Antonio
M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10) Jose Francisco, (11) Dioscoro
Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14) Magiliw Torres, and (15) Rodolfo
Torres.
By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be stockholders,
namely: (1) Generoso Tanseco, (2) Antonio Ezpeleta, (3) Zacarias Amante, (4) Octavio
_______________
73 Par. 6, petition; rollo, p. 4.

74 Annex 100, Solicitor General's Comment and Memorandum; rollo, p. 178.
220
220
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
1,248 shares
2.
Severino G. de la Cruz
1,248 shares
3.
Emilio T. Yap
2,508 shares
4.
Jose Fernandez
1,248 shares
5.
Jose Francisco
128 shares
6.
Manuel S. Mendoza
96 shares
7.
Anthony P. Lee
1,248 shares
8.
Hilario M. Ruiz
32 shares
9.
Constante L. Farias
8 shares
10.
Fidelity Management, Inc.
65,882 shares
11.
Trident Management
7,412 shares
12.
United Phil. Lines
1,240 shares
13.
Renato M. Tanseco
8 shares
14.
Fidel Ventura
8 shares
15.
Metro Bay Drydock
136,370 shares
16.
Manuel Jacela
1 share
17.
Jonathan G. Lu
1 share
18.
Jose J. Tanchanco
1 share
19.
Dioscoro Papa
128 shares
20.
Edward T. Marcelo
4 shares
TOTAL
218,819 shares.
13. Acquisition of NASSCO by BASECO
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), andexcept
for NASSCO's Engineer Island Shops and certain equipment of the BNS, consigned for future
negotiationall its structures, buildings, shops, quarters, houses, plants, equipment and
facilities, in stock or in transit. This it did in virtue of a "Contract of Pur-
_______________
75 Annex P, petition.
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221
chase 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 P1
1,400,000.00, 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
_______________
76 Annex 101, Solicitor General's Comment; etc.; rollo, pp. 367, 184.
77 Annex 102, id., rollo, pp. 384, 185.
222
222
the document of sale, P2,000.000.00 was paid upon its execution, and the balance
stipulated to be payable in installments.78
16. Acquisition of Other Assets of NASSCO; Intervention of Marcos
Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the
intervention of President Marcos, acquired ownership of the rest of the assets of NASSCO
which had not been included in the first two (2) purchase documents. This was accomplished
by a deed entitled "Contract of Purchase and Sale,"79 which, like the Memorandum of
Agreement dated October 9, 1973 supra also bore at the upper right-hand corner of its first
page, the handwritten notation of President Marcos reading, "APPROVED, July 29, 1973," and
underneath it, his usual full signature. Transferred to BASECO were NASSCO's "ownership
and all its titles, rights and interests over all equipment and facilities including structures,
buildings, shops, quarters, houses, plants and expendable or semi-expendable assets,
located at the Engineer Island, known as the Engineer Island Shops, including all the
equipment of the Bataan National Shipyards (BNS) which were excluded from the sale of
NBS to BASECO but retained by B ASECO 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 semiannual
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.
_______________
78 Annex 103, id., rollo, pp. 393, 185.

79 Annex 104, id., rollo, p. 404.
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223
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 P1 2,400,000.00.81 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
_______________
80 Annex 9 [par. 3], and Annex 1 [p. 4] of the Solicitor General's Manifestation dated Sept.
24,1986.
81 Id.
82 Annex 9 of Solicitor General's aforesaid Manifestation.
83 Annex 8, id.
84 Annex 1, id.
85 See footnotes No. 80-82, supra.
224
224
(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
SUB JECT:
A n 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 in blank,"
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:
_______________
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225
Bataan Shipyard & Engineering Co., Inc. vs. Presidential Commiss ion on Good Government
"* * (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 f ollowing documents:88
1."Stock certificates indorsed and assigned in blank with assignments and waivers;"89
2. The articles of incorporation, the amended articles, and the by-laws of BASECO;
3. "Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in 'Engineer
Island', Port Area, Manila;"
4. "Transfer Certificate of Title No. 124822 in the name of BASECO, covering 'Engineer
Island';"
5. "Contract dated October 9, 1973, between NASSCO and BASECO re-structure and
equipment at Mariveles, Bataan;"
6. "Contract dated July 16, 1975, between NASSCO and BASECO re-structure and equipment
at Engineer Island, Port Area Manila;"
7. "Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of land at
Mariveles, Bataan;"
8. "List of BASECO's fixed assets;"
9. "Loan Agreement dated September 3, 1975, BASECO's loan from NDC of P30,000,000.00;"
10. "BASECO-REPACOM Agreement dated May 27, 1975;"
11. "GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the housing
facilities for BASECO's rank-and-file employees."90
_______________
87 Rollo, p. 72; emphasis supplied.

88 Id., pp. 71-72.
89 See par. 20, infra.
90 Emphasis supplied; see par. 17, "Loans Obtained," supra.
226
226
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 B
ASECO, yet he has presented a report on BASECO to President Marcos, and his report
demonstrates intimate familiarity with the firm's affairs and problems.
19. Marcos' Response to Reports
President Marcos lost no time in acting on his subordinates' recommendations, particularly
as regards the "spin-off' and the "linkage scheme" relative to "BASECO's amortization
payments."
a. Instructions re ''Spin-Off"
Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo
Velasco of the Philippine National Oil Company and Chairman Constante Farias of the
National Development Company, directing them "to participate in the formation of a new
corporation resulting from the spin-off of the shipbuilding component of BASECO along the
following guidelines:
a. Equity participation of government shall be through LUSTEVECO and NDC in the amount
of P1 15,903,000 consisting of the following obligations of BASECO which are hereby
authorized to be converted to equity of the said new corporation, to wit:
_______________
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227
1.
NDC
P83,865,000 (P31.165M loan &
P52.2M Reparation)
2.
LUSTEVECO
P32,538,000 (Reparation)
b. Equity participation of government shall be in the form of non-voting shares.
For immediate compliance. "92
Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22)
days after receiving their president's memorandum, Messrs. Hilario M. Ruiz, Constante L.
Farias and Geronimo Z. Velasco, in representation of their respective corporations,
executed a PRE-INCORPORATION AGREEMENT dated October 20, 1977.93 In it, they
undertook to form a shipbuilding corporation to be known as "PHIL-ASIA SHIPBUILDING
CORPORATION," to bring to realization their president's instructions. It would seem that the
new corporation ultimately formed was actually named "Philippine Dockyard Corporation
(PDC)."94
b. Letter of Instructions No. 670
Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On
February 14, 1978, he issued Letter of Instructions No. 670 addressed to the Reparations
Commission (REPACOM), the Philippine National Oil Company (PNOC), the Luzon Stevedoring
Company (LUSTEVECO), and the National Development Company (NDC). What is
commanded therein is summarized by the Solicitor General, with pithy and not inaccurate
observations as to the effects thereof (in italics), as follows:
"* * 1) the shipbuilding equipment procured by BASECO through reparations be transferred
to NDC subject to reimbursement by NDC to BASECO (of) the amount of P18.285M allegedly
represen_______________
92 Rollo, p. 81.
93 Annex 6 of Solicitor General's Manifestation, etc., dtd. Sept. 24,1986, supra.
94 Rollo, pp. 192,688.
228
228
Bataan Shipyard & Engineering Co., Inc. us. Presidential Commission on Good Government
ting 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."
"* * * * * *
"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 B ASECO 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
_______________
95 Id., pp. 190-192.

96 Annex P, petition, supra.
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229
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 Malacaang 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 Malacaang (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 Corporationwhich 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 B ASECO 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
_______________
97 Comment and Memorandum (in amplification of oral arguments) filed by the Solicitor
General on Oct. 15, 1986 (rollo, pp. 178 et seq); Resolution, Oct. 28,1986 (rollo, p. 611-A).
98 Annexes 1 to 19 and 19-A, id.
99 Annexes 20 to 99, inclusive, id.

100 Reply to Respondents' Manifestation, etc. dtd. Nov. 5, 1986; rollo, pp. 682 et seq.
230
230
subsequent recorded statements as a mere gesture of defiance rather than a verifiable f
actual declaration.
By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of
10 days "to SUBMIT, as undertaken by him, * * the certificates of stock issued to the
stockholders of * * BASECO as of April 23, 1986, as listed in Annex 'P' of the petition.'101
Counsel thereafter moved for extension; and in his motion dated October 2,1986, he
declared inter alia that "said certificates of stock are in the possession of third parties,
among whom being the respondents themselves * * and petitioner is still endeavoring to
secure copies thereof from them."102 On the same day he filed another motion praying that
he be allowed "to secure copies of the Certificates of Stock in the name of Metro Bay
Drydock, Inc., and of all other Certificates, of Stock of petitioner's stockholders in possession
of respondents.''103
In a Manifestation dated October 10, 1986,,104 the Solicitor General not unreasonably
argued that counsel's aforestated motion to secure copies of the stock certificates "confirms
the fact that stockholders of petitioner corporation are not in possession of * * (their)
certificates of stock," and the reason, according to him, was "that 95% of said shares * *
have been endorsed in blank and found in Malacaang after the former President and his
family fled the country." To this manifestation BASECO's counsel replied on November 5,
1986, as already mentioned, stubbornly insisting that the firm's stockholders had not really
assigned their stock.105
In view of the parties' conflicting declarations, this Court resolved on November 27, 1986
among other things "to require * * the petitioner * * to deposit upon proper receipt with
Clerk of Court Juanito Ranjo the originals of the stock certificates alleged to be in its
possession or accessible to it, mentioned and
_______________
101 Rollo, p. 117.

102 Id., p. 126; emphasis supplied.
103 Id., pp. 128-129; emphasis supplied.
104 Id., p. 177 (A).
105 Id., pp. 682, et seq.
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231
described in Annex 'P' of its petition, * * (and other pleadings) * * within ten (10) days from
notice."106 In a motion filed on December 5, 1986,107 BASECO's counsel made the
statement, quite surprising in the premises, that "it will negotiate with the owners (of the
BASECO stock in question) to allow petitioner to borrow from them, if available, the
certificates referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's
counsel however eventually had to confess inability to produce the originals of the stock
certificates, putting up the feeble excuse that while he had "requested the stockholders to
allow * * (him) to borrow said certificates, * * some of * * (them) claimed that they had
delivered the certificates to third parties by way of pledge and/or to secure performance of
obligations, while others allegedly have entrusted them to third parties in view of last
national emergency.''108 He has conveniently omitted, nor has he offered to give the details
of the transactions adverted to by him, or to explain why he had not impressed on the
supposed stockholders the primordial importance of convincing this Court of their present
custody of the originals of the stock, or if he had done so, why the stockholders are unwilling
to agree to some sort of arrangement so that the originals of their certificates might at the
very least be exhibited to the Court. Under the circumstances, the Court can only conclude
that he could not get the originals from the stockholders for the simple reason that, as the
Solicitor General maintains, said stockholders in truth no longer have them in their
possession, these having already been assigned in blank to then President Marcos.
21. Facts Justify Issuance of Sequestration and Takeover Orders
In the light of the affirmative showing by the Government that, prima facie at least, the
stockholders and directors of
_______________
106 Id., p. 739.

107 Id., p. 760.
108 Compliance dtd. Dec. 20,1986; rollo, p. 775.
232
232
BASECO as of April, 1986109 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.
_______________
109 Annex P, petition, supra.

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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 selfincrimination 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,
_______________
110 Art. IV, Sec. 1 (12), 1973 Constitution.

111 Peo. v. Ferrer, 48 SCRA 382, 395-396, citing Cummings v. U.S., 4 Wall. (71 U.S.) 277
(1867), accord, Ex parte Garland, 4 Wall. (71 U.S.) 333 (1867), it being observed that this
definition "was adopted by this Court in People vs. Carlos, 78 Phil. 535, 544 (1947) and in
People vs. Montenegro, 91 Phil. 883, 885 (1952)."
112 Id., at pp. 396-397, citing de Veau v. Braisted, 363 U.S. 144, 160 (1960); United States v.
Lovett, 328 U.S. 303, 315 (1946).
234
234
contracts, records, statements of accounts and other documents as may be material to the
investigation conducted by the Commission," and paragraph (3), Executive Order No. 2
dealing with its power to "(r)equire all persons in the Philippines holding * * (alleged "illgotten") assets or properties, whether located in the Philippines or abroad, in their names as
nominees, agents or trustees, to make full disclosure of the same **." The contention lacks
merit.
It is elementary that the right against self-incrimination has no application to juridical
persons.
"While an individual may lawfully refuse to answer incriminating questions unless protected
by an immunity statute, it does not follow that a corporation, vested with special privileges
and franchises, may refuse to show its hand when charged with an abuse of such privileges
* *"113
Relevant jurisprudence is also cited by the Solicitor General.114
"* * corporations are not entitled to all of the constitutional protections which private
individuals have. * * They are not at all within the privilege against self-incrimination,
although this court more than once has said that the privilege runs very closely with the 4th
Amendment's Search and Seizure provisions. It is also settled that an officer of the company
cannot refuse to produce its records in its possession, upon the plea that they will either
incriminate him or may incriminate it" (Oklahoma Press Publishing Co. v. Walling, 327 U.S.
186; emphasis, the Solicitor General's).
"* * The corporation is a creature of the state. It is presumed to be incorporated for the
benefit of the public. It received certain special privileges and franchises, and holds them
subject to the laws of the state and the limitations of its charter. Its powers are limited by
law. It can make no contract not authorized by its charter. Its rights to act as a corporation
are only preserved to it so long as it obeys the laws of its creation. There is a reserve right in
the legislature to investigate its contracts and find out whether it has ex_______________
113 Martin, Law & Jurisprudence on the Freedom Constitution of the Philippines, 1986 ed., p.
310, citing Hal v. Henkel, 201 U.S. 43.
114 Rollo, pp. 215-217.
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235
ceeded 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
'* * * *
"The witness may not refuse to comply with the order on the basis of his privilege against
self-incrimination; but no testimony or other information compelled under the order (or any
information directly or indirectly derived from such testimony, or other information) may be
used against the witness in any criminal case, except a prosecution for perjury, giving a
false statement, or otherwise failing to comply with the order."
The constitutional safeguard against unreasonable searches and seizures finds no
application to the case at bar either. There has been no search undertaken by any agent or
representative of the PCGG, and of course no seizure on the occasion thereof.
24. Scope and Extent of Powers of the PCGG
One other question remains to be disposed of, that respect236
236
ing 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 "illgotten" 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
_______________
115 See Sec. 7, Rule 59, Rules of Court.

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237
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, par_______________
116 Sec. 3, d, f, g, Ex. Ord. No. 1.

117 Sec. 4 [c], Exh. Ord. No. 1.
238
238
ticularly in respect of viable establishments. In fact, such a replacement or substitution
should be avoided if at all possible, and undertaken only when justified by demonstrably
tenable grounds and in line with the stated objectives of the PCGG, And it goes without
saying that where replacement of management officers may be called for, the greatest
prudence, circumspection, care and attention should accompany that undertaking to the end
that truly competent, experienced and honest managers may be recruited. There should be
no role to be played in this area by rank amateurs, no matter how well meaning. The road to
hell, it has been said, is paved with good intentions. The business is not to be experimented
or played around with, not run into the ground, not driven to bankruptcy, not fleeced, not
ruined. Sight should never be lost sight of the ultimate objective of the whole exercise,
which is to turn over the business to the Republic, once judicially established to be "ill-
gotten." Reason dictates that it is only under these conditions and circumstances that the
supervision, administration and control of business enterprises provisionally taken over may
legitimately be exercised.
d. Voting of Sequestered Stock; Conditions Therefor
So, too, it is within the parameters of these conditions and circumstances that the PCGG
may properly exercise the prerogative to vote sequestered stock of corporations, granted to
it by the President of the Philippines through a Memorandum dated June 26, 1986. That
Memorandum authorizes the PCGG, "pending the outcome of proceedings to determine the
ownership of * * (sequestered) shares of stock," "to vote such shares of stock as it may have
sequestered in corporations at all stockholders' meetings called for the election of directors,
declaration of dividends, amendment of the Articles of Incorporation, etc." The Memorandum
should be construed in such a manner as to be consistent with, and not contradictory of the
Executive Orders earlier promulgated on the same matter. There should be no exercise of
the right to vote simply because the right exists, or because the stocks sequestered
constitute the controlling or a substantial part of the corporate
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239
voting power. The stock is not to be voted to replace directors, or revise the articles or bylaws, 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 all 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 mo_______________
118 Rollo, p. 611.

240
240
ment 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.
Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.
Teehankee, C.J., concurs in a separate opinion.
Melencio-Herrera, J., concurs with qualifications in a separation opinion.
Gutierrez, Jr., J., please see concurring and dissenting opinion.
Cruz, J., dissents in a separate opinion.
Feliciano, J., 1 join Mme. Justice A. A. M. Herrera's qualified concurring opinion.
_______________
119 See Supplemental Pleading, rollo, pp. 136 et seq. and Urgent Motion to Resolve Plea for
Restraining Order filed Oct. 16, 1986, rollo, pp. 413 et seq.
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Padilla, J., see concurring opinion.
Bidin, J., I join Mr. Justice Hugo Gutierrez in his concurring and dissenting opinion.
Cortes, J., I join Mr. Justice Hugo Gutierrez in his concurring and dissenting opinion.
SEPARATE OPINION
TEEHANKEE, C.J., concurring:
I fully concur with the masterly opinion of Mr. Justice Narvasa. In the process of disposing of
the issues raised by petitioner BASECO in the case at bar, it comprehensively discusses the
laws and principles governing the Presidential Commission on Good Government (PCGG) and
defines the scope and extent of its powers in the discharge of its monumental task of
recovering the "ill-gotten wealth, accumulated by former President Ferdinand E. Marcos, his
immediate family, relatives, subordinates and close associates, whether located in the
Philippines or abroad (and) business enterprises and entities 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."1
The Court is unanimous insofar as the judgment at bar upholds the imperative need of
recovering the ill-gotten properties amassed by the previous regime, which "deserves the
fullest support of the judiciary and all sectors of society."2 To quote the pungent language of
Mr. Justice Cruz, "(T)here is no question that all lawful efforts should be taken to recover the
tremendous wealth plundered from the people by the past regime in the most execrable
thievery perpetrated in all history. No right-thinking Filipino can quarrel with this necessary
objective, and on this score I am happy to concur
_______________
1 Executive Order No. 1, section 2.

2 Gutierrez, J., concurring and dissenting opinion.
242
242
with the ponencia. "3

The Court is likewise unanimous in its judgment dismissing the petition to declare
unconstitutional and void Executive Orders Nos. 1 and 2 to annul the sequestration order of
April 14, 1986. For indeed, the 1987 Constitution overwhelmingly adopted by the people at
the February 2, 1987 plebiscite expressly recognized in Article XVIII, section 26 thereof4 the
vital functions of respondent PCGG to achieve the mandate of the people to recover such illgotten wealth and properties as ordained by Proclamation No. 3 promulgated on March 25,
1986.
The Court is likewise unanimous as to the general rule set forth in the main opinion that "the
PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally
taken over" and "(T)he PCGG may thus exercise only powers of administration over the
property or business sequestered or provisionally taken over, much like a court-appointed
receiver, such as to bring and defend actions in its own name; receive rents; collect debts
due; pay outstanding debts; and generally do such other acts and things as may be
necessary to fulfill its mission as conservator and administrator. In this context, it may in
addition enjoin or restrain any actual or threatened commission of acts by any person or
entity that may render moot and academic, or frustrate or otherwise make ineffectual its
efforts to carry out its task; punish for direct or indirect contempt in accordance with the
Rules of Court; and seek and secure the assistance of any office, agency or instrumentality
of the government. In the case of sequestered businesses generally (i.e. going concerns,
business 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."5
Now, the case at bar involves one where the third and most
_______________
3 Lone dissenting opinion of Cruz, J.

4 Text reproduced in Par. 7, sub-par. 3 of main opinion.
5 Main opinion, par. 24.
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encompassing and rarely invoked of provisional remedies,6 the provisional takeover of the
Baseco properties and business operations has been availed of by the PCGG, simply because
the evidence on hand, not only prima facie but convincingly with substantial and
documentary evidence of record establishes that the corporation known as petitioner B
ASECO "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 [government-owned] National Shipyard and Engineering
Co., Inc., and other government-owned or controlled entities." The documentary evidence
shows that petitioner BASECO (read Ferdinand E. Marcos) in successive transactions all
directed and approved by the former Presidentin an orgy of what according to the PCGG's
then chairman, Jovito Salonga, in his statement before the 1986 Constitutional Commission,
"Mr. Ople once called 'organized pillage' "gobbled up the government corporation National
Shipyard & Steel Corporation (NASSCO), its shipyard at Mariveles, 300 hectares of land in
Mariveles from the Export Processing Zone Authority, Engineer Island itself in Manila and its
complex of equipment and facilities including structures, buildings, shops, quarters, houses,
plants and expendable or semi-expendable assets and obtained huge loans of
$19,000,000.00 from the last available Japanese war damage fund, P30,000,000.00 from the
NDC and P12,400,000.00 from the GSIS. The sordid details are set forth in detail in
Paragraphs 11 to 20 of the main opinion. They include confidential reports from then
BASECO president Hilario M. Ruiz and the deposed President's brother-in-law, then Captain
(later Commodore) Alfredo Romualdez, who although not on record as an officer or
stockholder of BASECO reported directly to the deposed President on its affairs and made
the recommendations, all approved by the lat_______________
6 The other two provisional remedies are the issuance of sequestration and (2) freeze
orders. See main opinion, par. 7.
244
244
ter, for the gobbling up by BASECO of all the choice government assets and properties.
All this evidence has been placed of record in the case at bar. And petitioner has had all the
time and opportunity to refute it, submittals to the contrary notwithstanding, but has
dismally failed to do so. To cite one glaring instance: as stated in the main opinion, the
evidence submitted to this 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 cites the fact that three corporations, evidently front or
dummy corporations, among twenty shareholders, in name, of BASECO, namely Metro Bay
Drydock, Fidelity Management, Inc. and Trident Management hold 209,664 shares or 95.82%
of BASECO's outstanding stock. Now, the Solicitor General points out further than BASECO
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"7 were found in Malacaang shortly after the deposed President's sudden flight
from the country on the night of February 25, 1986. Thus, the main opinion's unavoidable
conclusion that "(W)hile 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/ that denial
is exposed by his own prior and subsequent recorded statements as a mere gesture of
defiance rather than a verifiable factual declaration.... 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
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Batan Shipyard & Engineering Co., Inc. vs. Presidential Commission on Good Government
to President Marcos."8
With this strong unrebutted evidence of record in this Court, Justice Melencio-Herrera, joined
by Justice Feliciano, expressly concurs with the main opinion upholding the commission's
take-over, stating that "(I) have no objection to according the right to vote sequestered
stock in case of a takeover of business actually belonging to the government or whose
capitalization comes from public funds but which, somehow, landed in the hands of private
persons, as in the case of BASECO." They merely qualify their concurrence with the
injunction that such take-overs be exercised with "caution and prudence" pending the
determination of "the true and real ownership" of the sequestered shares. Suffice it to say in
this regard that each case has to be judged from the pertinent facts and circumstances and
that the main opinion emphasizes sufficiently that it is only in the special instances specified
in the governing laws grounded on the superior national interest and welfare and the
practical necessity of preserving the property and preventing its loss or disposition that the
provisional remedy of provisional take-over is exercised.
Here, according to the dissenting opinion, "the PCGG concludes that sequestered property is
ill-gotten wealth and proceeds to exercise acts of ownership over said properties . . . ." and
adds that "the fact of ownership must be established in a proper suit before a court of
justice"which this Court has preempted with its finding that "in the context of the
proceedings at bar, the actuality of the control by President Marcos of BASECO has been
sufficiently shown."
But BASECO who has instituted this action to set aside the sequestration and take-over
orders of respondent commission has chosen to raise these very issues in this Court. We
cannot ostrich-like hide our head in the sand and say that it has not yet been established in
the proper court that what the PCGG has taken over here are government properties, as a
matter of record and public notice and knowledge, like the NASSCO, its Engineer Island and
Mariveles Shipyard and entire complex,
_______________
8 Idem.
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246
which have been pillaged and placed in the name of the dummy or front company named
BASECO but from all the documentary evidence of record shown by its street certificates all
found in Malacaang should in reality read "Ferdinand E. Marcos" and/or his brother-in-law.
Such take-over can in no way be termed "lawless usurpation," for the government does not
commit any act of usurpation in taking over its own properties that have been channeled to
dummies, who are called upon to prove in the proper court action what they have failed to
do in this Court, that they have lawfully acquired ownership of said properties, contrary to
the documentary evidence of record, which they must likewise explain away. This Court, in
the exercise of its jurisdiction on certiorari and as the guardian of the Constitution and
protector of the people's basic constitutional rights, has entertained many petitions on the
part of parties claiming to be adversely affected by sequestration and other orders of the
PCGG. This Court set the criterion that such orders should issue only upon showing of a
prima facie case, which criterion was adopted in the 1987 Constitution. The Court's
judgment cannot be faulted if much more than a prima facie has been shown in this case,
which the faceless figures claiming to represent BASECO have failed to refute or disprove
despite all the opportunity to do so.
The record plainly shows that petitioner BASECO which is but a mere shell to mask its real
owner did not and could not explain how and why they received such favored and preferred
treatment with tailored Letters of Instruction and handwritten personal approval of the
deposed President that handed it on a silver platter the whole complex and properties of
NASSCO and Engineer Island and the Mariveles Shipyard.
It certainly would be the height of absurdity and helplessness if this government could not
here and now take over the possession and custody of its very own properties and assets
that had been stolen from it and which it had pledged to recover for the benefit and in the
greater interest of the Filipino people, whom the past regime had saddled with a huge $27billion foreign debt that has since ballooned to $28.5billion.
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Thus, the main opinion correctly concludes that "(I)n the light of the affirmative showing by
the Government that, prima facie at least, the stockholders and directors of BASECO as of
April, 1986 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."9
And Justice Padilla in his separate concurrence "called a spade a spade," citing the street
certificates representing 95% of BASECO's outstanding stock found in Malacaang after Mr.
Marcos' hasty flight in February, 1986 and the extent of the control he exercised over policy
decisions affecting BASECO and concluding that "Consequently, even ahead of judicial
proceedings, I am convinced that the Republic of the Philippines, thru the PCGG, has the
right and even the duty to take over full control and supervision of BASECO."
Indeed, the provisional remedies available to respondent commission are rooted in the
police power of the State, the most pervasive and the least limitable of the powers of
Government since it represents "the power of sovereignty, the power to govern men and
things within the limits of its domain."10 Police power has been defined as the power
inherent in the State "to prescribe regulations to promote the health, morals, education,
good order or safety, and general welfare of the people."11 Police power rests upon public
necessity and upon the right of the State and of the public to self_______________

10 Chief Justice Taney, cited in Morfe vs. Mutuc, 22 SCRA 424 (1968).
11 Annotation, 35 SCRA 500, citing Primicias vs. Fugoso, 80 Phil. 71; Ignacio vs. Elas, 55 O.G.
2162.
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248
protection.12 "Salus populi suprema est lex" or "the welfare of the people is the Supreme
Law."13 For this reason, it is coextensive with the necessities of the case and the safeguards
of public interest.14 Its scope expands and contracts with changing needs.15 "It may be said
in a general way that the police power extends to all the great public needs. It may be put
forth in aid of what is sanctioned by usage, or held by the prevailing morality or strong and
preponderant opinion to be greatly and immediately necessary to the public welfare."16
That the public interest or the general welfare is subserved by sequestering the purported
ill-gotten assets and properties and taking over stolen properties of the government
channeled to dummy or front companies is stating the obvious. The recovery of these illgotten assets and properties would greatly aid our financially crippled government and
hasten our national economic recovery, not to mention the fact that they rightfully belong to
the people. While as a measure of selfprotection, if, in the interest of general welfare, police
power may be exercised to protect citizens and their businesses in financial and economic
matters, it may similarly be exercised to protect the government itself against potential
financial loss and the possible disruption of governmental functions.17 Police power as the
power of self-protection on the part of the community bears the same relation to the
community that the principle of self-defense bears to the individual. 18 Truly, it may be said
that even more than self-defense, the recovery of illgotten wealth and of the government's
own properties involves the material and moral survival of the nation, marked as the past
regime was by the obliteration of any line between private funds and the public treasury and
abuse of unlimited
_______________
12 Churchill vs. Rafferty, 32 Phil. 580, citing 8 Cyc., 863.

13 Annotation, 35 SCRA 500, at p. 501, citing Coke 139.
14 Vol. 16 AMJUR 2d, Constitutional Law, Sec. 370.
15 BERNAS, Primer on the 1973 Constitution, p. 32, 1983 ed.
16 Churchill vs. Rafferty, 32 Phil. 580, citing Noble State Bank vs. Haskell (219 US [1911]
575).
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power and elimination of any accountability in public office, as the evidence of record amply
shows.
It should be mentioned that the tracking down of the deposed President's actual ownership
of the BASECO shares was fortuitously facilitated by the recovery of the street certificates in
Malacaang after his hasty flight from the country last year. This is not generally the case.
For example, in the ongoing case filed by the government to recover from the Marcoses
valuable real estate holdings in New York and the Lindenmere estate in Long Island, former
PCGG chairman Jovito Salonga has revealed that their names "do not appear on any title to
the property. Every building in New York is titled in the name of a Netherlands Antilles
corporation, which in turn is purportedly owned by three Panamanian corporations, with
bearer shares. This means that the shares of this corporation can change hands any time,
since they can be transferred, under the law of Panama, without previous registration on the
books of the corporation, One of the first documents that we discovered shortly after the
February revolution was a declaration of trust handwritten by Mr. Joseph Bernstein on April 4,
1982 on a Manila Peninsula Hotel stationery stating that he would act as a trustee for the
benefit of President Ferdinand Marcos and would act solely pursuant to the instructions of
Marcos with respect to the Crown Building in New York.''19
This is just to stress the difficulties of the tasks confronting respondent PCGG, which
nevertheless has so far commendably produced unprecedented positive results. As stated
by then chairman Salonga:
"PCGG has turned over to the Office of the President around 2 billion pesos in cash, free of
any lien. It has also delivered to the Presidentas a result of a compromise settlement
around 200 land titles involving vast tracks of land in Metro Manila, Rizal, Laguna, Cavite,
and Bataan, worth several billion pesos. These lands are now
_______________
19 Jovito R. Salonga: "The Practical and Legal Aspects of the Recovery of Ill-gotten Wealth,"
Gregorio Araneta Memorial Lecture delivered on August 25, 1986 at the Ateneo Law School.
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250
available for low-cost housing projects for the benefit of the poor and the dispossessed
amongst our people.
"In the legal custody of the Commission, as a result of sequestration proceedings, are
expensive jewelry amounting to 310 million pesos, 42 aircraft amounting to 718 million
pesos, vessels amounting to 748 million pesos, and shares of stock amounting to around
215 million pesos.
"But, as I said, the bulk of the ill-gotten wealth is located abroad, not in the Philippines.
Through the efforts of the PCGG, we have caused the freezing or sequestration of properties,
deposits, and securities probably worth many billions of pesos in New York, New Jersey,
Hawaii, California, and more importantlyin Switzerland. Due to favorable developments in
Switzerland, we may expect, according to our Swiss lawyers, the first deliveries of the Swiss
deposits in the foreseeable future, perhaps in less than a year's time. In New York, PCGG
through its lawyers who render their services free of cost to the Philippine government,
succeeded in getting injunctive relief against Mr. and Mrs. Marcos and their nominees and
agents. There is now an offer for settlement that is being studied and explored by our
lawyers there.
"If we succeed in recovering not all (since this is impossible) but a substantial part of the illgotten wealth here and in various countries of the worldsomething the revolutionary
governments of China, Ethiopia, Iran and Nicaragua were not able to accomplish at all with
respect to properties outside their territorial boundariesthe Presidential Commission on
Good Government, which has undertaken the difficult and thankless task of trying to undo
what had been done so secretly and effectively in the last twenty years, shall have more
than justified its existence."20
The misdeeds of some PCGG volunteers and personnel cited in the dissenting opinion do not
detract at all from the PCGG's accomplishments, just as no one would do away with
newspapers because of some undesirable elements. The point is that all such misdeeds
have been subject to public exposure and as stated in the dissent itself, the erring PCGG
representatives have been forthwith dismissed and replaced.
The magnitude of the tasks that confront respondent PCGG
_______________
20 Idem.
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with its limited resources and staff support and volunteers should be appreciated, together
with the assistance that foreign governments and lawyers have spontaneously given the
commission.
A word about the PCGG's firing of the BASECO lawyers who filed the present petition
challenging its questioned orders, filing a motion to withdraw the petition, after it had put in
eight of its representatives as directors of the B ASECO board of directors. This was entirely
proper and in accordance with the Court's Resolution of October 28, 1986, which denied
BASECO's motion for the issuance of a restraining order against such take-over and declared
that "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." In other words,
these dummies or fronts cannot seek to question the government's right to recover the very
properties and assets that have been stolen from it by using the very same stolen properties
and funds derived therefrom. If they wish to pursue their own empty claim, they must do it
on their own, after first establishing that they indeed have a lawful right and/or shareholding
in BASECO.
Under the 1987 Constitution, the PCGG is called upon to file the judicial proceedings for
forfeiture and recovery of the sequestered or frozen properties covered by its orders issued
before the ratification of the Constitution on February 2, 1987, within six months from such
ratification, or by August 2, 1987. (For those orders issued after such ratification, the judicial
action or proceeding must be commenced within six months from the issuance thereof.) The
PCGG has not really been given much time, considering the magnitude of its tasks. It is
entitled to some forbearance, in availing of the maximum time granted it for the filing of the
corresponding judicial action with the Sandiganbayan.
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PADILLA, J., concurring:
The majority opinion penned by Mr. Justice Narvasa maintains and upholds the valid
distinction between acts of conservation and preservation of assets and acts of ownership.
Sequestration, freeze and temporary take-over encompass the first type of acts. They do not
include the second type of acts which are reserved only to the rightful owner of the assets or
business sequestered or temporarily taken over.
The removal and election of members of the board of directors of a corporate enterprise is,
to me, a clear act of ownership on the part of the shareholders of the corporation. Under
ordinary circumstances, I would deny the PCGG the authority to change and elect the
members of B ASECO's Board of Directors. However, under the facts as disclosed by the
records, it appears that the certificates of stock representing about ninety-five (95%) per
cent of the total ownership in BASECO's capital stock were found endorsed in blank in
Malacaang (presumably in the possession and control of Mr. Marcos) at the time he and his
family fled in February 1986. This circumstance let alone the extent of the control Mr. Marcos
exercised, while in power, over policy decisions affecting BASECO, entirely satisfies my mind
that BASECO was owned and controlled by Mr. Marcos. This is calling a spade a spade. I am
also entirely satisfied in my mind that Mr. Marcos could not have acquired the ownership of
BASECO out of his lawfullygotten wealth.
Consequently, even ahead of judicial proceedings, I am convinced that the Republic of the
Philippines, through the PCGG, has the right and even the duty to take-over full control and
supervision of B ASECO.
MELENCIO-HERRERA, J., concurring with qualifications:
I would like to qualify my concurrence in so far as the voting of sequestered stock is

concerned.
The voting of sequestered stock is, to my mind, an exercise of an attribute of ownership. It
goes beyond the purpose of a
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writ of sequestration, which is essentially to preserve the property in litigation (Article 2005,
Civil Code). Sequestration is in the nature of a judicial deposit (ibid.).
I have no objection to according the right to vote sequestered stock in case of a take-over of
business actually belonging to the government or whose capitalization comes from public
funds but which, somehow, landed in the hands of private persons, as in the case of
BASECO. To my mind, however, caution and prudence should be exercised in the case of
sequestered shares of an on-going private business enterprise, specially the sensitive ones,
since the true and real ownership of said shares is yet to be determined and proven more
conclusively by the Courts.
It would be more in keeping with legal norms if forfeiture proceedings provided for under
Republic Act No. 1379 be filed in Court and the PCGG seek judicial appointment as a receiver
or administrator, in which case, it would be empowered to vote sequestered shares under its
custody (Section 55, Corporation Code). Thereby, the assets in litigation are brought within
the Court's jurisdiction and the presence of an impartial Judge, as a requisite of due process,
is assured. For, even in its historical context, sequestration is a judicial matter that is best
handled by the Courts.
I consider it imperative that sequestration measures be buttressed by judicial proceedings
the soonest possible in order to settle the matter of ownership of sequestered shares and to
determine whether or not they are legally owned by the stockholders of record or are "illgotten wealth" subject to forfeiture in favor of the State. Sequestration alone, being actually
an ancillary remedy to a principal action, should not be made the basis for the exercise of
acts of dominion for an indefinite period of time.
Sequestration is an extraordinary, harsh, and severe remedy. It should be confined to its
lawful parameters and exercised, with due regard, in the words of its enabling laws, to the
requirements of fairness, due process (Executive Order No. 14, May 7, 1986), and Justice
(Executive Order No. 2, March 12,1986).
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CONCURRING AND DISSENTING OPINION
GUTIERREZ, JR., J.:
I concur, in part, in the erudite opinion penned for the Court by my distinguished colleague
Mr. Justice Andres R. Narvasa. I agree insofar as it states the principles which must govern
PCGG sequestrations and emphasizes the limitations in the exercise of its broad grant of
powers.
I concur in the general propositions embodied in or implied from the majority opinion,
among them:
(1) The efforts of Government to recover ill-gotten properties amassed by the previous
regime deserve the fullest support of the judiciary and all sectors of society. I believe,
however, that a nation professing adherence to the rule of law and fealty to democratic
processes must adopt ways and means which are always within the bounds of lawfully
granted authority and which meet the tests of due process and other Bill of Rights
protections.
(2) Sequestration is intended to prevent the destruction, concealment, or dissipation of illgotten wealth. The object is conservation and preservation. Any exercise of power beyond
these objectives is lawless usurpation.
(3) The PCGG exercises only such powers as are granted by law and not proscribed by the
Constitution. The remedies it enforces are provisional and contingent. Whether or not
sequestered property is indeed ill-gotten must be determined by a court of justice. The
PCGG has absolutely no power to divest title over sequestered property or to act as if its
findings are final.
(4) The PCGG does not own sequestered property. It cannot and must not exercise acts of
ownership. To quote the majority opinion, "one thing is certain x x x, the PCGG cannot
exercise acts of dominion."
(5) The provisional takeover in a sequestration should not be indefinitely maintained. It is
the duty of the PCGG to immediately file appropriate criminal or civil cases once the
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evidence has been gathered.
It is the difference between what the Court says and what the PCGG does which constrains
me to dissent. Even as the Court emphasizes principles of due process and fair play, it has
unfortunately validated ultra vires acts violative of those very same principles. While we
stress the rules which must govern the PCGG in the exercise of its powers, the Court has
failed to stop or check acts which go beyond the power of sequestration given by law to the
PCGG.
We are all agreed in the Court that the PCGG is not a judge. It is an investigator and
prosecutor. Sequestration is only a preliminary or ancillary remedy. There must be a principal
and independent suit filed in court to establish the true ownership of sequestered properties.
The factual premise that a sequestered property was ill-gotten by former President Marcos,
his family, relatives, subordinates, and close associates cannot be assumed. The fact of
ownership must be established in a proper suit before a court of justice.
But what has the Court, in effect, ruled?
Pages 21 to 33 of the majority opinion are dedicated to a statement of facts which
conclusively and indubitably shows that BASECO is owned by President Marcosand that it
was acquired and vastly enlarged by the former President's taking undue advantage of his
public office and using his powers, authority, or influence.
There has been no court hearing, no trial, and no presentation of evidence. All that we have
is what the PCGG has given us. The petitioner has not even been allowed to see this
evidence, much less refute it.
What the PCGG has gathered in the course of its seizures and investigations may be gospel
truth. However, that truth must be properly established in a trial court, not unilaterally
determined by the PCGG or declared by this Court in a special proceeding which only asks us
to set aside or enjoin an illegal exercise of power. After this decision, there is nothing more
for a trial court to ascertain. Certainly, no lower court would dare to arrive at findings
contrary to this Court's conclusions, no
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256
matter how insistent we may be in labelling such conclusions as "prima facie." To me, this is
the basic flaw in PCGG procedures that the Court is, today, unwittingly legitimating. Even
before the institution of a court case, the PCGG concludes that sequestered property is illgotten wealth and proceeds to exercise acts of ownership over said properties. It treats
sequestered property as its own even before the oppositor-owners have been divested of
their titles.
The Court declares that a state of seizure is not to be indefinitely maintained. This means
that court proceedings to either forfeit the sequestered properties or clear the names and
titles of the petitioners must be filed as soon as possible.
This case is a good example of disregard or avoidance of this requirement. With the kind of
evidence which the PCGG professes to possess, the forfeiture case, could have been filed
simultaneously with the issuance of sequestration orders or shortly thereafter.
And yet, the records show that the PCGG appears to concentrate more on the means rather
than the ends, in running the BASECO, taking over the board of directors and management,
getting rid of security guards, disposing of scrap, entering into new contracts and otherwise
behaving as if it were already the owner. At this late date and with all the evidence PCGG
claims to have, no court case has been filed.
Among the interesting items elicited during the oral arguments or found in the records of
this petition are:
(1) Upon sequestering BASECO, some PCGG personnel lost no time in digging up paved
premises with jack hammers in a frantic search f or buried gold bars.
(2) Two top PCGG volunteers charged each other with stealing properties under their
custody. The PCGG had to step in, dismiss the erring representatives, and replace them with
new ones.
(3) The petitioner claims that the lower bid of a rock quarry operator was accepted even as a
higher and more favorable bid was offered. When the questionable deal was brought to our
attention, the awardee allegedly raised his bid to the
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level of the better offer. The successful bidder later submitted a comment in intervention
explaining his side. Whoever is telling the truth, the fact remains that multi-million peso
contracts involving the operations of sequestered companies should be entered into under
the supervision of a court, not freely executed by the PCGG even when the petitioner-owners
question the propriety and integrity of those transactions.
(4) The PCGG replaced eight out of eleven members of the BASECO board of directors with
its own men. Upon taking over full control of the corporation, the newly installed board
reversed the efforts of the former owners to protect their interests. The new board fired the
BASECO lawyers who instituted the instant petition. It then filed a motion to withdraw this
very same petition we are now deciding. In other words, the "new owners" did not want the
Supreme Court to continue poking into the legality of their acts. They moved to abort the
petition filed with us.
Any suspicion of impropriety would have been avoided if the PCGG had filed the required
court proceedings and exercised its acts of management and control under court
supervision. The requirements of due process would have been met.
One other matter I wish to discuss in this separate opinion is PCGG's selection of eight out of
the eleven members of the B ASECO board of directors.
The election of the members of a board of directors is distinctly and unqualifiedly an act of
ownership. When stockholders of a corporation elect or remove members of a board of
directors, they exercise their right of ownership in the company they own. By no stretch of
the imagination can the revamp of a board of directors be considered as a mere act of
conserving assets or preventing the dissipation of sequestered assets. The broad powers of
a sequestrator are more than enough to protect sequestered assets. There is no need and no
legal basis to reach out further and exercise ultimate acts of ownership.
Under the powers which PCGG has assumed and wields, it can amend the articles and bylaws of a sequestered corpora258
258
tion, decrease the capital stock, or sell substantially all corporate assets without any
effective check from the owners not yet divested of their titles or from a court of justice. The
PCGG is tasked to preserve assets but when it exercises the acts of an owner, it could also
very well destroy. I hope that the case of the Philippine Daily Express, a major newspaper
closed by the PCGG, is an isolated example. Otherwise, banks, merchandizing firms,
investment institutions, and other sensitive businesses will find themselves in a similar
quandary.
I join the PCGG and all right thinking Filipinos in condemning the totalitarian acts which
made possible the accumulation of ill-gotten wealth. I, however, dissent when authoritarian
and ultra vires methods are used to recover that stolen wealth. One wrong cannot be
corrected by the employment of another wrong.
I, therefore, vote to grant the petition. Pending the filing of an appropriate case in court, the
PCGG must be enjoined from exercising any and all acts of ownership over the sequestered
firm.
CRUZ, J., dissenting:
My brother Narvasa has written a truly outstanding decision that bespeaks a penetrating
and analytical mind and a masterly grasp of the serious problem we are asked to resolve. He
deserves and I offer him my sincere admiration.
There is no question that all lawful efforts should be taken to recover the tremendous wealth
plundered from the people by the past regime in the most execrable thievery perpetrated in
all history. No right-thinking Filipino can quarrel with this necessary objective, and on this
score I am happy to concur with the ponencia.
But for all my full agreement with the basic thesis of the majority, I regret I find myself
unable to support its conclusions in favor of the respondent PCGG. My view is that these
conclusions clash with the implacable principles of the free society, foremost among which is
due process. This demands our
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VOL. 150, MAY 28, 1987

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Alonzo vs. Intermediate Appellate Court
reverent regard.
Due process protects the life, liberty and property of every person, whoever he may be.
Even the most despicable criminal is entitled to this protection. Granting this distinction to
Marcos, we are still not justified in depriving him of this guaranty on the mere justification
that he appears to own the BASECO shares.
I am convinced and so submit that the PCGG cannot at this time take over the BASECO
without any court order and exercise thereover acts of ownership without court supervision.
Voting the shares is an act of ownership. Reorganizing the board of directors is an act of
ownership. Such acts are clearly unauthorized. As the majority opinion itself stresses, the
PCGG is merely an administrator whose authority is limited to preventing the sequestered
properties from being dissipated or clandestinely transferred.
The court action prescribed in the Constitution is not inadequate and is available to the
PCGG. The advantage of this remedy is that, unlike the ad libitum measures now being
taken, it is authorized and at the same time also limited by the fundamental law. I see no
reason why it should not now be employed by the PCGG, to remove all doubts regarding the
legality of its acts and all suspicions concerning its motives.
Petition dismissed.
o0o
Copyright 2016 Central Book Supply, Inc. All rights reserved. [Bataan Shipyard &
Engineering Co., Inc. vs. Presidential Commission on Good Government, 150 SCRA
181(1987)]
VOL. 22, JANUARY 30, 1968
359
Mambulao Lumber Co. vs. Philippine National Bank
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.
Interest; Compounded; When shall it be reckoned.In computing the interest on any
obligation, promissory note or other instrument or contract, compound interest shall not be
reckoned, except by agreement, or in default thereof, whenever the debt is judicially
claimed. Interest due shal l ea rn le interest only from the time it is judicially demanded.
Interest due and unpaid shall not earn interest. The parties may, by stipulation, capitalize
the interest due and unpaid, which as added principal shall earn new interest.
Auctions; Claims for expenses thereto.Fees enumerated by the Rules of Court (Rule 141,
New Rules of Court) are demandable only by a sheriff serving processes of the court in
connection with judicia l foreclosu re of mortga ges u nder
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68 and not in cases of extra-judicial foreclosure of mortgagees under Act 3135. The law
applicable is section 4 of Act 3135 which provides that the officer conducting the sale is
entitled to collect a fee of P5.00 for each day of actual work performed in addition to his
expenses in connection with the foreclosure sale.
Stipulations; Mortgage contract; How it should be construed.The ambiguity in the
stipulation by reason of the faulty sentence construction should not be made to defeat the
otherwise clear intention of the parties in the agreement.
Attorney's fees; Rule of quantum meruit.This Court has invariably fixed counsel fees on a
quantum meruit basis whenever the fees stipulated appear excessive, unconscionable, or
unreasonable, because a lawyer is primarily a court officer charged with the duty of assisting
the court in administering impartial justice between the parties. The fees should be subject
to judicial control. Sound public policy demands that courts disregard stipulations for counsel
fees, whenever they appear to be a source of speculative profit at the expense of the debtor
or mortgagor.
Same; Circumstances to consider.In determining the compensation of an attorney, the
following circumstances should be considered: the amount and character of the services
rendered; the responsibility imposed; the amount of money or the value of the property
affected by the controversy, or involved in the employment; the skill and experience called
for in the performance of the service; the professional standing of the attorney; the results
secured; and whether or not the fee is contingent or absolute, it being a recognized rule that
an attorney may properly charge a much larger fee when it is to be contingent than when it
is not.
Mortgages; Extent of authority of mortgagee to sell property mortgaged.The law grants
power and authority to the mortgagee to sell the mortgaged property at a public place in the
municipality where the mortgagor resides, or where the property is situated. The sale of a
mortgaged chattel may be made in a place other than that where it is found, provided that
the owner thereof consents or that there is an agreement to this effect between the
mortgagor and the mortgagee. But when the parties agreed to have the property mortgaged
sold at the residence of the mortgagor; the mortgagee can not retain that power and
authority to select from among the places provided for in the law and place designated in
their agreement.
Damages; Moral damages; Award of damage to juridical persons.An artificial person
cannot experience physical sufferingS; mental anguish, fright, serious anxiety, wounded
feelings, moral -shock or social humiliation which are the basis of moral damage. A
corporation may have a good reputation which,
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361
if besmirched, may also be a ground for the award of moral damages.
APPEAL from a decision of the Court of First Instance of Manila. Alikpala, J.

Ernesto P. Vilar and Arthur Tordesillas for plaintiffappellant.
Tomas Besa and Jose B. Galang for defendants-appellees.
ANGELES, J.:
An appeal from a decision, dated April 2, 1964, of the Court of First Instance of Manila in Civil
Case No. 52089, entitled "Mambulao Lumber Company, plaintiff, versus Philippine National
Bank and Anacleto Heraldo, defendants", dismissing the complaint against both defendants
and sentencing the plaintiff to pay to defendant Philippine National Bank (PNB for short) the
sum of P3,582.52 with interest thereon at the rate of 6% per annum from December 22,
1961 until fully paid, and the costs of suit.
In seeking the reversal of the decision, the plaintiff advances several propositions in its brief
which may be restated as follows:
1. That its total indebtedness to the PNB as of November 21, 1961, was only P56,485.87 and
not P58.213.51 as concluded by the court a quo; hence, the proceeds of the foreclosure sale
of its real property alone in the amount of P56,908.00 on that date, added to the sum of
P738.59 it remitted to the PNB thereafter was more than sufficient to liquidate its obligation,
thereby rendering the subsequent foreclosure sale of its chattels unlawful;
2. That it is not liable to pay PNB the amount of P5,821.35 for attorney's fees and the
additional sum of P298.54 as expenses of the foreclosure sale;
3. That the subsequent foreclosure sale of its chattels is null and void, not only because it
had already settled its indebtedness to the PNB at the time the sale was effected, but also
for the reason that the said sale was not conducted in accordance with the provisions of the
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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.
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"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 foreclosure 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 thereon 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
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364
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.
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"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
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Company to pay to the defendant PNB the sum of P3,582.-52 with interest thereon at the
rate of 6% per annum from December 22, 1961 (day following the date of the questioned
foreclosure of plaintiff's chattels) until fully paid, and the costs. Mambulao Lumber Company
interposed the instant appeal.
We shall discuss the various points raised in appellant's brief in seriatim.
The first question Mambulao Lumber Company poses is that which relates to the amount of
its indebtedness to the PNB arising out of the principal loans and the accrued interest
thereon. It is contended that its obligation under the terms of the two promissory notes it
had executed in favor of the PNB amounts only to P56,485.87 as of November 21, 1961,
when the sale of real property was effected, and not P58,213.51 as found by the trial court.
There is merit to this claim. Examining the terms of the promissory note executed by the
appellant in favor of the PNB, we find that the agreed interest on the loan of P43,000.00
P27,500.00 released on August 2, 1956 as per promissory note of even date (Exhibit C-3),
and P15,500.00 released on October 19, 1956, as per promissory note of the same date
(Exhibit C-4)was six per cent (6%) per annum from. the respective date of said notes "until
paid". In the statement of account of the appellant as of September 22, 1961, submitted by
the PNB, it appears that in arriving at the total indebtedness of P57,646.59 as of that date,
the PNB had compounded the principal of the loan and the accrued 6% interest thereon
each time the yearly amortizations became due, and on the basis of these compounded
amounts charged additional delinquency interest on them up to September 22, 1961; and to
this erroneously computed total of P57,646.59, the trial court added 6% interest per annum
from September 23, 1961 to November 21 of the same year. In effect, the PNB has claimed,
and the trial court has adjudicated to it, interest on accrued interests from the time the
various amortizations of the loan became due until the real estate mortgage executed to
secure the loan was extra-judicially foreclosed on No-
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367
vember 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 extrajudicial 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 Sheriffs fees would be P1 for advertising the sale
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368
(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 workone 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 favor____________
1 See, Gorospe, et al. v. Gochangco, L-12735, October 30, 1959

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ably 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:
"x x x F or the pur po se of extra-ju dicial forec los 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 t herefor. x x x."
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 at370
370
torney'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 proceedings 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
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2 59 C.J.S. 1547.
3 59 C.J.S. 1549.
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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 courts have
power to fix the fee as between attorney and client, it must
_____________
4 Bachrach v. Golingco, 39 Phil. 138.

5 See, Gorospe, et al. v. Gochangco, supra.
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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 . Agai n, we f ind m er it i n this clai m.
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
______________
6 Bachrach v. Golingco, supra.

7 Delgado v. De la Rama, 43 Phil. 419.
373

373
the real estate mortgage was foreclosed, we have the following illustration in support of this
conclusion:
A.
I
Principal Loan
(a)
Promissory note dated August 2, 1956
P27,500.00
(1)
Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961
8,751.78
(b)
Promissory note dated October 19, 1956
P15,500.00
(1)
Interest at 6% per annum from Oct. 19, 1956 to Nov. 21, 1961
4,734.08
II
Sheriff's fees [for two (2) day's work] ..
10.00
III
Attorney's fees
1,000.00
Total obligation as of Nov. 21, 1961

P57,495.86
B.
I
Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21, 1961 ..
P56,908.00
II
Additional amount remitted to the PNB on Dec. 18, 1961
738.59
Total amount of Payment made to PNB as of Dec. 18, 1961

P57,646.59
Deduct: Total obligation to the PNB

P57,495.86
Excess Payment to the PNB

P 150.73
From the foregoing illustration or computation, it is clear that there was no further necessity
to foreclose the mortgage of herein appellant's chattels on December 21, 1961; and on this
ground alone, we may declare the sale of appellant's chattels on the said date, illegal and
void. But we take into consideration the f act 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
374
374
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." [Italics supplied]
Notwithstanding the above-quoted 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. Consideri ng ing that Se ct io n 1 4 o f Ac t No. 15 08 vests in the choice where
the foreclosure sale should be held, hence, in the
375

375
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, anyway, 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
b e 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
________________
8 Section 14, Act No. 1508.

9 Riosa v. Stilianopulos, Inc., 67 Phil. 422.
10 Art. 1159, new Civil Code.

376
376
"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, Ca_____________
11 Gener al Azucar er a de T ar la c v. De Leon, 56 P See also, Bautista v. De Borja, et al., L20600, October 28, 1966.
12 14 C. J. S. 10
13 Exhibit Q.
14 C. J. S. 817-818.
377
377
marines 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 truck s , a Her ring Hall Saf e, and Sawmill eq 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's 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 wrongf
ul acts of the PNB and the Deputy Sherif f 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
____________
15 14 C.J .S.
16 Bachrach v. Golingco, supra.
378
378
SUPREME COURT REPORTS ANNOTA
the damage to which he was thus subjected. x x x
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 P107,1 15.85. 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 reinspection
conducted by the same official in 1958, in the report of which he gave all the chattels an
appraised value of P26,850.00 and a market value of P48,200.00.18 Another reinspection
report in 1959 gave the appraised value as P19,400.00 and the market value at
P25,600.00.19 The said official of the PNB who made the foregoing reports of inspection and
reinspections 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
reinspection 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 chat_____________
17 Exhibit 5.
18 Exhibit 6.
19 Exhibit 6-b.
379

379
tels in 1961, just a few months before the foreclosure sale, the same inspector of the PNB
reported that the heavy equipments 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 equipments 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
reinspection 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 truc ks subseque ly bought by the appellant company bad
thereafter been added to the chattels; and that the real value thereof
____________
20 Exhibit 6
380
380
SUPREME COURT REPORT S ANNOTATE
Mambulao Lumber Co. vs Philippine Nationa l Ba
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
_____________
21 See Art. 2217, Civil Code.

381

381
Gonzalo Puyat & Sons, Inc. vs . Laba
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.
Concepcion, C.J. , Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and
Fernando, JJ., concur.
Bengzon, J.P., J., pursuant to Rule 137, Sec. 1 took no part.
Decision set aside.
_______________ [Mambulao Lumber Co. vs. Philippine National Bank, 22 SCRA 359(1968)]
238
Heirs of Ramon Durano, Sr. vs. Uy
G.R. No. 136456. October 24, 2000.*
HEIRS OF RAMON DURANO, SR., RAMON DURANO III, AND ELIZABETH HOTCHKISS DURANO,
petitioners, vs. SPOUSES ANGELES SEPULVEDA UY AND EMIGDIO BING SING UY, SPOUSES
FAUSTINO ALATAN AND VALERIANA GARRO, AURELIA MATA, SILVESTRE RAMOS,
HERMOGENES TITO, TEOTIMO GONZALES, PRIMITIVA GARRO, JULIAN GARRO, ISMAEL
GARRO, BIENVENIDO CASTRO, GLICERIO BARRIGA, BEATRIZ CALZADA, ANDREA MATA DE
BATULAN, TEOFISTA ALCALA, FILEMON LAVADOR, CANDELARIO LUMANTAO, GAVINO QUIMBO,
JUSTINO TITO, MARCELINO GONZALES, SALVADOR DAYDAY, VENANCIA REPASO, LEODEGARIO
GONZALES, and RESTITUTA GONZALES, respondents.
Appeals; Assignment of Errors; The Court of Appeals is imbued with sufficient discretion to
review matters, not otherwise assigned as errors on appeal, if it finds that their
consideration is necessary in arriving at a complete and just resolution of the case.We find
untenable petitioners argument that since no party (whether petitioners or respondents)
appealed for the return of the properties to respondents other than Repaso, Tito and
Gonzales, that portion of the RTC decision that awards damages to such other respondents is
final and may no longer be altered by the Court of Appeals. A reading of the provisions of
Section 8, Rule 51, aforecited, indicates that the Court of Appeals is not limited to reviewing
only those errors assigned by appellant, but also those that are closely related to or
dependent on an assigned error. In other words, the Court of Appeals is imbued with
sufficient discretion to review matters, not otherwise assigned as errors on appeal, if it finds
that their consideration is necessary in arriving at a complete and just resolution of the case.
In this case, the Court of Appeals ordered the return of the properties to respondents merely
as a legal consequence of the finding that respondents had a better right of possession than
petitioners over the disputed properties, the former being possessors in the concept of
owner.
Ownership; Prescription; Ordinary acquisitive prescription, in the case of immovable
property, requires possession of the thing in good faith and with just title, for a period of ten
years.Ordinary acquisitive prescription, in the case of immovable property, requires
possession of the
_______________
* THIRD DIVISION.
239
VOL. 344, OCTOBER 24, 2000

239
thing in good faith and with just title, for a period often years. A possessor is deemed to be
in good faith when he is not aware of any flaw in his title or mode of acquisition of the
property. On the other hand, there is just title when the adverse claimant came into
possession of the property through one of the modes for acquiring ownership recognized by
law, but the grantor was not the owner or could not transmit any right. The claimant by
prescription may compute the ten-year period by tacking his possession to that of his
grantor or predecessor-in-interest.
Same; Land Titles; Notarial Law; Fraud in the issuance of a certificate of title may be raised
only in an action expressly instituted for that purpose, and not collaterally as in an action for
reconveyance and damages; Unregistrability of the deed of sale is a serious defect that
should affect the validity of the certificates of title; Notarization of the deed of sale is
essential to its registrability, and the action of the Register of Deeds in allowing the
registration of the unacknowledged deed of sale is unauthorized and does not render validity
to the registration of the document.It is true that fraud in the issuance of a certificate of
title may be raised only in an action expressly instituted for that purpose, and not
collaterally as in the instant case which is an action for reconveyance and damages. While
we cannot sustain the Court of Appeals finding of fraud because of this jurisdictional
impediment, we observe that the above-enumerated circumstances indicate none too
clearly the weakness of petitioners evidence on their claim of ownership. For instance, the
non-production of the alleged reconstituted titles of Cepoc despite demand therefor gives
rise to a presumption (unrebutted by petitioners) that such evidence, if produced, would be
adverse to petitioners. Also, the unregistrability of the deed of sale is a serious defect that
should affect the validity of the certificates of title. Notarization of the deed of sale is
essential to its registrability, and the action of the Register of Deeds in allowing the
registration of the unacknowledged deed of sale was unauthorized and did not render
validity to the registration of the document.
Same; Same; A buyer who could not have failed to know or discover that the land sold to
him was in the adverse possession of another is a buyer in bad faith.A purchaser of a
parcel of land cannot close his eyes to facts which should put a reasonable man upon his
guard, such as when the property subject of the purchase is in the possession of persons
other than the seller. A buyer who could not have failed to know or discover that the land
sold to him was in the adverse possession of another is a buyer in bad faith. In the herein
case, respondents were in open possession and occupancy of the properties when Durano &
Co. supposedly purchased the
240
240
same from Cepoc. Petitioners made no attempt to investigate the nature of respondents
possession before they ordered demolition in August 1970.
Same; Same; The rule on indefeasibility of title, i.e., that Torrens titles can be attacked for
fraud only within one year from the date of issuance of the decree of registration, does not
altogether deprive an aggrieved party of a remedy at lawan action for reconveyance may
prosper if a property wrongfully registered has not passed to an innocent purchaser for
value.In the same manner, the purchase of the property by petitioner Ramon Durano III
from Durano & Co. could not be said to have been in good faith. It is not disputed that
Durano III acquired the property with full knowledge of respondents occupancy thereon.
There even appears to be undue haste in the conveyance of the property to Durano III, as
the bulldozing operations by Durano & Co. were still underway when the deed of sale to
Durano III was executed on September 15, 1970. There is not even an indication that Durano
& Co. attempted to transfer registration of the property in its name before it conveyed the
same to Durano III. In the light of these circumstances, petitioners could not justifiably
invoke the defense of indefeasibility of title to defeat respondents claim of ownership by
prescription. The rule on indefeasibility of title, i.e., that Torrens titles can be attacked for
fraud only within one year from the date of issuance of the decree of registration, does not
altogether deprive an aggrieved party of a remedy at law. As clarified by the Court in Javier
vs. Court of AppealsThe decree (of registration) becomes incontrovertible and can no
longer be reviewed after one (1) year from the date of the decree so that the only remedy of
the landowner whose property has been wrongfully or erroneously registered in anothers
name is to bring an ordinary action in court for reconveyance, which is an action in
personam and is always available as long as the property has not passed to an innocent
third party for value. If the property has passed into the hands of an innocent purchaser for
value, the remedy is an action for damages. In the instant case, respondents action for
reconveyance will prosper, it being clear that the property, wrongfully registered in the
name of petitioner Durano III, has not passed to an innocent purchaser for value.
Same; Same; Builders in Bad Faith; Remedies of the owner on whose land somebody has
built in bad faith.Based on these provisions, the owner of the land has three alternative
rights: (1) to appropriate what has been built without any obligation to pay indemnity
therefor, or (2) to demand that the builder remove what he had built, or (3) to compel the
builder to pay the value of the land. In any case, the landowner is entitled to damages under
Article 451, abovecited.
241
VOL. 344, OCTOBER 24, 2000

241
Same; Same; Same; Although Article 451 does not elaborate on the basis for damages that
the owner of the land may recover from a builder in bad faith, the Court perceives that it
should reasonably correspond with the value of the properties lost or destroyed as a result of
the occupation in bad faith, as well as the fruits (natural, industrial or civil) from those
properties that the owner of the land reasonably expected to obtain.The right of the owner
of the land to recover damages from a builder in bad faith is clearly provided for in Article
451 of the Civil Code. Although said Article 451 does not elaborate on the basis for
damages, the Court perceives that it should reasonably correspond with the value of the
properties lost or destroyed as a result of the occupation in bad faith, as well as the fruits
(natural, industrial or civil) from those properties that the owner of the land reasonably
expected to obtain. We sustain the view of the lower courts that the disparity between
respondents affidavits and their tax declarations on the amount of damages claimed should
not preclude or defeat respondents right to damages, which is guaranteed by Article 451.
Moreover, under Article 2224 of the Civil Code: Temperate or moderate damages, which are
more than nominal but less than compensatory damages, may be recovered when the court
finds that some pecuniary loss has been suffered but its amount cannot, from the nature of
the case, be proved with certainty.
Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction; Test.The test in
determining the applicability of the doctrine of piercing the veil of corporate fiction 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 acts 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.
Same; Same; The question of whether a corporation is a mere alter ego is purely one of fact.
The question of whether a corporation is a mere alter ego is purely one of fact. The Court
sees no reason to reverse the finding of the Court of Appeals. The facts show that shortly
after the
242
242
purported sale by Cepco to Durano & Co., the latter sold the property to petitioner Ramon
Durano III, who immediately procured the registration of the property in his name.
Obviously, Durano & Co. was used by petitioners merely as an instrumentality to appropriate
the disputed property for themselves.

Rodrigo, Berenguer & Guno for petitioners.
Batiquin & Batiquin Law Office for respondents.
GONZAGA-REYES, J.:
Petitioners seek the reversal of the decision of the First Division of the Court of Appeals
dated November 14, 1997 in CA-G.R. CV No. 27220, entitled Heirs of Ramon Durano, Sr., et
al. versus Spouses Angeles Supelveda Uy, et al., and the resolution of the Court of Appeals
dated October 29, 1998 which denied petitioners motion for reconsideration.
The antecedents of this case may be traced as far back as August 1970; it involves a 128hectare parcel of land located in the barrios of Dunga and Cahumayhumayan, Danao City.
On December 27, 1973, the late Congressman Ramon Durano, Sr., together with his son
Ramon Durano III, and the latters wife, Elizabeth Hotchkiss Durano (petitioners in the herein
case), instituted an action for damages against spouses Angeles Supelveda Uy and Emigdio
Bing Sing Uy, spouses Faustino Alatan and Valeriana Garro, spouses Rufino Lavador and
Aurelia Mata, Silvestre Ramos, Hermogenes Tito, Teotimo Gonzales, Primitiva Garro, Julian
Garro, Ismael Garro, Bienvenido Castro, Glicerio Barriga, Beatriz Calzada, Andrea Mata de
Batulan, Teofista Alcala, Filemon Lavador, Candelario Lumantao, Gavino Quimbo, Justino Tito,
Marcelino Gonzales, Salvador Dayday, Venancia Repaso, Leodegario Gonzales, Jose de La
Calzada, Restituta Gonzales, and Cosme Ramos (herein respon243
VOL. 344, OCTOBER 24, 2000

243
dents1) before Branch XVII of the then Court of First Instance of Cebu, Danao City.
In that case, docketed as Civil Case No. DC-56, petitioners accused respondents of officiating
a hate campaign against them by lodging complaints in the Police Department of Danao
City in August 1970, over petitioners so-called invasion of respondents alleged properties
in Cahumayhumayan, Danao City. This was followed by another complaint sent by
respondents to the President of the Philippines in February 1971, which depicted petitioners
as oppressors, landgrabbers and usurpers of respondents alleged rights. Upon the
direction of the President, the Department of Justice through City Fiscal Jesus Navarro and
the Philippine Constabulary of Cebu simultaneously conducted investigations on the matter.
Respondents complaints were dismissed as baseless, and they appealed the same to the
Secretary of Justice, who called for another investigation to be jointly conducted by the
Special Prosecutor and the Office of the City Fiscal of Danao City. During the course of said
joint investigation, respondents Hermogenes Tito and Salvador Dayday again lodged a
complaint with the Office of the President, airing the same charges of landgrabbing. The
investigations on this new complaint, jointly conducted by the 3rd Philippine Constabulary
Zone and the Citizens Legal Assistance Office resulted in the finding that (petitioners)
should not be held answerable therefor.2
Petitioners further alleged in their complaint before the CFI that during the course of the
above investigations, respondents kept spreading false rumors and damaging tales which
put petitioners into public contempt and ridicule.3
In their Answer, respondents lodged their affirmative defenses, demanded the return of their
respective properties, and made counterclaims for actual, moral and exemplary damages.
Respon_______________
1 With the exception of Rufino Lavador, Jose de la Calzada and Cosme Ramos, who
respondents in their Answer before the trial court declared were only witnesses for
respondents, and not claimants to the disputed property. RTC Decision, 3; Records of the
Case.
2 CA Decision; Rollo, 48-49.
3 RTC Decision, 2; Records of the Case.
244
244
dents stated that sometime in the early part of August 1970 and months thereafter they
received mimeographed notices dated August 2, 1970 and signed by the late Ramon
Durano, Sr., informing them that the lands which they are tilling and residing in, formerly
owned by the Cebu Portland Cement Company (hereafter, Cepoc), had been purchased by
Durano & Co., Inc. The notices also declared that the lands were needed by Durano & Co. for
planting to sugar and for roads or residences, and directed respondents to immediately turn
over the said lands to the representatives of the company. Simultaneously, tall bamboo
poles with pennants at the tops thereof were planted in some areas of the lands and metal
sheets bearing the initials RMD were nailed to posts.
As early as the first week of August 1970, and even before many of the respondents
received notices to vacate, men who identified themselves as employees of Durano & Co.
proceeded to bulldoze the lands occupied by various respondents, destroying in their wake
the plantings and improvements made by the respondents therein. On some occasions,
respondents alleged, these men fired shots in the air, purportedly acting upon the
instructions of petitioner Ramon Durano III and/or Ramon Durano, Jr. On at least one
instance, petitioners Ramon Durano III and Elizabeth Hotchkiss Durano were seen on the site
of the bulldozing operations.
On September 15, 1970, Durano & Co. sold the disputed property to petitioner Ramon
Durano III, who procured the registration of these lands in his name under TCT No. T-103 and
TCT No T-104.
Respondents contended that the display of force and the known power and prestige of
petitioners and their family restrained them from directly resisting this wanton depredation
upon their property. During that time, the mayor of Danao City was Mrs. Beatriz Durano, wife
of Ramon Durano, Sr. and mother of petitioner Ramon Durano III. Finding no relief from the
local police, who respondents said merely laughed at them for daring to complain against
the Duranos, they organized themselves and sent a letter to then President Ferdinand
Marcos reporting dispossession of their properties and seeking a determination of the
ownership of the land. This notwithstanding, the bulldozing operations contin245
VOL. 344, OCTOBER 24, 2000

245
ued until the City Fiscal was requested by the Department of Justice to conduct an
investigation on the matter. When, on July 27, 1971, the City Fiscal announced that he would
be unable to conduct a preliminary investigation, respondents urged the Department of
Justice to conduct the preliminary investigation. This was granted, and the investigations
which spanned the period March 1972 to April 1973 led to the conclusion that respondents
complaint was untenable.4
In their counterclaim, respondents alleged that petitioners acts deprived most of them of
their independent source of income and have made destitutes of some of them. Also,
petitioners have done serious violence to respondents spirit, as citizens and human beings,
to the extent that one of them had been widowed by the emotional shock that the damage
and dispossession has caused.5 Thus, in addition to the dismissal of the complaint,
respondents demanded actual damages for the cost of the improvements they made on the
land, together with the damage arising from the dispossession itself; moral damages for the
anguish they underwent as a result of the high-handed display of power by petitioners in
depriving them of their possession and property; as well as exemplary damages, attorneys
fees and expenses of litigation.
Respondents respective counterclaimsreferring to the improvements destroyed, their
values, and the approximate areas of the properties they owned and occupiedare as
follows:
a) TEOFISTA ALCALATax Declaration No. 00223; .2400 ha.; bulldozed on August, 10, 1970.
Improvements destroyed consist of 47 trees, 10 bundles beatilis firewood and 2 sacks of
cassava, all valued at P5,437.00. (Exh. B, including submarkings)
b) FAUSTINO ALATAN and VALERIANA GARROTax Declaration No. 30758; .2480 ha.; Tax
Declaration No. 32974; .8944 ha.; Tax Declaration No. 38908; .8000 ha.; Bulldozed on
September 9, 1970; Improvements destroyed consist of 682 trees, a cornfield with one
cavan per harvest 3 times a year, valued at P71,770.00; Bulldozed on March 13, 1971; 753
trees, 1,000 bundles beatilis firewood every year, valued at P29,100.00; Cut down in the
later part of March, 197122 trees, 1,000
______________

5 Ibid., 55.
246
246
bundles beatilis firewood every year, 6 cavans corn harvest per year, valued at P1,940.00 or
a total value of P102,810.00. (Exh. C, including submarkings)
c) ANDREA MATA DE BATULANTax Declaration No. 33033; .4259 ha.; bulldozed on
September 11, 1970. Improvements destroyed consist of 512 trees and 15 sacks cassava all
valued at P79,425.00. (Exh. D, including submarkings)
d) GLICERIO BARRIGATax Declaration No. 32290; .4000 ha.; bulldozed on September 10,
1990. Improvements destroyed consist of 354 trees, cassava field if planted with corn good
for one liter, 30 cavans harvest a year of corn, and one resthouse, all valued at P35,500.00.
(Exh. E, including submarkings)
e) BEATRIZ CALZADATax Declaration No. 03449; .900 ha.; Bulldozed on June 16, 1971.
Improvements destroyed consist of 2,864 trees, 1,600 bundles of beatilis firewood, 12
kerosene cans cassava every year and 48 cavans harvest a year of corn all valued at
P34,800.00. (Exh. F, including submarkings)
f) BIENVENIDO CASTROTax Declaration No. 04883; .6000 ha.; bulldozed on September 10,
1970. Improvements destroyed consist of 170 trees, 10 sacks cassava every year, 500
bundles beatilis firewood every year, 60 cavans corn harvest per year, all valued at
P5,550.00. (Exh. G, including submarkings)
g) ISMAEL GARROTax Declaration No. 7185; 2 has. Bulldozed in August, 1970.
Improvements destroyed consist of 6 coconut trees valued at P1,800.00. Bulldozed on
February 3, 1971improvements destroyed consist of 607 trees, a corn field of 5 cavans
produce per harvest thrice a year, all valued at P67,890.00. (Exh. H, including submarkings)
h) JULIAN GARROTax Declaration No. 28653; 1 ha.; Bulldozed in the latter week of August,
1970. Improvements destroyed consist of 365 trees, 1 bamboo grove, 1 tisa, 1,000 bundles
of beatilis firewood, 24 cavans harvest a year of corn, all valued at P46,060.00. (Exh. I,
including submarkings)
i) PRIMITIVA GARROTax Declaration No. 28651; .3000 ha.; Bulldozed on September 7,
1970. Improvements destroyed consist of 183 trees, 10 pineapples, a cassava field, area if
planted with corn good for 1/2 liter, sweet potato, area if planted with corn good for 1/2 liter
all valued at P10,410.00. (Exh. J, including submarkings)
j) TEOTIMO GONZALESTax Declaration No. 38159; .8644 ha.; Tax Declaration No. 38158; .
8000 ha.; Bulldozed on September 10, 1970improvements destroyed consist of 460 trees
valued at P20,000.00. Bull
247
VOL. 344, OCTOBER 24, 2000

247
dozed on December 10, 1970Improvements destroyed consist of 254 trees valued at
P65,600.00or a total value of P85,600.00. (Exh. K, including submarkings)
k) LEODEGARIO GONZALESTax Declaration No. 36884; Bulldozed on February 24, 1971.
Improvements destroyed consist of 946 trees, 40 ubi, 15 cavans harvest a year of corn, all
valued at P72,270.00. (Exh. L, including submarkings)
l) FILEMON LAVADORTax Declaration No. 14036; 1 ha.; Bulldozed on February 5, 1971.
Improvements destroyed consist of 675 trees and 9 cavans harvest a year of corn all valued
at P63,935.00. (Exh. M, including submarkings)
m) CANDELARIO LUMANTAOTax Declaration No. 18791; 1.660 ha. Bulldozed on the second
week of August, 1970Improvements destroyed consist of 1,377 trees, a cornfield with 3
cavans per harvest thrice a year and a copra dryer all valued at P193,960.00. Bulldozed on
February 26, 1971Improvements destroyed consist of 44 trees, one pig pen and the fence
thereof and the chicken roost all valued at P12,650.00. Tax Declaration No. 33159; 3.500
has. Bulldozed in the last week of March, 1971Improvements destroyed consist of 13 trees
valued at P1,550.00. Bulldozed in the latter part consist of 6 Bamboo groves and Ipil-Ipil
trees valued at P700.00 with total value of P208,860.00. (Exh. N, including submarkings)
n) AURELIA MATATax Declaration No. 38071; .3333 ha.; Bulldozed sometime in the first
week of March, 1971Improvements destroyed consist of 344 trees and 45 cavans corn
harvest per year valued at P30,965.00. (Exh. Q, including submarkings) o) GAVINO QUIMBO
Tax Declaration No. 33231; 2.0978 has.; Tax Declaration No. 24377; .4960 ha. (.2480 ha.
Belonging to your defendant) Bulldozed on September 12, 1970Improvements destroyed
consist of 200 coconut trees and 500 banana fruit trees valued at P68,500.00. Bulldozed on
consist of 59 trees, 20 sacks cassava and 60 cavans harvest a year of corn valued at
P9,660.00 or a total value of P78,160.00. (Exh. R, including submarkings)
p) SILVESTRE RAMOSTax Declaration No. 24288; 1.5568 has.; Bulldozed on February 23,
1971.Improvements destroyed consist of 737 trees, a cornfield with 3 cavans per harvest 3
times a year and 50 bundles of beatilis firewood, all valued, at P118,170.00. (Exh. S,
including submarkings)
q) MARCELINO GONZALESTax Declaration No. 34057; .4049 ha. Bulldozed on March 20,
1972Improvements destroyed consist of 5 coconut trees and 9 cavans harvest a year of
corn valued at P1,860.00.
248
248
Bulldozed on July 4, 1972destroying 19 coconut trees valued at P5,700.00 or a total value

of P7,560.00. (Exh. U, including submarkings)
r) JUSTINO TITOTax Declaration No. 38072; .2000 has.; Bulldozed on February 25, 1971
Improvements destroyed consist of 338 trees and 5 kamongay all valued at P29,650.00.
(Exh. T, including submarkings)
s) EMIGDIO BING SING UY and ANGELES SEPULVEDA UYTransfer Certificate of Title No. T-35
(Register of Deeds of Danao City); 140.4395 has.; Area bulldozed- 20.000 has. Bulldozed on
August 5, 6 and 7, 1970destroying 565 coconut trees, 2-1/2 yrs. old, 65,422 banana
groves with 3,600 mango trees, 3 years old, grafted and about to bear fruit valued at
P212,260.00. Bulldozed on November 24, 1970 and on February 16, 1971destroying 8,520
madri-cacao trees and 24 cylindrical cement posts boundaries valued at P18,540.00.
Bulldozed on November 24, 1970destroying 90 coconut trees, 3 years old cornfield at 40
cavans per harvest and at 3 harvests a year (120 cavans) valued at P31,800.00. Bulldozed
on February 16, 1971destroying 25,727 trees and sugarcane field value P856,725.00 or a
total value of P1,123,825.00. (Exh. V, including submarkings)
t) SALVADOR DAYDAYTax Declaration No. (unnumbered) dated September 14, 1967; 4.000
has. Bulldozed on May 6, 1971destroying 576 trees, 9 cavans yearly of corn, 30 kerosene
cans of cassava yearly valued at P4,795.00. Bulldozed from March 26, 1973 to the first week
of April, 1973destroying 108 trees and cornland, 6 cavans harvest per year valued at
P53,900.00 or a total value of P58,695.00. (Exh. A, including submarkings)
u) VENANCIA REPASOTax Declaration No. 18867; 1.1667 has. Bulldozed on April 15, 1971
Improvements destroyed were 775 trees, 500 abaca, about to be reaped, and being reaped
3 times a year 2 bamboo groves all valued at P47,700.00. (Exh. O, including submarkings)
v) HERMOGENES TITOTax Declaration No. 38009; over one (1) ha. Bulldozed in the latter
part of September, 1970destroying 1 coconut tree, 18 sacks of corn per year valued at
P1,020.00. Bulldozed on March 15, 1973destroying 2 coconut trees, 5 buri trees, 1 bamboo
grove valued at P1,400.00. Bulldozed on March 26, 1974destroying 3 coconut trees valued
at P1,500.00 with a total value of P3,920.00. (Exh. P, including submarkings).6
______________
6 Ibid., 50-54.
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249
On April 22, 1975, petitioners moved to dismiss their complaint with the trial court. The trial
court granted the motion to dismiss, without prejudice to respondents right to proceed with
their counterclaim.
Hence, the trial proceeded only on the counterclaim.
On September 23, 1980, this Court issued a resolution in Administrative Matter No. 6290
changing the venue of trial in Civil Case No. DC-56 to the Regional Trial Court of Cebu City.
The change was mainly in line with the transfer of Judge Bernardo Ll. Salas, who presided
over the case in Danao City, to Cebu City.
The parties agreed to dispense with pre-trial, and for the evidence-in-chief to be submitted
byway of affidavits together with a schedule of documentary exhibits, subject to additional
direct examination, cross examination and presentation of rebuttal evidence by the parties.
The trial court and later, the Court of Appeals, took note of the following portions of
affidavits submitted by petitioners:
x x x City Fiscal Jesus Navarro said that in August, 1967, he issued subpoenas to several
tenants in Cahumayhumayan upon representation by Cepoc, the latter protesting failure by
the tenants to continue giving Cepoc its share of the corn produce. He learned from the
tenants that the reason why they were reluctant and as a matter of fact some defaulted in
giving Cepoc its share, was that Uy Bing Sepulveda made similar demands to them for his
share in the produce, and that they did not know to whom the shares should be given.
xxx
xxx
xxx
Jesus Capitan said that he is familiar with the place Cahumayhumayan and that the
properties in said locality were acquired by Durano and Company and Ramon Durano III, but
formerly owned by Cepoc.
When the properties of Ramonito Durano were cultivated, the owners of the plants
requested him that they be given something for their effort even if the properties do not
belong to them but to Cepoc, and that he was directed by Ramonito Durano to do a listing of
the improvements as well as the owners. After he made a listing, this was given to Ramonito
who directed Benedicto Ramos to do payment.
When he was preparing the list, they did not object to the removal of the plants because the
counterclaimants understood that the lands did not belong to them, but later and because of
politics a complaint was filed, and
250
250
finally that when he was doing the listing, the improvements were even pointed to him by
the counterclaimants themselves. (Exh. 48, Records, p. 385-386).
xxx
xxx
xxx
Ruperto Rom said that he had an occasion to work at Cepoc from 1947 to 1950 together with
Benedicto and Tomas Ramos, the latter a capataz of the Durano Sugar Mills. Owner of the
properties, subject of the complaint, was Cepoc.
The persons who eventually tilled the Cepoc properties were merely allowed to do
cultivation if planted to corn, and for Cepoc to be given a share, which condition was
complied with by all including the counter-claimants. He even possessed one parcel which
he planted to coconuts, jackfruit trees and other plants. (Exh. 51, Records, pp. 383-384)
xxx
xxx
xxx
Co-defendant Ramon Durano III said that he agreed with the dismissal of the complaint
because his fathers wish was reconciliation with the defendants following the death of Pedro
Sepulveda, father of Angeles Sepulveda Uy, but inspite of the dismissal of the complaint, the
defendants still prosecuted their counterclaim.
The disputed properties were owned formerly by Cepoc, and then of the latter selling the
properties to Durano and Company and then by the latter to him as of September 15, 1970.
As a matter of fact, TCT T-103 and T-104 were issued to him and that from that time on, he
paid the taxes.
At the time he purchased the properties, they were not occupied by the defendants. The first
time he learned about the alleged bulldozing of the improvements was when the defendants
filed the complaint of land grabbing against their family with the Office of the President and
the attendant publicity. Precisely his family filed the complaint against them. (Exh. 57,
Records, pp. 723-730)
xxx
xxx
xxx
Congressman Ramon Durano said he is familiar with the properties, being owned originally
by Cepoc. Thereafter they were purchased by Durano and Company and then sold to Ramon
Durano III, the latter now the owner. He filed a motion to dismiss the case against Angeles
Sepulveda, et al. as a gesture of respect to the deceased Pedro Sepulveda, father of Angeles
Sepulveda, and as a Christian, said Pedro Sepulveda being the former Mayor of Danao, if
only to stop all misunderstanding between their families.
xxx
xxx
xxx
251
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251
He was the one who did the discovery of the properties that belonged to Cepoc, which
happened when he was doing mining work near Cahumayhumayan and without his
knowledge extended his operation within the area belonging to Cepoc. After Cepoc learned
of the substantial coal deposits, the property was claimed by Cepoc and then a survey was
made to relocate the muniments. Eventually he desisted doing mining work and limited
himself within the confines of his property that was adjacent to Cepocs property. All the
claimants except Sepulveda Uy were occupants of the Cepoc properties. Durano and
Company purchased the property adjacent to Cepoc, developed the area, mined the coal
and had the surveyed area planted with sugar cane, and finally the notices to the occupants
because of their intention to plant sugar cane and other crops (T.S.N. December 4, 1985, pp.
31-32, 44-54, RTC Decision, pp. 16-19, Records, pp. 842-845).7
Petitioners also presented Court Commissioner, Engineer Leonidas Gicain, who was directed
by the trial court to conduct a field survey of the disputed property. Gicain conducted
surveys on the areas subjected to bulldozing, including those outside the Cepoc properties.
The surveywhich was based on TCT No. T-103 and TCT No. T-104, titled in the name of
Ramon Durano III, and TCT No. 35, in the name of respondent Emigdio Bing Sing Uywas
paid for by petitioners.8
Respondents, for their part, also presented their affidavits and supporting documentary
evidence, including tax declarations covering such portions of the property as they formerly
inhabited and cultivated.
On March 8, 1990, the RTC issued a decision upholding respondents counterclaim. The
dispositive portion of said decision reads:
THE FOREGOING CONSIDERED, judgment is hereby rendered in favor of the counter
claimants and against the plaintiffs directing the latter to pay the former:
a)
With respect to Salvador Dayday
P 14,400.00
b)
With respect to Teofista Alcala
4,400.00
c)
With respect to Faustino Alatan
118,400.00
d)
With respect to Andrea Mata de Batulan
115,050.00
_______________

8 Ibid., Rollo, 58.
252
252
e)
With respect to Glicerio Barriga
35,500.00
f)
With respect to Beatriz Galzada
70,300.00
g)
With respect to Bienvenido Castro
5,000.00
h)
With respect to Ismael Garro
66,060.00
i)
With respect to Julian Garro
48,600.00
j)
With respect to Primitiva Garro
13,000.00
k)
With respect to Teotimo Gonzales
63,200.00
1)
With respect to Leodegario Gonzales
85,300.00
m)
With respect to Filemon Lavador
70,860.00
n)
With respect to Venancia Repaso
101,700.00
o)
With respect to Candelario Lumantao
192,550.00
p)
With respect to Hermogenes Tito
1,200.00
q)
With respect to Aurelia Mata
28,560.00
r)
With respect to Gavino Quimbo
81,500.00
s)
With respect to Silvestre Ramos
101,700.00
t)
With respect to Justino Tito
27,800.00
u)
With respect to Marcelino Gonzales
2,360.00
v)
With respect to Angeles Supelveda
902,840.00
P120,000.00 should be the figure in terms of litigation expenses and a separate amount of
P100,000.00 as attorneys fees.
Return of the properties to Venancia Repaso, Hermogenes Tito and Marcelino Gonzales is
hereby directed.
With respect to counter claimant Angeles Sepulveda Uy, return of the property to her should
be with respect to the areas outside of the Cepoc property, as mentioned in the sketch,
Exhibit 56-A.
Finally with costs against the plaintiffs.
SO ORDERED.9
The RTC found that the case preponderated in favor of respondents, who all possessed their
respective portions of the property covered by TCT Nos. T-103 and T-104 thinking that they
were the absolute owners thereof. A number of these respondents alleged that they
inherited these properties from their parents, who in turn inherited them from their own
parents. Some others came into the properties by purchase from the former occupants
thereof. They and their predecessors were responsible for the plantings and improvements
on the property. They were the ones who sought for
______________
9 RTC Decision; Rollo, 114.

253
VOL. 344, OCTOBER 24, 2000

253
the properties to be tax-declared in their respective names, and they continually paid the
taxes thereto. Respondents maintained that they were unaware of anyone claiming adverse
possession or ownership of these lands until the bulldozing operations in 1970.
As for Venancia Repaso, Hermogenes Tito and Marcelino Gonzales, the Court found that the
properties they laid claim to were not part of the land that was purchased by Durano & Co.
from Cepoc. Thus, it found the bulldozing of these lands by petitioners totally unjustified and
ordered not only the total reimbursement of useful and necessary expenses on the
properties but also the return of these properties to Repaso, Tito and Gonzales, respectively.
As for all the other respondents, the RTC found their possession of the properties to be in the
concept of owner and adjudged them to be builders in good faith. Considering that
petitioners in the instant case appropriated the improvements on the areas overran by the
bulldozers, the RTC ruled that (t)he right of retention to the improvements necessarily
should be secured (in favor of respondents) until reimbursed not only of the necessary but
also useful expenses.10
On the matter of litigation expenses and attorneys fees, the RTC observed that the trial
period alone consisted of forty (40) trial dates spread over a period of sixteen (16) years. At
the time, respondents were represented by counsel based in Manila, and the trial court took
into consideration the travel, accommodation and miscellaneous expenses of their lawyer
that respondents must have shouldered during the trial of the case.
Dissatisfied, petitioners appealed the RTC decision to the Court of Appeals, which, in turn,
affirmed the said decision and ordered the return of the property to all the respondentsclaimants, in effect modifying the RTC decision which allowed return only in favor of
respondents Repaso, Tito and Gonzales.
In its decision, the Court of Appeals upheld the factual findings and conclusions of the RTC,
including the awards for actual damages, attorneys fees and litigation expenses, and found
additionally that the issuance of TCT Nos. T-103 and T-104 in the name of
_______________
10 Ibid., 111.
254
254

Ramon Durano III was attended by fraud. Evaluating the evidence before it, the Court of
Appeals observed that the alleged reconstituted titles of Cepoc over the property, namely,
TCT No. (RT-38) (T-14457)4 and TCT No. (RT-39) (T-14456)3 (Exhibits 19 and 20 of
this case), which were claimed to be the derivative titles of TCT Nos. T-103 and T-104, were
not submitted in evidence before the RTC. Thus, in an Order dated June 15, 1988, the RTC
ordered Exhibits 19 and 20 deleted from petitioners Offer of Exhibits. The Court of
Appeals further noted that even among the exhibits subsequently produced by petitioners
before the RTC, said Exhibits 19 and 20 were still not submitted.11 Moreover, Cepoc had
no registered title over the disputed property as indicated in TCT Nos. T-103 and T-104. Thus:
TRANSFER CERTIFICATE OF TITLE
NO.-103
xxx
xxx
IT IS FURTHER CERTIFIED that said land was originally registered on the N.A. day of N.A. in
the year nineteen hundred and N.A. in Registration Book No. N.A. page N.A. of the Office of
the Register of Deeds of N.A. as Original Certificate of Title No. N.A. pursuant to a N.A. patent
granted by the President of the Philippines, on the N.A. day of N.A. in the year nineteen
hundred and N.A. under Act No. N.A.
This certificate is a transfer from Transfer Certificate of Title No. (RT-39) (T-14456)3 which
is cancelled by virtue hereof in so far as the above described land is concerned.
xxx
xxx
TRANSFER CERTIFICATE OF TITLE

NO. T-104
xxx
xxx
IT IS FURTHER CERTIFIED that said land was originally registered on the N.A. day of N.A. in
the year nineteen hundred and N.A. in Registration Book No. N.A. page N.A. of the Office of
the Register of Deeds of N.A. as Original Certificate of Title No. N.A., pursuant to a N.A.
patent
________________
11 Submission of Copies of Some Missing Exhibits of Plaintiffs dated June 29, 1988
(Records of the Case, 774-775) cited in CA Decision-Rollo, 60.
255
VOL. 344, OCTOBER 24, 2000

255

granted by the President of the Philippines, on the N.A. day of N.A. in the year nineteen
hundred and N.A. under Act No. N.A.
This certificate is a transfer from Transfer Certificate of Title No. (RT-38) (T-14457)4 which
is cancelled by virtue hereof in so far as the above described land is concerned.12
From the foregoing, the Court of Appeals concluded that the issuance of the TCT Nos. T-103
and T-104 in favor of petitioner Ramon Durano III was attended by fraud; hence, petitioners
could not invoke the principle of indefeasibility of title. Additionally, the Court of Appeals
found that the alleged Deed of Absolute Sale, undated, between Cepoc Industries, Inc. and
Durano & Co. was not notarized and thus, unregistrable.
The Court of Appeals went on to state that while, on the one hand, no valid issuance of title
may be imputed in favor of petitioners from the private Deed of Sale and the alleged
reconstituted titles of Cepoc that were not presented in evidence, respondents, in contrast
who although admittedly had no registered titles in their nameswere able to demonstrate
possession that was public, continuous and adverseor possession in the concept of owner,
and which was much prior (one or two generations back for many of respondents) to the
claim of ownership of petitioners.
Thus, the Court of Appeals ordered the return of the properties covered by TCT Nos. T-103
and T-104 to all respondents who made respective claims thereto. Corollarily, it declared
that petitioners were possessors in bad faith, and were not entitled to reimbursement for
useful expenses incurred in the conversion of the property into sugarcane lands. It also gave
no merit to petitioners allegation that the actual damages awarded by the trial court were
excessive, or to petitioners argument that they should not have been held personally liable
for any damages imputable to Durano & Co.
Following is the dispositive portion of the decision of the Court of Appeals:
_______________
12 CA Decision; Rollo, 60.

256
256
WHEREFORE, the appealed decision of the lower court in Civil Case No. DC-56 is hereby
AFFIRMED with MODIFICATION ordering the return of the respective subject properties to all
the defendants-appellees, without indemnity to the plaintiffs-appellants as regards whatever
improvements made therein by the latter. In all other respects, said decision in affirmed.
Costs against plaintiffs-appellants.
SO ORDERED.13
On October 29, 1998, the Court of Appeals denied petitioners motion for reconsideration for
lack of merit. Hence, this petition.
Petitioners assign the following errors from the CA decision:
1. The Court of Appeals erred in granting relief to the respondents who did not appeal the
decision of the lower court.
2. The Court of Appeals erred in collaterally attacking the validity of the title of petitioner
Ramon Durano III.
3. The respondents should not have been adjudged builders in good faith.
4. The petitioners should not be held personally liable for damages because of the doctrine
of separate corporate personality.
5. It was an error to hold that the respondents had proved the existence of improvements on
the land by preponderance of evidence, and in awarding excessive damages therefor.
6. It was error to direct the return of the properties to respondents Venancia Repaso,
Hermogenes Tito and Marcelino Gonzales.
7. The award of litigation expenses and attorneys fees was erroneous.
8. The petitioners are not possessors in bad faith.
On their first assignment of error, petitioners contend that before the Court of Appeals, they
only questioned that portion of the RTC decision which directed the return of the properties
to respondents Repaso, Tito and Gonzales. They argued that the return of
________________
13 Ibid.; Rollo, 67. Written by Associate Justice B.A. Adefuin-de la Cruz, with Acting Presiding
Justice Fidel P. Purisima and Associate Justice Ricardo P. Galvez concurring.
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257
the properties to all the other respondents by the Court of Appeals was erroneous because it
was not among the errors assigned or argued by petitioners on appeal. Besides, since
respondents themselves did not appeal from the RTC decision on the issue of return of the
physical possession of the property, it is understood that judgment as to them has already
become final by operation of law. To support its argument, petitioners cited the cases of
Madrideo vs. Court of Appeals 14 and Medida vs. Court of Appeals,15 which held that
whenever an appeal is taken in a civil case an appellee who has not himself appealed
cannot obtain from the appellate court any affirmative relief other than the ones granted in
the decision of the court below.
Rule 51 of the New Rules of Civil Procedure provides:
Sec. 8. Questions that may be decided.No error which does not affect the jurisdiction over
the subject matter or the validity of the judgment appealed from or the proceedings therein
will be considered unless stated in the assignment of errors, or closely related to or
dependent on an assigned error and properly argued in the brief, save as the court may pass
upon plain errors and clerical errors.
We find untenable petitioners argument that since no party (whether petitioners or
respondents) appealed for the return of the properties to respondents other than Repaso,
Tito and Gonzales, that portion of the RTC decision that awards damages to such other
respondents is final and may no longer be altered by the Court of Appeals. A reading of the
provisions of Section 8, Rule 51, aforecited, indicates that the Court of Appeals is not limited
to reviewing only those errors assigned by appellant, but also those that are closely related
to or dependent on an assigned error.16 In other words, the Court of Appeals is imbued with
sufficient discretion to review matters, not otherwise assigned as errors on appeal, if it finds
that their consideration is necessary in arriving at a complete and just resolution of the case.
In this case, the Court of
_______________
14 137 SCRA 797 (1985).

15 208 SCRA 887 (1992).
16 Philippine Commercial and Industrial Bank vs. Court of Appeals, 159 SCRA 24 (1988).
258
258
Appeals ordered the return of the properties to respondents merely as a legal consequence
of the finding that respondents had a better right of possession than petitioners over the
disputed properties, the former being possessors in the concept of owner. Thus, it held
Plaintiffs-appellants have to return possession of the subject property, not only to
defendants-appellees Venancia Repaso, Hermogenes Tito and Marcelino Gonzales but to all
other defendants-appellees herein, by virtue of the latters priority in time of declaring the
corresponding portions of the subject properties in their name and/or their predecessors-ininterest coupled with actual possession of the same property through their predecessors-ininterest in the concept of an owner. Plaintiffs-appellants who had never produced in court a
valid basis by which they are claiming possession or ownership over the said property
cannot have a better right over the subject properties than defendants-appellees.17
Moreover, petitioners reliance on the Madrideo and Medida cases is misplaced. In the
Madrideo case, the predecessors-ininterest of the Llorente Group sold the disputed property
to the Alcala Group, who in turn sold the same to the spouses Maturgo. The RTC adjudged
the spouses Maturgo purchasers in good faith, such that they could retain their title to the
property, but held that the Llorente Group was unlawfully divested of its ownership of the
property by the Alcala Group. The Alcala Group appealed this decision to the Court of
Appeals, who denied the appeal and ordered the reinstatement in the records of the Registry
of Deeds of the Original Certificates of Title of the predecessors-in-interest of the Llorente

Group. In setting aside the decision of the Court of Appeals, this Court held that no relief
may be afforded in favor of the Llorente Group to the prejudice of the spouses Maturgo, who
the Court carefully emphasizedwere third parties to the appeal, being neither appellants
nor appellees before the Court of Appeals, and whose title to the disputed property was
confirmed by the RTC. The application of the ruling in Madrideo to the instant case bears no
justification because it is clear that petitioners, in appealing the RTC decision, impleaded all
the herein respondents.
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259
Meanwhile, in the Medida case, petitioners (who were the appellees before the Court of
Appeals) sought the reversal of a finding of the RTC before the Supreme Court. The Court
explained that since petitioners failed to appeal from the RTC decision, theyas appellees
before the Court of Appealscould only argue for the purpose of sustaining the judgment in
their favor, and could not ask for any affirmative relief other than that granted by the court
below. The factual milieu in Medida is different from that of the instant case, where the
return of the properties to respondents was not an affirmative relief sought by respondents
but an independent determination of the Court of Appeals proceeding from its findings that
respondents were long-standing possessors in the concept of owner while petitioners were
builders in bad faith. Certainly, under such circumstances, the Court of Appeals is not
precluded from modifying the decision of the RTC in order to accord complete relief to
respondents.
Moving now to the other errors assigned in the petition, the return of the properties to
respondents Repaso, Tito and Gonzales was premised upon the factual finding that these
lands were outside the properties claimed by petitioners under TCT Nos. T-103 and T-104.
Such factual finding of the RTC, sustained by the Court of Appeals, is now final and binding
upon this Court.
In respect of the properties supposedly covered by TCT Nos. T-103 and T-104, the Court of
Appeals basically affirmed the findings of the RTC that respondents have shown prior and
actual possession thereof in the concept of owner, whereas petitioners failed to substantiate
a valid and legitimate acquisition of the propertyconsidering that the alleged titles of
Cepoc from which TCT Nos. T-103 and T-104 were supposed to have derived title were not
produced, and the deed of sale between Cepoc and Durano & Co. was unregistrable.
The records clearly bear out respondents prior and actual possession; more exactly, the
records indicate that respondents possession has ripened into ownership by acquisitive
prescription.
Ordinary acquisitive prescription, in the case of immovable property, requires possession of

the thing in good faith and with
260
260
just title,18 for a period of ten years.19 A possessor is deemed to be in good faith when he
is not aware of any flaw in his title or mode of acquisition of the property.20 On the other
hand, there is just title when the adverse claimant came into possession of the property
through one of the modes for acquiring ownership recognized by law, but the grantor was
not the owner or could not transmit any right.21 The claimant by prescription may compute
the ten-year period by tacking his possession to that of his grantor or predecessor-ininterest.22
The evidence shows that respondents successfully complied with all the requirements for
acquisitive prescription to set in. The properties were conveyed to respondents by purchase
or inheritance, and in each case the respondents were in actual, continuous, open and
adverse possession of the properties. They exercised rights of ownership over the lands,
including the regular payment of taxes and introduction of plantings and improvements.
They were unaware of anyone claiming to be the owner of these lands other than
themselves until the notices of demolition in 1970and at the time each of them had
already completed the ten-year prescriptive period either by their own possession or by
obtaining from the possession of their predecessors-in-interest. Contrary to the allegation of
petitioners that the claims of all twenty-two (22) respondents were lumped together and
indiscriminately sustained, the lower courts (especially the RTC) took careful consideration of
the claims individually, taking note of the respective modes and dates of acquisition.
Whether respondents predecessors-in-interest in fact had title to convey is irrelevant under
the concept of just title and for purposes of prescription.
Thus, respondents counterclaim for reconveyance and damages before the RTC was
premised upon a claim of ownership as indicated by the following allegations:
_______________
18 Civil Code, Art. 1117.

19 Id., Art. 1134.
20 Id., Art. 526.
21 Id., Art. 1129.
22 Id., Art. 1138.
261
VOL. 344, OCTOBER 24, 2000
261
(Y)our defendants are owners and occupants of different parcels of land located in Barrio
Cahumayhumayan, your defendants having occupied these parcels of land for various
periods by themselves or through their predecessors-in-interest, some for over fifty years,
and some with titles issued under the Land Registration Act; x x x x x23
Respondents claim of ownership by acquisitive prescription (in respect of the properties
covered by TCT Nos. T-103 and T-104) having been duly alleged and proven, the Court
deems it only proper that such claim be categorically upheld. Thus, the decision of the Court
of Appeals insofar as it merely declares those respondents possessors in the concept of
owner is modified to reflect the evidence on record which indicates that such possession had
been converted to ownership by ordinary prescription.
Turning now to petitioners claim to ownership and title, it is uncontested that their claim
hinges largely on TCT Nos. T-103 and T-104, issued in the name of petitioner Ramon Durano
III. However, the validity of these certificates of title was put to serious doubt by the
following: (1) the certificates reveal the lack of registered title of Cepoc to the properties;24
(2) the alleged reconstituted titles of Cepoc were not produced in evidence; and (3) the deed
of sale between Cepoc and Durano & Co. was unnotarized and thus, unregistrable.
It is true that fraud in the issuance of a certificate of title may be raised only in an action
expressly instituted for that purpose,25 and not collaterally as in the instant case which is an
action for reconveyance and damages. While we cannot sustain the Court of Appeals finding
of fraud because of this jurisdictional impediment, we observe that the above-enumerated
circumstances indicate none too clearly the weakness of petitioners evidence on their claim
of ownership. For instance, the non-production of the alleged reconstituted titles of Cepoc
despite demand therefor gives rise to a presumption (unrebutted by petitioners) that such
evidence, if
________________
23 RTC Decision; Rollo, 80.

24 See note 12.
25 Mallilin, Jr. vs. Castillo, G.R. No. 136803, June 16, 2000, 333 SCRA 628; Eduarte vs. Court
of Appeals, 311 SCRA 18; P.D. 1529, Sec. 48.
262
262
produced, would be adverse to petitioners.26 Also, the unregistrability of the deed of sale is
a serious defect that should affect the validity of the certificates of title. Notarization of the
deed of sale is essential to its registrability,27 and the action of the Register of Deeds in
allowing the registration of the unacknowledged deed of sale was unauthorized and did not
render validity to the registration of the document.28
Furthermore, a purchaser of a parcel of land cannot close his eyes to facts which should put
a reasonable man upon his guard, such as when the property subject of the purchase is in
the possession of persons other than the seller.29 A buyer who could not have failed to know
or discover that the land sold to him was in the adverse possession of another is a buyer in
bad faith.30 In the herein case, respondents were in open possession and occupancy of the
properties when Durano & Co. supposedly purchased the same from Cepoc. Petitioners
made no attempt to investigate the nature of respondents possession before they ordered
demolition in August 1970.
In the same manner, the purchase of the property by petitioner Ramon Durano III from
Durano & Co. could not be said to have been in good faith. It is not disputed that Durano III
acquired the property with full knowledge of respondents occupancy thereon. There even
appears to be undue haste in the conveyance of the property to Durano III, as the bulldozing
operations by Durano & Co. were still underway when the deed of sale to Durano III was
executed on September 15, 1970. There is not even an indication that Durano & Co.
attempted to transfer registration of the property in its name before it conveyed the same to
Durano III.
In the light of these circumstances, petitioners could not justifiably invoke the defense of
indefeasibility of title to defeat respondents claim of ownership by prescription. The rule on
indefeasibil________________
26 Rules of Court, Rule 131, Sec. 3(e).

27 P.D. 1529, Sec. 112.
28 Gallardo vs. Intermediate Appellate Court, 155 SCRA 248 (1987).
29 Republic vs. De Guzman, G.R. No. 105630, February 23, 2000, 326 SCRA 267; Embrado
vs. Court of Appeals, 233 SCRA 355 (1994).
30 St. Peter Memorial Park, Inc. vs. Cleofas, 92 SCRA 389 (1979).
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VOL. 344, OCTOBER 24, 2000

263
ity of title, i.e., that Torrens titles can be attacked for fraud only within one year from the
date of issuance of the decree of registration, does not altogether deprive an aggrieved
party of a remedy at law. As clarified by the Court in Javier vs. Court of Appeals 31
The decree (of registration) becomes incontrovertible and can no longer be reviewed after
one (1) year from the date of the decree so that the only remedy of the landowner whose
property has been wrongfully or erroneously registered in anothers name is to bring an
ordinary action in court for reconveyance, which is an action in personam and is always
available as long as the property has not passed to an innocent third party for value. If the
property has passed into the hands of an innocent purchaser for value, the remedy is an
action for damages.
In the instant case, respondents action for reconveyance will prosper, it being clear that the
property, wrongfully registered in the name of petitioner Durano III, has not passed to an
innocent purchaser for value.
Since petitioners knew fully well the defect in their titles, they were correctly held by the
Court of Appeals to be builders in bad faith.
The Civil Code provides:
Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is
built, planted or sown without right of indemnity.
Art. 450. The owner of the land on which anything has been built, planted or sown in bad
faith may demand the demolition of the work, or that the planting or sowing be removed, in
order to replace things in their former condition at the expense of the person who built,
planted or sowed; or he may compel the builder or planter to pay the price of the land, and
the sower the proper rent.
Art. 451. In the cases of the two preceding articles, the landowner is entitled to damages
from the builder, planter or sower.
Based on these provisions, the owner of the land has three alternative rights: (1) to
appropriate what has been built without any
_______________
31 231 SCRA 498 (1994); reiterated in Heirs of Pedro Lopez vs. De Castro, G.R. No. 112905,
February 3, 2000, 324 SCRA 591; Millena vs. Court of Appeals, G.R. No. 127797, January 31,
2000, 324 SCRA 126.
264
264
obligation to pay indemnity therefor, or (2) to demand that the builder remove what he had
built, or (3) to compel the builder to pay the value of the land.32 In any case, the landowner
is entitled to damages under Article 451, abovecited.
We sustain the return of the properties to respondents and the payment of indemnity as
being in accord with the reliefs under the Civil Code.
On petitioners fifth assignment of error that respondents had not proved the existence of
improvements on the property by preponderance of evidence, and that the damages
awarded by the lower courts were excessive and not actually proved, the Court notes that
the issue is essentially factual. Petitioners, however, invoke Article 2199 of the Civil Code
which requires actual damages to be duly proved. Passing upon this matter, the Court of
Appeals cited with approval the decision of the RTC which stated:
The counter claimants made a detail of the improvements that were damaged. Then the
query, how accurate were the listings, supposedly representing damaged improvements.
The Court notes, some of the counter claimants improvements in the tax declarations did
not tally with the listings as mentioned in their individual affidavits. Also, others did not
submit tax declarations supporting identity of the properties they possessed. The disparity
with respect to the former and absence of tax declarations with respect to the latter, should
not be a justification for defeating right of reimbursement. As a matter of fact, no
controverting evidence was presented by the plaintiffs that the improvements being
mentioned individually in the affidavits did not reflect the actual improvements that were
overran by the bulldozing operation. Aside from that, the City Assessor, or any member of
his staff, were not presented as witnesses. Had they been presented by the plaintiffs, the
least that can be expected is that they would have enlightened the Court the extent of their
individual holdings being developed in terms of existing improvements. This, the plaintiffs
defaulted. It might be true that there were tax declarations, then presented as supporting
documents by the counter claimants, but then mentioning improvements but in variance
with the listings in the individual affidavits. This disparity similarly cannot be accepted as a
basis for the setting aside of the listing of improvements being adverted to by the counter
claimants in their affidavits. This Court is not foreclosing
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32 De Vera vs. Court of Appeals, 305 SCRA 624 (1999).

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VOL. 344, OCTOBER 24, 2000

265
the possibility that the tax declarations on record were either table computations by the
Assessor or his deputy, or tax declarations whose entries were merely copied from the old
tax declarations during the period of revision. (RTC Decision, p. 36, Records, p. 862)33
The right of the owner of the land to recover damages from a builder in bad faith is clearly
provided for in Article 451 of the Civil Code. Although said Article 451 does not elaborate on
the basis for damages, the Court perceives that it should reasonably correspond with the
value of the properties lost or destroyed as a result of the occupation in bad faith, as well as
the fruits (natural, industrial or civil) from those properties that the owner of the land
reasonably expected to obtain. We sustain the view of the lower courts that the disparity
between respondents affidavits and their tax declarations on the amount of damages
claimed should not preclude or defeat respondents right to damages, which is guaranteed
by Article 451. Moreover, under Article 2224 of the Civil Code:
Temperate or moderate damages, which are more than nominal but less than compensatory
damages, may be recovered when the court finds that some pecuniary loss has been
suffered but its amount cannot, from the nature of the case, be proved with certainty.
We also uphold the award of litigation expenses and attorneys fees, it being clear that
petitioners acts compelled respondents to litigate and incur expenses to regain rightful
possession and ownership over the disputed property.34
The last issue presented for our resolution is whether petitioners could justifiably invoke the
doctrine of separate corporate personality to evade liability for damages. The Court of
Appeals applied the well-recognized principle of piercing the corporate veil, i.e., the law
will regard the act of the corporation as the act of its individual stockholders when it is
shown that the corporation was used merely as an alter ego by those persons in the
commission of fraud or other illegal acts.
_______________

34 Civil Code, Art. 2208.
266
266
The test in determining the applicability of the doctrine of piercing the veil of corporate
fiction 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
acts 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.35
The question of whether a corporation is a mere alter ego is purely one of fact.36 The Court
sees no reason to reverse the finding of the Court of Appeals. The facts show that shortly
after the purported sale by Cepco to Durano & Co., the latter sold the property to petitioner
Ramon Durano III, who immediately procured the registration of the property in his name.
Obviously, Durano & Co. was used by petitioners merely as an instrumentality to appropriate
the disputed property for themselves.
WHEREFORE, the instant petition is DENIED. The decision of the Court of Appeals is
MODIFIED to declare respondents with claims to the properties covered by Transfer
Certificate of Title Nos. T-103 and T-104 owners by acquisitive prescription to the extent of
their respective claims. In all other respects, the decision of the Court of Appeals is
AFFIRMED. Costs against petitioners.
_______________
35 Lim vs. Court of Appeals, G.R. No. 124715, January 24, 2000, 323 SCRA 102; Concept
Builders, Inc. vs. NLRC, 257 SCRA 149 (1996).
36 Concept Builders, Inc. vs. NLRC, supra.
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267
SO ORDERED.
Melo (Chairman), Vitug and Panganiban, JJ., concur.
Purisima, J., No part.
Petition denied, judgment affirmed with modification.
Notes.Questions not assigned as error may be considered on appeal if necessary for the
just and complete resolution of the case. (Korean Airlines Co., Ltd. vs. Court of Appeals, 234
SCRA 717 [1994])
The appellate court is accorded a broad discretionary power to waive the lack of proper
assignment of errors and to consider errors not assigned. (Catholic Bishop of Balanga vs.
Court of Appeals, 264 SCRA 181 [1996])
An appeal in a criminal proceeding throws the whole case open for review and it becomes
the duty of the appellate court to correct an error as maybe found in the appealed judgment,
whether it is made the subject of assignment of errors or not. (People vs. Calayca, 301 SCRA
192 [1999])
The rule that an appellate court may only pass upon errors assigned, as well as its
exceptions, is also applicable to administrative bodies. (Diamonon vs. Department of Labor
and Employment, 327 SCRA 283 [2000])
The purpose of an assignment of errors is to point out to the appellate court the specific
portions of the decision appealed from which the appellant seeks to controvert. (Bayer
Philippines, Inc. vs. Court of Appeals, 340 SCRA 437 [2000])
o0o [Heirs of Ramon Durano, Sr. vs. Uy, 344 SCRA 238(2000)]
VOL. 296, SEPTEMBER 29, 1998
631
San Juan Structural and Steel Fabricators, Inc. vs. Court of Appeals
G.R. No. 129459. September 29, 1998.*

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner, vs. COURT OF APPEALS,
MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP. and
JNM REALTY AND DEVELOPMENT CORP., respondents.
Corporation Law; Sales; The property of the corporation is not the property of its
stockholders or members and may not be sold by the stockholders or members without
express authorization from the corporations board of directors.A corporation is a juridical
person separate and distinct from its stockholders or members. Accordingly, the property of
the corporation is not the property of its stockholders or members and may not be sold by
the stockholders or members without express authorization from the corporations board of
directors.
Same; Same; Agency; The general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of incorporation, bylaws, or
relevant provisions of law.Indubitably, a corporation may act only through its board of
directors or, when authorized either by its bylaws or by its board resolution, through its
officers or agents in the normal course of business. The general principles of agency govern
the relation between the corporation and its officers or agents, subject to the articles of
incorporation, bylaws, or relevant provisions of law. Thus, this Court has held that a
corporate officer or agent may represent and bind the corporation in transactions with third
persons to the extent that the authority to do so has been conferred upon him, and this
includes powers which have been intentionally conferred, and also such powers as, in the
usual course of the particular business, are incidental to, or may be implied from, the powers
intentionally conferred, powers added by custom and usage, as usually pertaining to the
particular officer or agent, and such apparent powers as the corporation has caused persons
dealing with the officer or agent to believe that it has conferred.
_____________
* FIRST DIVISION.
632
632
Same; Same; Same; Corporate Treasurers; Unless duly authorized, a treasurer, whose
powers are limited, cannot bind the corporation in a sale of its assets.The Court has also
recognized the rule that persons dealing with an assumed agent, whether the assumed
agency be a general or special one, 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 authority,
and in case either is controverted, the burden of proof is upon them to establish it (Harry
Keeler v. Rodriguez, 4 Phil. 19). Unless duly authorized, a treasurer, whose powers are
limited, cannot bind the corporation in a sale of its assets.
Same; Same; Same; Same; Selling is obviously foreign to a corporate treasurers function,
which generally has been described as to receive and keep the funds of the corporation,
and to disburse them in accordance with the authority given him by the board or the
properly authorized officers.That Nenita Gruenberg is the treasurer of Motorich does not
free petitioner from the responsibility of ascertaining the extent of her authority to represent
the corporation. Petitioner cannot assume that she, by virtue of her position, was authorized
to sell the property of the corporation. Selling is obviously foreign to a corporate treasurers
function, which generally has been described as to receive and keep the funds of the
corporation, and to disburse them in accordance with the authority given him by the board
or the properly authorized officers.
Same; Same; Same; When the corporate officers exceed their authority, their actions
cannot bind the corporation, unless it has ratified such acts or is estopped from disclaiming
them.As a general rule, the acts of corporate officers within the scope of their authority
are binding on the corporation. But when these officers exceed their authority, their actions
them.
Same; Same; Same; Contracts; Requisites of a Valid and Perfected Contract.Article 1318 of
the Civil Code lists the requisites of a valid and perfected contract: (1) consent of the
contracting parties; (2) object certain which is the subject matter of the contract; (3) cause
of the obligation which is established. As found by the trial court and affirmed by the Court
of Appeals, there is no evidence that Gruenberg was authorized to enter into the contract of
sale, or that
633

633
the said contract was ratified by Motorich. This factual finding of the two courts is binding on
this Court. As the consent of the seller was not obtained, no contract to bind the obligor was
perfected. Therefore, there can be no valid contract of sale between petitioner and Motorich.
Same; Same; Same; Same; Where a corporation never gave a written authorization to its
treasurer to sell a parcel of land it owns, any agreement to sell entered into by the latter
with a third party is void.Because Motorich had never given a written authorization to
Respondent Gruenberg to sell its parcel of land, we hold that the February 14, 1989
Agreement entered into by the latter with petitioner is void under Article 1874 of the Civil
Code. Being inexistent and void from the beginning, said contract cannot be ratified.
Same; Appeals; Pleadings and Practice; It is well-settled that points of law, theories and
arguments not brought to the attention of the trial court need not be, and ordinarily will not
be, considered by a reviewing court, as they cannot be raised for the first time on appeal
allowing a party to change horses in midstream, as it were, is to run roughshod over the
basic principles of fair play, justice and due process.Petitioner itself concedes having
raised the issue belatedly, not having done so during the trial, but only when it filed its
surrejoinder before the Court of Appeals. Thus, this Court cannot entertain said issue at this
late stage of the proceedings. It is well-settled that points of law, theories and arguments
not brought to the attention of the trial court need not be, and ordinarily will not be,
considered by a reviewing court, as they cannot be raised for the first time on appeal.
Allowing petitioner to change horses in midstream, as it were, is to run roughshod over the
basic principles of fair play, justice and due process.
Same; Piercing the Veil of Corporate Fiction Doctrine; On equitable considerations, the
corporate veil can be disregarded when it is utilized as a shield to commit fraud, illegality or
inequity; defeat public convenience; confuse legitimate issues; or serve as a mere alter ego
or business conduit of a person or an instrumentality, agency or adjunct of another
corporation.True, one of the advantages of a corporate form of business organization is the
limitation of an investors liability to the amount of the investment. This feature flows from
the legal theory that a corporate entity is separate and distinct from its stockholders.
However, the statutorily granted privilege of a
634
634
corporate veil may be used only for legitimate purposes. On equitable considerations, the
veil can be disregarded when it is utilized as a shield to commit fraud, illegality or inequity;
defeat public convenience; confuse legitimate issues; or serve as a mere alter ego or
business conduit of a person or an instrumentality, agency or adjunct of another corporation.
Same; Same; Evidence; The question of piercing the veil of corporate fiction is essentially a
matter of proof.We stress that the corporate fiction should be set aside when it becomes a
shield against liability for fraud, illegality or inequity committed on third persons. The
question of piercing the veil of corporate fiction is essentially, then, a matter of proof. In the
present case, however, the Court finds no reason to pierce the corporate veil of Respondent
Motorich. Petitioner utterly failed to establish that said corporation was formed, or that it is
operated, for the purpose of shielding any alleged fraudulent or illegal activities of its
officers or stockholders; or that the said veil was used to conceal fraud, illegality or inequity
at the expense of third persons like petitioner.
Same; Same; Close Corporations; Words and Phrases; Close Corporation, Defined.
Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the
Corporation Code defines a close corporation as follows: SEC. 96. Definition and
Applicability of Title.A close corporation, within the meaning of this Code, is one whose
articles of incorporation provide that: (1) All of the corporations issued stock of all classes,
exclusive of treasury shares, shall be held of record by not more than a specified number of
persons, not exceeding twenty (20); (2) All of the issued stock of all classes shall be subject
to one or more specified restrictions on transfer permitted by this Title; and (3) The
corporation shall not list in any stock exchange or make any public offering of any of its
stock of any class. Notwithstanding the foregoing, a corporation shall be deemed not a close
corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or
controlled by another corporation which is not a close corporation within the meaning of this
Code. x x x.
Same; Same; Same; A corporation does not become a close corporation just because a man
and his wife owns 99.866% of its subscribed capital stock; So, too, a narrow distribution of
ownership does not, by itself, make a close corporation.The articles of incorporation
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of Motorich Sales Corporation does not contain any provision stating that (1) the number of
stockholders shall not exceed 20, or (2) a preemption of shares is restricted in favor of any
stockholder or of the corporation, or (3) listing its stocks in any stock exchange or making a
public offering of such stocks is prohibited. From its articles, it is clear that Respondent
Motorich is not a close corporation. Motorich does not become one either, just because
Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed capital stock. The
[m]ere ownership by a single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself sufficient ground for disregarding the separate
corporate personalities. So, too, a narrow distribution of ownership does not, by itself, make
a close corporation.
Same; Same; Same; In exceptional cases, an action by a director, who singly is the
controlling stockholder, may be considered as a binding corporate act and a board action as
nothing more than a mere formality.The Court is not unaware that there are exceptional
cases where an action by a director, who singly is the controlling stockholder, may be
considered as a binding corporate act and a board action as nothing more than a mere
formality. The present case, however, is not one of them. As stated by petitioner, Spouses
Reynaldo and Nenita Gruenberg own almost 99.866% of Respondent Motorich. Since
Nenita is not the sole controlling stockholder of Motorich, the aforementioned exception
does not apply.
Same; Same; Same; Marriage; Husband and Wife; Conjugal Partnership; Co-Ownership;
There is no co-ownership between the spouses in the properties of the conjugal partnership
of gains.Granting arguendo that the corporate veil of Motorich is to be disregarded, the
subject parcel of land would then be treated as conjugal property of Spouses Gruenberg,
because the same was acquired during their marriage. There being no indication that said
spouses, who appear to have been married before the effectivity of the Family Code, have
agreed to a different property regime, their property relations would be governed by
conjugal partnership of gains. As a consequence, Nenita Gruenberg could not have effected
a sale of the subject lot because [t]here is no co-ownership between the spouses in the
properties of the conjugal partnership of gains. Hence, neither spouse can alienate in favor
of another his or her interest in the partnership or in any property belonging to it; neither
spouse can
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ask for a partition of the properties before the partnership has been legally dissolved.
Same; Same; Same; Same; Same; Absolute Community of Property; Under the regime of
absolute community of property, alienation of community property must have the written
consent of the other spouse or the authority of the court without which the disposition or
encumbrance is void.Assuming further, for the sake of argument, that the spouses
property regime is the absolute community of property, the sale would still be invalid. Under
this regime, alienation of community property must have the written consent of the other
spouse or the authority of the court without which the disposition or encumbrance is void.
Both requirements are manifestly absent in the instant case.

Albano & Associates and Valdez, Sales & Associates for petitioners.
Tumangan & Partners for private respondents.
PANGANIBAN, J.:
May a corporate treasurer, by herself and without any authorization from the board of
directors, validly sell a parcel of land owned by the corporation? May the veil of corporate
fiction be pierced on the mere ground that almost all of the shares of stock of the
corporation are owned by said treasurer and her husband?
The Case
These questions are answered in the negative by this Court in resolving the Petition for
Review on Certiorari before us, assailing the March 18, 1997 Decision1 of the Court of Ap______________
1 Rollo, pp. 54 to 65-A.

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peals2 in CA GR CV No. 46801 which, in turn, modified the July 18, 1994 Decision of the
Regional Trial Court of Makati, Metro Manila, Branch 633 in Civil Case No. 89-3511. The RTC
dismissed both the Complaint and the Counterclaim filed by the parties. On the other hand,
the Court of Appeals ruled:
WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH MODIFICATION
ordering defendant-appellee Nenita Lee Gruenberg to REFUND or return to plaintiff-appellant
the downpayment of P100,000.00 which she received from plaintiff-appellant. There is no
pronouncement as to costs.4
The petition also challenges the June 10, 1997 CA Resolution denying reconsideration.5
The Facts
The facts as found by the Court of Appeals are as follows:
Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.s amended complaint
alleged that on 14 February 1989, plaintiff-appellant entered into an agreement with
defendant-appellee Motorich Sales Corporation for the transfer to it of a parcel of land
identified as Lot 30, Block 1 of the Acropolis Greens Subdivision located in the District of
Murphy, Quezon City, Metro Manila, containing an area of Four Hundred Fourteen (414)
square meters, covered by TCT No. (362909) 2876; that as stipulated in the Agreement of 14
February 1989, plaintiff-appellant paid the downpayment in the sum of One Hundred
Thousand (P100,000.00) Pesos, the balance to be paid on or before March 2, 1989; that on
March 1, 1989, Mr. Andres T. Co, president of plaintiff-appellant corporation, wrote a letter to
defendant-appellee Motorich Sales Corporation requesting for a computation of the balance
to be paid; that said
_____________
2 Sixth Division, composed of J. Eduardo G. Montenegro, ponente; and JJ. Antonio M.

Martinez, chairman (now a member of this Court); and Celia Lipana-Reyes, member; both
concurring.
3 Penned by Judge Julio R. Logarta.
4 CA Decision, p. 14; rollo, p. 65-A.
5 Rollo, p. 73.
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letter was coursed through defendant-appellees broker, Linda Aduca, who wrote the
computation of the balance; that on March 2, 1989, plaintiff-appellant was ready with the
amount corresponding to the balance, covered by Metrobank Cashiers Check No. 004223,
payable to defendant-appellee Motorich Sales Corporation; that plaintiff-appellant and
defendant-appellee Motorich Sales Corporation were supposed to meet in the office of
plaintiff-appellant but defendant-appellees treasurer, Nenita Lee Gruenberg, did not appear;
that defendant-appellee Motorich Sales Corporation despite repeated demands and in utter
disregard of its commitments had refused to execute the Transfer of Rights/Deed of
Assignment which is necessary to transfer the certificate of title; that defendant ACL
Development Corp. is impleaded as a necessary party since Transfer Certificate of Title No.
(362909) 2876 is still in the name of said defendant; while defendant JNM Realty &
Development Corp. is likewise impleaded as a necessary party in view of the fact that it is
the transferor of right in favor of defendant-appellee Motorich Sales Corporation; that on
April 6, 1989, defendant ACL Development Corporation and Motorich Sales Corporation
entered into a Deed of Absolute Sale whereby the former transferred to the latter the subject
property; that by reason of said transfer, the Registry of Deeds of Quezon City issued a new
title in the name of Motorich Sales Corporation, represented by defendant-appellee Nenita
Lee Gruenberg and Reynaldo L. Gruenberg, under Transfer Certificate of Title No. 3571; that
as a result of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporations
bad faith in refusing to execute a formal Transfer of Rights/Deed of Assignment, plaintiffappellant suffered moral and nominal damages which may be assessed against defendantsappellees in the sum of Five Hundred Thousand (500,000.00) Pesos; that as a result of
defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporations unjustified
and unwarranted failure to execute the required Transfer of Rights/Deed of Assignment or
formal deed of sale in favor of plaintiff-appellant, defendants-appellees should be assessed
exemplary damages in the sum of One Hundred Thousand (P100,000.00) Pesos; that by
reason of defendants-appellees bad faith in refusing to execute a Transfer of Rights/Deed of
Assignment in favor of plaintiff-appellant, the latter lost the opportunity to construct a
residential building in the sum of One Hundred Thousand (P100,000.00) Pesos; and that as a
consequence of defendants-appellees Nenita Lee Gruenberg and Motorich Sales
Corporations bad faith in refusing to execute a deed of sale in favor of plaintiff-appellant, it
has been
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constrained to obtain the services of counsel at an agreed fee of One Hundred Thousand
(P100,000.00) Pesos plus appearance fee for every appearance in court hearings.
In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee Gruenberg
interposed as affirmative defense that the President and Chairman of Motorich did not sign
the agreement adverted to in par. 3 of the amended complaint; that Mrs. Gruenbergs
signature on the agreement (ref: par. 3 of Amended Complaint) is inadequate to bind
Motorich. The other signature, that of Mr. Reynaldo Gruenberg, President and Chairman of
Motorich, is required; that plaintiff knew this from the very beginning as it was presented a
copy of the Transfer of Rights (Annex B of amended complaint) at the time the Agreement
(Annex B of amended complaint) was signed; that plaintiff-appellant itself drafted the
Agreement and insisted that Mrs. Gruenberg accept the P100,000.00 as earnest money; that
granting, without admitting, the enforceability of the agreement, plaintiff-appellant
nonetheless failed to pay in legal tender within the stipulated period (up to March 2, 1989);
that it was the understanding between Mrs. Gruenberg and plaintiff-appellant that the
Transfer of Rights/Deed of Assignment will be signed only upon receipt of cash payment;
thus they agreed that if the payment be in check, they will meet at a bank designated by
plaintiff-appellant where they will encash the check and sign the Transfer of Rights/Deed.
However, plaintiff-appellant informed Mrs. Gruenberg of the alleged availability of the check,
by phone, only after banking hours.
On the basis of the evidence, the court a quo rendered the judgment appealed from[,]
dismissing plaintiff-appellants complaint, ruling that:
The issue to be resolved is: whether plaintiff had the right to compel defendants to execute
a deed of absolute sale in accordance with the agreement of February 14, 1989; and if so,
whether plaintiff is entitled to damages.
As to the first question, there is no evidence to show that defendant Nenita Lee Gruenberg
was indeed authorized by defendant corporation, Motorich Sales to dispose of that property
covered by T.C.T. No. (362909) 2876. Since the property is clearly owned by the corporation,
Motorich Sales, then its disposition should be governed by the requirement laid down in Sec.
40, of the Corporation Code of the Philippines, to wit:
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640
Sec. 40. Sale or other disposition of assets.Subject to the provisions of existing laws on
illegal combination and monopolies, a corporation may by a majority vote of its board of
directors x x x sell, lease, exchange, mortgage, pledge or otherwise dispose of all or
substantially all of its property and assets, including its goodwill x x x when authorized by
the vote of the stockholders representing at least two third (2/3) of the outstanding capital
stock x x x.
No such vote was obtained by defendant Nenita Lee Gruenberg for that proposed sale[;]
neither was there evidence to show that the supposed transaction was ratified by the
corporation. Plaintiff should have been on the look out under these circumstances. More so,
plaintiff himself [owns] several corporations (tsn dated August 16, 1993, p. 3) which makes
him knowledgeable on corporation matters.
Regarding the question of damages, the Court likewise, does not find substantial evidence
to hold defendant Nenita Lee Gruenberg liable considering that she did not in anyway
misrepresent herself to be authorized by the corporation to sell the property to plaintiff (tsn
dated September 27, 1991, p. 8).
In the light of the foregoing, the Court hereby renders judgment DISMISSING the complaint
at instance for lack of merit.
Defendants counterclaim is also DISMISSED for lack of basis. (Decision, pp. 7-8; Rollo, pp.
34-35)
For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:
AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:

This Agreement, made and entered into by and between: MOTORICH SALES CORPORATION,
a corporation duly organized and existing under and by virtue of Philippine Laws, with
principal office address at 5510 South Super Hi-way cor. Balderama St., Pio del Pilar, Makati,
Metro Manila, represented herein by its Treasurer, NENITA LEE GRUENBERG, hereinafter
referred to as the TRANSFEROR;
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and -
SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly organized and existing
under and by virtue of the laws of the Philippines, with principal office address at Sumulong
Highway, Barrio Mambungan, Antipolo, Rizal, represented herein by its President, ANDRES T.
CO, hereinafter referred to as the TRANSFEREE.
WITNESSETH, That:
WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30, Block 1 of
the ACROPOLIS GREENS SUBDIVISION located at the District of Murphy, Quezon City, Metro
Manila, containing an area of FOUR HUNDRED FOURTEEN (414) SQUARE METERS, covered by
a TRANSFER OF RIGHTS between JNM Realty & Dev. Corp. as the Transferor and Motorich
Sales Corp. as the Transferee;
NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have
agreed as follows:
1. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED PESOS (P5,200.00)
per square meter; subject to the following terms:
a. Earnest money amounting to ONE HUNDRED THOUSAND PESOS (P100,000.00), will be
paid upon the execution of this agreement and shall form part of the total purchase price;
b. Balance shall be payable on or before March 2, 1989;
2. That the monthly amortization for the month of February 1989 shall be for the account of
the Transferor; and that the monthly amortization starting March 21, 1989 shall be for the
account of the Transferee;
The transferor warrants that he [sic] is the lawful owner of the above-described property and
that there [are] no existing liens and/or encumbrances of whatsoever nature;
In case of failure by the Transferee to pay the balance on the date specified on 1.(b), the
earnest money shall be forfeited in favor of the Transferor.
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642
That upon full payment of the balance, the TRANSFEROR agrees to execute a TRANSFER OF
RIGHTS/DEED OF ASSIGNMENT in favor of the TRANSFEREE.
IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of February,
1989 at Greenhills, San Juan, Metro Manila, Philippines.
MOTORICH SALES CORPORATION
SAN JUAN STRUCTURAL & STEEL FABRICATORS
TRANSFEROR
TRANSFEREE
[SGD]
[SGD.]
By: NENITA LEE GRUENBERG
By: ANDRES T. CO
Treasurer
President
Signed in the presence of:
[SGD.)
[SGD.]
______________________
_____________________6
In its recourse before the Court of Appeals, petitioner insisted:
1. Appellant is entitled to compel the appellees to execute a Deed of Absolute Sale in
accordance with the Agreement of February 14, 1989,
2. Plaintiff is entitled to damages.7
As stated earlier, the Court of Appeals debunked petitioners arguments and affirmed the
Decision of the RTC with the modification that Respondent Nenita Lee Gruenberg was
ordered to refund P100,000 to petitioner, the amount remitted
_____________
6 Rollo, pp. 226-227.

7 Petitioners Brief before the Court of Appeals, p. 4; CA rollo, p. 21.
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643
as downpayment or earnest money. Hence, this petition before us.8
The Issues
Before this Court, petitioner raises the following issues:
I. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in the
instant case
II. Whether or not the appellate court may consider matters which the parties failed to raise
in the lower court
III. Whether or not there is a valid and enforceable contract between the petitioner and the
respondent corporation
IV. Whether or not the Court of Appeals erred in holding that there is a valid
correction/substitution of answer in the transcript of stenographic note[s]
V. Whether or not respondents are liable for damages and attorneys fees9
The Court synthesized the foregoing and will thus discuss them seriatim as follows:
1. Was there a valid contract of sale between petitioner and Motorich?
2. May the doctrine of piercing the veil of corporate fiction be applied to Motorich?
3. Is the alleged alteration of Gruenbergs testimony as recorded in the transcript of
stenographic notes material to the disposition of this case?
4. Are respondents liable for damages and attorneys fees?
___________
8 This case was deemed submitted for resolution on May 15, 1998 upon receipt by this Court
of the Memorandum for the Respondents. Petitioners Memorandum was received earlier, on
May 7, 1998.
9 Petitioners Memorandum, pp. 3-4; rollo, pp. 212-213.
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644
The Courts Ruling
The petition is devoid of merit.
First Issue: Validity of Agreement
Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989, it
entered through its president, Andres Co, into the disputed Agreement with Respondent
Motorich Sales Corporation, which was in turn allegedly represented by its treasurer, Nenita
Lee Gruenberg. Petitioner insists that [w]hen Gruenberg and Co affixed their signatures on
the contract they both consented to be bound by the terms thereof. Ergo, petitioner
contends that the contract is binding on the two corporations. We do not agree.
True, Gruenberg and Co signed on February 14, 1989, the Agreement, according to which a
lot owned by Motorich Sales Corporation was purportedly sold. Such contract, however,
cannot bind Motorich, because it never authorized or ratified such sale.
A corporation is a juridical person separate and distinct from its stockholders or members.
Accordingly, the property of the corporation is not the property of its stockholders or
members and may not be sold by the stockholders or members without express
authorization from the corporations board of directors.10 Section 23 of BP 68, otherwise
known as the Corporation Code of the Philippines, provides:
SEC. 23. The Board of Directors or Trustees.Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors
or trustees to be elected from among the holders of stocks, or where there is no stock, from
among the members of the
____________
10 Traders Royal Bank v. Court of Appeals, 177 SCRA 788, 792, September 26, 1989.
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corporation, who shall hold office for one (1) year and until their successors are elected and
qualified.
Indubitably, a corporation may act only through its board of directors or, when authorized
either by its bylaws or by its board resolution, through its officers or agents in the normal
course of business. The general principles of agency govern the relation between the
corporation and its officers or agents, subject to the articles of incorporation, bylaws, or
relevant provisions of law.11 Thus, this Court has held that a corporate officer or agent
may represent and bind the corporation in transactions with third persons to the extent that
the authority to do so has been conferred upon him, and this includes powers which have
been intentionally conferred, and also such powers as, in the usual course of the particular
business, are incidental to, or may be implied from, the powers intentionally conferred,
powers added by custom and usage, as usually pertaining to the particular officer or agent,
and such apparent powers as the corporation has caused persons dealing with the officer or
agent to believe that it has conferred. 12
Furthermore, the Court has also recognized the rule that persons dealing with an assumed
agent, whether the assumed agency be a general or special one, 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 authority, and in case either is controverted, the burden of proof is
upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19).13 Unless duly authorized, a
treasurer, whose pow_____________
11 Yao Ka Sin Trading v. Court of Appeals, 209 SCRA 763, 781, June 15, 1992; citing 19 CJS
455.
12 Ibid., pp. 781-782; citing 19 CJS 456, per Davide, Jr., J.
13 BA Finance Corporation v. Court of Appeals, 211 SCRA 112, 116, July 3, 1992, per
Medialdea, J.
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646
ers are limited, cannot bind the corporation in a sale of its assets.14
In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita
Gruenberg, its treasurer, to sell the subject parcel of land.15 Consequently, petitioner had
the burden of proving that Nenita Gruenberg was in fact authorized to represent and bind
Motorich in the transaction. Petitioner failed to discharge this burden. Its offer of evidence
before the trial court contained no proof of such authority.16 It has not shown any provision
of said respondents articles of incorporation, bylaws or board resolution to prove that Nenita
Gruenberg possessed such power.
That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the
responsibility of ascertaining the extent of her authority to represent the corporation.
Petitioner cannot assume that she, by virtue of her position, was authorized to sell the
property of the corporation. Selling is obviously foreign to a corporate treasurers function,
which generally has been described as to receive and keep the funds of the corporation,
and to disburse them in accordance with the authority given him by the board or the
properly authorized officers.17
Neither was such real estate sale shown to be a normal business activity of Motorich. The
primary purpose of Motorich is marketing, distribution, export and import in relation to a
general merchandising business.18 Unmistakably, its treasurer is not cloaked with actual or
apparent authority to
______________
14 Justice Jose C. Campos, Jr. and Maria Clara Lopez-Campos, The Corporation Code:
Comments, Notes and Selected Cases, Vol. I (1990), p. 386.
15 Petitioners Memorandum, pp. 16-17; rollo, pp. 242-243.
16 See petitioners Offer of Evidence before the RTC; Record, pp. 265-266.
17 Campos and Campos, supra, p. 386.

18 Articles of Incorporation of Motorich, pp. 1-2; CA rollo, pp. 86-87.
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buy or sell real property, an activity which falls way beyond the scope of her general
authority.
Articles 1874 and 1878 of the Civil Code of the Philippines provides:
ART. 1874. When a sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void.
ART. 1878. Special powers of attorney are necessary in the following case:
xxx
xxx
xxx
(5) To enter any contract by which the ownership of an immovable is transmitted or acquired
either gratuitously or for a valuable consideration;
xxx
x x xx x x.
Petitioner further contends that Respondent Motorich has ratified said contract of sale
because of its acceptance of benefits, as evidenced by the receipt issued by Respondent
Gruenberg.19 Petitioner is clutching at straws.
As a general rule, the acts of corporate officers within the scope of their authority are
binding on the corporation. But when these officers exceed their authority, their actions
them.20
In this case, there is a clear absence of proof that Motorich ever authorized Nenita
Gruenberg, or made it appear to any third person that she had the authority, to sell its land
or to receive the earnest money. Neither was there any proof that Motorich ratified,
expressly or impliedly, the contract. Petitioner rests its argument on the receipt which,
however, does not prove the fact of ratification. The document is a handwritten one, not a
corporate receipt, and it bears only Nenita Gruenbergs signature. Certainly, this document
alone does
_____________
19 Petitioners Memorandum, p. 11; rollo, p. 220.

20 Art. 1910, Civil Code; Campos and Campos, supra, p. 385.
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not prove that her acts were authorized or ratified by Motorich.
Article 1318 of the Civil Code lists the requisites of a valid and perfected contract: (1)
consent of the contracting parties; (2) object certain which is the subject matter of the
contract; (3) cause of the obligation which is established. As found by the trial court21 and
affirmed by the Court of Appeals,22 there is no evidence that Gruenberg was authorized to
enter into the contract of sale, or that the said contract was ratified by Motorich. This factual
finding of the two courts is binding on this Court.23 As the consent of the seller was not
obtained, no contract to bind the obligor was perfected. Therefore, there can be no valid
contract of sale between petitioner and Motorich.
Because Motorich had never given a written authorization to Respondent Gruenberg to sell
its parcel of land, we hold that the February 14, 1989 Agreement entered into by the latter
with petitioner is void under Article 1874 of the Civil Code. Being inexistent and void from
the beginning, said contract cannot be ratified.24
Second Issue: Piercing the Corporate Veil Not Justified
Petitioner also argues that the veil of corporate fiction of Motorich should be pierced,
because the latter is a close corporation. Since Spouses Reynaldo L. Gruenberg and Nenita
R. Gruenberg owned all or almost all or 99.866% to be accurate, of the subscribed capital
stock25 of Motorich, petitioner argues that Gruenberg needed no authorization from the
____________
21 RTC Decision, p. 7; CA rollo, p. 34.

22 CA Decision, p. 9; rollo, p. 62.
23 Fuentes v. Court of Appeals, 268 SCRA 703, 710, February 26, 1997.
25 CA Decision, pp. 4-5; rollo, pp. 213-214.
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board to enter into the subject contract.26 It adds that, being solely owned by the Spouses
Gruenberg, the company can be treated as a close corporation which can be bound by the
acts of its principal stockholder who needs no specific authority. The Court is not persuaded.
First, petitioner itself concedes having raised the issue belatedly,27 not having done so
during the trial, but only when it filed its sur-rejoinder before the Court of Appeals.28 Thus,
this Court cannot entertain said issue at this late stage of the proceedings. It is well-settled
that points of law, theories and arguments not brought to the attention of the trial court
need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be
raised for the first time on appeal.29 Allowing petitioner to change horses in midstream, as it
were, is to run roughshod over the basic principles of fair play, justice and due process.
Second, even if the above-mentioned argument were to be addressed at this time, the Court
still finds no reason to uphold it. True, one of the advantages of a corporate form of business
organization is the limitation of an investors liability to the amount of the investment.30
This feature flows from the legal theory that a corporate entity is separate and distinct from
its stockholders. However, the statutorily granted privilege of a corporate veil may be used
only for legitimate purposes.31 On equitable considerations, the veil can be disregarded
when it is utilized as a shield to commit fraud, illegal______________
26 Ibid., p. 6; rollo, p. 215.

27 Ibid., p. 9; rollo, p. 218.
28 CA rollo, pp. 78-79.
29 First Philippine International Bank v. Court of Appeals, 252 SCRA 259, January 24, 1996;
Sanchez v. Court of Appeals, GR No. 108947, p. 28, September 29, 1997; citing Medida v.
Court of Appeals, 208 SCRA 887, 893, May 8, 1992 and Caltex (Philippines), Inc. v. Court of
Appeals, 212 SCRA 448, 461, August 10, 1992.
30 Campos and Campos, supra, p. 1.
31 Ibid., p. 149; Justice Jose C. Vitug, Pandect of Commercial Law and Jurisprudence (revised
ed., 1990), p. 286.
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ity or inequity; defeat public convenience; confuse legitimate issues; or serve as a mere
alter ego or business conduit of a person or an instrumentality, agency or adjunct of another
corporation.32
Thus, the Court has consistently ruled that [w]hen the fiction is used 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, the veil with which the law covers and isolates the
corporation from the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals.33
We stress that the corporate fiction should be set aside when it becomes a shield against
liability for fraud, illegality or inequity committed on third persons. The question of piercing
the veil of corporate fiction is essentially, then, a matter of proof. In the present case,
however, the Court finds no reason to pierce the corporate veil of Respondent Motorich.
Petitioner utterly failed to establish that said corporation was formed, or that it is operated,
for the purpose of shielding any alleged fraudulent or illegal activities of its officers or
stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the
expense of third persons like petitioner.
___________
32 Umali v. Court of Appeals, 189 SCRA 529, 542, September 13, 1990; citing Koppel
(Philippines), Inc. v. Yatco, 77 Phil. 496 (1946) and Telephone Engineering & Service Co., Inc.
v. Workmens Compensation Commission, et al., 104 SCRA 354, May 13, 1981. See also First
Philippine International Bank v. Court of Appeals, supra, 287-288 and Boyer-Roxas v. Court of
Appeals, 211 SCRA 470, 484-487, July 14, 1992.
33 First Philippine International Bank v. Court of Appeals, supra, pp. 287-288, per
Panganiban, J.; citing Villa-Rey Transit, Inc. v. Ferrer, 25 SCRA 845, 857-858, October 29,
1968.
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Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the
Corporation Code defines a close corporation as follows:
SEC. 96. Definition and Applicability of Title.A close corporation, within the meaning of
this Code, is one whose articles of incorporation provide that: (1) All of the corporations
issued stock of all classes, exclusive of treasury shares, shall be held of record by not more
than a specified number of persons, not exceeding twenty (20); (2) All of the issued stock of
all classes shall be subject to one or more specified restrictions on transfer permitted by this
Title; and (3) The corporation shall not list in any stock exchange or make any public offering
of any of its stock of any class. Notwithstanding the foregoing, a corporation shall be
deemed not a close corporation when at least two-thirds (2/3) of its voting stock or voting
rights is owned or controlled by another corporation which is not a close corporation within
the meaning of this Code. x x x.
The articles of incorporation34 of Motorich Sales Corporation does not contain any provision
stating that (1) the number of stockholders shall not exceed 20, or (2) a preemption of
shares is restricted in favor of any stockholder or of the corporation, or (3) listing its stocks
in any stock exchange or making a public offering of such stocks is prohibited. From its
articles, it is clear that Respondent Motorich is not a close corporation.35 Motorich does not
become one either, just because Spouses Reynaldo and Nenita Gruenberg owned 99.866%
of its subscribed capital stock. The [m]ere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient
ground for disregarding the separate corporate personalities.36 So, too, a narrow
distribution of ownership does not, by itself, make a close corporation.
____________
34 CA rollo, pp. 85-94.

35 See Abejo v. De la Cruz, 149 SCRA 654, 667, May 19, 1987.
36 Santos v. National Labor Relations Commission, 254 SCRA 673, March 13, 1996, per
Vitug, J.; citing Sunio v. National Labor Relations Commission, 127 SCRA 390, 397-398,
January 31, 1984.
652
652
Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals37 wherein the Court
ruled that x x x petitioner corporation is classified as a close corporation and, consequently,
a board resolution authorizing the sale or mortgage of the subject property is not necessary
to bind the corporation for the action of its president.38 But the factual milieu in Dulay is
not on all fours with the present case. In Dulay, the sale of real property was contracted by
the president of a close corporation with the knowledge and acquiescence of its board of
directors.39 In the present case, Motorich is not a close corporation, as previously discussed,
and the agreement was entered into by the corporate treasurer without the knowledge of
the board of directors.
The Court is not unaware that there are exceptional cases where an action by a director,
who singly is the controlling stockholder, may be considered as a binding corporate act and
a board action as nothing more than a mere formality.40 The present case, however, is not
one of them.
As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own almost 99.866% of
Respondent Motorich.41 Since Nenita is not the sole controlling stockholder of Motorich, the
aforementioned exception does not apply. Granting arguendo that the corporate veil of
Motorich is to be disregarded, the subject parcel of land would then be treated as conjugal
property of Spouses Gruenberg, because the same was acquired during their marriage.
There being no indication that said spouses, who appear to have been married before the
effectivity of the Family Code, have agreed to a different property
____________
See also Vitug, supra, p. 286; citing Burnet v. Clarke, 287 US 410, L. ed. 397.
37 225 SCRA 678, August 27, 1993; cited in Memorandum for Petitioner, pp. 6-7; rollo, pp.
215-216.
38 Ibid., p. 684, per Nocon, J.
39 Ibid., pp. 684-686.
40 Vitug, supra, p. 355.
41 Petitioners Memorandum, p. 5; rollo, p. 214. See also Articles of Incorporation of

Motorich, p. 7; CA rollo, p. 92.
653

653
regime, their property relations would be governed by conjugal partnership of gains.42 As a
consequence, Nenita Gruenberg could not have effected a sale of the subject lot because
[t]here is no co-ownership between the spouses in the properties of the conjugal
partnership of gains. Hence, neither spouse can alienate in favor of another his or her
interest in the partnership or in any property belonging to it; neither spouse can ask for a
partition of the properties before the partnership has been legally dissolved.43
Assuming further, for the sake of argument, that the spouses property regime is the
absolute community of property, the sale would still be invalid. Under this regime,
alienation of community property must have the written consent of the other spouse or the
authority of the court without which the disposition or encumbrance is void.44 Both
requirements are manifestly absent in the instant case.
Third Issue: Challenged Portion of TSN Immaterial
Petitioner calls our attention to the following excerpt of the transcript of stenographic notes
(TSN):
Q
Did you ever represent to Mr. Co that you were authorized by the corporation to sell the
property?
A
Yes, sir.45
Petitioner claims that the answer Yes was crossed out, and, in its place was written a No
with an initial scribbled above it.46 This, however, is insufficient to prove that Nenita
_____________
42 Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines,
Vol. I (1990), p. 408.
43 Ibid., p. 412.
44 Justice Jose C. Vitug, Compendium of Civil Law and Jurisprudence, (revised ed., 1993), p.
177.
45 TSN, September 27, 1993, p. 8; Record, p. 360. Cited in Petitioners Memorandum, p. 12;
rollo, p. 221.
654
654
Gruenberg was authorized to represent Respondent Motorich in the sale of its immovable
property. Said excerpt should be understood in the context of her whole testimony. During
her cross-examination, Respondent Gruenberg testified:
Q
So, you signed in your capacity as the treasurer?
[A]
Yes, sir.
Q
Even then you kn[e]w all along that you [were] not authorized?
A
Yes, sir.
Q
You stated on direct examination that you did not represent that you were authorized to sell
the property?
A
Yes, sir.
Q
But you also did not say that you were not authorized to sell the property, you did not tell
that to Mr. Co, is that correct?
A
That was not asked of me.
Q
Yes, just answer it.
A
I just told them that I was the treasurer of the corporation and it (was) also the president
who [was] also authorized to sign on behalf of the corporation.
Q
You did not say that you were not authorized nor did you say that you were authorized?
A.
Mr. Co was very interested to purchase the property and he offered to put up a P100,000.00
earnest money at that time. That was our first meeting.47
Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its
property. On the other hand, her testimony demonstrates that the president of Petitioner
Corporation, in his great desire to buy the property, threw caution to the wind by offering
and paying the earnest money without first verifying Gruenbergs authority to sell the lot.
____________
47 TSN, September 27, 1993, p. 16.

655

655
Fourth Issue: Damages and Attorneys Fees
Finally, petitioner prays for damages and attorneys fees, alleging that [i]n an utter display
of malice and bad faith, [r]espondents attempted and succeeded in impressing on the trial
court and [the] Court of Appeals that Gruenberg did not represent herself as authorized by
Respondent Motorich despite the receipt issued by the former specifically indicating that she
was signing on behalf of Motorich Sales Corporation. Respondent Motorich likewise acted in
bad faith when it claimed it did not authorize Respondent Gruenberg and that the contract
[was] not binding, [insofar] as it [was] concerned, despite receipt and enjoyment of the
proceeds of Gruenbergs act.48 Assuming that Respondent Motorich was not a party to the
alleged fraud, petitioner maintains that Respondent Gruenberg should be held liable
because she acted fraudulently and in bad faith [in] representing herself as duly authorized
by [R]espondent [C]orporation.49
As already stated, we sustain the findings of both the trial and the appellate courts that the
foregoing allegations lack factual bases. Hence, an award of damages or attorneys fees
cannot be justified. The amount paid as earnest money was not proven to have redounded
to the benefit of Respondent Motorich. Petitioner claims that said amount was deposited to
the account of Respondent Motorich, because it was deposited with the account of Aren
Commercial c/o Motorich Sales Corporation.50 Respondent Gruenberg, however, disputes
the allegations of petitioner. She testified as follows:
Q
You voluntarily accepted the P100,000.00, as a matter of fact, that was encashed, the check
was encashed.
A
Yes, sir, the check was paid in my name and I deposit[ed] it . . .
____________

49 Ibid., p. 15; rollo, p. 224.
50 Ibid., p. 11; rollo, p. 220.
656
656
Q
In your account?
A
Yes, sir.51
In any event, Gruenberg offered to return the amount to petitioner x x x since the sale did
not push through.52
Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He
has been the president of Petitioner Corporation for more than ten years and has also served
as chief executive of two other corporate entities.53 Co cannot feign ignorance of the scope
of the authority of a corporate treasurer such as Gruenberg. Neither can he be oblivious to
his duty to ascertain the scope of Gruenbergs authorization to enter into a contract to sell a
parcel of land belonging to Motorich.
Indeed, petitioners claim of fraud and bad faith is unsubstantiated and fails to persuade the
Court. Indubitably, petitioner appears to be the victim of its own officers negligence in
entering into a contract with and paying an unauthorized officer of another corporation.
As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be ordered to
return to petitioner the amount she received as earnest money, as no one shall enrich
himself at the expense of another,54 a principle embodied in Article 2154 of the Civil
Code.55 Although there was no binding relation between them, petitioner paid Gruenberg on
the mistaken belief that she had the authority to sell the property of Motorich.56 Article
2155 of the Civil Code provides that
___________
51 TSN, September 27, 1993, pp. 16-17; Record, pp. 368-369.

52 Ibid., p. 17; Record, p. 369.
53 TSN, August 16, 1993, p. 3; Record, p. 341. Cited in Memorandum for Respondents, p. 19;
rollo, p. 245.
54 Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. V
(1990), p. 581.
55 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.
56 See Tolentino, supra, Vol. V, p. 581.
657

657
[p]ayment by reason of a mistake in the construction or application of a difficult question of
law may come within the scope of the preceding article.
WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.
SO ORDERED.
Davide, Jr. (Chairman), Bellosillo, Vitug and Quisumbing, JJ., concur.
Petition denied, judgment affirmed.
Notes.For the separate juridical personality of a corporation to be disregarded, the
wrongdoing must be clearly and convincingly establishedit cannot be presumed.
(Matuguina Integrated Wood Products, Inc. vs. Court of Appeals, 263 SCRA 490 [1996])
Stockholders who are actively engaged in the management or operation of the business and
affairs of a close corporation shall be personally liable for corporate torts unless the
corporation has obtained reasonably adequate liability insurance. (Naguiat vs. National
o0o
[San Juan Structural and Steel Fabricators, Inc. vs. Court of Appeals, 296 SCRA 631(1998)]
VOL. 257, MAY 29, 1996

149
Concept Builders, Inc. vs. NLRC
G.R. No. 108734. May 29, 1996.*
CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR RELATIONS COMMISSION,
(First Division) and Norberto Marabe, Rodolfo Raquel, Cristobal Riego, Manuel Gillego,
Palcronio Giducos, Pedro Aboigar, Norberto Comendador, Rogelio Salut, Emilio Garcia, Jr.,
Mariano Rio, Paulina Basea, Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve,
Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno Escares, Ferdinand Torres, Felipe
Basilan, and Ruben Robalos, respondents.
Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction; The separate and distinct
personality of a corporation is
_______________
* FIRST DIVISION.
150
150
merely a fiction created by law for convenience and to promote justice; When the notion of
separate juridical personality is used to defeat public convenience, justify wrong, protect
fraud or defend crime, or is used as a device to defeat the labor laws, this separate
personality of the corporation may be disregarded or the veil of corporate fiction pierced.It
is a fundamental principle of corporation law that a corporation is an entity separate and
distinct from its stockholders and from other corporations to which it may be connected. But,
this separate and distinct personality of a corporation is merely a fiction created by law for
convenience and to promote justice. So, when the notion of separate juridical personality is
used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as
a device to defeat the labor laws, this separate personality of the corporation may be
disregarded or the veil of corporate fiction pierced. This is true likewise when the corporation
is merely an adjunct, a business conduit or an alter ego of another corporation.
Same; Same; Some probative factors of identity that will justify the application of the
doctrine of piercing the corporate veil.The conditions under which the juridical entity may
be disregarded vary according to the peculiar facts and circumstances of each case. No hard
and fast rule can be accurately laid down, but certainly, there are some probative factors of
identity that will justify the application of the doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations. 2. Identity of
directors and officers. 3. The manner of keeping corporate books and records. 4. Methods of
conducting the business.
Same; Same; Instrumentality Rule, Explained.The SEC en banc explained the
instrumentality rule which the courts have applied in disregarding the separate juridical
personality of corporations as follows: Where one corporation is so organized and controlled
and its affairs are conducted so that it is, in fact, a mere instrumentality or adjunct of the
other, the fiction of the corporate entity of the instrumentality may be disregarded. The
control necessary to invoke the rule is not majority or even complete stock control but such
domination of finances, policies and practices that the controlled corporation has, so to
speak, no separate mind, will or existence of its own, and is but a conduit for its principal. It
must be kept in mind that the control must be shown to have been exercised at the time the
acts complained of took place. Moreover, the control and breach of duty must proximately
cause the injury or unjust loss
151
VOL. 257, MAY 29, 1996

151

for which the complaint is made.
Same; Same; Test in determining the applicability of the doctrine of piercing the veil of
corporate fiction.The test in determining the applicability of the doctrine of piercing the
veil of corporate fiction 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.
Same; Same; The question of whether a corporation is a mere alter ego, a mere sheet or
paper corporation, a sham or a subterfuge is purely one of fact.Thus, the question of
whether a corporation is a mere alter ego, a mere sheet or paper corporation, a sham or a
subterfuge is purely one of fact.
Labor Law; Writs of Execution; Sheriffs; Pleadings and Practice; Should the losing party, his
agent or representative, refuse or prohibit the Sheriff or his representative entry to the place
where the property subject of execution is located or kept, the judgment creditor may apply
to the NLRC or the Labor Arbiter concerned for a break-open order.In view of the failure of
the sheriff, in the case at bar, to effect a levy upon the property subject of the execution,
private respondents had no other recourse but to apply for a break-open order after the
third-party claim of HPPI was dismissed for lack of merit by the NLRC. This is in consonance
with Section 3, Rule VII of the NLRC Manual of Execution of Judgment which provides that:
Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his
representative entry to the place where the property subject of execution is located or kept,
the judgment creditor may apply to the Commission or Labor Arbiter concerned for a breakopen order.
152
152

The Law Firm of Araullo & Raymundo for petitioner.
Ciriaco S. Cruz for private respondents.
HERMOSISIMA, JR., J.:
The corporate mask may be lifted and the corporate veil may be pierced when a corporation
is just but the alter ego of a person or of another corporation. Where badges of fraud exist;
where public convenience is defeated; where a wrong is sought to be justified thereby, the
corporate fiction or the notion of legal entity should come to naught. The law in these
instances will regard the corporation as a mere association of persons and, in case of two
corporations, merge them into one.
Thus, where a sister corporation is used as a shield to evade a corporations subsidiary
liability for damages, the corporation may not be heard to say that it has a personality
separate and distinct from the other corporation. The piercing of the corporate veil comes
into play.
This special civil action ostensibly raises the question of whether the National Labor
Relations Commission committed grave abuse of discretion when it issued a break-open
order to the sheriff to be enforced against personal property found in the premises of
petitioners sister company.
Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan
Road, Valenzuela, Metro Manila, is engaged in the construction business. Private
respondents were employed by said company as laborers, carpenters and riggers.
On November, 1981, private respondents were served individual written notices of
termination of employment by petitioner, effective on November 30, 1981. It was stated in
the individual notices that their contracts of employment had expired and the project in
which they were hired had been completed.
153
VOL. 257, MAY 29, 1996

153
Public respondent found it to be, the fact, however, that at the time of the termination of
private respondents employment, the project in which they were hired had not yet been
finished and completed. Petitioner had to engage the services of sub-contractors whose
workers performed the functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice
and non-payment of their legal holiday pay, overtime pay and thirteenth-month pay against
petitioner.
On December 19, 1984, the Labor Arbiter rendered judgment1 ordering petitioner to
reinstate private respondents and to pay them back wages equivalent to one year or three
hundred working days.
On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the
motion for reconsideration filed by petitioner on the ground that the said decision had
already become final and executory.2
On October 16, 1986, the NLRC Research and Information Department made the finding that
private respondents back wages amounted to P199,800.00.3
On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to
execute the Decision, dated December 19, 1984. The writ was partially satisfied through
garnishment of sums from petitioners debtor, the Metropolitan Waterworks and Sewerage
Authority, in the amount of P81,385.34. Said amount was turned over to the cashier of the
NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the
sheriff to collect from herein petitioner the sum of P117,414.76, representing the balance of
the judgment award, and to reinstate private respondents to their former positions.
_______________
1 Rollo, pp. 11-12.

2 Id., at 12.
3 Ibid.
154
154
On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of
execution on petitioner through the security guard on duty but the service was refused on
the ground that petitioner no longer occupied the premises.
On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a
second alias writ of execu-tion.
The said writ had not been enforced by the special sheriff because, as stated in his progress
report, dated November 2, 1989:
1. All the employees inside petitioners premises at 355 Maysan Road, Valenzuela, Metro
Manila, claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by
respondent;
2. Levy was made upon personal properties he found in the premises;
3. Security guards with high-powered guns prevented him from removing the properties he
had levied upon.4
The said special sheriff recommended that a break-open order be issued to enable him to
enter petitioners premises so that he could proceed with the public auction sale of the
aforesaid personal properties on November 7, 1989.
On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor
Arbiter alleging that the properties sought to be levied upon by the sheriff were owned by
Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.
On November 23, 1989, private respondents filed a Motion for Issuance of a Break-Open
Order, alleging that HPPI and petitioner corporation were owned by the same
incorporator/stockholders. They also alleged that petitioner temporarily suspended its

business operations in order to evade its legal obligations to them and that private
respondents were willing to post an indemnity bond to answer for any damages which
petitioner and HPPI may suffer because of the issuance
_______________
4 Rollo, p. 14.
155
VOL. 257, MAY 29, 1996

155
of the break-open order.
In support of their claim against HPPI, private respondents presented duly certified copies of
the General Informations Sheet, dated May 15, 1987, submitted by petitioner to the
Securities and Exchange Commission (SEC) and the General Information Sheet, dated May
15, 1987, submitted by HPPI to the Securities and Exchange Commission.
The General Information Sheet submitted by the petitioner revealed the following:
1.
Breakdown of Subscribed Capital
Name of Stockholder
Amount Subscribed
HPPI
P6,999,500.00
Antonio W. Lim
2,900,000.00
Dennis S. Cuyegkeng
300.00
Elisa C. Lim
100,000.00
Teodulo R. Dino
100.00
Virgilio O. Casino
100.00
2.
Board of Directors
Antonio W. Lim
Chairman
Dennis S. Cuyegkeng
Member
Elisa C. Lim
Member
Teodulo R. Dino
Member
Virgilio O. Casino
Member
3.
Corporate Officers
Antonio W. Lim
President
Dennis C. Cuyegkeng
Assistant to the President
Elisa O. Lim
Treasurer
Virgilio O. Casino
Corporate Secretary
4.
Principal Office
355 Maysan Road
Valenzuela, Metro Manila.5
_______________
5 Rollo, pp. 16-17.

156
156
On the other hand, the General Information Sheet of HPPI revealed the following:
1.
Breakdown of Subscribed Capital
Name of Stockholder
Amount Subscribed
Antonio W. Lim
P400,000.00
Elisa C. Lim
57,700.00
AWL Trading
455,000.00
Dennis S. Cuyegkeng
40,100.00
Teodulo R. Dino
100.00
Virgilio O. Casino
100.00
2.
Board of Directors
Antonio W.
Lim Chairman
Elisa C. Lim
Member
Dennis S. Cuyegkeng
Member
Virgilio O. Casino
Member
Teodulo R. Dino
Member
3.
Corporate Officers
Antonio W. Lim
President
Dennis S. Cuyegkeng
Assistant to the President
Elisa C. Lim
Treasurer
Virgilio O. Casino
Corporate Secretary
4.
Principal Office
355 Maysan Road, Valenzuela, Metro Manila.6

On February 1, 1990, HPPI filed an Opposition to private respondents motion for issuance of
a break-open order, contending that HPPI is a corporation which is separate and distinct
from petitioner. HPPI also alleged that the two corporations are engaged in two different
kinds of businesses, i.e., HPPI is a manufacturing firm while petitioner was then engaged in
construction.
_______________
6 Id., at 17-18.
157
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157
On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents
motion for break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the
order of the Labor Arbiter, issued a break-open order and directed private respondents to file
a bond. Thereafter, it directed the sheriff to proceed with the auction sale of the properties
already levied upon. It dismissed the third-party claim for lack of merit.
Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution,
dated December 3, 1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the
execution of its decision despite a third-party claim on the levied property. Petitioner further
contends, that the doctrine of piercing the corporate veil should not have been applied in
this case, in the absence of any showing that it created HPPI in order to evade its liability to
private respondents. It also contends that HPPI is engaged in the manufacture and sale of
steel, concrete and iron pipes, a business which is distinct and separate from petitioners
construction business. Hence, it is of no consequence that petitioner and HPPI shared the
same premises, the same President and the same set of officers and subscribers.7
We find petitioners contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation is an entity separate and
distinct from its stockholders and from other corporations to which it may be connected.8
But, this separate and distinct personality of a corporation is merely a fiction created by law
for convenience and to promote justice.9 So, when the notion of separate juri_______________
7 Rollo, pp. 7-8.

8 Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 (1965); Yutivo
Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 (1961).
9 Laguna Transportation Company, Inc. v. Social Security
158
158
dical personality is used to defeat public convenience, justify wrong, protect fraud or defend
crime, or is used as a device to defeat the labor laws,10 this separate personality of the
corporation may be disregarded or the veil of corporate fiction pierced.11 This is true
likewise when the corporation is merely an adjunct, a business conduit or an alter ego of
another corporation.12
The conditions under which the juridical entity may be disregarded vary according to the
peculiar facts and circumstances of each case. No hard and fast rule can be accurately laid
down, but certainly, there are some probative factors of identity that will justify the
application of the doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business.13
The SEC en banc explained the instrumentality rule which the courts have applied in
disregarding the separate juridical personality of corporations as follows:
Where one corporation is so organized and controlled and its affairs are conducted so that it
is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity
of the instrumentality may be disregarded. The control necessary to invoke the rule is not
majority or even complete stock control but such domination of finances, policies and
practices that the controlled corporation has, so to speak, no separate mind, will or
existence of its own, and is but a conduit for its principal. It must be kept in mind that
_______________
System, 107 SCRA 833 (1960).

10 La Campana Coffee Factory, Inc. Kaisahan Ng Mga Manggagawa sa La Campana (KMM),
93 Phil. 160 (1953).
11 Sulo ng Bayan, Inc. v. Araneta, 72 SCRA 347 (1976).
12 Tan Boon Bee and Co. v. Jarencio, 163 SCRA 205 (1988).
13 4 Minn. L. Rev., pp. 219-227; cited in R. Lopez, The Corporation Code of the Philippines,
Annotated p. 19 (1994).
159
VOL. 257, MAY 29, 1996

159
the control must be shown to have been exercised at the time the acts complained of took
place. Moreover, the control and breach of duty must proximately cause the injury or unjust
loss for which the complaint is made.
The test in determining the applicability of the doctrine of piercing the veil of corporate
fiction is as follows:
perpetuate the violation of a statutory or other positive legal duty, or dishonest and unjust
act in contravention of plaintiffs legal rights; and
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.14
Thus, the question of whether a corporation is a mere alter ego, a mere sheet or paper
corporation, a sham or a subterfuge is purely one of fact.15
In this case, the NLRC noted that, while petitioner claimed that it ceased its business
operations on April 29, 1986, it filed an Information Sheet with the Securities and Exchange
Commission on May 15, 1987, stating that its office address is at 355 Maysan Road,
Valenzuela, Metro Manila. On the other hand, HPPI, the third-party claimant, submitted on
the same day, a similar information sheet stating that its office address
_______________
14 1 Fletcher Cyc. Corp., p. 490; Avelina G. Ramoso et al. v. General Credit Corporation et
al., SEC AC No. 295, October 6, 1992.
15 Phoenix Safety Inc., Co. v. James, 28 Ariz. 514, 237, p. 958.
160
160
is at 355 Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:

Both information sheets were filed by the same Virgilio O. Casio as the corporate secretary
of both corporations. It would also not be amiss to note that both corporations had the same
president, the same board of directors, the same corporate officers, and substantially the
same subscribers.
From the foregoing, it appears that, among other things, the respondent (herein petitioner)
and the third-party claimant shared the same address and/or premises. Under this
circumstances, (sic) it cannot be said that the property levied upon by the sheriff were not of
respondents.16
Clearly, petitioner ceased its business operations in order to evade the payment to private
respondents of back wages and to bar their reinstatement to their former positions. HPPI is
obviously a business conduit of petitioner corporation and its emergence was skillfully
orchestrated to avoid the financial liability that already attached to petitioner corporation.
The facts in this case are analogous to Claparols v. Court of Industrial Relations,17 where we
had the occasion to rule:
Respondent courts findings that indeed the Claparols Steel and Nail Plant, which ceased
operation of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the
next day, July 1, 1957 up to December 7, 1962, when the latter finally ceased to operate,
were not disputed by petitioners. It is very clear that the latter corporation was a
continuation and successor of the first entity x x x. Both predecessors and successor were
owned and controlled by petitioner Eduardo Claparols and there was no break in the
succession and continuity of the same business. This avoiding-the-liability scheme is very
patent considering that 90% of the subscribed shares of stocks of the Claparols Steel
Corporation (the second corporation) was owned by respondent x x x Claparols himself, and
all the assets of the dissolved Claparols Steel and Nail Plant were turned over to the
emerging Claparols Steel Corporation.
_______________
16 Rollo, pp. 19-20.

17 65 SCRA 613 (1975).
161
VOL. 257, MAY 29, 1996

161
It is very obvious that the second corporation seeks the protective shield of a corporate
fiction whose veil in the present case could, and should, be pierced as it was deliberately
and maliciously designed to evade its financial obligation to its employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property
subject of the execution, private respondents had no other recourse but to apply for a breakopen order after the third-party claim of HPPI was dismissed for lack of merit by the NLRC.
This is in consonance with Section 3, Rule VII of the NLRC Manual of Execution of Judgment
which provides that:
Should the losing party, his agent or representative, refuse or prohibit the Sheriff or his
representative entry to the place where the property subject of execution is located or kept,
the judgment creditor may apply to the Commission or Labor Arbiter concerned for a breakopen order.
Furthermore, our perusal of the records shows that the twin requirements of due notice and
hearing were complied with. Petitioner and the third-party claimant were given the
opportunity to submit evidence in support of their claim. Hence, the NLRC did not commit
any grave abuse of discretion when it affirmed the break-open order issued by the Labor
Arbiter.
Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial
agencies supported by substantial evidence are binding on this Court and are entitled to
great respect, in the absence of showing of grave abuse of a discretion.18
_______________
18 Maya Farms Employees Organization v. National Labor Relations Commission, 239 SCRA
508 (1994); Capitol Industrial Construction Groups v. National Labor Relations Commission,
221 SCRA 469 (1993); Sunset View Condominium Corporation v. National Labor Relations
Commission, 228 SCRA 466 (1993).
162
162
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April
23, 1992 and December 3, 1992, are AFFIRMED.
SO ORDERED.
Padilla (Chairman), Bellosillo, Vitug and Kapunan, JJ., concur.
Petition dismissed, resolutions affirmed.
Notes.A corporation is an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. (Philippine Veterans Investment Development
Corporation vs. Court of Appeals, 181 SCRA 669 [1990])
When valid ground exists, the legal fiction that a corporation is an entity with a juridical
personality separate and distinct from its members or stockholders may be disregarded.
(Guatson International Travel and Tours, Inc. vs. National Labor Relations Commission, 230
SCRA 815 [1994])
The basic rule is still that which can be deduced from the Courts pronouncement in Sunio v.
National Labor Relations Commission, i.e., that mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personality. (Santos vs. National
Personal liability where the employer corporation is no longer existing and is unable to
satisfy the judgment in favor of the employee, the officer should be held liable for acting on
behalf of the corporation. (Valderrama vs. National Labor Relations Commission, 256 SCRA
466 [1996])
o0o
[Concept Builders, Inc. vs. NLRC, 257 SCRA 149(1996)]
VOL. 269, MARCH 3, 1997

15
Traders Royal Bank vs. Court of Appeals
G.R. No. 93397. March 3, 1997.*
TRADERS ROYAL BANK, petitioner, vs. COURT OF APPEALS, FILRITERS GUARANTY
ASSURANCE CORPORATION and CENTRAL BANK of the PHILIPPINES, respondents.
Loans; Negotiable Instruments; Certificates of Indebtedness; Bonds; Words and Phrases; A
certificate of indebtedness which pertains to certificates for the creation and maintenance of
a permanent improvement revolving fund, is similar to a bond.Properly understood, a
certificate of indebtedness pertains to certificates for the creation and maintenance of a
permanent improvement revolving fund, and is similar to a bond, (82 Minn. 202). Being
equivalent to a bond, it is properly understood as an acknowledgment of an obligation to
pay a fixed sum of money. It is usually used for the purpose of long term loans.
_______________
* SECOND DIVISION.
16
16
Same; Same; Same; The language of negotiability which characterizes a negotiable paper as
a credit instrument is its freedom to circulate as a substitute for money.The language of
negotiability which characterize a negotiable paper as a credit instrument is its freedom to
circulate as a substitute for money. Hence, freedom of negotiability is the touchstone
relating to the protection of holders in due course, and the freedom of negotiability is the
foundation for the protection which the law throws around a holder in due course (11 Am.
Jur. 2d, 32). This freedom in negotiability is totally absent in a certificate of indebtedness as
it merely acknowledges to pay a sum of money to a specified person or entity for a period of
time.
Corporation Law; Piercing the Veil of Corporate Fiction; Piercing the veil of corporate entity
requires the court to see through the protective shroud which exempts its stockholders from
liabilities that ordinarily, they could be subject to, or distinguishes one corporation from a
seemingly separate one, were it not for the existing corporate fiction.Petitioner cannot put
up the excuse of piercing the veil of corporate entity, as this is merely an equitable remedy,
and may be awarded only in cases when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere
alter ego or business conduit of a person. Piercing the veil of corporate entity requires the
court to see through the protective shroud which exempts its stockholders from liabilities
that ordinarily, they could be subject to, or distinguishes one corporation from a seemingly
separate one, were it not for the existing corporate fiction. But to do this, the court must be
sure that the corporate fiction was misused, to such an extent that injustice, fraud, or crime
was committed upon another, disregarding, thus, his, her, or its rights. It is the protection of
the interests of innocent third persons dealing with the corporate entity which the law aims
to protect by this doctrine.
Same; Same; Mere ownership by a single stockholder or by another corporation of all or
disregarding the fiction of separate corporate personalities.Though it is true that when
valid reasons exist, the legal fiction that a corporation is an entity with a juridical personality
separate from its stockholders and from other corporations may be disregarded, in the
absence of such grounds, the general rule must be upheld. The fact that Philfinance owns
majority shares in Filriters is not by itself a ground to disregard the independent corporate
status of Filriters. In Liddel & Co., Inc. vs.
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17
Collector of Internal Revenue, the mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient
reason for disregarding the fiction of separate corporate personalities.
Same; Same; An entity which deals with corporate agents within circumstances showing that
the agents are acting in excess of corporate authority may not hold the corporation liable.
Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769,
and its requirements. An entity which deals with corporate agents within circumstances
showing that the agents are acting in excess of corporate authority, may not hold the
corporation liable. This is only fair, as everyone 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.
Sales; Where the sale from one person to another was fictitious, as there was no
consideration, and therefore void and inexistent, the latter has no title to convey to third
persons.The transfer made by Filriters to Philfinance did not conform to the said Central
Bank Circular, which for all intents, is considered part of the law. As found by the courts a
quo, Alfredo O. Banaria, who had signed the deed of assignment from Filriters to Philfinance,
purportedly for and in favor of Filriters, did not have the necessary written authorization
from the Board of Directors of Filriters to act for the latter. As it is, the sale from Filriters to
Philfinance was fictitious, and therefore void and inexistent, as there was no consideration
for the same. This is fatal to the petitioners cause, for then, Philfinance had no title over the
subject certificate to convey to Traders Royal Bank. Nemo potest nisi quod de jure potest
no man can do anything except what he can do lawfully.

Gonzales, Sinense, Jimenez & Associates for petitioner.
Jaime M. Cabiles for Central Bank of the Philippines.
Ruben L. Almadro for respondent Filriters.
18
18
TORRES, JR., J.:
Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of
Appeals dated January 29, 1990,1 affirming the nullity of the transfer of Central Bank
Certificate of Indebtedness (CBCI) No. D891,2 with a face value of P500,000, from the
Philippine Underwriters Finance Corporation (Philfinance) to the petitioner Traders Royal
Bank (TRB), under a Repurchase Agreement3 dated February 4, 1981, and a Detached
Assignment4 dated April 27, 1981.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the
action was originally filed as a Petition for Mandamus5 under Rule 65 of the Rules of Court,
to compel the Central Bank of the Philippines to register the transfer of the subject CBCI to
petitioner Traders Royal Bank (TRB).
In the said petition, TRB stated that:
3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed a
Detached Assignment x x x, whereby Filriters, as registered owner, sold, transferred,
assigned and delivered unto Philippine Underwriters Finance Corporation (Philfinance) all its
rights and title to Central Bank Certificates of Indebtedness (CBCI) Nos. D890 to D896,
inclusive, each in the denomination of PESOS: FIVE HUNDRED THOUSAND (P500,000.00) and
having an aggregate value of PESOS: THREE MILLION FIVE HUNDRED THOUSAND
(P3,500,000.00);
4. The aforesaid Detached Assignment (Annex A) contains an express authorization
executed by the transferor intended to complete the assignment through the registration of
the transfer in the name of PhilFinance, which authorization is specifically phrased as

follows: (Filriters) hereby irrevocably authorized the said issuer
_______________
1 Justice Ricardo L. Pronove, Jr., ponente; concurred in by Justices Alfredo L. Benipayo and
Serafin V.C. Guingona, p. 18, Rollo.
2 p. 143, Record.
3 Ibid., at p. 146.
4 Ibid., at p. 148.
5 p. 1, Record.
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19
(Central Bank) to transfer the said bond/certificates on the books of its fiscal agent;
5. On February 4, 1981, petitioner entered into a Repurchase Agreement with PhilFinance x x
x, whereby, for and in consideration of the sum of PESOS: FIVE HUNDRED THOUSAND
(P500,000.00), PhilFinance sold, transferred and delivered to petitioner CBCI 4-year, 8th
series, Serial No. D891 with a face value of P500,000.00 x x x, which CBCI was among those
previously acquired by PhilFinance from Filriters as averred in paragraph 3 of the Petition;
6. Pursuant to the aforesaid Repurchase Agreement (Annex B), Philfinance agreed to
repurchase CBCI Serial No. D891 (Annex C), at the stipulated price of PESOS: FIVE
HUNDRED NINETEEN THOUSAND THREE HUNDRED SIXTY-ONE & 11/100 (P519,361.11) on
April 27, 1981;
7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27, 1981,
when the checks it issued in favor of petitioner were dishonored for insufficient funds;
8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of the
Petitioner to enable the latter to have its title completed and registered in the books of the
respondent. And by means of said Detachment Assignment, Philfinance transferred and
assigned all its rights and title in the said CBCI (Annex C) to petitioner and, furthermore, it
did thereby irrevocably authorize the said issuer (respondent herein) to transfer the said
bond/certificate on the books of its fiscal agent. x x x
9. Petitioner presented the CBCI (Annex C), together with the two (2) aforementioned
Detached Assignments (Annexes B and D), to the Securities Servicing Department of the
respondent, and requested the latter to effect the transfer of the CBCI on its books and to
issue a new certificate in the name of petitioner as absolute owner thereof;
10. Respondent failed and refused to register the transfer as requested, and continues to do
so notwithstanding petitioners valid and just title over the same and despite repeated
demands in writing, the latest of which is hereto attached as Annex E and made an integral
part hereof;
11. The express provisions governing the transfer of the CBCI were substantially complied
with in petitioners request for registration, to wit:
No transfer thereof shall be valid unless made at said office (where the Certificate has been
registered) by the
20
20
registered owner hereof, in person or by his attorney duly authorized in writing, and similarly
noted hereon, and upon payment of a nominal transfer fee which may be required, a new
Certificate shall be issued to the transferee of the registered holder thereof.
and, without a doubt, the Detached Assignments presented to respondent were sufficient
authorizations in writing executed by the registered owner, Filriters, and its transferee,
PhilFinance, as required by the above-quoted provision;
12. Upon such compliance with the aforesaid requirements, the ministerial duties of
registering a transfer of ownership over the CBCI and issuing a new certificate to the
transferee devolves upon the respondent;
Upon these assertions, TRB prayed for the registration by the Central Bank of the subject
CBCI in its name.
On December 4, 1984, the Regional Trial Court trying the case took cognizance of the
defendant Central Bank of the Philippines Motion for Admission of Amended Answer with
Counter Claim for Interpleader,6 thereby calling to fore the respondent Filriters Guaranty
Assurance Corporation (Filriters), the registered owner of the subject CBCI as respondent.
For its part, Filriters interjected as Special Defenses the following:
11. Respondent is the registered owner of CBCI No. 891;
12. The CBCI constitutes part of the reserve investment against liabilities required of
respondent as an insurance company under the Insurance Code;
13. Without any consideration or benefit whatsoever to Filriters in violation of law and the
trust fund doctrine and to the prejudice of policyholders and to all who have present or
future claim against policies issued by Filriters, Alfredo Banaria, then Senior Vice-PresidentTreasury of Filriters, without any board resolution, knowledge or consent of the board of
directors of Filriters and without any clearance or authorization from the Insurance
_______________
6 p. 75, Record.
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21
Commissioner, executed a detached assignment purportedly assigning CBCI No. 891 to
Philfinance;
xxx
14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller and Pilar Jacobe, VicePresident-Treasury of Filriters (both of whom were holding the same positions in Philfinance),
without any consideration or benefit redounding to Filriters and to the grave prejudice of
Filriters, its policy holders and all who have present or future claims against its policies,
executed similar detached assignment forms transferring the CBCI to plaintiff; x x x
15. The detached assignment is patently void and inoperative because the assignment is
without the knowledge and consent of directors of Filriters, and not duly authorized in writing
by the Board, as required by Article V, Section 3 of CB Circular No. 769;
16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not
the corporate act of Filriters and as such null and void;
a) The assignment was executed without consideration and for that reason, the assignment
is void from the beginning (Article 1409, Civil Code);
b) The assignment was executed without any knowledge and consent of the board of
directors of Filriters;
c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a
requirement under the Insurance Code for its existence as an insurance company and the
pursuit of its business operations. The assignment of the CBCI is illegal act, in the sense of
malum in se or malum prohibitum, for anyone to make, either as corporate or personal act;
d) The transfer or diminution of reserve investments of Filriters is expressly prohibited by
law, is immoral and against public policy;
e) The assignment of the CBCI has resulted in the capital impairment and in the solvency
deficiency of Filriters (and has in fact helped in placing Filriters under conservatorship), an
inevitable result known to the officer who executed the detached assignment.
17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the
assignment;
22
22
a) The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness is
not payable to bearer but is registered in the name of Filriters;
b) The provision on transfer of the CBCIs, provides that the Central Bank shall treat the
registered owner as the absolute owner and that the value of the registered certificates shall
be payable only to the registered owner; a sufficient notice to plaintiff that the assignments
do not give them the registered owners right as absolute owner of the CBCIs;
c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides that
registered certificates are payable only to the registered owner (Article II, Section 1).
18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by Filriters is
not a regular transaction made in the usual or ordinary course of business;
a) The CBCI constitutes part of the reserve investments of Filriters against liabilities required
by the Insurance Code and its assignment or transfer is expressly prohibited by law. There
was no attempt to get any clearance or authorization from the Insurance Commissioner;
b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular
course of its business;
c) The CBCI involved substantial amount and its assignment clearly constitutes disposition of
all or substantially all of the assets of Filriters, which requires the affirmative action of the
stockholders (Section 40, Corporation [sic] Code).7
In its Decision8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXII found
the assignment of CBCI No. D891 in favor of Philfinance, and the subsequent assignment of
the same CBCI by Philfinance in favor of Traders Royal Bank null and void and of no force
and effect. The dispositive portion of the decision reads:
ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters Guaranty
Assurance Corporation and against the plaintiff Traders Royal Bank:
_______________
7 Answer, p. 97, Record.

8 p. 315, Record.
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23
(a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the subsequent
assignment of CBCI by PhilFinance in favor of the plaintiff Traders Royal Bank as null and
void and of no force and effect;
(b) Ordering the respondent Central Bank of the Philippines to disregard the said assignment
and to pay the value of the proceeds of the CBCI No. D891 to the Filriters Guaranty
Assurance Corporation;
(c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance
Corp. the sum of P10,000 as attorneys fees; and
(d) To pay the costs.

SO ORDERED.9
The petitioner assailed the Decision of the trial court in the Court of Appeals,10 but their
appeal likewise failed. The findings of fact of the said court are hereby reproduced:
The records reveal that defendant Filriters is the registered owner of CBCI No. D891. Under
a deed of assignment dated November 27, 1971, Filriters transferred CBCI No. D891 to
Philippine Underwriters Finance Corporation (Philfinance). Subsequently, Philfinance
transferred CBCI No. D891, which was still registered in the name of Filriters, to appellant
Traders Royal Bank (TRB). The transfer was made under a repurchase agreement dated
February 4, 1981, granting Philfinance the right to repurchase the instrument on or before
April 27, 1981. When Philfinance failed to buy back the note on maturity date, it executed a
deed of assignment, dated April 27, 1981, conveying to appellant TRB all its rights and title
to CBCI No. D891.
Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI
No. D891 in its name before the Security and Servicing Department of the Central Bank
(CB). Central Bank, however, refused to effect the transfer and registration in view of an
adverse claim filed by defendant Filriters.
Left with no other recourse, TRB filed a special civil action for mandamus against the Central
Bank in the Regional Trial Court of
_______________
9 pp. 16-17, RTC Decision, p. 330, Rollo.

10 Annex A, Petition, supra.
24
24
Manila. The suit, however, was subsequently treated by the lower court as a case of
interpleader when CB prayed in its amended answer that Filriters be impleaded as a
respondent and the court adjudge which of them is entitled to the ownership of CBCI No.
D891. Failing to get a favorable judgment, TRB now comes to this Court on appeal.11
In the appellate court, petitioner argued that the subject CBCI was a negotiable instrument,
and having acquired the said certificate from Philfinance as a holder in due course, its
possession of the same is thus free from any defect of title of prior parties and from any
defense available to prior parties among themselves, and it may thus, enforce payment of
the instrument for the full amount thereof against all parties liable thereon.12
In ignoring said arguments, the appellate court said that the CBCI is not a negotiable
instrument, since the instrument clearly stated that it was payable to Filriters, the registered
owner, whose name was inscribed thereon, and that the certificate lacked the words of
negotiability which serve as an expression of consent that the instrument may be

transferred by negotiation.
Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious, having
been made without consideration, and did not conform to Central Bank Circular No. 769,
series of 1980, better known as the Rules and Regulations Governing Central Bank
Certificates of Indebtedness, which provided that any assignment of registered certificates
shall not be valid unless made x x x by the registered owner thereof in person or by his
representative duly authorized in writing.
Petitioners claimed interest has no basis, since it was derived from Philfinance, whose
interest was inexistent, having acquired the certificate through simulation. What happened
was Philfinance merely borrowed CBCI No. D891
_______________
11 Court of Appeals Decision, pp. 18-19, Rollo.

12 Section 57, Negotiable Instruments Law.
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25
from Filriters, a sister corporation, to guarantee its financing operations.
Said the Court:
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for
and on behalf of Filriters, did not have the necessary written authorization from the Board of
Directors of Filriters to act for the latter. For lack of such authority, the assignment did not
therefore bind Filriters and violated at the same time Central Bank Circular No. 769 which
has the force and effect of a law, resulting in the nullity of the transfer (People v. Que Po Lay,
94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or
transfer to Traders Royal Bank and which the latter can register with the Central Bank.
WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiffappellant.
SO ORDERED.13
Petitioners present position rests solely on the argument that Philfinance owns 90% of
Filriters equity and the two corporations have identical corporate officers, thus demanding
the application of the doctrine of piercing the veil of corporate fiction, as to give validity to
the transfer of the CBCI from the registered owner to petitioner TRB.14 This renders the
payment by TRB to Philfinance for CBCI, as actual payment to Filriters. Thus, there is no
merit to the lower courts ruling that the transfer of the CBCI from Filriters to Philfinance was
null and void for lack of consideration.
Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of
negotiability within the meaning of the negotiable instruments law (Act 2031). The pertinent
portions of the subject CBCI read:
_______________
13 Petition, Annex A, pp. 21-22, Rollo.

14 Ibid.
26
26
xxx
The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay to
bearer, or if this Certificate of indebtedness be registered, to FILRITERS GUARANTY
ASSURANCE CORPORATION, the Registered owner hereof, the principal sum of FIVE
HUNDRED THOUSAND PESOS.
xxx
Properly understood, a certificate of indebtedness pertains to certificates for the creation
and maintenance of a permanent improvement revolving fund, and is similar to a bond,
(82 Minn. 202). Being equivalent to a bond, it is properly understood as an acknowledgment
of an obligation to pay a fixed sum of money. It is usually used for the purpose of long term
loans.
The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that:
As worded, the instrument provides a promise to pay Filriters Guaranty Assurance
Corporation, the registered owner hereof. Very clearly, the instrument is payable only to
Filriters, the registered owner, whose name is inscribed thereon. It lacks the words of
negotiability which should have served as an expression of consent that the instrument may
be transferred by negotiation.15
A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY
ASSURANCE CORPORATION, and to no one else, thus, discounting the petitioners submission
that the same is a negotiable instrument, and that it is a holder in due course of the
certificate.
The language of negotiability which characterize a negotiable paper as a credit instrument is
its freedom to circulate as a substitute for money. Hence, freedom of negotiability is the
touchstone relating to the protection of holders in due course, and the freedom of
negotiability is the foundation for the protection which the law throws around a holder in due
_______________
15 Campos and Campos, Negotiable Instruments Law, p. 38, 1971 ed.

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27
course (11 Am. Jur. 2d, 32). This freedom in negotiability is totally absent in a certificate of
indebtedness as it merely acknowledges to pay a sum of money to a specified person or
entity for a period of time.
As held in Caltex (Philippines), Inc. vs. Court of Appeals:16
The accepted rule is that the negotiability or non-negotiability of an instrument is
determined from the writing, that is, from the face of the instrument itself. In the
construction of a bill or note, the intention of the parties is to control, if it can be legally
ascertained. While the writing may be read in the light of surrounding circumstances in order
to more perfectly understand the intent and meaning of the parties, yet as they have
constituted the writing to be the only outward and visible expression of their meaning, no
other words are to be added to it or substituted in its stead. The duty of the court in such
case is to ascertain, not what the parties may have secretly intended as contradistinguished
from what their words express, but what is the meaning of the words they have used. What
the parties meant must be determined by what they said.
Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and
is not governed by the Negotiable Instruments Law. The pertinent question then is, was the
transfer of the CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB, in
accord with existing law, so as to entitle TRB to have the CBCI registered in its name with
the Central Bank?
The following are the appellate courts pronouncements on the matter:
Clearly shown in the record is the fact that Philfinances title over CBCI No. D891 is
defective since it acquired the instrument from Filriters fictitiously. Although the deed of
assignment stated that the transfer was for value received, there was really no
consideration involved. What happened was Philfinance merely borrowed CBCI No. D891
from Filriters, a sister corporation. Thus, for lack of any consideration, the assignment made
is a complete nullity.
_______________
16 G.R. No. 97753, August 10, 1992, 212 SCRA 448.

28
28

What is more, We find that the transfer made by Filriters to Philfinance did not conform to
Central Bank Circular No. 769, series of 1980, otherwise known as the Rules and
Regulations Governing Central Bank Certificates of Indebtedness, under which the note was
issued. Published in the Official Gazette on November 19, 1980, Section 3 thereof provides
that any assignment of registered certificates shall not be valid unless made x x x by the
registered owner thereof in person or by his representative duly authorized in writing.
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for
and on behalf of Filriters, did not have the necessary written authorization from the Board of
Directors of Filriters to act for the latter. For lack of such authority, the assignment did not
therefore bind Filriters and violated at the same time Central Bank Circular No. 769 which
has the force and effect of a law, resulting in the nullity of the transfer (People vs. Que Po
Lay, 94 Phil. 640; 3M Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or
transfer to Traders Royal Bank and which the latter can register with the Central Bank.
Petitioner now argues that the transfer of the subject CBCI to TRB must be upheld, as the
respondent Filriters and Philfinance, though separate corporate entities on paper, have used
their corporate fiction to defraud TRB into purchasing the subject CBCI, which purchase now
is refused registration by the Central Bank.
Says the petitioner:
Since Philfinance owns about 90% of Filriters and the two companies have the same
corporate officers, if the principle of piercing the veil of corporate entity were to be applied
in this case, then TRBs payment to Philfinance for the CBCI purchased by it could just as
well be considered a payment to Filriters, the registered owner of the CBCI as to bar the
latter from claiming, as it has, that it never received any payment for that CBCI sold and that
said CBCI was sold without its authority.
xxx
We respectfully submit that, considering that the Court of Appeals has held that the CBCI
was merely borrowed by Philfinance
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29
from Filriters, a sister corporation, to guarantee its (Philfinances) financing operations, if it
were to be consistent therewith, on the issue raised by TRB that there was a piercing of veil
of corporate entity, the Court of Appeals should have ruled that such veil of corporate entity
was, in fact, pierced, and the payment by TRB to Philfinance should be construed as
payment to Filriters.17
We disagree with the Petitioner.
Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this is merely
an equitable remedy, and may be awarded only in cases when the corporate fiction is used
to defeat public convenience, justify wrong, protect fraud or defend crime or where a
corporation is a mere alter ego or business conduit of a person.18
Piercing the veil of corporate entity requires the court to see through the protective shroud
which exempts its stockholders from liabilities that ordinarily, they could be subject to, or
distinguishes one corporation from a seemingly separate one, were it not for the existing
corporate fiction. But to do this, the court must be sure that the corporate fiction was
misused, to such an extent that injustice, fraud, or crime was committed upon another,
disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent third
persons dealing with the corporate entity which the law aims to protect by this doctrine.
The corporate separateness between Filriters and Philfinance remains, despite the
petitioners insistence on the contrary. For one, other than the allegation that Filriters is 90%
owned by Philfinance, and the identity of one shall be maintained as to the other, there is
nothing else which could lead the court under the circumstances to disregard their corporate
personalities.
Though it is true that when valid reasons exist, the legal fiction that a corporation is an
entity with a juridical
_______________
17 Petition.
18 Yu vs. National Labor Relations Commission, 245 SCRA 134.
30
30
personality separate from its stockholders and from other corporations may be
disregarded,19 in the absence of such grounds, the general rule must be upheld. The fact
that Philfinance owns majority shares in Filriters is not by itself a ground to disregard the
independent corporate status of Filriters. In Liddel & Co., Inc. vs. Collector of Internal
Revenue,20 the mere ownership by a single stockholder or by another corporation of all or
disregarding the fiction of separate corporate personalities.
In the case at bar, there is sufficient showing that the petitioner was not defrauded at all
when it acquired the subject certificate of indebtedness from Philfinance.
On its face, the subject certificates states that it is registered in the name of Filriters. This
should have put the petitioner on notice, and prompted it to inquire from Filriters as to
Philfinances title over the same or its authority to assign the certificate. As it is, there is no
showing to the effect that petitioner had any dealings whatsoever with Filriters, nor did it
make inquiries as to the ownership of the certificate.
The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:
TRANSFER: This Certificate shall pass by delivery unless it is registered in the owners name
at any office of the Bank or any agency duly authorized by the Bank, and such registration is
noted hereon. After such registration no transfer thereof shall be valid unless made at said
office (where the Certificate has been regis-tered) by the registered owner hereof, in person,
or by his attorney, duly authorized in writing and similarly noted hereon and upon payment
of a nominal transfer fee which may be required, a new Certificate shall be issued to the
transferee of the registered owner thereof. The bank or any agency duly authorized by the
Bank may deem and treat the bearer of this Certificate, or if this Certificate is
_______________
19 Guatson International Travel and Tours, Inc. vs. National Labor Relations Commission, 230
SCRA 815.
20 2 SCRA 632.
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31
registered as herein authorized, the person in whose name the same is registered as the
absolute owner of this Certificate, for the purpose of receiving payment hereof, or on
account hereof, and for all other purpose whether or not this Certificate shall be overdue.
This is notice to petitioner to secure from Filriters a written authorization for the transfer or
to require Philfinance to submit such an authorization from Filriters.
Petitioner knew that Philfinance is not the registered owner of CBCI No. D891. The fact that a
non-owner was disposing of the registered CBCI owned by another entity was a good reason
for petitioner to verify or inquire as to the title of Philfinance to dispose of the CBCI.
Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1980,21 known as the
Rules and Regulations Governing Central Bank Certificates of Indebtedness, Section 3,
Article V of which provides that:
SECTION 3. Assignment of Registered Certificates.Assignment of registered certificates
shall not be valid unless made at the office where the same have been issued and registered
or at the Securities Servicing Department, Central Bank of the Philippines, and by the
registered owner thereof, in person or by his representative, duly authorized in writing. For
this purpose, the transferee may be designated as the representative of the registered
owner.
Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769,
and its requirements. An entity which deals with corporate agents within circumstances
showing that the agents are acting in excess of corporate authority, may not hold the
corporation liable.22 This is only fair, as everyone 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.23
_______________
21 76 Official Gazette 9370.

22 See Article 1883, Civil Code.
23 See Article 19, Civil Code.
32
32
The transfer made by Filriters to Philfinance did not conform to the said Central Bank
Circular, which for all intents, is considered part of the law. As found by the courts a quo,
Alfredo O. Banaria, who had signed the deed of assignment from Filriters to Philfinance,
purportedly for and in favor of Filriters, did not have the necessary written authorization
from the Board of Directors of Filriters to act for the latter. As it is, the sale from Filriters to
Philfinance was fictitious, and therefore void an inexistent, as there was no consideration for
the same. This is fatal to the petitioners cause, for then, Philfinance had no title over the
subject certificate to convey to Traders Royal Bank. Nemo potest nisi quod de jure potest
no man can do anything except what he can do lawfully.
Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital
reserves, which are required by law24 to be maintained at a mandated level. This was
pointed out by Elias Garcia, Manager-in-Charge of respondent Filriters, in his testimony given
before the court on May 30, 1986.
Q
Do you know this Central Bank Certificate of Indebtedness, in short, CBCI No. D891 in the
face value of P500,000.00 subject of this case?
A
Yes, sir.
Q
Why do you know this?
A
Well, this was the CBCI of the company sought to be examined by the Insurance Commission
sometime in
_______________
24 Section 213. Every insurance company, other than life, shall maintain a reserve for
unearned premiums on its policies in force, which shall be charged as a liability in any
determination of its financial condition. Such reserve shall be equal to forty per centum of
the gross premiums, less returns and cancellations, received on policies or risks having more
than a year to run: Provided, That for marine cargo risks, the reserve shall be equal to forty
per centum of the premiums written in the policies upon yearly risks, and the full amount of
premiums written during the last two months of the calendar year upon all other marine
risks not terminated. Presidential Decree No. 612 (The Insurance Code of the Philippines).
33
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33
early 1981 and this CBCI No. 891 was among the CBCIs that were found to be missing.
Q
Let me take you back further before 1981. Did you have the knowledge of this CBCI No. 891
before 1981?
A
Yes, sir. This CBCI is an investment of Filriters required by the Insurance Commission as legal
reserve of the company.
Q
Legal reserve for the purpose of what?
A
Well, you see, the Insurance companies are required to put up legal reserves under Section
213 of the Insurance Code equivalent to 40 percent of the premiums receipt and further, the
Insurance Commission requires this reserve to be invested preferably in government
securities or government bonds. This is how this CBCI came to be purchased by the
company.
It cannot, therefore, be taken out of the said fund, without violating the requirements of the
law. Thus, the unauthorized use or distribution of the same by a corporate officer of Filriters
cannot bind the said corporation, not without the approval of its Board of Directors, and the
maintenance of the required reserve fund.
Consequently, the title of Filriters over the subject certificate of indebtedness must be
upheld over the claimed interest of Traders Royal Bank.
ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29,
1990 is hereby AFFIRMED.
SO ORDERED.
Regalado (Chairman), Romero and Mendoza, JJ., concur.
Puno, J., No part due to relationship.

Petition dismissed, judgment affirmed.
Notes.When valid ground exists, the legal fiction that a corporation is an entity with a
juridical personality separate and distinct from its members or stockholders may be disre34
34
Ramos vs. Court of Appeals
garded. (Guatson International Travel and Tours, Inc. vs. National Labor Relations
Commission, 230 SCRA 815 [1994])
A corporation is a juridical entity with legal personality separate and distinct from those
acting for and in its behalf and, in general, from the people comprising itobligations
incurred by the corporation, acting through its directors, officers and employees, are its sole
liabilities. (Santos vs. National Labor Relations Commission, 254 SCRA 673 [1996])
o0o [Traders Royal Bank vs. Court of Appeals, 269 SCRA 15(1997)]
VOL. 273, JUNE 13, 1997

419
National Power Corporation vs. Court of Appeals
G.R. No. 113103. June 13, 1997.*
NATIONAL POWER CORPORATION, THE NATIONAL POWER CORPORATION BOARD OF
DIRECTORS, CON-RADO D. DEL ROSARIO and MARCELINO ILAO, petitioners, vs. THE HON.
COURT OF APPEALS, HON. TOMAS V. TADEO, Jr., in his capacity as Presiding Judge, Regional
Trial Court of Quezon City, Branch 105 and GROWTH LINK, INC., respondents.
G.R. No. 116000. June 13, 1997.*
GROWTH LINK, INC., petitioner, vs. COURT OF APPEALS and NATIONAL POWER
CORPORATION, respondents.
Public Biddings; Right of government to reject any and all bids; Rules and regulations
governing the bidding for NPC contracts, which necessarily and inherently include the
reservation by the NPC of its right to reject any or all bids.Assuming arguendo that the
NPC did not deny the claims for unrealized commissions as alleged by Growth Link in its
mandamus petition with damages, and that consequently these claims have been
transmuted into judicial admissions, these admissions cannot still prevail over the rules and
regulations governing the bidding for NPC contracts, which necessarily and inherently
include the reservation by the NPC of its right to reject any or all bids. By its own assertion,
Growth Link has been a regular bidder for NPC contracts. It cannot deny, much less pretend
ignorance of, the reserved discretion of the NPC to accept or
_______________
* FIRST DIVISION.
420
420
reject any bid. Neither could Growth Link have forgotten the well-settled rule that this
discretion is of such wide latitude that the courts will not generally interfere with the
exercise thereof by the government, unless it is apparent that it is used as a shield to a
fraudulent award or an unfairness or injustice is clearly shown.
PETITIONS for review of a decision of the Court of Appeals.

Virgilio C. Manguera & Associates for Growth Link, Inc.
HERMOSISIMA, JR., J.:
Raising the sole issue of the illegality of the award of an exorbitant and unconscionable
amount as attorneys fees granted1 by the Regional Trial Court2 in a Petition for Mandamus
with Preliminary Mandatory Injunction and Damages3 and affirmed by the Court of Appeals4
in its Decision5 in CA-G.R. SP No. 26898, entitled, Growth Link, Inc. v. National Power
Corporation, et al., therein respondents-appellants National Power Corporation (NPC), the
NPC Board of Directors, Conrado D. del Rosario and Marcelino Ilao, petition this court to
reverse said Decision insofar as the award of attorneys fees is concerned.6
______________
1 Decision of the Regional Trial Court dated September 10, 1991; Rollo in G.R. No. 113103,
pp. 73-82.
2 Branch CV (105), Quezon City, with Judge Tomas V. Tadeo, Jr., presiding.
3 Docketed as Civil Case No. Q-52855.
4 Sixth Division.
5 Promulgated on December 17, 1993, penned by Associate Justice Arturo B. Buena with
Associate Justices Artemon D. Luna and Alfredo J. Lagamon, concurring; Rollo in G.R. No.
113103, pp. 37-66.
6 Petition filed by the Solicitor General on behalf of the National Power Corporation (NPC),
the NPC Board of Directors, Conrado D. del Rosario and Marcelino Ilao, dated July 22, 1994,
p. 15; Rollo in G.R. No. 113103, p. 33.
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421
Growth Link, Inc. (hereafter, Growth Link), which is the petitioner-appellee in CA-G.R. SP No.
26898, for its part, comes before us with a separate Petition in challenge of the same
Decision which we are asked to completely reverse, Growth Link praying7 instead for the
affirmance in toto of the trial court decision. Growth Links Petition is docketed as G.R. No.
116000.
In a Resolution8 dated September 28, 1994, we granted the Motion for Consolidation filed by
Growth Link and forthwith ordered the consolidation of G.R. Nos. 113103 and 116000.
We proceed from the following premises:
The facts of the case as summarized by the trial court are as follows:
1. [Growth Link] is a duly registered domestic corporation while x x x NPC is a duly
organized government corporate entity while the individual [petitioners] are officers and/or
members of the NPC Board of Directors, except that [petitioners] Conrado Del Rosario and
Crispin T. Ubaldo are no longer connected with x x x NPC;
ON THE FIRST CAUSE OF ACTION:
2. That on October 23, 1984, [Growth Link] was duly awarded Purchase Order (PO) No.
086653 to suply (sic) NPC, subject to certain terms therein expressed, two (2) pieces
Pielstick Piston Skirt specified under Code No. 02.005.0171.00, Plate No. 6.02.005.04 at the
total price of P230,000.00;
3. That subject Piston Skirts were actually delivered to and received by the NPC Manila
(RWSS) Warehouwe (sic) on January 16, 1985, subjected to actual visual inspection and were
found conforming to technical specifications per PO, hence were accepted and approved for
payment;
4. That said Piston Skirts were later shipped by NPC to the end-user, the General Santos
Diesel Plant (GSDP), which acknowledged delivery thereof as of January 29, 1985;
________________
7 Petition filed by Growth Link, Inc. dated July 22, 1994, p. 35; Rollo in G.R. No. 116000, p.
41.
8 Rollo in G.R. No. 116000, p. 89.
422
422

5. That under date 24 May 1985, four (4) months from delivery, the following
findings/observations were allegedly reported found in said Piston Skirts, namely: (a)
damage[d]/used O-rings; (b) scratches on mid-span; (c) scratches on top and bottom portion
of skirts; (d) carbon residue/deposit on top grove of piston skirts;
6. That the amount of P16,879.50 was deducted by NPC from [Growth Links] other
receivables thru PNB Check No. 102690 per NPC Credit Memo No. 030910;
7. That under date 6 March 1986, [Growth Link] was in receipt of a letter from the then NPC
President, Hon. G. Y. Itchon, formally demanding immediate replacements of the Piston
Skirts, otherwise, NPC will be contrained (sic) to demand the refund of P227,470 as purchase
costs of the items and P23,051 as cost of delivery x x x plus applicable interest charges
reckoned from date of receipt of NPC payment, meanwhile said amounts are withheld from
[Growth Links] outstanding receivables from NPC, pending replacements with the warning
that a repetition of similar delivery or any subsequent infraction shall amount to immediate
cancellation of [Growth Links] accreditation with the NPC and prosecution of appropriate
legal action;
8. That as direct consequence of the pressures aforecited and despite the actual
investigation findings on the rejected items by the foreign principals authorized
representative x x x [Growth Link] was eventually constrained to replace, as [it] actually did
replace the questioned piston skirts, and the rejected items shipped back to Japan for
evaluation/analysis;
ON THE SECOND CAUSE OF ACTION:
9. That under date 23 February 1984, [NPC] ordered thru [Growth Link], under Indent Order
(I.O.) No. 07600, Pielstick Engine Piston Rings for the Panay Diesel Power Plant (PDPP-Dingle)
per Inquiry No. F2C84-3/26-1053TR, PR No. 07381, worth FOB 1.87 M;
10. That subject piston rings were shipped from Japan direct to consignee, the NPC, and
were accepted and received by the end-user, PDPP-Dingle Panay, on May 30, 1985;
11. That under date 3 June 1986, almost a year later, Mr. Romeo A. Perlado, NPC VP-Visayas
Region, addressed a
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Memo to Ms. C.V. Daplas, NPC Manager, Procurement Division, [that the Pielstick Engine
Piston Rings for PDPP-Dingle Panay under] Indent Order No. N-07600 did not reach its normal
expected life of 12,000 RH and [that Ms. Daplas is] to x x x check and verify who was the
supplier of these materials and x x x request them to replace their materials, if not x x x [to]
put on record that x x x this supplier [gave] a bad supply of materials;
12. That upon the intercession of [Growth Link], the foreign supplier of said indented piston
rings telexed NPC to send thru [Growth Link] all damaged rings/circumstantial data for
manufacturers analysis/evaluation with further info that other NPC orders supplied by Fuji
includes [sic] the same items per IO Nos. 7395, 7501 and 7694;
13. That acting upon the foreign suppliers telex message aforecited, Ms. Cecilia V. Daplas,
the NPC Manager, Procurement Division, Diliman, Quezon City, in a Memorandum dated 11
July 1986, to the NPC VP Visayas Region, requested [for] two sets of these rings, one of
which will be sent to the manufacturer and the other for an analysis by an independent
party in the Philippines with the further request that the rings to be sent x x x should bear
the markings of the manufacturer in order to avoid any room for doubt or denials that the
damaged rings are their manufacture[d] [products];
14. That in his report x x x dated April 6, 1987, Naciano T. Caballero, Manager, CMTS
Department, addressed to Mr. J.C. Guaderrama, Manager, Materials Management
Department, NPC, re: PDPP-I Pielstick Piston Rings, stated:
1. Our inspections failed to produce the rejected pieces as there are no available damaged
piston rings at the plant to be presented to Procurement per memo of Ms. Cecilia V. Daplas,
Manager, Procurement Division dated 11 July 1986 addressed to VP-VRC x x x forwarded to
this office for proper action;
2. Operating indicators and maintenance data fail to completely show evidence that will
substantiate earlier reports of premature damage.
15. That six (6) months later herein petitioner was in receipt of a letter dated October 16,
1987 from NPC VP-Administrator, Ms. P.A. Segovia (Ms. Segovia was among those previously
furnished the Caballero Report dated April 6, 1987),
424
424
to the effect that the 4 pieces of the damaged rings are now available for release with the
demand that all rejected piston ring[s] be now completely replaced by genuine parts
manufactured by S.E.M.T.-licensed manufacturer;
ON [THE] THIRD CAUSE OF ACTION:
16. That under date 14 June 1986, [Growth Link] was awarded Purchase Order (PO) No.
095435 to deliver four (4) pieces of Right Hand Exhaust Valve Body, Part No.
02.015.0226.00; Plate No. 02.015.11 and another four (4) pieces of Left Hand Exhaust Valve
Body, Part No. 02.015.0117.00; Plate No. 02.015.12 at the NPC Old Bldg., Port Area, Manila;
17. That upon delivery at the NPC Old Warehouse, Port Area, Manila on October 13, 1986
subject Valve Body were forthwith immediately rejected by the Quality Assurance Group on
ground that they are manufactured by Fuji Diesel Co., Ltd., which is not a licensee of S.E.M.T.
Pielstick [and] that only Pielstick engine spare parts coming from the manufacturer or its
licensees shall be accepted;
18. That the rejected exhaust valve body items still remain at the NPC Warehouse, Port Area,
Manila:
ON THE FOURTH CAUSE OF ACTION:
19. The existence of the memo of NPCs General Counsel x x x of January 28, 1987 x x x is
admitted;
ON THE FIFTH CAUSE OF ACTION:
20. Under date 12 October 1987 [Growth Link] was in receipt of a leter (sic) dated 1 October
1987 from the x x x then NPC President C.D. Del Rosario, that NPC is constrained to refrain
transacting business with [Growth Link and] further alleging [that] certain subsequent
deliveries by petitioner were either rejected or found with missing items as additional
infractions, thus:
a. the 72 pieces of Screws covered by IO No. M-08354-AA allegedly did not conform with the
dimensions of the original part;
b. the shipment consisting of washer, nut and screw for Pielstick Engine covered by IO No.
M-07692
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VOL. 273, JUNE 13, 1997

425
dated April 24, 1984 [had] four (4) missing items out of the eight (8) items ordered;
c. BBC Turbocharger spares covered by PO No. 096345 dated October 9, 1985 and PO No.
096626 dated November 10, 1985 [were] rejected on March 10, 1987 by the Quality
Assurance Dept. on grounds that the items delivered were found to be manufactured by IHI,
Japan which although a BBC licensee, was not specified manufacturer on [Growth Links] bid
offer;
d. Pielstick Engine spares covered by IO No. N-08186 dated July 20, 1985 shipped direct from
Japan arrived at Aplaya, reported[ly] short-shipped x x x.
21. The existence of the Reply communication and [Growth Links] motion for
reconsideration is admitted;
22. [Growth Link] was pre-qualified as an NPC supplier in 1982.
The following facts have also been shown:
1. Since 1982 when, as admitted, [Growth Link] was pre-qualified as NPC supplier, up to the
time in 1987 when x x x NPC refused to do business with petitioner, the latter had numerous
sales through public biddings with a total value of over P60 million x x x.
2. [Growth Link] was the lowest bidder and the most advantageous bidder in several other
biddings x x x but NPC did not issue the awards.
3. As a matter [of] procedure, NPC dealt only with accredited suppliers and NPC recognized
[Growth Link] as duly accredited. x x x
4. At the start in 1982 [Growth Link] complied with the accreditation requirements of NPC by
submitting voluminous documents like the articles of incorporation of GLI, corporate profile,
appointment of [Growth Link] as exclusive supplier and distributor of spare parts by foreign
manufacturers x x x, suppliers warranties x x x catalogues, company profile and other
information about foreign suppliers x x x. And, more importantly, it did not anymore undergo
the same process ad (sic) subsequent biddings [that Growth Link] participated in. So that the
accreditation was a continuing one and not on a per transaction basis.
426
426
5. On February 13, 1987 NPC announced its decision to stop transacting business with
[Growth Link] x x x and was blacklisted due to violation of the conditions of the contract. x x
x
6. The grounds of the cancellation of [Growth Links] accreditation x x x are three, namely:
a). that [Growth Link] supplied second hand piston skirts;
b). that piston rings supplied by it did not reach the required running hours;
c). that [Growth Link] supplied exhaust valve bodies manufactured by Fuji Diesel, Ltd. which
was not licensed by SEMT.
7. [Growth Link] refuted the charges in several letters x x x and was asking for opportunity
to be heard at a formal hearing on [the] request for reconsideration but same was not acted
upon by NPC.
8. [NPCs] witness Alejandro admitted that he knew of instances of switching cargoes in the
Port Area of Manila (tsn, Oct. 16, 1990, p. 23).
9. On October 23, 1984, [Growth Link] was awarded by NPC Purchase Order No. 088653 to
supply NPC two (2) pieces of Pielstick Skirt specified under Code No. 02.005.017.00, Plate
No. 6.02.005.04 at the total price of P230,000.00 x x x. These items were manufactured in
Japan by Fuji Diesel, Ltd.
10. From Japan these were shipped to the Philippines on board Everett Orient Line vessel x x
x and Bureau of Customs tagged the shipment as brand new. x x x
11. Subject piston skirts were actually delivered to and received by NPC Manila (RWSS)
Warehouse on January 16, 1985 and subjected to actual visual inspection and were found
conforming to technical specifications per PO, hence, were accepted and approved for
payment x x x.
12. Having complied with all the terms and conditions in the PO, [Growth Link was] paid by x
x x NPC for said piston skirts.
13. The piston skirts were shipped by NPC to end-user, the General Santos Diesel Plant
(GSDP) and
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VOL. 273, JUNE 13, 1997

427
the latter rejected the items in view of the findings made on May 24, 1985 of a)
damaged/used O-rings; b) scratches on mid-span; c) scratches on top and bottom portion of
skirts; d) carbon residue/deposit on top grove of piston skirts x x x.
14. On June 18, 1985 [Growth Link] notified foreign supplier (Fuji Diesel) of the findings of
the end-user x x x Fuji sent to the Philippines its own investigator to conduct
inspection/investigation and on August 6, 1985 said Fuji investigator submitted his findings
on the rejected piston skirts as follows:
1. The rejected/inspected items were not the ones supplied by us for [the] following reasons:
a) Identification marks engraved on the rejected items are different from the standard
markings of FUJI DIESEL, LTD.the company [that] manufactured the items x x x supplied
against [NPCs] subject order.
b) The items supplied by Fuji were part of a production batch made up of 16 items. Each of
the 16 items was engraved with the assigned number within the series 65511 to 65526.
xxx
2. On the photographs taken of the rejected items, [the] following were observed:
a) Reamer bolts that were part of the Fuji supplied items were missing.
b) Fuji did not supply nuts that were part of the reject.
c) The presence of rust on the upper portion of the item indicates that the item is not new.
xxx
15. Azuma Kako Co., Ltd., a third party surveyor, after careful analysis, found that the
rejected items were second hand and not manufactured in Japan. x x x
16. On May 14, 1986 Fuji Diesel Co., Ltd., issued a certification that (a) the two (2) pieces of
428
428
Pielstick Piston Skirts covered by PO No. 086653 were brand new parts manufactured by our
company; but (b) the two (2) pieces of Piston Skirts recently returned had been identified as
products of other than [Fuji] company.
17. NPCs witness Mangosing in his report x x x noted that the defects he found on the
piston skirts delivered by [Growth Link] were slight dents and scratches. The items x x x
received at Gen. Santos had serious defects x x x and [were] obviously second hand x x x.
18. In his report x x x NPCs Agcaoili stated: x x x Closer scrutiny on the piston skirt thru the
uncovered and wide spaces between the crating materials showed that there were no signs
of damages and/or unusual imperfections except for slight dents on the periphery of the
piston pin hole. This was considered insignificant and will not in any way affect the
soundness of the item.
19. NPCs Mangosing confirmed Agcaoilis findings in a separate report, thus:
x x x The two pieces of piston skirts inspected were packed in a single Palo China crate.
The description of the delivery was written on a piece of plywood specifying the
corresponding Code No. and Plate No. which is similar to that in the PO. The piston skirts
were covered with plastic material. The bolts and nuts which are included in the delivery
were similarly wrapped with plastic material and musking [sic] tape which is place (sic) in
one of the piston skirts.
x x x The piston skirt was provided with a wax protective coating. A look through the
open and uncovered spaces between the piston skirt and the crating material show[s] that
the wax protective coating is thoroughly applied. However, scratches and dents were noted
on the pheriphery [sic] of the piston pin holes.
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429
20. [Growth Links] foreign suppliers, Fuji and I & N International, are highly respected and
prominent companies x x x.
21. NPCs Osilla in his report dated September 10, 1985 x x x stated: further verification
revealed that the rejected items by GSDP were not the one[s] supplied by the principal of
Growth Link, Inc.
22. As to the Pielstick Piston Rings ordered by NPC from petitioner on February 23, 1984
under I.O. No. 07600 for the Panay Diesel Power Plant (PDPP), same were shipped from Japan
direct to conisgnee [sic], the NPC, and were accepted and received by the end-user, PDPP,
on May 30, 1985. On June 3, 1986, or almost a year later, Romeo A. Perlado, NPC VP-Visayas
Region, addressed a Memo to Ms. C. V. Daplas, NPC Manager, Procurement Division, Diliman,
Quezon City, that the purchased piston rings covered by I.O. No. N-07600 did not reach its
normal expected life of 12,000 RH x x x.
23. [Growth Links] foreign supplier of the piston rings, upon intercession of [Growth Link],
telexed NPC to send thru [it] all damaged rings/circumstantial data for manufacturers
analysis/eva-luation x x x.
24. Engr. Naciancino T. Caballero, NPC Manager, CMTS Dept. Visayas Regional Office, in a
communication dated April 6, 1987 to Mr. Guadarrama, NPC Manager, Materials
Management Dept. stated that: our inspection failed to produce the rejected pieces as there
are no available damaged piston rings at the plant to be presented to Procurement per
Memo of Ms. Daplas and that operating indicators and maintenance data fail to completely
show evidence that will substantiate reports of premature damage x x x.
25. The alleged piston rings remained with x x x NPC x x x for reason that NPC refuses to
issue the authorization to obtain possession of subject item with complete
description/identification/ marking for manufacturer[s] purposes.
430
430
26. As to the exhaust valve bodies, which were delivered to NPC Old Warehouse, Port Area,
Manila, on October 13, 1986, these were rejected by NPC Quality Assurance group on ground
that they are manufactured by Fuji Diesel Co., Ltd., which is not a licensee of S.E.M.T.
Pielstick [and] that only Pielstick engine spare parts coming from the manufacturer or its
licensees shall be accepted. But [Growth Link] did not accept the return of the rejected items
for reason [that] there was nothing in the PO x x x which excluded Fuji as manufacturer of
the particular items. It only required a certificate of compliance from [the] manufacturer
upon delivery which was complied with and for reason that the manufacturer was not
specified to be S.E.M.T. or any of its licensees.
27. Petitioner submitted to NPC prequalification documents of its supplier Fuji x x x which
included a statement of capital-production-sales tie up with Niigata Engineering Co., Ltd.
which is a licensee of S.E.M.T. for PC type engines x x x. These also show that Fuji was a
licensee of S.E.M.T. for PA type engines.
28. NPC, from 1982 to 1986, had already issued 24 orders to Fuji valued at P28,000,000.00 x
x x.
[Growth Link] filed [a] petition for mandamus with preliminary injunction and damages with
the trial court on February 8, 1988. In an order dated February 15, 1988, the trial court
required the [NPC] and other respondents [therein] to file their Comment and/or Answer x x
x.
At the hearing on February 24, 1988, the [NPC and other] respondents [therein] and/or
counsel failed to appear but upon motion of x x x Growth Links counsel, the latter was
allowed to present its evidence ex parte insofar as the issuance of the writ is concerned.
Thereafter, or on March 4, 1988, the court granted the issuance of the writ, subject to the
filing by petitioner of a surety bond in the amount of P2,245,821.53 x x x. However, said
order of March 4, 1988 was set aside in an order dated April 18, 1988 for the reason that
[the] x x x one who received the summons x x x [was] not authorized to receive summons
for the corporation nor the individual defendants [therein] x x x [T]he trial court acquired
jurisdiction over
431
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431
[them] only upon their voluntary appearance in court on March 18, 1988. x x x When
[Growth Link] filed the bond x x x the same was approved by the Court and the writ of
preliminary mandatory injunction was issued:
x x x directing the x x x NPC or its duly authorized representatives to honor, comply and/or
abide with the said Purchase Orders and/or Indent Orders mentioned in the petition as well
as to refrain, cease and desist from cancelling the standing accreditation of [Growth Link]
with [NPC] and allow the former to participate in any bidding or award like any other
accredited suppliers x x x.
xxx
The trial court resolved Growth Links application for preliminary mandatory injunction in an
order dated June 3, 1988 declaring, among others, that:
[T]here is pending [a] motion for reconsideration dated October 20, 1987 filed by [Growth
Link] with [NPC] x x x [which denied Growth Links] request for reconsideration without even
investigating x x x. The [NPC] condemned [Growth Link] as a blacklisted bidder and supplier
without hearing and thus deprived [it] of its rights without due process. x x x
xxx
and ordering that:
x x x [NPC], during the pendency of said motion for reconsideration and while the same is
unresolved finally by the Court, to temporarily LIFT the suspension of petitioner as duly
accredited NPC supplier, CANCEL its name from [NPCs] blacklist, and ALLOW [Growth Link]
to participate and/or submit its bid proposals at NPC biddings, upon the same bond of
P2,245,821.53 previously filed by [Growth Link] x x x.
xxx
Napocors motion for reconsideration of the aforecited order was denied on September 27,
1988.
xxx
After trial on the merits, the court a quo rendered the decision dated September 10, 1991 in
favor of petitioner Growth Link, Inc.9
__________
9 Decision of the Court of Appeals dated December 17, 1993, pp. 4-20; Rollo in G.R. No.
116000, pp. 46-62.
432
432
The trial court found the NPC guilty of gross evident bad faith in its dealings with Growth
Link as its duly accredited supplier. Consequently, it ordered the NPC and its officers and
members of the Board of Directors, to jointly and severally pay Growth Link the following
amounts:
a) P230,000.00 representing the cost of the replaced piston skirts under P.O. No. 086653
plus 12% interest thereto [sic] per annum from April 9, 1986 until fully paid;
b) P16,870.00 [which was] the amount deducted by [NPC] from [Growth Links] outstanding
collectibles, plus 12% interest thereto [sic] per annum from November 18, 1985 until fully
paid;
c) P144,000.00 for payment of items delivered under P.O. No. 095435 plus 12% interest
thereto [sic] per annum from November 13, 1986 until fully paid;
d) P27,650.00 for payment of items delivered under P.O. No. 096345 plus 12% interest
thereto [sic] per annum from April 4, 1987 until fully paid;
e) P182,070.00 for payment of items delivered under P.O. No. 096626 plus 12% interest
thereto [sic] per annum from April 4, 1987 until fully paid;
f) P176,356.00 representing unrealized commission on the cancelled Indent Order No. 08114
dated May 24, 1985 plus 12% interest thereto [sic] per annum from November, 1985 until
fully paid;
g) P1,249,745.00 representing unrealized commissions on the Foreign Inquiry Nos. F2c843/5-1027 and 1028Tr for Pielstick Engine Spares, plus 12% interest thereto [sic] per annum
from September, 1986 until fully paid;
h) P6,216,583.00 representing unrealized commission on various items bidded where
[Growth Link] was the lowest bidder but which was not awarded by NPC to it, plus 12%
interest thereto [sic] per annum from July, 1986 until fully paid;
i) P1,419,853.00 representing unpaid commission from the disregarded lowest bid of
[Growth Links] principal on NPC Foreign Inquiry Nos. FPS85-11/26-12AA, FPS85-11/26-121AA
and FPS85-11/6-005AA, plus 12% interest thereto [sic] per annum from October, 1987 until
fully paid;
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433
j) P2,000,000.00 for compensatory damage[s] suffered by petitioner due to loss of business
relationship and standing here and abroad;
k) P1,500,000.00 for moral and exemplary damages suffered by [Growth Link];
l) P30,000.00 plus 30% of the principal amount recoverable, as and for attorneys fees;
m) P40,000.00 as litigation expenses (premiums paid on the injunction bond, etc.); and
n) Costs of suit.10
Refusing to concede its solidary liability for the aforegoing amounts, the NPC, and its officers
and members of its Board of Directors appealed the trial courts decision to the Court of
Appeals and sought its reversal on the basis of the following assignment of errors:
I
THE LOWER COURT GRAVELY ERRED IN FINDING NAPOCOR GUILTY OF GROSS EVIDENT BAD
FAITH;
II
THE LOWER COURT ERRED IN APPLYING ART. 1571 OF THE CIVIL CODE;
III
THE LOWER COURT ERRED IN FINDING THAT NAPOCOR BREACHED ITS WRIT OF PRELIMINARY
INJUNCTION;
IV
THE LOWER COURT ERRED IN AWARDING THE ENTIRE AMOUNT OF DAMAGES, MORE OR
LESS, PESOS P13.2 MILLION, AS PRAYED FOR BY GROWTH LINK;
_____________
10 Decision of the Regional Trial Court dated September 10, 1991, pp. 9-10; Rollo in G.R. No.
113103, pp. 81-82.
434
434
V
THE LOWER COURT ERRED IN HOLDING NAPOCOR JOINTLY AND SEVERALLY LIABLE WITH ITS
OFFICERS.11
The respondent Court of Appeals rejected the first three assigned errors and in effect
affirmed the trial courts findings of gross evident bad faith on the part of NPC. The Court of
Appeals reasoned:
x x x We find that the trial court based its conclusions of gross evident bad faith in
Napocors dealings with [Growth Link] on the following:
1. The writ of preliminary mandatory injunction dated September 28, 1988 which directed
NPC, among other things, to refrain, cease or desist from cancelling the standing
accreditation of [Growth Link] with the [NPC] and allow the former to participate in any
bidding or award like any other accredited suppliers, was honored by NPC more in its breach
than in its compliance. NPC continued to disallow [Growth Link] to participate in any bidding.
xxx
2. The question of warranty for hidden defects or implied warranty on the quality or fitness
of the items delivered by petitioner and received by NPC could have been avoided had NPC
complied with the requirement of law x x x. NPC never filed any action against [Growth Link]
within the six months period from the delivery of the piston skirts, piston rings, and others
despite the fact that it was in possession, control, and disposition of the items x x x and
[Growth Link] could not do anything to prevent switching, damaging, and/or pilferage as the
items are in the full possession and control of NPC. Thus [Growth Link] was left at the mercy
of NPC who [sic] arbitrarily withheld payment or deducted payment from other items unless
the items which NPC concluded as defective be replaced by [Growth Link].
3. Due process was denied by NPC to [Growth Link]. NPC just received with deaf ears and
closed eyes, the several
____________
11 Decision of the Court of Appeals dated December 17, 1993, p. 20; Rollo in G.R. No.
116000, p. 62.
435
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435
letters of explanation of [Growth Link], and the latters request for reconsideration and/or
investigation was simply wastebasketed. And yet there was strong ground [for Growth
Links] request considering that the items alleged to be defective were not the same items
delivered or shipped by [Growth Links] foreign supplier direct to NPC or NPCs end-user. But
NPC condemned [Growth Link] as a blacklisted bidder and supplier without hearing and
deprived [Growth Link] of its rights without due process.
Additionally, we find the action of Napocor in requiring [Growth Link] to replace the two (2)
pielstick piston skirts x x x unjustified. x x x [T]he pielstick skirts when delivered on January
16, 1985 were inspected by the Quality Assurance Group of Napocor itself composed of
Engrs. A.C. Mangosing, Jr. and Roberto Agcaoili whose report stated that said piston skirts
were subjected to actual visual inspection and were found conforming to technical
specifications per P.O. On the basis of such findings, the piston skirts were accepted and
approved for payment and on February 25, 1985, Napocor paid Growth Link the net amount
of P227,470.00 x x x.
In the fact-finding report and verification of the delivery of the pielstick piston skirts, We
note with significance the findings of R.E. Agcaoili, Chief Engineer, Inspection/Test of
Napocor as approved by L. F. Osilla, Manager of Napocor Assurance Group Utility Operations,
that the delivered items are definitely piston skirts intended for Pielstick Diesel engine for
Gen. Santos Plant; both items (in one crate) appeared new; they were adequately provided
with protective wax coating and further preserved with pellucid plastic sheet wrappers;
closer scrutiny on the piston skirt x x x showed that there were no signs of damages and/or
unusual imperfection except for slight dents on the pheriphery [sic] of the piston pin hole
which was considered insignificant and will not in any way affect the soundness of the item.
x x x When these pielstick piston skirts arrived at the Gen. Santos Diesel Plant and
reinspected x x x the inspection report of Mr. Padilla stated that the delivered items were
second hand and with damages, hence, they were rejected by the end-user and reshipped to
Manila x x x.
During the negotiations with Napocor, Mr. Teodoro Miguel of Growth Link committed to
replace the rejected items x x x otherwise, Growth Link would be required to refund the
amount of P227,470.00. On top of that, Napocor deducted the sum of P16,870.50 from
[Growth Links] outstanding collectibles as evi436
436
denced by PNB Check No. 102690 per NPC Credit Memo No. 030910.
x x x [Growth Link] was [also] made to answer for an alleged discrepancy in the Pielstick
Engine Piston Rings for the Panay Diesel Power Plant (PDPP-Dingle) which x x x was shipped
from Japan direct to Napocor and accepted and received by the end-user on May 30, 1985
but was questioned after a year later on June 3, 1986 by Mr. Romeo Perlado, NPC VP-Visayas
Region claiming that said piston rings did not reach its normal expected life of 12,000 RH
and requested that they be replaced, otherwise, they will put on record that its supplier has
a bad supply of materials. [Growth Link] was treated similarly by Napocor with regard to x x
x (4) pieces of Right Hand Exhaust Valve Body which, upon delivery to NPCs old warehouse
at Port Area, Manila on October 13, 1986, were immediately rejected by the Quality
Assurance Group on the ground that they were manufactured by Fuji Diesel Co., Ltd., which
is not a licensee of S.E.M.T.
The above instances are in addition to the grounds mentioned by the trial court as
constitutive of the pressure imposed by Napocor upon [Growth Link]. Because of the
admission of Napocors witness, A.C. Mangosing, Jr. that he knew of instances of switching
cargoes in the Port of Manila x x x We cannot fault [Growth Link] for entertaining the idea
that there was a switching of the brand new pielsticks with old ones considering the lapse of
time between the delivery and the rejection x x x coupled with the fact that when they were
originally landed and inspected, the same were found by Napocors own engineers to be
brand new x x x. We, therefore, agree and affirm the lower courts findings that Napocors
gross evident bad faith was reflected in the aforecited actions taken against [Growth Link].
Moreover, We find no merit in Napocors contention that the trial court erred in applying Art.
1571 of the Civil Code x x x. x x x We cannot accept this argument especially considering
that the facts clearly show that the pielsticks piston skirts in question when delivered to
Napocor were inspected, accepted and certified to by Napocors representatives as brand
new and in accordance with its P.O. No. 086653. As a matter of fact, that shipment was
recommended for payment and was actually paid for by Napocor. Moreover, the
manufacturers certificate of authenticity and warranty cited by Napocor that allows a
rejected item to be returned for repair and replacement provides that the claims (of defect)
must be reported within a reasonable period from the date of delivery precisely to prevent a
substitution of the thing delivered x x x.
437
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437
On the question of the lower courts findings that the Napocor breached its writ of
preliminary injunction, another factor upon which the lower court based its finding that
Napocor committed gross evident bad faith, We only have to cite by reference that portion of
the decision appealed from x x x. Additionally, on the basis of the facts established, it can
readily be seen that Napocor virtually dragged its feet to thwart the effectivity of the writ of
preliminary mandatory injunction issued by the lower court.
But while the respondent appellate court affirmed the trial courts finding of gross evident
bad faith on the part of NPC, it reversed the trial court insofar as it found NPC liable for
amounts claimed by Growth Link to be unrealized commissions properly accruing to them
had the NPC recognized them as the lowest and most advantageous bidder under several
foreign inquiries. The Court of Appeals ruled:
An invitation to bid is not an offer which, if accepted, matures into a contract. In the
language of Article 1326 of the Civil Code, advertisements for bidders are simply invitations
to make proposals, and the advertiser is not bound to accept the highest or lowest bidder,
unless the contrary appears. The reservation in the Invitation to Bid, of the advertisers right
to reject any and all bids is one of the terms and conditions therein which the bidder has
accepted (Surigao Mineral Reservation Board vs. Cloribel, 24 SCRA 491) and such
reservation does not make it obligatory for a government agency to award its contract to the
lowest bidder (C & C Commercial Corp. vs. Menor, 120 SCRA 112).
Under the guidance of the aforecited authorities, We find no justification for the award given
by the trial court to [Growth Link] in paragraphs g, h, and i of the decision appealed
from, which supposedly represent commissions unrealized by [Growth Link] on the basis of
mere Foreign Inquiries for the reason that unlike Purchase or Indent Orders which are the
result of approved bids and, therefore, give the winning bidder a vested right to its earnings
and commissions arising therefrom, [Foreign Inquiries] as mere invitations to make offers or
proposals, do not, by itself, produce a contract that would ensure earnings and/or
commissions for the bidder. Hence, the amounts awarded by the trial court merely on the
basis
438
438
of [Growth Links] various unapproved bids are too speculative and uncertain to justify the
awards.12
As to the awards for compensatory, moral and exemplary damages, the respondent Court of
Appeals found valid basis therefor under the circumstances of these consolidated cases, but
respondent appellate court was no less struck by the enormity of the amounts awarded by
the trial court as damages. Thus it reduced the same in this wise:
x x x [W]hile we affirm the findings and conclusion of the trial court as valid basis of the
award for damages, We find the awards of P2,000,000.00 and P1,500,000.00 for
compensatory damages and for moral and exemplary damages, respectively, to be too
huge, under the circumstances of this case that calls for this courts duty to tone down
petitioners fantastic claims (Baluyot vs. Lopez, 51 O.G. No. 2, p. 784). They are, therefore,
hereby reduced to P1,000,000.00 for compensatory damages and to P500,000.00 for moral
and exemplary damages.
Likewise finding NPCs objection to the trial courts finding of solidary liability to be justified,
considering that the officers and members of the Board of Directors of NPC were sued in
their official capacities, the respondent Court of Appeals held:
Finally, We find that the lower court erred in holding the individual respondents jointly and
severally liable with Napocor. It is significant to point out that both the original Petition and
Amended Petition for Mandamus filed by [Growth Link], contain identical allegations in
identifying the individual respondents in this case, thus:
2. Respondent, NATIONAL POWER CORPORATION x x x; Respondents-Members of the NPC
Board of Directors; HON. EDGARDO B. ESPIRITU x x x is being sued in his official capacity as
Chairman of the NPC Board of Directors; HON. ERNESTO M. ABOITIZ x x x is being sued in his
official capacity as the Vice-Chairman of the NPC Board of Directors and President of the
Respondent firm; HON. JUANITO N. FERRER, HON. NESTOR M. NOGUERRA, HON. CRISPIN T.
______________
12 Id., pp. 25-26; Rollo in G.R. No. 116000, pp. 67-68.

439
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439
UBALDO and HON. DOMINGO R. VIDANES x x x are being sued in their official capacities as
Members of the NPC Board of Directors x x x; Respondent, HON. CONRADO D. DEL ROSARIO
x x x is being sued in his former official capacities as Vice-Chairman of the NPC Board and
President of Respondent firm x x x; and Respondent, MARCELINO ILAO x x x is being sued in
his official capacity as NPC Vice-President-General Counsel x x x.
xxx
While the Amended Petition added the words or respondents to its prayer that the trial
court order respondent corporation to pay the amounts claimed therein, there is no
allegation whatsoever that would justify the imposition of a joint and several liability with
(Napocor) of the individual respondents who, as officers of Napocor, were being sued in their
respective official capacities. Neither did petitioner show, much less claim, any circumstance
which would necessitate the piercing of Napocors corporate veil so as to make the
individual respondents personally liable for Napocors obligations.13
From the Decision of the Court of Appeals, both Growth Link and the NPC and its officers and
members of the Board of Directors invoke this courts review powers: Growth Link prays for
the restoration of the amounts awarded by the trial court as unrealized commissions in bids
where it was the lowest and most advantageous bidder but which were disregarded in the
face of NPCs unilateral and arbitrary blacklisting of Growth Link, for the upgrading of the
amounts granted as compensatory, moral and exemplary damages to their original amounts
as awarded by the trial court and for the reinstatement of the finding of solidary liability
among NPC and its officers and members of the Board of Directors; while NPC prays only for
the reduction of the amount granted as and by way of attorneys fees, which prayer, we
should point out, is significantly premised on the acceptance of all the other findings and
conclusions of the Court of Appeals, including its affirmance of the trial courts finding of
gross evident bad faith on the part of NPC.
____________
13 Decision of the Court of Appeals dated December 17, 1993, pp. 26-28; Rollo in G.R. No.
116000, pp. 68-70.
440
440
We find the instant consolidated petitions to be both wanting in merit.
I G.R. No. 113103
A cursory review of the above errors raised by the NPC before the Court of Appeals, shows
that the NPC never assigned the issue of the exorbitant amount awarded to Growth Link as
and by way of attorneys fees, as an error on appeal. Thus, insofar as the amount of the
attorneys fees granted by the trial court is concerned, the same must be deemed no longer
open to modification, much less, reduction, the person supposedly aggrieved thereby having
resonantly been silent on this issue in its appeal before the respondent court.
At any rate, this court, in at least two (2) occasions, has allowed an award of 20%14 to
25%15 of the total indebtedness involved in the litigation. In fact, the NPC cites these cases
in its Petition.
In this case, Growth Link prayed for and was awarded by the trial court, the amount of
P30,000.00 and 30% of the amount recoverable, as and by way of attorneys fees. While
said amount may itself be huge by ordinary standards, we believe that the same is
warranted when tested against the criteria that serve as reglementary guide for the courts
to determine the proper amount of attorneys fees due the winning party.
Thus, we agree with Growth Link when it pleads that:
We take the citations as an implied admission by [the NPC] that an award of 25% of the
obligation, is not in itself gargantuan, exorbitant and unconscionable. The matter of 5%
differential will not make it so, if we consider the complexities of the instant case, the
determination, now conclusive, that [the NPC] acted with gross and evident bad faith, in
blacklisting private respondent x x x.
_____________
14 Santiago v. Dimayuga, 3 SCRA 919.

15 Polytrade Corp. v. Blanco, 30 SCRA 187.
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441
The determination of amount of attorneys fees largely depends on the courts discretion. So
long as it has sound basis, it will not be interferred with. x x x
Here the lower court was further guided by the complex nature of this case, involving as it
did several causes of action each of which proved difficult to establish, and made more so by
petitioners sustained albeit unjustified, resistance. x x x
Thus this suit was a compelled recourse against arbitrary and capricious conduct and the
denial of the rudimentary requirements of due process.16
Anent the claim of NPC that the decision of the trial court does not contain any discussion of
the basis for the award of attorneys fees, suffice it to say that the trial court undisputedly
awarded exemplary damages, which award is itself a legal justification, under Article 220817
of the Civil Code, for the award of attorneys fees.
II G.R. No. 116000
First. Growth Link insists that the decision of the trial court should be deemed final and
executory insofar as NPCs officers and members of the Board of Directors are concerned,
because they did not appeal the trial courts decision. Growth
_____________
16 Comment of Growth Link dated September 23, 1994, pp. 5-6; Rollo in G.R. No. 113103,
pp. 91-92.
17 Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other
than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
xxx
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable claim;
xxx
(11) In any other case where the court deems it just and equitable that attorneys fees and
expenses of litigation should be recovered.
442
442
Link specifically cites the Notice of Appeal filed by the NPC to be personal only to the NPC.
This submission, however, is, in the first place, belied by the caption of the Notice of Appeal
in question, which states, NATIONAL POWER CORPORATION, ET AL., Respondents. This
same caption can be found in NPCs Motion for Reconsideration. Significantly, Growth Links
Opposition to the Motion for Reconsideration made reference to the NPC officers and
members of the Board of Directors, in its arguments. At any rate, technicalities that defeat
substantial justice are, by this courts policy, an unpreferred basis to deprive parties of their
statutory right to appeal a decision that is fatally flawed in certain respects.
In the second place, the finding of solidary liability among the NPC and its officers and
members of the Board of Directors, is patently baseless. The decision of the trial court
contains no such allegation, finding or conclusion regarding particular acts committed by
said officers and members of the Board of Directors that show them to have been
individually guilty of unmistakable malice, bad faith, or ill-motive in their personal dealings
with Growth Link. In fact, it was only in the dispositive portion of the decision of the court a
quo that solidary liability as such was first mentioned.
NPCs officers and members of the Board of Directors were sued merely as nominal parties
in their official capacities as such. They were impleaded by Growth Link not in their personal
capacities as individuals but in their official capacities as officers and members of the Board
of Directors through whom the NPC conducts business and undertakes its operations
pursuant to its avowed corporate purposes. Therefore, as a bonafide government
corporation, NPC should alone be liable for its corporate acts as duly authorized by its
officers and directors.18
______________
18 Caram, Jr. v. Court of Appeals, 151 SCRA 372 [1987]; Western Agro-Industrial Corporation,
et al. v. Rodriguez, 188 SCRA 709 [1990].
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This is so, because a corporation is invested by law with a separate personality, separate
and distinct from that of the persons composing it as well as from any other legal entity to
which it may be related. (Tan Boon Bee & Co., Inc. v. Jarencio, 163 SCRA 205 [1988] citing
Yutivo and Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio Cano
Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 [1965]). A corporation is an
artificial person and can transact its business only through its officers and agents.
Necessarily, somebody has to act for it. The separate personality of the corporation may be
disregarded, or the veil of corporate fiction pierced and the individual stockholders may be
personally liable to obligations of the corporation only when the corporation is used as a
cloak or cover for fraud or illegality, or to work an injustice, or where necessary to achieve
equity or when necessary for the protection of creditors. (Sulo ng Bayan, Inc. v. Araneta,
Inc., 72 SCRA 347 [1976] x x x).19
We repeat, there was nothing in Growth Links petition nor in the mass of evidence proffered,
before the court a quo that established the factual or legal basis to hold the officers and
members of the Board of Directors of the NPC jointly and severally liable with the NPC for
the damages suffered by Growth Link because of acts of gross evident bad faith on the part
of the NPC as a corporate entity acting through its officers and directors. The records even
bear out that every single offense taken by the NPC against Growth Link arose from a
corporate decision and was executed as a corporate act. Thus, the trial court gravely erred
in holding said officers and directors to be jointly and severally liable with the NPC for the
damages suffered by Growth Link but caused by the NPC alone as a corporate entity.
Second. Growth Link takes exception to the reduction made by the respondent Court of
Appeals of the award for compensatory, moral and exemplary damages. It submits that the
damages awarded by the lower court are not even adequate compensation for the injuries
visited upon petitioner by the precipitate and irresponsible conduct of private respondent
____________
19 Western Agro-Industrial Corporation, et al. v. Rodriguez, supra, pp. 717-718.

444
444
and that the amounts as determined by the trial court were even conservative in view of
the demonstrated incomepotential of petitioner.
We empathize with Growth Link, especially with its ownerpresident, Teodoro Miguel, whose
sincere testimony as to the irreparable damage wrought on his business and personal
reputation by NPCs act of blacklisting his company, does call for some reparation in the
form of substantial damages.
However, substantial damages do not translate into excessive damages. It is well-settled
that the award of damages as well as attorneys fees lies upon the discretion of the court in
the context of the facts and circumstances of each case,20 and this judicial discretion is
largely addressed towards tempering any tendency to award excessive damages so much so
that it stands vulnerable to and actually magnetizes, attacks as to its being a result of
passion, prejudice or corruption.
Two million pesos (P2,000,000.00) as compensatory damages and one and a half-million
pesos (P1,500,000.00) as moral and exemplary damages, are too much. While NPC may be
accountable for lost profits that Growth Link may have gained from its dealings with the NPC
itself, NPC cannot be made to bear the burden of answering for what other profits that
Growth Link may have earned from other contracts with other companies. NPC may have
accredited Growth Link as a supplier, but it did not thereby become Growth Links insurer for
all and any profitable contracts that Growth Link may obtain. Thus, we find the reduction of
the awards of damages by the respondent Court of Appeals, to be warranted under the facts
and circumstances of the instant case.
Third. Growth Link contests the deletion by the respondent Court of Appeals of the awards
made by the trial court for unrealized commissions from bids disregarded by the NPC albeit
Growth Link was the lowest and most advantageous bidder, on the ground that the said
amount were too speculative and uncertain. Growth Link cites two (2) reasons: first, that
the NPC admitted its liability for such unrealized com______________
20 Magbanua v. Intermediate Appellate Court, 137 SCRA 328.

445
VOL. 273, JUNE 13, 1997

445
missions in its Answer; and second, that the basis for the unrealized commissions was not
necessarily contract but quasi-delict.
We disagree.
Growth Link insists that because the NPC allegedly, in its Answer, failed to deny the claims
for unrealized commissions as laid out in Growth Links petition, it had, in effect, admitted
the existence and merit of such claims. Growth Link apparently relied on the general rule
that non-denial of allegations in the complaint results in admissions thereof. This rule,
however, is, just like any other rule, not absolute and correspondingly admits of exceptions.
x x x [I]n spite of the presence of judicial admissions in a partys pleading, the trial court is
still given leeway to consider other evidence presented. This rule should apply with more
reason when the parties had agreed to submit an issue for resolution of the trial court on the
basis of the evidence presented.21
Statements made in an Answer are merely statements of fact which the party filing it
expects to prove, but they are not evidence. With more reason, statements made in the
complaint, or in this case, in the Petition for Mandamus with Preliminary Mandatory
Injunction and Damages, which are not directly refuted in the Answer, are deemed
admissions but neither are they evidence that will prevail over documentary proofs.
Assuming arguendo that the NPC did not deny the claims for unrealized commissions as
alleged by Growth Link in its mandamus petition with damages, and that consequently these
claims have been transmuted into judicial admissions, these admissions cannot still prevail
over the rules and regulations governing the bidding for NPC contracts, which necessarily
and inherently include the reservation by the NPC of its right to reject any or all bids. By its
own assertion, Growth Link has been a regular bidder for NPC contracts. It cannot
______________
21 Florentino Atillo III v. Court of Appeals, Amancor, Inc. and Michell Lhuillier, G.R. No.
119053, January 23, 1997.
446
446
deny, much less pretend ignorance of, the reserved discretion of the NPC to accept or reject
any bid. Neither could Growth Link have forgotten the well-settled rule that this discretion is
of such wide latitude that the courts will not generally interfere with the exercise thereof by
the government, unless it is apparent that it is used as a shield to a fraudulent award22 or
an unfairness or injustice is clearly shown.23
We thus quote, with approval, the following postulations of the Solicitor General, in behalf of
the NPC:
Clearly, it is not NAPOCORs ministerial duty to make an automatic award to [Growth Link]
even if it was the lowest bidder. As aforesaid, NAPOCOR reserved the right to reject the bid
of any bidder. Thus, [Growth Link] has no cause of action x x x x x x. Mandamus will not lie
to compel the acceptance of the bid of an unsuccessful bidder (Borromeo vs. City of Manila,
et al., 62 Phil. 512 [1935]).
By participating in the public bidding, after NAPOCOR was ordered to cease from cancelling
[Growth Links] accreditation and to allow the latter to participate in any bidding, [Growth
Link] submitted itself to the conditions laid down by NAPOCOR, among which is the
reservation of its right to reject any and all bids to be made therein. x x x
Furthermore, Sec. 393 of the National Accounting and Auditing Manual provides:
Sec. 393. Reservation of rights to reject any or all bids.The contract will be awarded to the
contractor whose proposal appears to be the most advantageous to the Government, but
the right shall be reserved to reject any or all bids, to waive any informality in the bids
received, and to accept or reject any items of any bid unless such bid is qualified by specific
limitations; also to disregard the bid of any failing bidder, known as such to the agency head
or director, or any bid which is obviously unbalanced or below what the work can be done
for. The right shall also be reserved to reject the bid of a bidder who has previously failed to
perform properly or complete on
____________
22 Jalandoni v. NARRA, et al., 108 Phil. 486.

23 Bureau Veritas v. Office of the President, 205 SCRA 705, citing A.C. Esguerra and Sons v.
Aytona, et al., 4 SCRA 1245.
447
VOL. 273, JUNE 13, 1997

447
time contracts of a similar nature, or a bid of a bidder who is not in a position to perform the
contract. x x x
In fine, NAPOCOR has the right to reject any and all bids, not only of [Growth Link] but of all
other bidders, as well, if warranted.24
And then there is Growth Links submission that its claims for unrealized commissions are
made proceeding not from facts founded on contract but from facts establishing NPCs
culpability under quasi-delict.
We, however, find no allegation in Growth Links petition, no factual finding in the decision of
the trial court and no error assigned before the Court of Appeals, as to anything about NPCs
liability for unrealized commissions based on quasi-delict. We are hardly surprised, however,
by this change of theory at this belated stage of the proceedings, because Growth Link
indeed has no perfected contract whatsoever to show in order to prove that its claims for
unrealized commissions are anything more than an attempt to collect on mere proposal-bids
that may have been the lowest and most advantageous in their class but nonetheless
remain subject to the explicit reservation by the NPC of its prerogative to reject any or all
bids.
All told, we find the Decision of the Court of Appeals in CA-G.R. SP No. 26898 to have been
rendered in accordance with the applicable law and jurisprudence.
WHEREFORE, the instant consolidated petitions are HEREBY DISMISSED for lack of merit.
No pronouncement as to costs.
SO ORDERED.
Bellosillo, Vitug and Kapunan, JJ., concur.
Padilla (Chairman), J., On leave.
____________
24 Comment of the Solicitor General dated December 6, 1994, pp. 39-40; Rollo in G.R. No.
116000, pp. 136-137.
448
448
Consolidated petitions dismissed.
Notes.View that Section 5 mandates that BOT or BT contract should be awarded to the
lowest complying bidder, which means that there must at least be two (2) bidders. (Tatad
vs. Garcia, Jr., 243 SCRA 436 [1995])
View that Republic Act No. 6957 made no mention of negotiated contracts being permitted
to displace the requirement of public bidding. (Ibid.)
View that public bidding is the method by which a government keeps contractors honest and
is able to assure itself that it would be getting the best possible value for its money in any
construction or similar project. (Ibid.)
o0o
[National Power Corporation vs. Court of Appeals, 273 SCRA 419(1997)]
VOL.189, SEPTEMBER13, 1990

529
Umali vs. Court of Appeals
G.R. No. 89561. September 13, 1990.*
BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M. CASTILLO, BERTILLA C.
RADA, MARIETTA C. ABAEZ, LEOVINA C. JALBUENA and SANTIAGO M. RIVERA, petitioners,
vs. COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS
MANUFACTURING CO., INC., respondents.
Courts; Rule that findings of fact of appellate court, final and conclusive.At the outset, it
will be noted that petitioners submission under the first assigned error hinges purely on
questions of fact. Respondent Court of Appeals made several findings to the effect that the
questioned documents are valid and binding upon the parties, that there was no fraud
employed by private respondents in the execution thereof, and that, contrary to petitioners
allegation, the evidence on record reveals that petitioners had every intention to be bound
by their undertakings in the various transactions had with private respondents. It is a
general rule in this jurisdiction that findings of fact of said appellate court are final and
conclusive and, thus, binding on this Court in the absence of sufficient and convincing
proof,inter alia, that the former acted with grave abuse of discretion. Under the
circumstances, we find no compelling reason to deviate from this long-standing
jurisprudential pronouncement.
Same; Civil Law; Contracts; Absolute simulation renders the contract null and void, when the
parties do not intend to be bound by the same.There is absolute simulation, which renders
the contract null and void, when the parties do not intend to be bound at all by the same.
The basic characteristic of this type of simulation of contract is
________________
* SECOND DIVISION.
530
530
the fact that the apparent contract is not really desired or intended to either produce legal
effects or in any way alter the juridical situation of the parties. The subsequent act of Rivera
in receiving and making use of the tractor subject matter of the Sales Agreement and
Chattel Mortgage, and the simultaneous issuance of a surety bond in favor of Bormaheco,
concomitant with the execution of the Agreement of Counter-Guaranty with Chattel/Real
Estate Mortgage, conduce to the conclusion that petitioners had every intention to be bound
by these contracts. The occurrence of these series of transactions between petitioners and
private respondents is a strong indication that the parties actually intended, or at least
expected, to exact fulfillment of their respective obligations from one another.
Same; Same; To set aside a document solemnly executed, proof of fraud must be clear.
Neither will an allegation of fraud prosper in this case where petitioners failed to show that
they were induced to enter into a contract through the insidious words and machinations of
private respondents without which the former would not have executed such contract. To set
aside a document solemnly executed and voluntarily delivered, the proof of fraud must be
clear and convincing. We are not persuaded that such quantum of proof exists in the case at
bar.
Same; Same; Same; Corporation; Piercing the veil of corporate entities, not proper remedy
when the corporation employed fraud in the foreclosure proceedings.Under the doctrine of
piercing the veil of corporate entity, when valid grounds therefore exist, the legal fiction that
a corporation is an entity with a juridical personality separate and distinct from its members
or stockholders may be disregarded. In such cases, the corporation will be considered as a
mere association of persons. The members or stockholders of the corporation will be
considered as the corporation that is, liability will attach directly to the officers and
stockholders. The doctrine applies when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to
confuse the legitimate issues, or where a corporation is the 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. In the case at bar, petitioners seek to pierce the veil of corporate entity
of Bormaheco, ICP and PM Parts, alleging that these corporations employed fraud in causing
the foreclosure and subsequent sale of the real properties belonging to petitioners. While we
do not discount the possibility of the existence of fraud in the foreclosure proceedings,
neither
531

531
are we inclined to apply the doctrine invoked by petitioners in granting the relief sought. It is
our considered opinion that piercing the veil of corporate entity is not the proper remedy in
order that the foreclosure proceeding may be declared a nullity under the circumstances
obtaining in the case at bar.
Same; Same; Same; Same; Surety; Extent of suretys liability, determined only by the clause
of the contract of suretyship.It is basic that liability on a bond is contractual in nature and
is ordinarily restricted to the obligation expressly assumed therein. We have repeatedly held
that the extent of a suretys liability is determined only by the clause of the contract of
suretyship as well as the conditions stated in the bond. It cannot be extended by implication
beyond the terms of the contract. Fundamental likewise is the rule that, except where
required by the provisions of the contract, a demand or notice of default is not required to fix
the suretys liability. Hence, where the contract of suretyship stipulates that notice of the
principals default be given to the surety, generally the failure to comply with the condition
will prevent recovery from the surety. There are certain instances, however, when failure to
comply with the condition will not extinguish the suretys liability, such as a failure to give
notice of slight defaults, which are waived by the obligee; or on mere suspicion of possible
default; or where, if a default exists, there is excuse or provision in the suretyship contract
exempting the surety for liability therefor, or where the surety already has knowledge or is
chargeable with knowledge of the default.
PETITION to review the decision of the Court of Appeals.

Edmundo T. Zepeda for petitioners.
Martin M. De Guzman for respondent BORMAHECO, Inc.
Renato J. Robles for P.M. Parts Manufacturing Co., Inc.
REGALADO, J.:
This is a petition to review the decision of respondent Court of Appeals, dated August 3,
1989, in CA-GR CV No. 15412, entitled Buenaflor M. Castillo Umali, et al. vs. Philippine
Machinery Parts Manufacturing Co., Inc., et al.,1 the dispositive
_______________
1 Associate Justice Bienvenido C. Ejercito, ponente; Associate Jus

532
532
portion whereof provides:
WHEREFORE, viewed in the light of the entire record, the judgment appealed from must be,
as it is hereby REVERSED. In lieu thereof, a judgment is hereby rendered
1) Dismissing the complaint, with costs against plaintiffs;
2) Ordering plaintiffs-appellees to vacate the subject properties; and
3) Ordering plaintiffs-appellees to pay upon defendants counterclaims:
a) To defendant-appellant PM Parts: (i) damages consisting of the value of the fruits in the
subject parcels of land of which they were deprived in the sum of P26,000.00 and (ii)
attorneys fees of P15,000.00
b) To defendant-appellant Bormaheco: (i) expenses of litigation in the amount of P5,000.00
and (ii) attorneys fees of P15,000.00.
SO ORDERED.
The original complaint for annulment of title filed in the court a quo by herein petitioners
included as party defendants the Philippine Machinery Parts Manufacturing Co., Inc. (PM
Parts), Insurance Corporation of the Philippines (ICP), Bormaheco, Inc., (Bormaheco) and
Santiago M. Rivera (Rivera). A Second Amended Complaint was filed, this time impleading
Santiago M. Rivera as party plaintiff.
During the pre-trial conference, the parties entered into the following stipulation of facts:
As between all parties:
a) Plaintiff Buenaflor M. Castillo is the judicial administratrix of the estate of Felipe Castillo in
Special Proceeding No. 4053, pending before Branch IX, CFI of Quezon (per Exhibit A) which
intestate proceedings was instituted by Mauricia Meer Vda. de Castillo, the previous
administratrix of the said proceedings prior to 1970 (per exhibits A-1 and A-2) which case
was filed in Court way back in 1964;
b) The four (4) parcels of land described in paragraph 3 of the
_______________
tices Felipe B. Kalalo and Luis L. Victor, concurring; Petition, Annex B; Rollo, 60-74.
533
VOL.189, SEPTEMBER13, 1990

533
Complaint were originally covered by TCT No. T-42104 and Tax Dec. No. 14134 with assessed
value of P3,100.00; TCT No. T-32227 and Tax Dec. No. 14132, with assessed value of
P5,130,00; TCT No. T-31752 and Tax Dec. No. 14135, with assessed value of P6,150.00; and
TCT No. T-42103 with Tax Dec. No. 14133, with assessed value of P3,580.00 (per Exhibits A-2
and B, B-1 to B-3, C, C-1 to C-3);
c) That the above-enumerated four (4) parcels of land were the subject of the Deed of ExtraJudicial Partition executed by the heirs of Felipe Castillo (per Exhibit D) and by virtue thereof
the titles thereto has (sic) been cancelled and in lieu thereof, new titles in the name of
Mauricia Meer Vda. de Castillo and of her children, namely: Buenaflor, Bertilla, Victoria,
Marietta and Leovina, all surnamed Castillo has (sic) been issued, namely: TCT No. T-12113
(Exhibit E); TCT No. T-13113 (Exhibit F); TCT No. T-13116 (Exhibit G); and TCT No. T-13117
(Exhibit H);
d) That mentioned parcels of land were submitted as guaranty in the Agreement of CounterGuaranty with Chattel/Real Estate Mortgage executed on 24 October 1970 between
Insurance Corporation of the Philippines and Slobec Realty Corporation represented by
Santiago Rivera (Exhibit I);
e) That based on the Certificate of Sale issued by the Sheriff of the Province of Quezon in
favor of Insurance Corporation of the Philippines it was able to transfer to itself the titles
over the lots in question, namely: TCT No. T-23705 (Exhibit M), TCT No. T-23706 (Exhibit N),
TCT No. T-23707 (Exhibit O) and TCT No. T-23708 (Exhibit P);
f) That on 10 April 1975, the Insurance Corporation of the Philippines sold to PM Parts the
immovables in question (per Exhibit 6 for PM Parts) and by reason thereof, succeeded in
transferring unto itself the titles over the lots in dispute, namely: per TCT No. T-24846
(Exhibit Q), per TCT No. T-24847 (Exhibit R), TCT No. T-24848 (Exhibit), TCT No. T-24849
(Exhibit T);
g) On 26 August 1976, Mauricia Meer Vda. de Castillo sent her letter to Modesto N.
Cervantes stating that she and her children refused to comply with his demands (Exhibit V2);
h) That from at least the months of October, November and December 1970 and January
1971, Modesto N. Cervantes was the Vice-President of Bormaheco, Inc. later President
thereof, and also he is one of the Board of Directors of PM Parts; on the other hand, Atty.
Martin M. De Guzman was the legal counsel of Bormaheco, Inc., later Executive VicePresident thereof, and who also is the legal counsel of Insurance Corporation of the
Philippines and PM Parts; that Modesto N. Cervantes served later on as President of PM Parts,
and that Atty. de Guzman was retained by Insurance Corporation of the Philippines
specifically for foreclosure purposes only;
534
534
i) Defendant Bormaheco, Inc. on November 25, 1970 sold to Slobec Realty and
Development, Inc., represented by Santiago Rivera, President, one (1) unit Caterpillar Tractor
D-7 with Serial No. 281114 evidenced by a contract marked Exhibit J and Exhibit I for Bormaheco, Inc.;
j) That the Surety Bond No. 14010 issued by co-defendant ICP was likewise secured by an
Agreement with Counter-Guaranty with Real Estate Mortgage executed by Slobec Realty &
Development, Inc., Mauricia Castillo Meer, Buenaflor Castillo, Bertilla Castillo, Victoria
Castillo, Marietta Castillo and Leovina Castillo, as mortgagors in favor of ICP which document
was executed and ratified before notary public Alberto R. Navoa of the City of Manila on
October 24, 1970;
k) That the property mortgaged consisted of four (4) parcels of land situated in Lucena City
and covered by TCT Nos. T-13114, T-13115, T-13116 and T-13117 of the Register of Deeds of
Lucena City;
l) That the tractor sold by defendant Bormaheco, Inc. to Slobec Realty & Development, Inc.
was delivered to Bormaheco, Inc. on or about October 2, 1973, by Mr. Menandro Umali for
purposes of repair;
m) That in August 1976, PM Parts notified Mrs. Mauricia Meer about its ownership and the
assignment of Mr. Petronilo Roque as caretaker of the subject property;
n) That plaintiff and other heirs are harvesting fruits of the property (daranghita) which is
worth no less than P1,000.00 per harvest.
As between plaintiffs and
defendant Bormaheco, Inc.:
o) That on 25 November 1970, at Makati, Rizal, Santiago Ri-vera, in representation of the

Slobec Realty & Development Corporation executed in favor of Bormaheco, Inc., represented
by its Vice-President Modesto N. Cervantes a Chattel Mortgage concerning one unit model
CAT D-7 Caterpillar Crawler Tractor as described therein as security for the payment in favor
of the mortgagee of the amount of P180,000.00 (per Exhibit K); that said document was
superseded by another chattel mortgage dated January 23, 1971 (Exhibit 15);
p) On 18 December 1970, at Makati, Rizal, the Bormaheco, Inc., represented by its VicePresident Modesto Cervantes and Slobec Re-alty Corporation represented by Santiago Rivera
executed the sales agreement concerning the sale of one (1) unit Model CAT D-7 Caterpil-lar
Crawler Tractor as described therein for the amount of P230,000.00 (per Exhibit J) which
document was superseded by the Sales Agreement dated January 23, 1971 (Exhibit 16);
q) Although it appears on the document entitled Chattel Mort535
VOL.189, SEPTEMBER 13, 1990
535
gage (per Exhibit K) that it was executed on 25 November 1970, and in the document
entitled Sales Agreement (per Exhibit J) that it was executed on 18 December 1970, it
appears in the notarial register of the notary public who notarized them that those two
documents were executed on 11 December 1970. The certified xerox copy of the notarial
register of Notary Public Guillermo Aragones issued by the Bureau of Records Management is
hereto submitted as Exhibit BB. That said chattel mortgage was superseded by another
document dated January 23, 1971;
r) That on 23 January 1971, Slobec Realty Development Corporation, represented by
Santiago Rivera, received from Bormaheco, Inc. one (1) tractor Caterpillar Model D-7
pursuant to Invoice No. 33234 (Exhibits 9 and 9-A, Bormaheco, Inc.) and delivery receipt No.
10368 (per Exhibits 10 and 10-A for Bormaheco, Inc.);
s) That on 28 September 1973, Atty. Martin M. de Guzman, as counsel of Insurance
Corporation of the Philippines purchased at public auction for said corporation the four (4)
parcels of land subject of this case (per Exhibit L), and which document was presented to the
Register of Deeds on 1 October 1973;
t) Although it appears that the realties in issue has (sic) been sold by Insurance Corporation
of the Philippines in favor of PM Parts on 10 April 1975, Modesto N. Cervantes, formerly VicePresident and now President of Bormaheco, Inc., sent his letter dated 9 August 1976 to
Mauricia Meer Vda. de Castillo (Exhibit V), demanding that she and her children should
vacate the premises;
u) That the Caterpillar Crawler Tractor Model CAT D-7 which was received by Slobec Realty
Development Corporation was actually reconditioned and repainted.2
We cull the following antecedents from the decision of respondent Court of Appeals:
Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de Castillo. The
Castillo family are the owners of a parcel of land located in Lucena City which was given as
security for a loan from the Development Bank of the Philippines. For their failure to pay the
amortization, foreclosure of the said property was about to be initiated. This problem was
made known to Santiago Rivera, who proposed to them the conversion into subdivision of
the four (4) parcels of land adjacent to the mortgaged property to raise the necessary fund.
_______________
2 Rollo, 45-49.
536
536
The idea was accepted by the Castillo family and to carry out the project, a Memorandum of
Agreement (Exh. U, p. 127, Record) was executed by and between Slobec Realty and
Development, Inc., represented by its President Santiago Rivera and the Castillo family. In
this agreement, Santiago Rivera obliged himself to pay the Castillo family the sum of
P70,000.00 immediately after the execution of the agreement and to pay the additional
amount of P400,000.00 after the property has been converted into a subdivision. Rivera,
armed with the agreement, Exhibit U, approached Mr. Modesto Cervantes, President of
defendant Bormaheco, and proposed to purchase from Bormaheco two (2) tractors Model D7 and D-8. Subsequently, a Sales Agreement was executed on December 28, 1970 (Exh. J, p.
22, Record).
On January 23, 1971, Bormaheco, Inc. and Slobec Realty and Development, Inc.,
represented by its President, Santiago Rivera, executed a Sales Agreement over one unit of
Caterpillar Tractor D-7 with Serial No. 281114, as evidenced by the contract marked Exhibit
16. As shown by the contract, the price was P230,000.00 of which P50,000.00 was to
constitute a down payment, and the balance of P180,000.00 payable in eighteen monthly
installments. On the same date, Slobec, through Rivera, executed in favor of Bormaheco a
Chattel Mortgage (Exh. K, p. 29, Record) over the said equipment as security for the
payment of the aforesaid balance of P180,000.00. As further security of the aforementioned
unpaid balance, Slobec obtained from Insurance Corporation of the Phil. a Surety Bond, with
ICP (Insurance Corporation of the Phil.) as surety and Slobec as principal, in favor of
Bormaheco, as borne out by Exhibit 8 (p. 111, Record). The aforesaid surety bond was in
turn secured by an Agreement of Counter-Guaranty with Real Estate Mortgage (Exhibit I, p.
24, Record) executed by Rivera as president of Slobec and Mauricia Meer Vda. de Castillo,
Buenaflor Castillo Umali, Bertilla Castillo-Rada, Victoria Castillo, Marietta Castillo and Leovina
Castillo Jalbuena, as mortgagors and Insurance Corporation of the Philippines (ICP) as
mortgagee. In this agreement, ICP guaranteed the obligation of Slobec with Bormaheco in
the amount of P180,000.00. In giving the bond, ICP required that the Castillos mortgage to
them the properties in question, namely, four parcels of land covered by TCTs in the name of
the aforementioned mortgagors, namely TCT Nos. 13114, 13115, 13116 and 13117 all of the
Register of Deeds for Lucena City.
On the occasion of the execution on January 23, 1971, of the Sales Agreement Exhibit 16,
Slobec, represented by Rivera received from Bormaheco the subject matter of the said Sales
Agreement, namely, the aforementioned tractor Caterpillar Model D-7, as evidenced by
Invoice No. 33234 (Exhs. 9 and 9-A, p. 112, Record) and Delivery Receipt No. 10368 (Exhs.
10 and 10-A, p. 113). This tractor
537

537
was known by Rivera to be a reconditioned and repainted one [Stipulation of Facts, Pre-trial
Order, par. (u)].
Meanwhile, for violation of the terms and conditions of the Counter-Guaranty Agreement
(Exh. I), the properties of the Castillos were foreclosed by ICP. As the highest bidder with a
bid of P285,212.00, a Certificate of Sale was issued by the Provincial Sheriff of Lucena City
and Transfer Certificates of Title over the subject parcels of land were issued by the Register
of Deeds of Lucena City in favor of ICP, namely, TCT Nos. T-23705, T-23706, T-23707 and T23708 (Exhs. M to P, pp. 38-45). The mortgagors had one (1) year from the date of the
registration of the certificate of sale, that is, until October 1, 1974, to redeem the property,
but they failed to do so. Consequently, ICP consolidated its ownership over the subject
parcels of land through the requisite affidavit of consolidation of ownership dated October
29, 1974, as shown in Exh. 22 (p. 138, Rec.). Pursuant thereto, a Deed of Sale of Real
Estate covering the subject properties was issued in favor of ICP (Exh. 23, p. 139, Rec.).
On April 10, 1975, Insurance Corporation of the Phil. (ICP) sold to Phil. Machinery Parts
Manufacturing Co. (PM Parts) the four (4) parcels of land and by virtue of said conveyance,
PM Parts transferred unto itself the titles over the lots in dispute so that said parcels of land
are now covered by TCT Nos. T-24846, T-24847, T-24848 and T-24849 (Exhs. Q-T, pp. 46-49,
Rec.).
Thereafter, PM Parts, through its President, Mr. Modesto Cervantes, sent a letter dated
August 9, 1976 addressed to plaintiff Mrs. Mauricia Meer Castillo requesting her and her
children to vacate the subject property, who (Mrs. Castillo) in turn sent her reply expressing
her refusal to comply with his demands.
On September 29, 1976, the heirs of the late Felipe Castillo, particularly plaintiff Buenaflor
M. Castillo Umali as the appointed administratrix of the properties in question filed an action
for annulment of title before the then Court of First Instance of Quezon and docketed thereat
as Civil Case No. 8085. Thereafter, they filed an Amended Complaint on January 10, 1980 (p.
444, Record). On July 20, 1983, plaintiffs filed their Second Amended Complaint, impleading
Santiago M. Rivera as a party plaintiff (p. 706, Record). They contended that all the
aforementioned transactions starting with the Agreement of Counter-Guaranty with Real
Estate Mortgage (Exh. I), Certificate of Sale (Exh. L) and the Deeds of Authority to Sell, Sale
and the Affidavit of Consolidation of Ownership (Annexes F, G, H, I) as well as the Deed of
Sale (Annexes J, K, L and M) are void for being entered into in fraud and without the consent
and approval of the Court of First Instance of Quezon, (Branch IX) before whom the
administration proceedings has been pending. Plaintiffs pray that the
538
538
four (4) parcels of land subject hereof be declared as owned by the estate of the late Felipe
Castillo and that all Transfer Certificates of Title Nos. 13114, 13115, 13116, 13117, 23705,
23706, 23707, 23708, 24846, 24847, 24848 and 24849 as well as those appearing as
encumbrances at the back of the certificates of title mentioned be declared as a nullity and
defendants to pay damages and attorneys fees (pp. 710-711, Record).
In their amended answer, the defendants controverted the complaint and alleged, by way
of affirmative and special defenses that the complaint did not state facts sufficient to state a
cause of action against defendants; that plaintiffs are not entitled to the reliefs demanded;
that plaintiffs are estopped or precluded from asserting the matters set forth in the
Complaint; that plaintiffs are guilty of laches in not asserting their alleged right in due time;
that defendant PM Parts is an innocent purchaser for value and relied on the face of the title
before it bought the subject property (p. 744, Record).3
After trial, the court a quo rendered judgment, with the following decretal portion:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants, declaring the following documents:
Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage dated October 24, 1970
(Exhibit I);
Sales Agreement dated December 28, 1970 (Exhibit J);
Chattel Mortgage dated November 25, 1970 (Exhibit K);
Sales Agreement dated January 23, 1971 (Exhibit 16);
Chattel Mortgage dated January 23, 1971 (Exhibit 17);
Certificate of Sale dated September 28, 1973 executed by the Provincial Sheriff of Quezon in
favor of Insurance Corporation of the Philippines (Exhibit L);
null and void for being fictitious, spurious and without consideration. Consequently, Transfer
Certificates of Title Nos. T-23705, T-23706, T-23707 and T-23708 (Exhibits M, N, O and P)
issued in the name of Insurance Corporation of the Philippines, are likewise null and void.
The sale by Insurance Corporation of the Philippines in favor of defendant Philippine
Machinery Parts Manufacturing Co., Inc., over said four (4) parcels of land and Transfer
Certificates of Title Nos. T_______________
3 Ibid., 61-64.
539

539
24846, T-24847, T-24848 and T-24849 subsequently issued by virtue of said sale in the name
of Philippine Machinery Parts Manufacturing Co., Inc., are similarly declared null and void,
and the Register of Deeds of Lucena City is hereby directed to issue, in lieu thereof, transfer
certificates of title in the names of the plaintiffs, except Santiago Rivera.
Orders the defendants jointly and severally to pay the plaintiffs moral damages in the sum
of P10,000.00, examplary damages in the amount of P5,000.00, and actual litigation
expenses in the sum of P6,500.00.
Defendants are likewise ordered to pay the plaintiffs, jointly and severally, the sum of
P10,000.00 for and as attorneys fees. With costs against the defendants.
SO ORDERED.4
As earlier stated, respondent court reversed the aforequoted decision of the trial court and
rendered the judgment subject of this petition.
Petitioners contend that respondent Court of Appeals erred:
1. In holding and finding that the transactions entered into between petitioner Rivera with
Cervantes are all fair and regular and therefore binding between the parties thereto;
2. In reversing the decision of the lower court, not only based on erroneous conclusions of
facts, erroneous presumptions not supported by the evidence on record, but also, holding
valid and binding the supposed payment by ICP of its obligation to Bormaheco, despite the
fact that the surety bond it issued had already expired when it opted to foreclose
extrajudicially the mortgage executed by the petitioners;
3. In setting aside the finding of the lower court that there was necessity to pierce the veil of
corporate existence; and
4. In reversing the decision of the lower court instead of affirming the same.5
I. Petitioners aver that the transactions entered into between Santiago M. Rivera, as
President of Slobec Realty and Development Company (Slobec) and Modesto Cervantes, as
Vice-President of Bormaheco, such as the Sales Agreement,6
_______________
4 Ibid., 58-59.
5 Ibid., 14.
6 Exh. 15-Bormaheco; Original Record, 481.
540
540
Chattel Mortgage7 and the Agreement of Counter-Guaranty with Chattel/Real Estate
Mortgage,8 are all fraudulent and simulated and should, therefore, be declared null and
void. Such allegation is premised primarily on the fact that contrary to the stipulations
agreed upon in the Sales Agreement (Exhibit J), Rivera never made any advance payment, in
the alleged amount of P50,000.00, to Bormaheco; that the tractor was received by Rivera
only on January 23, 1971 and not in 1970 as stated in the Chattel Mortgage (Exhibit K); and
that when the Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage was
executed on October 24, 1970, to secure the obligation of ICP under its surety bond, the
Sales Agreement and Chattel Mortgage had not as yet been executed, aside from the fact
that it was Bormaheco, and not Rivera, which paid the premium for the surety bond issued
by ICP.
At the outset, it will be noted that petitioners submission under the first assigned error
hinges purely on questions of fact. Respondent Court of Appeals made several findings to
the effect that the questioned documents are valid and binding upon the parties, that there
was no fraud employed by private respondents in the execution thereof, and that, contrary
to petitioners allegation, the evidence on record reveals that petitioners had every intention
to be bound by their undertakings in the various transactions had with private respondents.
It is a general rule in this jurisdiction that findings of fact of said appellate court are final and
conclusive and, thus, binding on this Court in the absence of sufficient and convincing proof,
interalia, that the former acted with grave abuse of discretion. Under the circumstances, we
find no compelling reason to deviate from this long-standing jurisprudential pronouncement.
In addition, the alleged failure of Rivera to pay the consideration agreed upon in the Sales
Agreement, which clearly constitutes a breach of the contract, cannot be availed of by the
guilty party to justify and support an action for the declaration of nullity of the contract.
Equity and fair play dictates that one who commits a breach of his contract may not seek
refuge under
_______________
7 Exh. 16 - Bormaheco; ibid., 482.

8 Exh. I; Folder of Exhibits, 24.
541

541
the protective mantle of the law.
The evidence of record, on an overall calibration, does not convince us of the validity of
petitioners contention that the contracts entered into by the parties are either absolutely
simulated or downright fraudulent.
There is absolute simulation, which renders the contract null and void, when the parties do
not intend to be bound at all by the same.9 The basic characteristic of this type of
simulation of contract is the fact that the apparent contract is not really desired or intended
to either produce legal effects or in any way alter the juridical situation of the parties. The
subsequent act of Rivera in receiving and making use of the tractor subject matter of the
Sales Agreement and Chattel Mortgage, and the simultaneous issuance of a surety bond in
favor of Bormaheco, concomitant with the execution of the Agreement of Counter-Guaranty
with Chattel/Real Estate Mortgage, conduce to the conclusion that petitioners had every
intention to be bound by these contracts. The occurrence of these series of transactions
between petitioners and private respondents is a strong indication that the parties actually
intended, or at least expected, to exact fulfillment of their respective obligations from one
another.
Neither will an allegation of fraud prosper in this case where petitioners failed to show that
they were induced to enter into a contract through the insidious words and machinations of
private respondents without which the former would not have executed such contract. To set
aside a document solemnly executed and voluntarily delivered, the proof of fraud must be
clear and convincing.10 We are not persuaded that such quantum of proof exists in the case
at bar.
The fact that it was Bormaheco which paid the premium for the surety bond issued by ICP
does not perse affect the validity of the bond. Petitioners themselves admit in their present
petition that Rivera executed a Deed of Sale with Right of Repurchase of his car in favor of
Bormaheco and agreed that a part of the proceeds thereof shall be used to pay the premium
_______________
9 Arts. 1345 and 1346, Civil Code.

10 Arroyo, etc. vs. Granada, et al., 18 Phil. 484 (1911).
542
542
for the bond.11 In effect, Bormaheco accepted the payment of the premium as an agent of
ICP. The execution of the deed of sale with a right of repurchase in favor of Bormaheco under
such circumstances sufficiently establishes the fact that Rivera recognized Bormaheco as an
agent of ICP. Such payment to the agent of ICP is, therefore, binding on Rivera. He is now
estopped from questioning the validity of the suretyship contract.
II. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore
exist, the legal fiction that a corporation is an entity with a juridical personality separate and
distinct from its members or stockholders may be disregarded. In such cases, the
corporation will be considered as a mere association of persons. The members or
stockholders of the corporation will be considered as the corporation, that is, liability will
attach directly to the officers and stockholders.12 The doctrine applies when the corporate
fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime,13
or when it is made as a shield to confuse the legitimate issues,14 or where a corporation is
the mere alterego 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.15
In the case at bar, petitioners seek to pierce the veil of corporate entity of Bormaheco, ICP
and PM Parts, alleging that these corporations employed fraud in causing the foreclosure
and subsequent sale of the real properties belonging to petitioners. While we do not
discount the possibility of the existence of fraud in the foreclosure proceedings, neither are
we inclined to apply the doctrine invoked by petitioners in granting the relief sought. It is our
considered opinion that piercing the veil of corporate entity is not the proper remedy in
order that the
_______________
11 Rollo, 17.
12 Agbayani, Commercial Laws of the Philippines, Vol. 3, 1988 Ed., 18.
13 Koppel (Philippines), Inc. vs. Yatco, etc., 77 Phil. 496 (1946).
14 Telephone Engineering & Service Co., Inc. vs. Workmens Compensation Commission, et
al., 104 SCRA 354 (1981).
15 Koppel (Philippines), Inc. vs. Yatco, etc., ante.
543

543
foreclosure proceeding may be declared a nullity under the circumstances obtaining in the
case at bar.
In the first place, the legal corporate entity is disregarded only if it is sought to hold the
officers and stockholders directly liable for a corporate debt or obligation. In the instant
case, petitioners do not seek to impose a claim against the individual members of the three
corporations involved; on the contrary, it is these corporations which desire to enforce an
alleged right against petitioners. Assuming that petitioners were indeed defrauded by
private respondents in the foreclosure of the mortgaged properties, this fact alone is not,
under the circumstances, sufficient to justify the piercing of the corporate fiction, since
petitioners do not intend to hold the officers and/or members of respondent corporations
personally liable therefor. Petitioners are merely seeking the declaration of the nullity of the
foreclosure sale, which relief may be obtained without having to disregard the aforesaid
corporate fiction attaching to respondent corporations. Secondly, petitioners failed to
establish by clear and convincing evidence that private respondents were purposely formed
and operated, and thereafter transacted with petitioners, with the sole intention of
defrauding the latter.
The mere fact, therefore, that the businesses of two or more corporations are interrelated is
not a justification for disregarding their separate personalities,16 absent sufficient showing
that the corporate entity was purposely used as a shield to defraud creditors and third
persons of their rights. III. The main issue for resolution is whether there was a valid
foreclosure of the mortgaged properties by ICP. Petitioners argue that the foreclosure
proceedings should be declared null and void for two reasons, viz.: (1) no written notice was
furnished by Bormaheco to ICP anent the failure of Slobec in paying its obligation with the
former, plus the fact that no receipt was presented to show the amount allegedly paid by ICP
to Bormaheco; and (b) at the time of the foreclosure of the mortgage, the liability of ICP
under the surety bond had already expired.
_______________
16 Diatagon Labor Federation vs. Ople, et al., 101 SCRA 534 (1980).
544
544

Respondent court, in finding for the validity of the foreclosure sale, declared:
Now to the question of whether or not the foreclosure by the ICP of the real estate
mortgage was in the exercise of a legal right, We agree with the appellants that the
foreclosure proceedings instituted by the ICP was in the exercise of a legal right. First, ICP
has in its favor the legal presumption that it had indemnified Bormaheco by reason of
Slobecs default in the payment of its obligation under the Sales Agreement, especially
because Bormaheco consented to ICPs foreclosure of the mortgage. This presumption is in
consonance with pars. R and Q, Section 5, Rule 5,** New Rules of Court which provides that
it is disputably presumed that private transactions have been fair and regular. Likewise, it is
disputably presumed that the ordinary course of business has been followed: Second, ICP
had the right to proceed at once to the foreclosure of the mortgage as mandated by the
provisions of Art. 2071 Civil Code for these further reasons: Slobec, the principal debtor, was
admittedly insolvent; Slobecs obligation becomes demandable by reason of the expiration
of the period of payment; and its authorization to foreclose the mortgage upon Slobecs
default, which resulted in the accrual of ICPs liability to Bormaheco. Third, the Agreement of
Counter-Guaranty with Real Estate Mortgage (Exh. I) expressly grants to ICP the right to
foreclose the real estate mortgage in the event of non-payment or non-liquidation of the
entire indebtedness or fraction thereof upon maturity as stipulated in the contract. This is a
valid and binding stipulation in the absence of showing that it is contrary to law, morals,
good customs, public order or public policy. (Art. 1306, New Civil Code).17
1. Petitioners asseverate that there was no notice of default issued by Bormaheco to ICP,
which would have entitled Bormaheco to demand payment from ICP under the suretyship
contract.
Surety Bond No. B-14010 which was issued by ICP in favor of Bormaheco, wherein ICP and
Slobec undertook to guarantee the payment of the balance of P180,000.00 payable in
eighteen (18) monthly installments on one unit of Model CAT D-7 Caterpillar Crawler Tractor,
pertinently provides in part as follows:
_______________
** This should be Pars. (p) and (q), Sec. 5 (now Sec. 3), Rule 131.
17 Rollo, 72-73.
545

545
1. The liability of INSURANCE CORPORATION OF THE PHILIPPINES, under this BOND will
expire Twelve (12) months from date hereof. Furthermore, it is hereby agreed and
understood that the INSURANCE CORPORATION OF THE PHILIPPINES will not be liable for any
claim not presented in writing to the Corporation within THIRTY (30) DAYS from the
expiration of this BOND, and that the obligee hereby waives his right to bring claim or file
any action against Surety and after the termination of one (1) year from the time his cause
of action accrues.18
The surety bond was dated October 24, 1970. However, an annotation on the upper part
thereof states: NOTE: EFFECTIVITY DATE OF THIS BOND SHALL BE ON JANUARY 22,
1971.19
On the other hand, the Sales Agreement dated January 23, 1971 provides that the balance
of P180,000.00 shall be payable in eighteen (18) monthly installments.20 The Promissory
Note executed by Slobec on even date in favor of Bormaheco further provides that the
obligation shall be payable on or before February 23, 1971 up to July 23, 1972, and that nonpayment of any of the installments when due shall make the entire obligation immediately
due and demandable.21
It is basic that liability on a bond is contractual in nature and is ordinarily restricted to the
obligation expressly assumed therein. We have repeatedly held that the extent of a suretys
liability is determined only by the clause of the contract of suretyship as well as the
conditions stated in the bond. It cannot be extended by implication beyond the terms of the
contract.22
Fundamental likewise is the rule that, except where required by the provisions of the
contract, a demand or notice of default is not required to fix the suretys liability.23 Hence,
where the
_______________
18 Exh. 8-Bormaheco; Folder of Exhibits, 111.

19 Id.,ibid.
20 Exh. 16-Bormaheco; ibid., 482.
21 Id.,Ibid., 484.
22 Philippine Commercial & Industrial Bank vs. The Hon. Court of Appeals, et al., 159 SCRA
24 (1988).
23 72 C.J.S. 577.
546
546
contract of suretyship stipulates that notice of the principals default be given to the surety,
generally the failure to comply with the condition will prevent recovery from the surety.
There are certain instances, however, when failure to comply with the condition will not
extinguish the suretys liability, such as a failure to give notice of slight defaults, which are
waived by the obligee; or on mere suspicion of possible default; or where, if a default exists,
there is excuse or provision in the suretyship contract exempting the surety for liability
therefor, or where the surety already has knowledge or is chargeable with knowledge of the
default.24
In the case at bar, the suretyship contract expressly provides that ICP shall not be liable for
any claim not filed in writing within thirty (30) days from the expiration of the bond. In its
decision dated May 25, 1987, the court a quo categorically stated that (n)o evidence was
presented to show that Bormaheco demanded payment from ICP nor was there any action
taken by Bormaheco on the bond posted by ICP to guarantee the payment of plaintiffs
obligation. There is nothing in the records of the proceedings to show that ICP indemnified
Bormaheco for the failure of the plaintiffs to pay their obligation.25 The failure, therefore, of
Bormaheco to notify ICP in writing about Slobecs supposed default released ICP from
liability under its surety bond. Consequently, ICP could not validly foreclose that real estate
mortgage executed by petitioners in its favor since it never incurred any liability under the
surety bond. It cannot claim exemption from the required written notice since its case does
not fall under any of the exceptions hereinbefore enumerated.
Furthermore, the allegation of ICP that it has paid Bormaheco is not supported by any
documentary evidence. Section 1, Rule 131 of the Rules of Court provides that the burden of
evidence lies with the party who asserts an affirmative allegation. Since ICP failed to duly
prove the fact of payment, the disputable presumption that private transactions have been
fair and regular, as erroneously relied upon by respondent
_______________
24 72 C.J.S. 636.
25 Original Record, 1016.
547

547
Court of Appeals, finds no application to the case at bar.
2. The liability of a surety is measured by the terms of his contract, and, while he is liable to
the full extent thereof, such liability is strictly limited to that assumed by its terms.26 While
ordinarily the termination of a suretys liability is governed by the provisions of the contract
of suretyship, where the obligation of a surety is, under the terms of the bond, to terminate
at a specified time, his obligation cannot be enlarged by an unauthorized extension
thereof.27 This is an exception to the general rule that the obligation of the surety continues
for the same period as that of the principal debtor.28
It is possible that the period of suretyship may be shorter than that of the principal
obligation, as where the principal debtor is required to make payment by installments.29 In
the case at bar, the surety bond issued by ICP was to expire on January 22, 1972, twelve
(12) months from its effectivity date, whereas Slobecs installment payment was to end on
July 23, 1972. Therefore, while ICP guaranteed the payment by Slobec of the balance of
P180,000.00, such guaranty was valid only for and within twelve (12) months from the date
of effectivity of the surety bond, or until January 22, 1972. Thereafter, from January 23, 1972
up to July 23, 1972, the liability of Slobec became an unsecured obligation. The default of
Slobec during this period cannot be a valid basis for the exercise of the right to foreclose by
ICP since its surety contract had already been terminated. Besides, the liability of ICP was
extinguished when Bormaheco failed to file a written claim against it within thirty (30) days
from the expiration of the surety bond. Consequently, the foreclosure of the mortgage, after
the expiration of the surety bond under which ICP as surety has not incurred any liability,
should be declared null and void.
3. Lastly, it has been held that where the guarantor holds property of the principal as
collateral surety for his personal indemnity, to which he may resort only after payment by
_______________
26 72 C.J.S. 569.
27 Op. cit., 597.
28 Op. cit., 588.
29 Tolentino, Civil Code of the Philippines, Vol. V, 1959 Ed., 436.
548
548
himself, until he has paid something as such guarantor neither he nor the creditor can resort
to such collaterals.30
The Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage states that it is being
issued for and in consideration of the obligations assumed by the Mortgagee-Surety
Company under the terms and conditions of ICP Bond No. 14010 in behalf of Slobec Realty
Development Corporation and in favor of Bormaheco, Inc.31 There is no doubt that said
Agreement of Counter-Guaranty is issued for the personal indemnity of ICP. Considering that
the fact of payment by ICP has never been established, it follows, pursuant to the doctrine
above adverted to, that ICP cannot foreclose on the subject properties.
IV. Private respondent PM Parts posits that it is a buyer in good faith and, therefore, it
acquired a valid title over the subject properties. The submission is without merit and the
conclusion is specious.
We have stated earlier that the doctrine of piercing the veil of corporate fiction is not
applicable in this case. However, its inapplicability has no bearing on the good faith or bad
faith of private respondent PM Parts. It must be noted that Modesto N. Cervantes served as
Vice-President of Bormaheco and, later, as President of PM Parts. On this fact alone, it cannot
be said that PM Parts had no knowledge of the aforesaid several transactions executed
between Bormaheco and petitioners. In addition, Atty. Martin de Guzman, who is the
Executive Vice-President of Bormaheco, was also the legal counsel of ICP and PM Parts.
These facts were admitted without qualification in the stipulation of facts submitted by the
parties before the trial court. Hence, the defense of good faith may not be resorted to by
private respondent PM Parts which is charged with knowledge of the true relations existing
between Bormaheco, ICP and herein petitioners. Accordingly, the transfer certificates of title
issued in its name, as well as the certificate of sale, must be declared null and void since
they cannot be considered altogether free of the taint of bad faith.
WHEREFORE, the decision of respondent Court of Appeals is
_______________
30 Osborn vs. Noble, 46 Miss, 449, cited in 38 C.J.S. 1263.

31 Exh. I; Folder of Exhibits, 24-25.
549

549
hereby REVERSED and SET ASIDE, and judgment is hereby rendered declaring the following
as null and void: (1) Certificate of Sale, dated September 28, 1973, executed by the
Provincial Sheriff of Quezon in favor of the Insurance Corporation of the Philippines; (2)
Transfer Certificates of Title Nos. T-23705, T-23706, T-23707 and T-23708 issued in the name
of the Insurance Corporation of the Philippines; (3) the sale by Insurance Corporation of the
Philippines in favor of Philippine Machinery Parts Manufacturing Co., Inc. of the four (4)
parcels of land covered by the aforesaid certificates of title; and (4) Transfer Certificates of
Title Nos. T-24846, T-24847, T-24848 and T-24849 subsequently issued by virtue of said sale
in the name of the latter corporation.
The Register of Deeds of Lucena City is hereby directed to cancel Transfer Certificates of
Title Nos. T-24846, T-24847, T-24848 and T-24849 in the name of Philippine Machinery Parts
Manufacturing Co., Inc. and to issue in lieu thereof the corresponding transfer certificates of
title in the name of herein petitioners, except Santiago Rivera.
The foregoing dispositions are without prejudice to such other and proper legal remedies as
may be available to respondent Bormaheco, Inc. against herein petitioners.
SO ORDERED.
Melencio-Herrera (Chairman), Paras and Padilla, JJ., concur.
Sarmiento, J., On leave.
Decision reversed and set aside.
Note.Where contract of sale is vitiated by the total absence of a valid cause or
consideration, the contract is void and inexistent. (Vda. de Portugal vs. Intermediate
Appellate Court, 159 SCRA 178.)
o0o
[Umali vs. Court of Appeals, 189 SCRA 529(1990)]
52
Robledo vs. National Labor Relations Commission
G.R. No. 110358. November 9, 1994.*
QUINTIN ROBLEDO, MARIO SINLAO, LEONARDO SAAVEDRA, VICENTE SECAPURI, DANIEL
AUSTRIA, ET AL., petitioners, vs. THE NATIONAL LABOR RELATIONS COMMISSION, BACANI
SECURITY AND ALLIED SERVICES CO., INC., AND BACANI SECURITY AND PROTECTIVE
AGENCY AND/OR ALICIA BACANI, respondents.
Labor Law; Contracts; Unless expressly assumed labor contracts are not enforceable against
the transferee of an enterprise.Indeed, the rule is settled that unless expressly assumed
labor contracts are not
_______________
* SECOND DIVISION.
53

53
enforceable against the transferee of an enterprise. The reason for this is that labor
contracts are in personam. Consequently, it has been held that claims for backwages earned
from the former employer cannot be filed against the new owners of an enterprise. Nor is
the new operator of a business liable for claims for retirement pay of employees.
Corporation Law; Piercing the Veil of Corporate Entity; Piercing the veil of corporate entity
means looking through the corporate form to the individual stockholders composing it.The
doctrine of piercing the veil of corporate entity is used whenever a court finds that the
corporate fiction is being used to defeat public convenience, justify wrong, protect fraud, or
defend crime, or to confuse legitimate issues, or that a corporation is the 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. It is apparent, therefore, that the doctrine has no application to this
case where the purpose is not to hold the individual stockholders liable for the obligations of
the corporation but, on the contrary, to hold the corporation liable for the obligations of a
stockholder or stockholders. Piercing the veil of corporate entity means looking through the
corporate form to the individual stockholders composing it. Here there is no reason to pierce
the veil of corporate entity because there is no question that petitioners claims, assuming
them to be valid, are the personal liability of the late Felipe Bacani. It is immaterial that he
was also a stockholder of BASEC.
Labor Law; Money Claims; Remedial Law; Money claims against an estate must be filed in
accordance with Sec. 5 of Rule 86.Now, the claims of petitioners are actually money claims
against the estate of Felipe Bacani. They must be filed against his estate in accordance with
sec. 5 of Rule 86 which provides in part: SEC. 5. Claims which must be filed under the notice.
If not filed, barred; exceptions.All claims for money against the decedent, arising from
contract, express or implied, whether the same be due, not due, or contingent, all claims for
funeral expenses and expenses for the last sickness of the decedent, and judgment for
money against the decedent, must be filed within the time limited in the notice; otherwise
they are barred forever, except that they may be set forth as counterclaims in any action
that the executor or administrator may bring against the claimants...
Same; Same; Under Art. 110 of the Labor Code, money claims of laborers enjoy preference
over claims of other creditors in case of bankruptcy or liquidation of the employers
business.The rationale for the rule is that upon the death of the defendant, a testate or
intestate
54
54
proceeding shall be instituted in the proper court wherein all his creditors must appear and
file their claims which shall be paid proportionately out of the property left by the deceased.
The objective is to avoid duplicity of procedure. Hence the ordinary actions must be taken
out from the ordinary courts. Under Art. 110 of the Labor Code, money claims of laborers
enjoy preference over claims of other creditors in case of bankruptcy or liquidation of the
employers business.
PETITION for review of a decision of the National Labor Relations Commission, First Division.
Benjamin C. Pineda for petitioners.
Villanueva, Ebora & Caa for private respondents.
MENDOZA, J.:
This is a petition for review of the decision of the First Division1 of the National Labor
Relations Commission, setting aside the decision of the Labor Arbiter which held private
respondents jointly and severally liable to the petitioners for overtime and legal holiday pay.
The facts of this case are as follows:
Petitioners were former employees of Bacani Security and Protective Agency (BSPA, for
brevity). They were employed as security guards at different times during the period 1969 to
December 1989 when BSPA ceased to operate.
BSPA was a single proprietorship owned, managed and operated by the late Felipe Bacani. It
was registered with the Bureau of Trade and Industry as a business name in 1957. Upon its
expiration, the registration was renewed on July 1, 1987 for a term of five (5) years ending
1992.
On December 31, 1989, Felipe Bacani retired the business name and BSPA ceased to
operate effective on that day. At that time, respondent Alicia Bacani, daughter of Felipe
Bacani, was BSPAs Executive Directress.
_______________
1 Per Commissioner Vicente Veloso, with Presiding Commissioner Bartolome S. Carale,

concurring.
55

55
On January 15, 1990 Felipe Bacani died. An intestate proceeding was instituted for the
settlement of his estate before the Regional Trial Court, National Capital Region, Branch 155,
Pasig, Metro Manila.
Earlier, on October 26, 1989, respondent Bacani Security and Allied Services Co., Inc.
(BASEC, for brevity) had been organized and registered as a corporation with the Securities
and Exchange Commission. The following were the incorporators with their respective
shareholdings:
ALICIA BACANI
25,250 shares
LYDIA BACANI
25,250 shares
AMADO P. ELEDA
25,250 shares
VICTORIA B. AURIGUE
25,250 shares
FELIPE BACANI
20,000 shares
The primary purpose of the corporation was to engage in the business of providing
security to persons and entities. This was the same line of business that BSPA was engaged
in. Most of the petitioners, after losing their jobs in BSPA, were employed in BASEC.
On July 5, 1990, some of the petitioners filed a complaint with the Department of Labor and
Employment, National Capital Region, for underpayment of wages and nonpayment of
overtime pay, legal holiday pay, separation pay and/or retirement/resignation benefits, and
for the return of their cash bond which they posted with BSPA. Made respondents were BSPA
and BASEC. Petitioners were subsequently joined by the rest of the petitioners herein who
filed supplementary complaints.
On March 1, 1992, the Labor Arbiter rendered a decision upholding the right of the
petitioners. The dispositive portion of his decision reads:
CONFORMABLY WITH THE FOREGOING, the judgment is hereby rendered finding
complainants entitled to their money claims as herein above computed and to be paid by all
the respondents herein in solidum except BSPA which has already been retired from
business.
Respondents are further ordered to pay attorneys fees equivalent to five (5) percent of the
awarded money claims.
All other claims are hereby dismissed for lack of merit.
SO ORDERED.
56
56
On appeal the National Labor Relations Commission reversed. In a decision dated March 30,
1993, the NLRCs First Division declared the Labor Arbiter without jurisdiction and instead
suggested that petitioners file their claims with the Regional Trial Court, Branch 155, Pasig,
Metro Manila, where an intestate proceeding for the settlement of Bacanis estate was
pending. Petitioners moved for a reconsideration but their motion was denied for lack of
merit. Hence this petition for review.
No appeal lies to review decisions of the NLRC. Nonetheless the petition in this case was
treated as a special civil action of certiorari to determine whether the NLRC did not commit a
grave abuse of its discretion in reversing the Labor Arbiters decision.
The issues in this case are two fold: first, whether Bacani Security and Allied Services Co.
Inc. (BASEC) and Alicia Bacani can be held liable for claims of petitioners against Bacani
Security and Protective Agency (BSPA) and, second, if the claims were the personal liability
of the late Felipe Bacani, as owner of BSPA, whether the Labor Arbiter had jurisdiction to
decide the claims.
Petitioners contend that public respondent erred in setting aside the Labor Arbiters
judgment on the ground that BASEC is the same entity as BSPA the latter being owned and
controlled by one and the same family, namely the Bacani family. For this reason they urge
that the corporate fiction should be disregarded and BASEC should be held liable for the
obligations of the defunct BSPA.
We find the petition to be without merit.
As correctly found by the NLRC, BASEC is an entity separate and distinct from that of BSPA.
BSPA is a single proprietorship owned and operated by Felipe Bacani. Hence its debts and
obligations were the personal obligations of its owner. Petitioners claim which are based on
these debts and personal obligations, did not survive the death of Felipe Bacani on January
15, 1990 and should have been filed instead in the intestate proceedings involving his
estate.
Indeed, the rule is settled that unless expressly assumed labor contracts are not enforceable
against the transferee of an enterprise. The reason for this is that labor contracts are in
57

57
personam.2 Consequently, it has been held that claims for backwages earned from the
former employer cannot be filed against the new owners of an enterprise.3 Nor is the new
operator of a business liable for claims for retirement pay of employees.4
Petitioners claim, however, that BSPA was intentionally retired in order to allow expansion of
its business and even perhaps an increase in its capitalization for credit purpose. According
to them, the Bacani family merely continued the operation of BSPA by creating BASEC in
order to avoid the obligations of the former. Petitioners anchor their claim on the fact that
Felipe Bacani, after having ceased to operate BSPA, became an incorporator of BASEC
together with his wife and daughter. Petitioners urge piercing the veil of corporate entity in
order to hold BASEC liable for BSPAs obligations.
The doctrine of piercing the veil of corporate entity is used whenever a court finds that the
corporate fiction is being used to defeat public convenience, justify wrong, protect fraud, or
defend crime, or to confuse legitimate issues, or that a corporation is the mere alter ego or
business conduit of a person or where the corporation is so organized and controlled and its
of another corporation.5 It is apparent, therefore, that the doctrine has no application to this
case where the purpose is not to hold the individual stockholders liable for the obligations of
the corporation but, on the contrary, to hold the corporation liable for the obligations of a
stockholder or stockholders. Piercing the veil of corporate entity means looking through the
corporate form to the individual stockholders composing it. Here there is no reason to pierce
the veil of corporate entity because there is no question that petitioners claims, assuming
them to be valid, are the personal liability of the late Felipe Bacani. It is immaterial that he
was also a
_______________
2 Sundowner Development Corp. v. Drilon, 180 SCRA 14 (1989); Filipinas Port Services, Inc.
Damasticor v. NLRC, 177 SCRA 203 (1989).
3 Sundowner Development Corp. v. Drilon, supra, note 2.
4 Filipinas Port Services, Inc. Damasticor v. NLRC, supra, note 2.
5 Indophil Textile Mill Workers Union v. Calica, 205 SCRA 697 (1992).
58
58
stockholder of BASEC.
Indeed, the doctrine is stood on its head when what is sought is to make a corporation liable
for the obligations of a stockholder. But there are several reasons why BASEC is not liable for
the personal obligations of Felipe Bacani. For one, BASEC came into existence before BSPA
was retired as a business concern. BASEC was incorporated on October 26, 1989 and its
license to operate was released on May 28, 1990, while BSPA ceased to operate on
December 31, 1989. Before BSPA was retired, BASEC was already existing. It is, therefore,
not true that BASEC is a mere continuity of BSPA.
Second, Felipe Bacani was only one of the five (5) incorporators of BASEC. He owned the
least number of shares in BASEC, which included among its incorporators persons who are
not members of his family. That his wife Lydia and daughter Alicia were also incorporators of
the same company is not sufficient to warrant the conclusion that they hold their shares in
his behalf.
Third, there is no evidence to show that the assets of BSPA were transferred to BASEC. If
BASEC was a mere continuation of BSPA, all or at least a substantial part of the latters
assets should have found their way to BASEC.
Neither can respondent Alicia Bacani be held liable for BSPAs obligations. Although she was
Executive Directress of BSPA, she was merely an employee of the BSPA, which was a single
proprietorship.
Now, the claims of petitioners are actually money claims against the estate of Felipe Bacani.
They must be filed against his estate in accordance with Sec. 5 of Rule 86 which provides in
part:
SEC. 5. Claims which must be filed under the notice. If not filed, barred; exceptions.All
claims for money against the decedent, arising from contract, express or implied, whether
the same be due, not due, or contingent, all claims for funeral expenses and expenses for
the last sickness of the decedent, and judgment for money against the decedent, must be
filed within the time limited in the notice; otherwise they are barred forever, except that
they may be set forth as counterclaims in any action that the executor or administrator may
bring against the claimants. . .
59

59
Aris Philippines, Inc. vs. NLRC
The rationale for the rule is that upon the death of the defendant, a testate or intestate
proceeding shall be instituted in the proper court wherein all his creditors must appear and
file their claims which shall be paid proportionately out of the property left by the deceased.
The objective is to avoid duplicity of procedure. Hence the ordinary actions must be taken
out from the ordinary courts.6 Under Art. 110 of the Labor Code, money claims of laborers
enjoy preference over claims of other creditors in case of bankruptcy or liquidation of the
employers business.
WHEREFORE, the petition for certiorari is DISMISSED.
SO ORDERED.
Narvasa (C.J., Chairman), Regalado and Puno, JJ., concur.
Petition dismissed.
Note.The power of the National Labor Relations Commission to execute its judgments
extends only to properties unquestionably belonging to the judgment debtor. (Santos vs.
Bayhon, 199 SCRA 525 [1991])
o0o [Robledo vs. National Labor Relations Commission, 238 SCRA 52(1994)]

463
Ramoso vs. Courtof Appeals
G.R. No. 117416. December 8, 2000*
AVELINA G. RAMOSO, RENATO B. SALVATIERRA, BENEFRIDO M. CRUZ, LETICIA L. MEDINA,
PELAGIO PASCUAL, DOMINGO P. SANTIAGO, AMADO S. VELOIRA, CONCEPCION F. BLAYLOCK,
in their own behalf and in behalf of numerous other persons similarly situated, COMMERCIAL
CREDIT CORP. OF NORTH MANILA, COMMERCIAL CREDIT CORP. OF CAGAYAN VALLEY,
COMMERCIAL CREDIT CORP. OF OLONGAPO CITY, and COMMERCIAL CREDIT CORP. OF
QUEZON CITY, petitioners, vs. COURT OF APPEALS, GENERAL CREDIT CORP. (FORMERLY
COMMERCIAL CREDIT CORP.), CCC EQUITY CORP., RESOURCE AND FINANCE CORP.,
GENEROSO G. VILLANUEVA AND LEONARDO B. ALEJANDRINO, and SECURITIESAND
EXCHANGE COMMISSION,respondents.
Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction; As a general rule, a
corporation will be looked upon as a legal entity, unless and until sufficient reason to the
contrary appears.As a general rule, a corporation will be looked upon as a legal entity,
unless and until sufficient reason to the contrary appears. When the notion of legal entity is
used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will
regard the corporation as an association of persons. Also, the corporate entity may be
disregarded in the interest of justice in such cases as fraud that may work inequities among
members of the corporation internally, involving no rights of the public or third persons. In
both instances, there must have been fraud, and proof of it. For the separate juridical
personality of a corporation to be disregarded, the
_______________
* SECOND DIVISION.
464
464
Ramoso vs. Court of Appeals
wrongdoing must be clearly and convincingly established. It cannot be presumed.
Same; Same; Whether the existence of the corporation should be pierced depends on
questions of facts, appropriately pleaded.We agree with the findings of the SEC concurred
in by the appellate court that there was no fraud nor mismanagement in the control
exercised by CCC and by CCC Equity, over the franchise companies. Whether the existence
of the corporation should be pierced depends on questions of facts, appropriately pleaded.
Mere allegation that a corporation is the alter ego of the individual stockholders is
insufficient. The presumption is that the stockholders or officers and the corporation are
distinct entities. The burden of proving otherwise is on the party seeking to have the court
pierce the veil of the corporate entity. In this, petitioners failed.
Same; Same; Actions; Jurisdiction; Any taint of bad faith on the part of a financing and
investment corporation in enticing investors may be resolved in ordinary courts, inasmuch
as this is in the nature of a contractual relationship.We note, however, that petitioners
signed the continuing guaranty of the franchise companies bad debts in their own personal
capacities. Consequently, they are responsible for their individual acts. The liabilities of
petitioners as investors arose out of the regular financing venture of the franchise
companies. There is no evidence that these bad debts were fraudulently incurred. Any taint
of bad faith on the part of GCC in enticing investors may be resolved in ordinary courts,
inasmuch as this is in the nature of a contractual relationship. Changing petitioners
subsidiary liabilities by converting them to guarantors of bad debts cannot be done by
piercing the veil of corporate identity. Private respondents claim they had actually filed
collection cases against most, if not all, of the petitioners to enforce the suretyship liability
on accounts discounted with then CCC (now GCC). In such cases, the trial court may
determine the validity of the promissory notes and the corresponding guarantee contracts.
The existence of the corporate entities need not be disregarded.
Same; Same; Same; Securities and Exchange Commission; Not every conflict between a
corporation and its stockholders involves corporate matters that only the SEC can resolve.
Not every conflict between a corporation and its stockholders involves corporate matters
that only the SEC can resolve. In Viray vs. Court of Appeals, 191 SCRA 308, 323 (1990), we
stressed that a contrary interpretation would dissipate the powers of the regular courts and
distort the meaning and intent of PD No. 902-A. It is true that the trend is toward vesting
administrative bodies like the SEC
465

465
with the power to adjudicate matters coming under their particular specialization, to insure a
more knowledgeable solution of the problems submitted to them. This would also relieve the
regular courts of a substantial number of cases that would otherwise swell their already
clogged dockets. But as expedient as this policy may be, it should not deprive the courts of
justice of their power to decide ordinary cases in accordance with the general laws that do
not require any particular expertise or training to interpret and apply. Otherwise, the
creeping takeover by the administrative agencies of the judicial power vested in the courts
would render the Judiciary virtually impotent in the discharge of the duties assigned to it by
the Constitution.
The facts are stated in the opinion ofthe Court.

Benjamin C. Santos & Ofelia Calcetas-Santos Law Office for petitioners.
Makalintal, Barot, Torres and Ibarra collaborating counsel for petitioners.
Antonio R. Bautista and Partners for private respondent General Commercial Corp.
Rico and Associates for private respondentCCC Equity Corp.
QUISUMBING, J.:
This petition for review on certiorari assails the decision1 of the Court of Appeals dated
October 8, 1993, and its resolution2 dated September 22, 1994 in CA G.R. SP No. 29225,
which affirmed the Securities and Exchange Commissions decision stating thus:
WHEREFORE, the appealed decision of the hearing officer in SEC Case No. 2581 is hereby
MODIFIED as follows:
1. Piercing the veil of corporate fiction among GCC, CCC Equity and the franchise companies
Commercial Credit Corporation of North Manila, Commercial Credit Corporation of Cagayan
Valley,
_______________
1 Rollo, pp. 61-83.

2 Id.at 85-88.
466
466

Commercial Credit Corporation of Olongapo City and Commercial Credit Corporation of
Quezon Cityis not proper for being without merit;and
2. The declaration that petitioning franchise corporations and individual petitioners are not
liable for the payment of bad accounts assigned to, and discounted by GCC is SET ASIDE for
being in excess of jurisdiction.3
The facts of this case as gleanedfrom the records are as follows:
On March 11, 1957, Commercial Credit Corporation was registered with SEC as a general
financing and investment corporation. CCC made proposals to several investors for the
organization of franchise companies in different localities. The proposed trade names and
indicated areas were: (a) Commercial Credit Corporation-Cagayan Valley; (b) Commercial
Credit Corporation-Olongapo City; and (c) Commercial Credit Corporation-Quezon City.
Petitioners herein invested and bought majority shares of stocks, while CCC retained
minority holdings. Management contracts were executed between each franchise company
and CCC, under the following terms and conditions: (1) The franchise company shall be
managed by CCCs resident manager. (2) Management fee equivalent to 10% of net profit
before taxes shall be paid to CCC. (3) All expenses shall be borne by the franchise company,
except the salary of the resident manager and the cost of credit investigation. (4) CCC shall
set prime rates for discounting or rediscounting of receivables. Apart from these, each
investor was required to sign a continuing guarantee for bad accounts that might be
incurred by CCC due to discounting activities.
In 1974, CCC attempted to obtain a quasi-banking license from Central Bank of the
Philippines. But there was a hindrance because Section 1326 of CBs Manual of Regulations
for Banks and Other Financial Intermediaries, states:
Sec. 1326. General Policy.Dealings of a bank with any of its directors, officers or
stockholders and their related interests should be in the regular course of business and upon
terms not less favorable to the bank thanthose offered to others. (Emphasis supplied)
_______________
3 Id.at 122.
467

467
The above DOSRI regulation and set guidelines are prescribed to make sure that lendings by
banks or other financial institutions to its own directors, officers, stockholders or related
interests are above board. In view of said hindrance, what CCC did was divest itself of its
shareholdings in the franchise companies. It incorporated CCC Equity to take over the
administration of the franchise companies under new management contracts. In the
meantime, CCC continued providing a discounting line for receivables of the franchise
companies through CCC Equity. Thereafter, CCC changed its name to General Credit
Corporation (GCC).
The companies operations were on course until 1981, when adverse media reports
unraveled anomalies in the business of GCC. Upon investigation, petitioners allegedly
discovered the dissipation of the assets of their respective franchise companies. Among the
alleged fraudulent schemes by GCC involved transfer or assignment of its uncollectible
notes and accounts; utilization of spurious commercial papers to generate paper revenues;
and release of collateral in connivance with unauthorized loans. Furthermore, GCC allegedly
divested itself of its assets through a questionable offset of receivables arrangement with
one of its creditors, Resource and Finance Corporation.
On February 24, 1984, petitioners filed a suit against GCC, CCC Equity and RFC. Petitioners
prayed for (1) receivership, (2) an order directing GCC and CCC Equity solidarily to pay
petitioners and depositors for the losses they sustained, and (3) nullification of the
agreement between GCC and RFC.
On June 6, 1984, all respondents, except CCC Equity, filed a motion to dismiss asserting that
SEC lacked jurisdiction, and that petitioners were not the real parties in interest. Both
motions, for receivership and for dismissal, were subsequently denied by the hearing officer.
On February 23, 1990, the hearing officer ordered piercing the corporate veil of GCC, CCC
Equity, and the franchise companies. He later declared that GCC was not liable to individual
petitioners for the losses, since as investors they assumed the risk of their respective
investments. The franchise companies and the individual petitioners were held not liable to
GCC for the bad accounts
468
468
incurred by the latter through the discounting process. The decretal portion of his order
reads:
WHEREFORE, judgment is herebyrendered, as follows:
1. Declaring GCC, CCC-Equity and the franchised companiesCommercial Credit Corporation
of North Manila, Commercial Credit Corporation of Cagayan Valley, Commercial Credit
Corporation of Olongapo City and Commercial Credit Corporation of Quezon Cityas one
corporation;
2. Declaring that the petitioning franchised companies are not liable for the payment of bad
accounts assignedto, and discounted by GCC;
3. Declaring the individual petitioners who executed continuing guaranties to secure the
obligation of the franchised companies to GCC arising from thediscounting accounts should
not be held liable thereon.
4. Declaring that GCC is not liable to individual petitioners for the investments they madein
the franchisedcompanies;
5. Dismissing the petition with respect to respondent Resource Finance Corporation,

Generoso Villanueva and Leonardo Alejandrino.4
In an en banc decision, dated October 6, 1992, the SEC reversed the ruling of its hearing
officer. Petitioners appealed to the Court of Appeals. On October 8, 1993, the appellate court
affirmed respondent SECs decision. Petitioners moved for a reconsideration, butit was
denied onSeptember 22, 1994.
Hence, the instant petition raising thefollowing issues:
I. WHETHER THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO RULE THAT GCCS
FRAUD UPON PETITIONERS AND MISMANAGEMENT OF THE FRANCHISE COMPANIES
WARRANT THE PIERCING OF ITS VEIL OF CORPORATE FICTION.
II. WHETHER THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO RULE THAT ONLY THE
SEC HAS JURISDICTION OVER THE ISSUE OF WHETHER INDIVIDUAL PETITIONERS MAY BE
HELD LIABLE ON THE SURETY AGREEMENTS FOR BAD ACCOUNTS INCURRED BY GCC
THROUGH THE DISCOUNTING PROCESS.
_______________
4 Id. at 101-102.
469

469
III. WHETHER THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO REVERSE AND SET
ASIDE THE 06 OCTOBER 1992 SEC DECISION.
Petitioners pray for the piercing of the corporate fiction of GCC, CCC Equity, RFC and the
franchise companies. They allege that (1) GCC was the alter-ego of CCC Equity and the
franchise companies; (2) GCC created CCC Equity to circumvent CBs DOSRI Regulation; and
(3) GCC mismanaged the franchise companies. Ultimately, petitioners pray that the SEC en
banc reinstate the decision of the hearing officer absolving individual investors of their
respective liabilities attached to the continuing guaranty of bad debts. They pray that should
the aforestated companies be considered as one, then petitioners liabilities should be
nullified.
SEC en banc decided against the petitioners, saying:
Where one corporation is so organized and controlled and its affairs are conducted so that it
is, in fact, a mere instrumentality or adjunct of the other, the fiction of the corporate entity
of the instrumentality may be disregarded . . . [T]he control and breach of duty must
proximately cause the injury or unjust loss for which the complaint is made.
The test may be stated as follows:
In any given case, except express agency, estoppel, or direct tort, three elements must be
proved:
perpetrate the violation of the statutory or other positive legal duty, or dishonest and unjust
act in contravention of plaintiff s legal rights; and
complained of.
470
470
The absence of any one of these elements prevents piercing the corporate veil.'5
The SEC stated further that:
The second element required for the application of the instrumentality rule is not present in
this case. Upon close scrutiny of the various testamentary and documentary evidence
presented during trial, it may be observed that petitioners claim of dissipation of assets and
resources belonging to the franchise companies has not been reasonably supported by said
evidence at hand with the Commission. In fact, the disputed decision of the hearing officer
dealt mainly with the aspect of control exercised by GCC over the franchise companies
without a concrete finding of fraud on the part of the former to the prejudice of individual
petitioners interests. As previously discussed, mere control on the part of GCC through CCC
Equity over the operations and business policies of the franchise companies does not
necessarily warrant piercing the veil of corporate fiction without proof of fraud. In order to
determine whether or not the control exercised by GCC through CCC Equity over the
franchise companies was used to commit fraud or wrong, to violate a statutory or other
positive legal duty, or dishonest and unjust act in contravention of petitioners legal rights,
the circumstances that caused the bankruptcy of the franchise companies must be taken
intoconsideration.6
As a general rule, a corporation will be looked upon as a legal entity, unless and until
sufficient reason to the contrary appears. When the notion of legal entity is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons.7 Also, the corporate entity may be disregarded in
the interest of justice in such cases as fraud that may work inequities among members of
the corporation internally, involving no rights of the public or third persons. In both
instances, there must have been fraud, and proof of it. For the separate juridical personality
of a corporation to be
_______________
5 Id. at 110-111; citing Vol. 1, Fletcher Cyclopedia Corporations, p. 490.
6 Rollo, p.116.
7 Volume 1, Fletcher Cyclopedia Corporations, Chapter 2, Section 41.
471

471
disregarded, the wrongdoing must be clearly and convincingly established.8 It cannot be
presumed.9
We agree with the findings of the SEC concurred in by the appellate court that there was no
fraud nor mismanagement in the control exercised by GCC and by CCC Equity, over the
franchise companies. Whether the existence of the corporation should be pierced depends
on questions of facts, appropriately pleaded. Mere allegation that a corporation is the alter
ego of the individual stockholders is insufficient. The presumption is that the stockholders or
officers and the corporation are distinct entities. The burden of proving otherwise is on the
party seeking to have the court pierce the veil of the corporate entity.10 In this, petitioners
failed.
Petitioners contend that the issue of whether the investors may be held liable on the surety
agreements for bad accounts incurred by GCC through the discounting process cannot be
isolated from the fundamental issue of validly piercing GCCs corporate veil. They argue that
since these surety agreements are intra-corporate matters, only the SEC has the specialized
knowledge to evaluate whetherfraud was perpetrated.
We note, however, that petitioners signed the continuing guaranty of the franchise
companies bad debts in their own personal capacities. Consequently, they are responsible
for their individual acts. The liabilities of petitioners as investors arose out of the regular
financing venture of the franchise companies. There is no evidence that these bad debts
were fraudulently incurred. Any taint of bad faith on the part of GCC in enticing investors
may be resolved in ordinary courts, inasmuch as this is in the nature of a contractual
relationship. Changing petitioners subsidiary liabilities by converting them to guarantors of
bad debts cannot be done by piercing the veil of corporate identity.
_______________
8 Matuguina Integrated Wood Products, Inc. vs. Court of Appeals, 263 SCRA 490, 509(1996).
9 Id. citing Del Rosario vs. NLRC, 187 SCRA 777(1990).
10 Volume 1, Fletcher Cyclopedia Corporations, Chapter 2, Section 41.3.
472
472

Private respondents claim they had actually filed collection cases against most, if not all, of
the petitioners to enforce the suretyship liability on accounts discounted with then CCC (now
GCC).11 In such cases, the trial court may determine the validity of the promissory notes
and the corresponding guarantee contracts. The existenceof the corporateentities neednot
be disregarded.
On the matter of jurisdiction, we agree with the Court of Appeals when it held that:
... [T]he ruling of the hearing officer in relation to the liabilities of the franchise companies
and individual petitioners for the bad accounts incurred by GCC through the discounting
process would necessary entail a prior interpretation of the discounting agreements entered
into between GCC and the various franchise companies as well as the continuing guaranties
executed to secure the same. A judgment on the aforementioned liabilities incurred through
the discounting process must likewise involve a determination of the validity of the said
discounting agreements and continuing guaranties in order to properly pass upon the
enforcement or implementation of the same. It is crystal clear from the aforecited
authorities and jurisprudence12 that there is no need to apply the specialized knowledge
and skill of the SEC to interpret the said discounting agreements and continuing guaranties
executed to secure the same because the regular courts possess the utmost competence to
do so by merely applying the general principleslaid downunder civil law on contracts.
xxx
The matter of whether the petitioners must be held liable on their separate suretyship is one
that belongs to the regular courts. As the respondent SEC notes in its comment, the
franchised companies accounts discounted by GCC would arise even if there is no intracorporate relationship between the parties. In other words, the controversy did not arise out
of the parties relationships as stockholders. The Court agrees. This matter is better left to
the regular courts in which the private respondents
_______________
11 Rollo, p.68.
12 Baez vs. Dimensional Construction Trade and Development Corporation, 140 SCRA 249
(1985); Union Glass and Container Corporation vs. Securities and Exchange Commission,
126 SCRA 31 (1983), DMRC Enterprises vs. Este Del Sol Mountain Reserve, Inc., 132 SCRA
293(1984).
473

473
have filed suits to enforce the suretyship agreements allegedly executed by the
petitioners.13
Not every conflict between a corporation and its stockholders involves corporate matters
that only the SEC can resolve. In Viray vs. Court of Appeals, 191 SCRA 308, 323 (1990), we
stressed that a contrary interpretation would dissipate the powers of the regular courts and
distort the meaning and intent of PD No.902-A.
It is true that the trend is toward vesting administrative bodies like the SEC with the power
to adjudicate matters coming under their particular specialization, to insure a more
knowledgeable solution of the problems submitted to them. This would also relieve the
regular courts of a substantial number of cases that would otherwise swell their already
clogged dockets. But as expedient as this policy may be, it should not deprive the courts of
justice of their power to decide ordinary cases in accordance with the general laws that do
not require any particular expertise or training to interpret and apply. Otherwise, the
creeping takeover by the administrative agencies of the judicial power vested in the courts
would render the Judiciary virtually impotent in the discharge of the dutiesassigned to it by
the Constitution.
Finally, we note that petitioners were given ample opportunity to present evidence in
support of their claims. But mere allegations do not constitute convincing evidence. We find
no sufficient reason to overturn thedecisionsof both theSEC and the appellate court.
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision and
resolution of the Court of Appeals dated October 8, 1993 and September 22, 1994,
respectively, are AFFIRMED. Costs against petitioners.
SO ORDERED.
Bellosillo (Chairman), Mendoza, Buena and De Leon, Jr., JJ., concur.
Petition denied, judgment and resolution affirmed.
_______________
13 Id.at 81-87.
474
474
Fajardo, Jr. vs. Freedom to Build,Inc.
Notes.The question of piercing the veil of corporate fiction is essentially a matter of proof.
(San Juan Structural and Steel Fabricators, Inc. vs. Court of Appeals, 296 SCRA 631 [1998])
The rationale behind piercing a corporations identity in a given case is to remove the barrier
between the corporation from the persons comprising it to thwart the fraudulent and illegal
schemes of those who use the corporate personality as a shield for undertaking certain
proscribed activities. (Francisco Motors Corporation vs. Courtof Appeals, 309 SCRA 72
[1999])
The fiction of corporate entity will be set aside only if it is shown that it is being used for
fraudulent, unfair, or illegal purposes, but the mere refusal of stockholders or directors to
pay attorneys fees does not make them guilty of fraud where, at the time of demand, the
amount due had not been finally determined. (Compania Maritima, Inc. vs. Court of Appeals,
318 SCRA 169 [1999])
o0o [Ramoso vs. Courtof Appeals, 347 SCRA 463(2000)]
470
Boyer-Roxas vs. Court of Appeals
G.R. No. 100866. July 14, 1992.*
REBECCA BOYER-ROXAS and GUILLERMO ROXAS, petitioners, vs. HON. COURT OF APPEALS
and HEIRS OF EUGENIA V. ROXAS, INC., respondents.
Remedial Law; Attorneys; A party is not bound by the actions of his counsel in case the gross
negligence of the counsel resulted in the clients deprivation of his property without due
process of law.The well-settled doctrine is that the client is bound by the mistakes of his
lawyer. (Aguila vs. Court of First Instance of Batangas, Branch I, 160 SCRA 352 [1988]; See
also Vivero v. Santos, et al., 98 Phil. 500 [1956]; Isaac v. Mendoza, 89 Phil. 279 [1951];
Montes v. Court of First Instance of Tayabas, 48 Phil. 640 [1926]; People v. Manzanilla, 43
Phil. 167 [1922]; United States vs. Dungca, 27 Phil. 274 [1914]; and United States v. Umali,
15 Phil. 33 [1910]) This rule, however, has its exceptions. Thus, in several cases, we ruled
that the party is not bound by the actions of his counsel in case the gross negligence of the
counsel resulted in the clients deprivation of his property without due process of law.
Corporation Law; Respondent corporation has a juridical personality of its own separate from
the members composing it.The respondent is a bona fide corporation. As such, it has a
juridical personality of its own separate from the members composing it.
Same; Same; Properties registered in the name of the corporation are owned by it as an
entity separate and distinct from its members.xxx Properties registered in the name of
the corporation are owned by it as an entity separate and distinct from its members. While
shares of stock constitute personal property, they do not represent property of the
corporation. The corporation has prop________________
*THIRD DIVISION.
471
VOL. 211,JULY14,1992
471
erty of its own which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75;
Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an aliquot part of
the corporations property, or the right to share in its proceeds to that extent when
distributed according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala., 398, 56
So. 235), but its holder is not the owner of any part of the capital of the corporation (Bradley
v. Bauder, 36 Ohio St., 28). Nor is he entitled to the possession of any definite portion of its
property or assets (Gottfried v. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The
stockholder is not a co-owner or tenant in common of the corporate property.
Same; Same; Same; An officers power as an agent of the corporation must be sought from
the statute, charter, the by-laws or in a delegation of authority to such officer, from the acts
of the board of directors, formally expressed or implied from a habit or custom of doing
business.Again, we must emphasize that the respondent corporation has a distinct
personality separate from its members. The corporation transacts its business only through
its officers or agents. (Western Agro Industrial Corporation v. Court of Appeals, supra)
Whatever authority these officers or agents may have is derived from the board of directors
or other governing body unless conferred by the charter of the corporation. An officers
power as an agent of the corporation must be sought from the statute, charter, the by-laws
or in a delegation of authority to such officer, from the acts of the board of directors,
formally expressed or implied from a habit or custom of doing business.
Same; Doctrine of piercing the veil of corporate fiction; The separate personality of the
corporation may be disregarded only when the corporation is used as a cloak or cover for
fraud or illegality or to work injustice or where necessary to achieve equity or when
necessary for the protection of the creditors.The petitioners suggestion that the veil of the
corporate fiction should be pierced is untenable. The separate personality of the corporation
may be disregarded only when the corporation is used as a cloak or cover for fraud or
illegality, or to work injustice, or where necessary to achieve equity or when necessary for
the protection of the creditors. (Sulo ng Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976]
cited in Tan Boon Bee & Co., Inc., v. Jarencio, supra and Western Agro Industrial Corporation
v. Court of Appeals, supra) The circumstances in the present cases do not fall under any of
the enumerated categories.
472
472
PETITION to review the decision and resolution of the Court of Appeals.

Oscar Z. Benares for petitioners.
Benito P. Fabie for private respondent.
GUTIERREZ, JR., J.:
This is a petition to review the decision and resolution of the Court of Appeals in CA-G.R. No.
14530 affirming the earlier decision of the Regional Trial Court of Laguna, Branch 37, at
Calamba, in the consolidated RTC Civil Case No. 802-84-C and 803-84-C entitled Heirs of
Eugenia V. Roxas, Inc. v. Rebecca Boyer-Roxas and Heirs of Eugenia V. Roxas, Inc. v.
Guillermo Roxas, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and
against the defendants, by ordering as it is hereby ordered that:
1) In RTC Civil Case No. 802-84-C: Rebecca Boyer-Roxas and all persons claiming under her
to:
a) Immediately vacate the residential house near the Balugbugan pool located inside the
premises of the Hidden Valley Springs Resort at Limao, Calauan, Laguna;
b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for her
occupancy of the residential house until the same is vacated;
c) Remove the unfinished building erected on the land of the plaintiff within ninety (90) days
from receipt of this decision;
d) Pay the plaintiff the amount of P100.00 per month from September 10, 1983, until the
said unfinished building is removed from the land of the plaintiff; and
e) Pay the costs.
2) In RTC Civil Case No. 803-84-C: Guillermo Roxas and all persons claiming under him to:
a) Immediately vacate the residential house near the tennis court located within the
premises of the Hidden Valley Springs Resort at Limao, Calauan, Laguna;
b) Pay the plaintiff the amount of P300.00 per month from
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473
September 10, 1983, for his occupancy of the said residential house until the same is
vacated; and
c) Pay the costs. (Rollo, p. 36)
In two (2) separate complaints for recovery of possession filed with the Regional Trial Court
of Laguna against petitioners Rebecca Boyer-Roxas and Guillermo Roxas respectively,
respondent corporation, Heirs of Eugenia V. Roxas, Inc., prayed for the ejectment of the
petitioners from buildings inside the Hidden Valley Springs Resort located at Limao, Calauan,
Laguna allegedly owned by the respondent corporation.
In the case of petitioner Rebecca Boyer-Roxas (Civil Case No. 802-84-C), the respondent
corporation alleged that Rebecca is in possession of two (2) houses, one of which is still
under construction, built at the expense of the respondent corporation; and that her
occupancy on the two (2) houses was only upon the tolerance of the respondent corporation.
In the case of petitioner Guillermo Roxas (Civil Case No. 803-84-C), the respondent
corporation alleged that Guillermo occupies a house which was built at the expense of the
former during the time when Guillermos father, Eriberto Roxas, was still living and was the
general manager of the respondent corporation; that the house was originally intended as a
recreation hall but was converted for the residential use of Guillermo; and that Guillermos
possession over the house and lot was only upon the tolerance of the respondent
corporation.
In both cases, the respondent corporation alleged that the petitioners never paid rentals for
the use of the buildings and the lots and that they ignored the demand letters for them to
vacate the buildings.
In their separate answers, the petitioners traversed the allegations in the complaint by
stating that they are heirs of Eugenia V. Roxas and therefore, co-owners of the Hidden Valley
Springs Resort; and as co-owners of the property, they have the right to stay within its
premises.
The cases were consolidated and tried jointly.
At the pre-trial, the parties limited the issues as follows:
1) whether plaintiff is entitled to recover the questioned premises;
474
474
2) whether plaintiff is entitled to reasonable rental for occupancy of the premises in
question;
3) whether the defendant is legally authorized to pierce the veil of corporate fiction and
interpose the same as a defense in an accion publiciana;
4) whether the defendants are truly builders in good faith, entitled to occupy the questioned
premises;
5) whether plaintiff is entitled to damages and reasonable compensation for the use of the
questioned premises;
6) whether the defendants are entitled to their counterclaim to recover moral and exemplary
damages as well as attorneys fees in the two cases;
7) whether the presence and occupancy by the defendants on the premises in questioned
(sic) hampers, deters or impairs plaintiffs operation of Hidden Valley Springs Resort; and
8) whether or not a unilateral and sudden withdrawal of plaintiffs tolerance allowing
defendants occupancy of the premises in questioned (sic) is unjust enrichment. (Original
Records, 486)
Upon motion of the plaintiff respondent corporation, Presiding Judge Francisco Ma. Guerrero
of Branch 34 issued an Order dated April 25, 1986 inhibiting himself from further trying the
case. The cases were re-raffled to Branch 37 presided by Judge Odilon Bautista. Judge
Bautista continued the hearing of the cases.
For failure of the petitioners (defendants below) and their counsel to attend the October 22,
1986 hearing despite notice, and upon motion of the respondent corporation, the court
issued on the same day, October 22, 1986, an Order considering the cases submitted for
decision. At this stage of the proceedings, the petitioners had not yet presented their
evidence while the respondent corporation had completed the presentation of its evidence.
The evidence of the respondent corporation upon which the lower court based its decision is
as follows:
To support the complaints, the plaintiff offered the testimonies of Maria Milagros Roxas and
that of Victoria Roxas Villarta as well as Exhibits A to M-3.
The evidence of the plaintiff established the following: that the plaintiff, Heirs of Eugenia V.
Roxas, Incorporated, was incorporated on December 4, 1962 (Exh. C) with the primary
purpose of engaging
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475
in agriculture to develop the properties inherited from Eugenia V. Roxas and that of Eufrocino
Roxas; that the Articles of Incorporation of the plaintiff, in 1971, was amended to allow it to
engage in the resort business (Exh. C-1); that the incorporators as original members of the
board of directors of the plaintiff were all members of the same family, with Eufrocino Roxas
having the biggest share; that accordingly, the plaintiff put up a resort known as Hidden
Valley Springs Resort on a portion of its land located at Bo. Limao, Calauan, Laguna, and
covered by TCT No. 32639 (Exhs. A and A-1); that improvements were introduced in the
resort by the plaintiff and among them were cottages, houses or buildings, swimming pools,
tennis court, restaurant and open pavilions; that the house near the Balugbugan Pool (Exh.
B-1) being occupied by Rebecca B. Roxas was originally intended as staff house but later
used as the residence of Eriberto Roxas, deceased husband of the defendant Rebecca BoyerRoxas and father of Guillermo Roxas; that this house presently being occupied by Rebecca B.
Roxas was built from corporate funds; that the construction of the unfinished house (Exh. B2) was started by the defendant Rebecca Boyer-Roxas and her husband Eriberto Roxas; that
the third building (Exh. B-3) presently being occupied by Guillermo Roxas was originally
intended as a recreation hall but later converted as a residential house; that this house was
built also from corporate funds; that the said house occupied by Guillermo Roxas when it
was being built had nipa roofing but was later changed to galvanized iron sheets; that at the
beginning, it had no partition downstairs and the second floor was an open space; that the
conversion from a recreation hall to a residential house was with the knowledge of Eufrocino
Roxas and was not objected to by any of the Board of Directors of the plaintiff; that most of
the materials used in converting the building into a residential house came from the
materials left by Coppola, a film producer, who filmed the movie Apocalypse Now; that
Coppola left the materials as part of his payment for rents of the rooms that he occupied in
the resort; that after the said recreation hall was converted into a residential house,
defendant Guillermo Roxas moved in and occupied the same together with his family
sometime in 1977 or 1978; that during the time Eufrocino Roxas was still alive, Eriberto
Roxas was the general manager of the corporation and there was seldom any board
meeting; that Eufrocino Roxas together with Eri-berto Roxas were (sic) the ones who were
running the corporation; that during this time, Eriberto Roxas was the restaurant and wine
concessionaire of the resort; that after the death of Eufrocino Roxas, Eriberto Roxas
continued as the general manager until his death in 1980; that after the death of Eriberto
Roxas in 1980, the defendants Rebecca B. Roxas and Guillermo Roxas, committed acts that
impeded the plain476
476
tiffs expansion and normal operation of the resort; that the plaintiff could not even use its
own pavilions, kitchen and other facilities because of the acts of the defendants which led to
the filing of criminal cases in court; that cases were even filed before the Ministry of Tourism,
Bureau of Domestic Trade and the Office of the President by the parties herein; that the
defendants violated the resolution and orders of the Ministry of Tourism dated July 28, 1983,
August 3, 1983 and November 26, 1984 (Exhs. G, H and H-1) which ordered them or the
corporation they represent to desist from and to turn over immediately to the plaintiff the
management and operation of the restaurant and wine outlets of the said resort (Exh. G-1);
that the defendants also violated the decision of the Bureau of Domestic Trade dated
October 23, 1983 (Exh. C); that on August 27, 1983, because of the acts of the defendants,
the Board of Directors of the plaintiff adopted Resolution No. 83-12 series of 1983 (Exh. F)
authorizing the ejectment of the defendants from the premises occupied by them; that on
September 1, 1983, demand letters were sent to Rebecca BoyerRoxas and Guillermo Roxas
(Exhs. D and D-1) demanding that they vacate the respective premises they occupy; and
that the dispute between the plaintiff and the defendants was brought before the barangay
level and the same was not settled (Exhs. E and E-1). (Original Records, pp. 454-456)
The petitioners appealed the decision to the Court of Appeals. However, as stated earlier,
the appellate court affirmed the lower courts decision. The petitioners motion for
reconsideration was likewise denied.
Hence, this petition.
In a resolution dated February 5, 1992, we gave due course to the petition.
The petitioners now contend:
I Respondent Court erred when it refused to pierce the veil of corporate fiction over private
respondent and maintain the petitioners in their possession and/or occupancy of the subject
premises considering that petitioners are owners of aliquot part of the properties of private
respondent. Besides, private respondent itself discarded the mantle of corporate fiction by
acts and/or omissions of its board of directors and/or stockholders.
II The respondent Court erred in not holding that petitioners were in fact denied due process
or their day in court brought about by the gross negligence of their former counsel.
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VOL. 211,JULY14,1992
477
III The respondent Court misapplied the law when it ordered petitioner Rebecca Boyer-Roxas
to remove the unfinished building in RTC Case No. 802-84-C, when the trial court opined that
she spent her own funds for the construction thereof. (CA Rollo, pp. 17-18)
Were the petitioners denied due process of law in the lower court?
After the cases were re-raffled to the sala of Presiding Judge Odilon Bautista of Branch 37 the
following events transpired:
On July 3, 1986, the lower court issued an Order setting the hearing of the cases on July 21,
1986. Petitioner Rebecca V. Roxas received a copy of the Order on July 15, 1986, while
petitioner Guillermo Roxas received his copy on July 18, 1986. Atty. Conrado Manicad, the
petitioners counsel received another copy of the Order on July 11, 1986. (Original Records,
p. 260)
On motion of the respondent corporations counsel, the lower court issued an Order dated
July 15, 1986 cancelling the July 21, 1986 hearing and resetting the hearing to August 11,
1986. (Original records, 262-263) Three separate copies of the order were sent and received
by the petitioners and their counsel. (Original Records, pp. 268, 269, 271)
A motion to cancel and re-schedule the August 11, 1986 hearing filed by the respondent
corporations counsel was denied in an Order dated August 8, 1986. Again separate copies
of the Order were sent and received by the petitioners and their counsel. (Original Records,
pp. 276-279)
At the hearing held on August 11, 1986, only Atty. Benito P. Fabie, counsel for the respondent
corporation appeared. Neither the petitioners nor their counsel appeared despite the notice
of hearing. The lower court then issued an Order on the same date, to wit:
O R D E R
When these cases were called for continuation of trial, Atty. Benito P. Fabie appeared before
this Court, however, the defendants and their lawyer despite receipt of the Order setting the
case for hearing today failed to appear. On Motion of Atty. Fabie, further cross examination of
witness Victoria Vallarta is hereby considered as having been waived.
478
478
The plaintiff is hereby given twenty (20) days from today within which to submit formal offer
of evidence and defendants are also given ten (10) days from receipt of such formal offer of
evidence to file their objection thereto.
In the meantime, hearing in these cases is set to September 29, 1986 at 10:00 oclock in the
morning. (Original Records, p. 286)
Copies of the Order were sent and received by the petitioners and their counsel on the
following datesRebecca Boyer-Roxas on August 20, 1986, Guillermo Roxas on August 26,
1986, and Atty. Conrado Manicad on September 19, 1986. (Original Records, pp. 288-290)
On September 1, 1986, the respondent corporation filed its Formal Offer of Evidence. In an
Order dated September 29, 1986, the lower court issued an Order admitting exhibits A to
M-3 submitted by the respondent corporation in its Formal Offer of Evidence x x x there
being no objection x x x. (Original Records, p. 418) Copies of this Order were sent and
received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas
on October 9, 1986; Guillermo Roxas on October 9, 1986 and Atty. Conrado Manicad on
October 4, 1986 (Original Records, pp. 420, 421, 428).
The scheduled hearing on September 29, 1986 did not push through as the petitioners and
their counsel were not present prompting Atty. Benito Fabie, the respondent corporations
counsel to move that the cases be submitted for decision. The lower court denied the motion
and set the cases for hearing on October 22, 1986. However, in its Order dated September
29, 1986, the court warned that in the event the petitioners and their counsel failed to
appear on the next scheduled hearing, the court shall consider the cases submitted for
decision based on the evidence on record. (Original Records, p. 429, 430 and 431)
Separate copies of this Order were sent and received by the petitioners and their counsel on
the following dates: Rebecca Boyer-Roxas on October 9, 1986, Guillermo Roxas on October
9, 1986; and Atty. Conrado Manicad on October 1, 1986. (Original Records, pp. 429-430)
Despite notice, the petitioners and their counsel again failed to attend the scheduled
October 22, 1986 hearing. Atty. Fabie
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VOL. 211,JULY14,1992
479
representing the respondent corporation was present. Hence, in its Order dated October 22,
1986, on motion of Atty. Fabie and pursuant to the order dated September 29, 1986, the
Court considered the cases submitted for decision. (Original Records, p. 436)
On November 14, 1986, the respondent corporation, filed a Manifestation, stating that x x
x it is submitting without further argument its Opposition to the Motion for Reconsideration
for the consideration of the Honorable Court in resolving subject incident. (Original Records,
p. 442)
On December 16, 1986, the lower court issued an Order, to wit:
O R D E R
Considering that the Court up to this date has not received any Motion for Reconsideration
filed by the defendants in the above-entitled cases, the Court cannot act on the Opposition
to Motion for Reconsideration filed by the plaintiff and received by the Court on November
14, 1986. (Original Records, p. 446)
On January 15, 1987, the lower court rendered the questioned decision in the two (2) cases.
(Original Records, pp. 453-459)
On January 20, 1987, Atty. Conrado Manicad, the petitioners counsel filed an Ex-Parte
Manifestation and attached thereto, a motion for reconsideration of the October 22, 1986
Order submitting the cases for decision. He prayed that the Order be set aside and the cases
be re-opened for reception of evidence for the petitioners. He averred that: 1) within the
reglementary period he prepared the motion for reconsideration and among other
documents, the draft was sent to his law office thru his messenger; after signing the final
copies, he caused the service of a copy to the respondent corporations counsel with the
instruction that the copy of the Court be filed; however, there was a miscommunication
between his secretary and messenger in that the secretary mailed the copy for the
respondent corporations counsel and placed the rest in an envelope for the messenger to
file the same in court but the messenger thought that it was the secretary who would file it;
it
480
480
was only later on when it was discovered that the copy for the Court has not yet been filed
and that such failure to file the motion for reconsideration was due to excusable neglect
and/or accident. The motion for reconsideration contained the following allegations: that on
the date set for hearing (October 22, 1986), he was on his way to Calamba to attend the
hearing but his car suffered transmission breakdown; and that despite efforts to repair said
transmission, the car remained inoperative resulting in his absence at the said hearing.
(Original Records, pp. 460-469)
On February 3, 1987, Atty. Manicad filed a motion for reconsideration of the January 15, 1987
decision. He explained that he had to file the motion because the receiving clerk refused to
admit the motion for reconsideration attached to the ex-parte manifestation because there
was no proof of service to the other party. Included in the motion for reconsideration was a
notice of hearing of the motion on February 3, 1987. (Original Records, p. 476-A)
On February 4, 1987, the respondent corporation through its counsel filed a Manifestation
and Motion manifesting that they received the copy of the motion for reconsideration only
today (February 4, 1987), hence they prayed for the postponement of the hearing. (Original
On the same day, February 4, 1987, the lower court issued an Order setting the hearing on
February 13, 1987 on the ground that it received the motion for reconsideration late. Copies
of this Order were sent separately to the petitioners and their counsel. The records show
that Atty. Manicad received his copy on February 11, 1987. As regards the petitioners, the
records reveal that Rebecca Boyer-Roxas did not receive her copy while as regards Guillermo
Roxas, somebody signed for him but did not indicate when the copy was received. (Original
At the scheduled February 13, 1987 hearing, the counsels for the parties were present.
However, the hearing was reset for March 6, 1987 in order to allow the respondent
corporation to file its opposition to the motion for reconsideration. (Order dated February 13,
1987, Original Records, p. 486) Copies of the Order were sent and received by the
petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on Febru481
VOL. 211,JULY14,1992
481
ary 23, 1987; Guillermo Roxas on February 23, 1987 and Atty. Manicad on February 19,
1987. (Original Records, pp. 487, 489-490)
The records are not clear as to whether or not the scheduled hearing on March 6, 1987 was
held. Nevertheless, the records reveal that on March 13, 1987, the lower court issued an
Order denying the motion for reconsideration.
The well-settled doctrine is that the client is bound by the mistakes of his lawyer. (Aguila v.
Court of First Instance of Batangas, Branch I, 160 SCRA 352 [1988]; See also Vivero v.
Santos, et al., 98 Phil. 500 [1956]; Isaac v. Mendoza, 89 Phil. 279 [1951]; Montes v. Court of
First Instance of Tayabas, 48 Phil. 640 [1926]; People vs. Manzanilla, 43 Phil. 167 [1922];
United States v. Dungca, 27 Phil. 274 [1914]; and United States v. Umali, 15 Phil. 33 [1910])
This rule, however, has its exceptions. Thus, in several cases, we ruled that the party is not
bound by the actions of his counsel in case the gross negligence of the counsel resulted in
the clients deprivation of his property without due process of law. In the case of Legarda v.
Court of Appeals (195 SCRA 418 [1991]), we said:
In Peoples Homesite & Housing Corp. v. Tiongco and Escasa (12 SCRA 471 [1964]), this
Court ruled as follows:
Procedural technicality should not be made a bar to the vindication of a legitimate
grievance. When such technicality deserts from being an aid to justice, the courts are
justified in excepting from its operation a particular case. Where there was something fishy
and suspicious about the actuations of the former counsel of petitioners in the case at bar,
in that he did not give any significance at all to the processes of the court, which has proven
prejudicial to the rights of said clients, under a lame and flimsy explanation that the courts
processes just escaped his attention, it is held that said lawyer deprived his clients of their
day in court, thus entitling said clients to petition for relief from judgment despite the lapse
of the reglementary period for filing said period for filing said petition.
In Escudero v. Judge Dulay (158 SCRA 69 [1988]), this Court, in holding that the counsels
blunder in procedure is an exception to the rule that the client is bound by the mistakes of
counsel, made the following disquisition:
482
482
Petitioners contend, through their new counsel, that the judgment rendered against them
by the respondent court was null and void, because they were therein deprived of their day
in court and divested of their property without due process of law, through the gross
ignorance, mistake and negligence of their previous counsel. They acknowledge that, while
as a rule, clients are bound by the mistake of their counsel, the rule should not be applied
automatically to their case, as their trial counsels blunder in procedure and gross ignorance
of existing jurisprudence changed their cause of action and violated their substantial rights.
We are impressed with petitioners contentions.
xxx
While this Court is cognizant of the rule that, generally, a client will suffer consequences of
the negligence, mistake or lack of competence of his counsel, in the interest of justice and
equity, exceptions may be made to such rule, in accordance with the facts and
circumstances of each case. Adherence to the general rule would, in the instant case, result
in the outright deprivation of their property through a technicality.
In its questioned decision dated November 19, 1989 the Court of Appeals found, in no
uncertain terms, the negligence of the then counsel for petitioners when he failed to file the
proper motion to dismiss or to draw a compromise agreement if it was true that they agreed
on a settlement of the case; or in simply filing an answer; and that after having been
furnished a copy of the decision by the court he failed to appeal therefrom or to file a
petition for relief from the order declaring petitioners in default. In all these instances the
appellate court found said counsel negligent but his acts were held to bind his client,
petitioners herein, nevertheless.
The Court disagrees and finds that the negligence of counsel in this case appears to be so
gross and inexcusable. This was compounded by the fact, that after petitioner gave said
counsel another chance to make up for his omissions by asking him to file a petition for
annulment of the judgment in the appellate court, again counsel abandoned the case of
petitioner in that after he received a copy of the adverse judgment of the appellate court, he
did not do anything to save the situation or inform his client of the judgment. He allowed the
judgment to lapse and become final. Such reckless and gross negligence should not be
allowed to bind the petitioner. Petitioner was thereby effectively deprived of her day in
court. (at pp. 426-427)
483
VOL. 211,JULY14,1992
483
The herein petitioners, however, are not similarly situated as the parties mentioned in the
abovecited cases. We cannot rule that they, too, were victims of the gross negligence of
their counsel.
The petitioners are to be blamed for the October 22, 1986 order issued by the lower court
submitting the cases for decision. They received notices of the scheduled hearings and yet
they did not do anything. More specifically, the parties received notice of the Order dated
September 29, 1986 with the warning that if they fail to attend the October 22, 1986
hearing, the cases would be submitted for decision based on the evidence on record. Earlier,
at the scheduled hearing on September 29, 1986, the counsel for the respondent
corporation moved that the cases be submitted for decision for failure of the petitioners and
their counsel to attend despite notice. The lower court denied the motion and gave the
petitioners and their counsel another chance by rescheduling the October 22, 1986 hearing.
Indeed, the petitioners knew all along that their counsel was not attending the scheduled
hearings. They did not take steps to change their counsel or make him attend to their cases
until it was too late. On the contrary, they continued to retain the services of Atty. Manicad
knowing fully well his lapses vis-a-vis their cases. They, therefore, cannot raise the alleged
gross negligence of their counsel resulting in their denial of due process to warrant the
reversal of the lower courts decision. In a similar case, Aguila v. Court of First Instance of
Batangas, Branch 1 (supra), we ruled:
In the instant case, the petitioner should have noticed the succession of errors committed
by his counsel and taken appropriate steps for his replacement before it was altogether too
late. He did not. On the contrary, he continued to retain his counsel through the series of
proceedings that all resulted in the rejection of his cause, obviously through such counsels
ineptitude and, let it be added, the clients forbearance. The petitioners reverses should
have cautioned him that his lawyer was mishandling his case and moved him to seek the
help of other counsel, which he did in the end but rather tardily.
Now petitioner wants us to nullify all of the antecedent proceedings and recognize his earlier
claims to the disputed property on the justification that his counsel was grossly inept. Such a
reason is hardly plausible as the petitioners new counsel should know. Other484
484
wise, all a defeated party would have to do to salvage his case is claim neglect or mistake
on the part of his counsel as a ground for reversing the adverse judgment. There would be
no end to litigation if these were allowed as every shortcoming of counsel could be the
subject of challenge by his client through another counsel who, if he is also found wanting,
would likewise be disowned by the same client through another counsel, and so on ad
infinitum. This would render court proceedings indefinite, tentative and subject to reopening
at any time by the mere subterfuge of replacing counsel. (at pp. 357-358)
We now discuss the merits of the cases.
In the first assignment of error, the petitioners maintain that their possession of the
questioned properties must be respected in view of their ownership of an aliquot portion of
all the properties of the respondent corporation being stockholders thereof. They propose
that the veil of corporate fiction be pierced, considering the circumstances under which the
respondent corporation was formed.
Originally, the questioned properties belonged to Eugenia V. Roxas. After her death, the heirs
of Eugenia V. Roxas, among them the petitioners herein, decided to form a corporation
Heirs of Eugenia V. Roxas, Incorporated (private respondent herein) with the inherited
properties as capital of the corporation. The corporation was incorporated on December 4,
1962 with the primary purpose of engaging in agriculture to develop the inherited
properties. The Articles of Incorporation of the respondent corporation were amended in

1971 to allow it to engage in the resort business. Accordingly, the corporation put up a
resort known as Hidden Valley Springs Resort where the questioned properties are located.
These facts, however, do not justify the position taken by the petitioners.
The respondent is a bona fide corporation. As such, it has a juridical personality of its own
separate from the members composing it. (Western Agro Industrial Corporation v. Court of
Appeals, 188 SCRA 709 [1990]; Tan Boon Bee & Co., Inc. v. Jarencio, 163 SCRA 205 [1988];
Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio Cano
Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 [1965]) There is no dispute
that title over the questioned land where the Hidden Valley Springs Resort is located is
registered
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VOL. 211,JULY14,1992
485
in the name of the corporation. The records also show that the staff house being occupied by
petitioner Rebecca Boyer-Roxas and the recreation hall which was later on converted into a
residential house occupied by petitioner Guillermo Roxas are owned by the respondent
corporation. Regarding properties owned by a corporation, we stated in the case of
Stockholders of F. Guanzon and Sons, Inc. v. Register of Deeds of Manila, (6 SCRA 373
[1962]):
xxx
xxx
xxx
x x x Properties registered in the name of the corporation are owned by it as an entity

separate and distinct from its members. While shares of stock constitute personal property,
they do not represent property of the corporation. The corporation has property of its own
which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75; Morrow v.
Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an aliquot part of the
corporations property, or the right to share in its proceeds to that extent when distributed
according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala., 398, 56 So. 235),
but its holder is not the owner of any part of the capital of the corporation (Bradley v.
Bauder, 36 Ohio St., 28). Nor is he entitled to the possession of any definite portion of its
property or assets (Gottfried v. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The
stock-holder is not a co-owner or tenant in common of the corporate property (Harton v.
Johnston, 166 Ala., 317, 51 So., 992). (at pp. 375-376)
The petitioners point out that their occupancy of the staff house which was later used as the
residence of Eriberto Roxas, husband of petitioner Rebecca Boyer-Roxas and the recreation
hall which was converted into a residential house were with the blessings of Eufrocino Roxas,
the deceased husband of Eugenia V. Roxas, who was the majority and controlling
stockholder of the corporation. In his lifetime, Eufrocino Roxas together with Eriberto Roxas,
the husband of petitioner Rebecca Boyer-Roxas, and the father of petitioner Guillermo Roxas
managed the corporation. The Board of Directors did not object to such an arrangement. The
petitioners argue that x x x the authority thus given by Eufrocino Roxas for the conversion
of the recreation hall into a residential house can no longer be questioned by the
stockholders of the private respondent and/or its board of
486
486
directors for they impliedly but no less explicitly delegated such authority to said Eufrocino
Roxas. (Rollo, p. 12)
Again, we must emphasize that the respondent corporation has a distinct personality
separate from its members. The corporation transacts its business only through its officers
or agents. (Western Agro Industrial Corporation v. Court of Appeals, supra) Whatever
authority these officers or agents may have is derived from the board of directors or other
governing body unless conferred by the charter of the corporation. An officers power as an
agent of the corporation must be sought from the statute, charter, the by-laws or in a
delegation of authority to such officer, from the acts of the board of directors, formally
expressed or implied from a habit or custom of doing business. (Vicente v. Geraldez, 52
SCRA 210 [1973])
In the present case, the record shows that Eufrocino V. Roxas who then controlled the
management of the corporation, being the majority stockholder, consented to the
petitioners stay within the questioned properties. Specifically, Eufrocino Roxas gave his
consent to the conversion of the recreation hall to a residential house, now occupied by
petitioner Guillermo Roxas. The Board of Directors did not object to the actions of Eufrocino
Roxas. The petitioners were allowed to stay within the questioned properties until August 27,
1983, when the Board of Directors approved a Resolution ejecting the petitioners, to wit:
R E S O L U T I O N No. 83-12
RESOLVED, That Rebecca B. Roxas and Guillermo Roxas, and all persons claiming under
them, be ejected from their occupancy of the Hidden Valley Springs compound on which
their houses have been constructed and/or are being constructed only on tolerance of the
Corporation and without any contract therefor, in order to give way to the Corporations
expansion and improvement program and obviate prejudice to the operation of the Hidden
Valley Springs Resort by their continued interference.
RESOLVED, Further that the services of Atty. Benito P. Fabie be engaged and that he be
authorized as he is hereby authorized to effect the ejectment, including the filing of the
corresponding suits, if necessary to do so. (Original Records, p. 327)
487
VOL. 211,JULY14,1992
487
We find nothing irregular in the adoption of the Resolution by the Board of Directors. The
petitioners stay within the questioned properties was merely by tolerance of the respondent
corporation in deference to the wishes of Eufrocino Roxas, who during his lifetime, controlled
and managed the corporation. Eufrocino Roxas actions could not have bound the
corporation forever. The petitioners have not cited any provision of the corporation by-laws
or any resolution or act of the Board of Directors which authorized Eufrocino Roxas to allow
them to stay within the company premises forever. We rule that in the absence of any
existing contract between the petitioners and the respondent corporation, the corporation
may elect to eject the petitioners at any time it wishes for the benefit and interest of the
respondent corporation.
The petitioners suggestion that the veil of the corporate fiction should be pierced is
untenable. The separate personality of the corporation may be disregarded only when the
corporation is used as a cloak or cover for fraud or illegality, or to work injustice, or where
necessary to achieve equity or when necessary for the protection of the creditors. (Sulo ng
Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976] cited in Tan Boon Bee & Co., Inc., v.
Jarencio, supra and Western Agro Industrial Corporation v. Court of Appeals, supra) The
circumstances in the present cases do not fall under any of the enumerated categories.
In the third assignment of error, the petitioners insist that as regards the unfinished building,
Rebecca Boyer-Roxas is a builder in good faith.
The construction of the unfinished building started when Eriberto Roxas, husband of Rebecca
Boyer-Roxas, was still alive and was the general manager of the respondent corporation. The
couple used their own funds to finance the construction of the building. The Board of
Directors of the corporation, however, did not object to the construction. They allowed the
construction to continue despite the fact that it was within the property of the corporation.
Under these circumstances, we agree with the petitioners that the provision of Article 453 of
the Civil Code should have been applied by the lower courts.
Article 453 of the Civil Code provides:
488
488
If there was bad faith, not only on the part of the person who built, planted or sown on the
land of another but also on the part of the owner of such land, the rights of one and the
other shall be the same as though both had acted in good faith.
In such a case, the provisions of Article 448 of the Civil Code govern the relationship
between petitioner Rebecca Boyer-Roxas and the respondent corporation, to wit:
ART.448The owner of the land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the works, sowing or planting after
payment of the indemnity provided for in articles 546 and 548, or to oblige the one who built
or planted to pay the price of the land, and the one who sowed, the proper rent. However,
the builder or planter cannot be obliged to buy the land if its value is considerably more than
that of the building or trees. In such case, he shall pay reasonable rent, if the owner of the
land does not choose to appropriate the buildings or trees after proper indemnity. The
parties shall agree upon the terms of the lease and in case of disagreement, the court shall
fix the terms thereof.
WHEREFORE, the present petition is partly GRANTED. The questioned decision of the Court
of Appeals affirming the decision of the Regional Trial Court of Laguna, Branch 37, in RTC
Civil Case No. 802-84-C is MODIFIED in that subparagraphs (c) and (d) of Paragraph 1 of the
dispositive portion of the decision are deleted. In their stead, the petitioner Rebecca BoyerRoxas and the respondent corporation are ordered to follow the provisions of Article 448 of
the Civil Code as regards the questioned unfinished building in RTC Civil Case No. 802-84-C.
The questioned decision is affirmed in all other respects.
SO ORDERED.
Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur.
Petition partly granted.
Note.Litigants are bound by acts of their counsel, except in case of bad faith on the part of
the latter (Eden vs. Ministry of Labor and Employment, 182 SCRA 840).
o0o [Boyer-Roxas vs. Court of Appeals, 211 SCRA 470(1992)]
738
Francisco vs. Mejia
G.R. No. 141617. August 14, 2001.*
ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION, petitioners, vs. RITA
C. MEJIA, as Executrix of the Testate Estate of ANDREA CORDOVA VDA. DE GUTIERREZ,
respondent.
Corporation Law; Doctrine of Piercing the Veil of Corporate Fiction; When the legal fiction of
the separate corporate personality is abused, such as when the same is used for fraudulent
or wrongful ends, the courts have not hesitated to pierce the corporate veil.It is dicta in
corporation law that a corporation is a juridical person with a separate and distinct
personality from that of the stockholders or members who compose it. However, when the
legal fiction of the separate corporate personality is abused, such as when the same is used
for fraudulent or wrongful ends, the courts have not hesitated to pierce the corporate veil.
One of the earliest formulations of this doctrine of piercing the corporate veil was made in
the American case of United States v. Milwaukee Refrigerator Transit Co.If any general rule
can be laid down, in the present state of authority, it is that a corporation will be looked
upon as a legal entity as a general rule, and until sufficient reason to the contrary appears;
but, when the notion of legal entity is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, the law will regard the corporation as an association of
persons.
Same; Same; If it is proven that the corporate officer has used the corporate fiction to
defraud a third party, or that he has acted negligently, maliciously or in bad faith, then the
corporate veil shall be lifted and he shall be held personally liable for the particular
corporate obligation involved.With specific regard to corporate officers, the general rule is
that the officer cannot be held personally liable with the corporation, whether
_______________
* THIRD DIVISION.
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VOL. 362, AUGUST 14, 2001

739
Francisco vs. Mejia
civilly or otherwise, for the consequences of his acts, if he acted for and in behalf of the
corporation, within the scope of his authority and in good faith. In such cases, the officers
acts are properly attributed to the corporation. However, if it is proven that the officer has
used the corporate fiction to defraud a third party, or that he has acted negligently,
maliciously or in bad faith, then the corporate veil shall be lifted and he shall be held
personally liable for the particular corporate obligation involved.
Same; Same; Mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality.That Merryland acquired the property at
the public auction only serves to shed more light upon Franciscos fraudulent purposes.
Based on the findings of the Court of Appeals, Francisco is the controlling stockholder and
President of Merryland. Thus, aside from the instrumental role she played as an officer of
Cardale, in evading that corporations legitimate obligations to Gutierrez, it appears that
Franciscos actions were also oriented towards securing advantages for another corporation
in which she had a substantial interest. We cannot agree, however, with the Court of
Appeals decision to hold Merryland solidarily liable with Francisco. The only act imputable to
Merryland in relation to the mortgaged properties is that it purchased the same and this by
itself is not a fraudulent or wrongful act. No evidence has been adduced to establish that
Merryland was a mere alter ego or business conduit of Francisco. Time and again, it has
been reiterated that mere ownership by a single stockholder or by another corporation of all
or nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality. Neither has it been alleged or proven that
Merryland is so organized and controlled and its affairs are so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of Cardale. Even assuming that the
businesses of Cardale and Merryland are interrelated, this alone is not justification for
disregarding their separate personalities, absent any showing that Merryland was purposely
used as a shield to defraud creditors and third persons of their rights. Thus, Merrylands
separate juridical personality must be upheld.

Napoleon M. Malima for petitioners.
Padilla, Jimenez, Kintanar & Asuncion for respondent.
740
740

Francisco vs. Mejia
GONZAGA-REYES, J.:
In this petition for review by certiorari, petitioners pray for the setting aside of the Decision
of the Court of Appeals promulgated on 13 April 1999 and its 15 December 1999 Resolution
in CA-G.R. CV No. 19281.
As culled from the decisions of the lower courts and the pleadings of the parties, the factual
background of this case is as set out herein:
Andrea Cordova Vda. de Gutierrez (Gutierrez) was the registered owner of a parcel of land in
Camarin, Caloocan City known as Lot 861 of the Tala Estate. The land had an aggregate area
of twenty-five (25) hectares and was covered by Transfer Certificate of Title (TCT) No. 5779
of the Registry of Deeds of Caloocan City. The property was later subdivided into five lots
with an area of five hectares each and pursuant thereto, TCT No. 5779 was cancelled and
five new transfer certificates of title were issued in the name of Gutierrez, namely TCT No.
7123 covering Lot 861-A, TCT No. 7124 covering Lot 861-B, TCT No. 7125 covering Lot 861C, TCT No. 7126 covering Lot 861-D and TCT No. 7127 covering Lot 861-E.
On 21 December 1964, Gutierrez and Cardale Financing and Realty Corporation (Cardale)
executed a Deed of Sale with Mortgage relating to the lots covered by TCT Nos. 7124, 7125,
7126 and 7127, for the consideration of P800,000.00. Upon the execution of the deed,
Cardale paid Gutierrez P171,000.00. It was agreed that the balance of P629,000.00 would be
paid in several installments within five years from the date of the deed, at an interest of nine
percent per annum based on the successive unpaid principal balances. Thereafter, the
titles of Gutierrez were cancelled and in lieu thereof TCT Nos. 7531 to 7534 were issued in
favor of Cardale.
To secure payment of the balance of the purchase price, Cardale constituted a mortgage on
three of the four parcels of land covered by TCT Nos. 7531, 7532 and 7533, encompassing
fifteen hectares of land.1 The encumbrance was annotated upon the certificates of title
_______________
1 Referred to as TCT Nos. 7125, 7126 and 7127 in the Deed of Sale with Mortgage.
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VOL. 362, AUGUST 14, 2001

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Francisco vs. Mejia
and the owners duplicate certificates. The owners duplicates were retained by Gutierrez.
On 26 August 1968, owing to Cardales failure to settle its mortgage obligation, Gutierrez
filed a complaint for rescission of the contract with the Quezon City Regional Trial Court
(RTC), which was docketed as Civil Case No. Q-12366,2 On 20 October 1969, during the
pendency of the rescission case, Gutierrez died and was substituted by her executrix,
respondent Rita C. Mejia (Mejia). In 1971, plaintiffs presentation of evidence was
terminated. However, Cardale, which was represented by petitioner Adalia B. Francisco
(Francisco) in her capacity as Vice-President and Treasurer of Cardale, lost interest in
proceeding with the presentation of its evidence and the case lapsed into inactive status for
a period of about fourteen years.
In the meantime, the mortgaged parcels of land covered by TCT Nos. 7532 and 7533
became delinquent in the payment of real estate taxes in the amount of P 102,300.00, while
the other mortgaged property covered by TCT No. 7531 became delinquent in the amount of
P89,231.37, which culminated in their levy and auction sale on 1 and 12 September 1983, in
satisfaction of the tax arrears. The highest bidder for the three parcels of land was petitioner
Merryland Development Corporation (Merryland), whose President and majority stockholder
is Francisco. A memorandum based upon the certificate of sale was then made upon the
original copies of TCT Nos. 7531 to 7533.
On 13 August 1984, before the expiration of the one-year redemption period, Mejia filed a
Motion for Decision with the trial court. The hearing of said motion was deferred, however,
due to a Motion for Postponement filed by Cardale through Francisco, who signed the motion
in her capacity as officer-in-charge, claiming that Cardale needed time to hire new counsel.
However, Francisco did not mention the tax delinquencies and sale in favor of Merryland.
Subsequently, the redemption period expired and Merryland, acting through Francisco, filed
petitions for consolidation of title,3
_______________
2 Entitled Andrea Cordova Vda. de Gutierrez v. Cardale Financing and Realty Corporation.
3 LCR Reg. Case No. 8563 and LRC Reg. Case No. C-2640.
742
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Francisco vs. Mejia
which culminated in the issuance of certain orders4 decreeing the cancellation of Cardales
TCT Nos. 7531 to 7533 and the issuance of new transfer certificates of title free from any
encumbrance or third-party claim whatsoever in favor of Merryland. Pursuant to such
orders, the Register of Deeds of Caloocan City issued new transfer certificates of title in the
name of Merryland which did not bear a memorandum of the mortgage liens in favor of
Gutierrez.
Thereafter, sometime in June 1985, Francisco filed in Civil Case No. Q-12366 an undated
Manifestation to the effect that the properties subject of the mortgage and covered by TCT
Nos. 7531 to 7533 had been levied upon by the local government of Caloocan City and sold
at a tax delinquency sale. Francisco further claimed that the delinquency sale had rendered
the issues in Civil Case No. Q-12366 moot and academic. Agreeing with Francisco, the trial
court dismissed the case, explaining that since the properties mortgaged to Cardale had
been transferred to Merryland which was not a party to the case for rescission, it would be
more appropriate for the parties to resolve their controversy in another action.
On 14 January 1987, Mejia, in her capacity as executrix of the Estate of Gutierrez, filed with
the RTC of Quezon City a complaint for damages with prayer for preliminary attachment
against Francisco, Merryland and the Register of Deeds of Caloocan City. The case was
docketed as Civil Case No. Q-49766. On 15 April 1988, the trial court rendered a decision5 in
favor of the defendants, dismissing the complaint for damages filed by Mejia. It was held
that plaintiff Mejia, as executrix of Gutierrezs estate, failed to establish by clear and
convincing evidence her allegations that Francisco controlled Cardale and Merryland and
that she had employed fraud by intentionally causing Cardale to default in its payment of
real property taxes on the mortgaged properties so that Merryland could purchase the same
by means of a tax delinquency sale. Moreover, according to the trial court, the failure to
recover the property subject of the Deed of Sale with Mortgage was due to
_______________
4 The Orders were issued on 7 November 1983, 14 November 1983, 28 November 1983 and
the Decision was promulgated on 12 November 1984.
5 Records, 592-605.
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VOL. 362, AUGUST 14, 2001

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Francisco vs. Mejia
Mejias failure to actively pursue the action for rescission (Civil Case No. 12366), allowing the
case to drag on for eighteen years. Thus, it ruled that
xxx
xxx
xxx
The act of not paying or failing to pay taxes due the government by the defendant Adalia B.
Francisco, as treasurer of Cardale Financing and Realty Corporation do not, per se, constitute
perpetration of fraud or an illegal act. It do [sic] not also constitute an act of evasion of an
existing obligation (to plaintiff) if there is no clear showing that such an act of non-payment
of taxes was deliberately made despite its (Cardales) solvency and capability to pay. There
is no evidence showing that Cardale Financing and Realty Corporation was financially
capable of paying said taxes at the time.
There are times when the corporate fiction will be disregarded: (1) where all the members
or stockholders commit illegal act; (2) where the corporation is used as dummy to commit
fraud or wrong; (3) where the corporation is an agency for a parent corporation; and (4)
where the stock of a corporation is owned by one person. (I, Fletcher, 58, 59, 61 and 63).
None of the foregoing reasons can be applied to the incidents in this case: (1) there appears
no illegal act committed by the stockholders of defendant Merryland Development
Corporation and Cardale Financing and Realty Corporation; (2) the incidents proven by
evidence of the plaintiff as well as that of the defendants do not show that either or both
corporations were used as dummies by defendant Adalia B. Francisco to commit fraud or
wrong. To be used as [a] dummy, there has to be a showing that the dummy corporation is
controlled by the person using it. The evidence of plaintiff failed to prove that defendant
Adalia B. Francisco has controlling interest in either or both corporations. On the other hand,
the evidence of defendants clearly show that defendant Francisco has no control over either
of the two corporations; (3) none of the two corporations appears to be an agency for a
parent (the other) corporation; and (4) the stock of either of the two corporation [sic] is not
owned by one person (defendant Adalia B. Francisco). Except for defendant Adalia B.
Francisco, the incorporators and stockholders of one corporation are different from the other.
xxx
xxx
xxx
The said case (Civil Case No. 12366) remained pending for almost 18 years before the then
Court of First Instance, now the Regional Trial Court. Even if the trial of the said case became
protracted on account of the retirement and/or promotion of the presiding judge, as well as
the transfer of the case from one sala to another, and as claimed by the plaintiff that the
defendant lost interest, (which allegation is unusual, so to
744
744
Francisco vs. Mejia
speak), the court believe [sic] that it would not have taken that long to dispose [of] said case
had plaintiff not slept on her rights, and her duty and obligation to see to it that the case is
always set for hearing so that it may be adjudicated [at] the earliest possible time. This duty
pertains to both parties, but plaintiff should have been more assertive, as it was her
obligation, similar to the obligation of plaintiff relative to the service of summons in other
cases. The fact that Cardale Financing and Realty Corporation did not perform its obligation
as provided in the said Deed of Sale with Mortgage (Exhibit A) is very clear. Likewise, the
fact that Andrea Cordova, the contracting party, represented by the plaintiff in this case, did
not also perform her duties and/or obligation provided in the said contract is also clear. This
could have been the reason why the plaintiff in said case (Exhibit E) slept on her rights
and allowed the same to remain pending for almost 18 years. However, and irrespective of
any other reason behind the same, the court believes that plaintiff, indeed, is the one to
blame for the failure of the testate estate of the late Andrea Cordova Vda. de Gutierrez to
recover the money or property due it on the basis of Exhibit A.
xxx
xxx
xxx
x x x Had the plaintiff not slept on her rights and had it not been for her failure to perform
her commensurate duty to pursue vigorously her case against Cardale Financing and Realty
Corporation in said Civil Case No. 12366, she could have easily known said non-payment of
realty taxes on the said properties by said Cardale Financing and Realty Corporation, or, at
least the auction sales that followed, and from which she could have redeemed said
properties within the one year period provided by law, or, have availed of remedies at the
time to protect the interest of the testate estate of the late Andrea Cordova Vda. de
Gutierrez.
xxx
xxx
xxx
The dispositive portion of the trial courts decision states
WHEREFORE, in view of all the foregoing consideration, the court hereby renders judgment
in favor of the defendants Register of Deeds of Caloocan City, Merryland Development
Corporation and Adalia B. Francisco, and against plaintiff Rita C. Mejia, as Executrix of the
Testate Estate of Andrea Cordova Vda. de Gutierrez, and hereby orders:
1. That this case for damages be dismissed, at the same time, plaintiffs motion for
reconsideration dated September 23, 1987 is denied;
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VOL. 362, AUGUST 14, 2001

745
Francisco vs. Mejia
2. Plaintiff pay the defendants Merryland Development Corporation and the Register of
Deeds the sum of P20,000.00, and another sum of P20,000.00 to the defendant Adalia B.
Francisco, as and for attorneys fees and litigation expenses, and pay the costs of the
proceedings.
SO ORDERED.
The Court of Appeals,6 in its decision7 promulgated on 13 April 1999, reversed the trial
court, holding that the corporate veil of Cardale and Merryland must be pierced in order to
hold Francisco and Merryland solidarity liable since these two corporations were used as
dummies by Francisco, who employed fraud in allowing Cardale to default on the realty
taxes for the properties mortgaged to Gutierrez so that Merryland could acquire the same
free from all liens and encumbrances in the tax delinquency sale and, as a consequence
thereof, frustrating Gutierrezs rights as a mortgagee over the subject properties. Thus, the
Court of Appeals premised its findings of fraud on the following circumstances
xxx
xxx
xxx
x x x Appellee Francisco knew that Cardale of which she was vice-president and treasurer
had an outstanding obligation to Gutierrez for the unpaid balance of the real properties
covered by TCT Nos. 7531 to 7533, which Cardale purchased from Gutierrez which account,
as of December 1988, already amounted to P4,414,271.43 (Exh. K, pp. 39-44, record); she
also knew that Gutierrez had a mortgage lien on the said properties to secure payment of
the aforesaid obligation; she likewise knew that the said mortgaged properties were under
litigation in Civil Case No. Q-12366 which was an action filed by Gutierrez against Cardale for
rescission of the sale and/or recovery of said properties (Exh. E). Despite such knowledge,
appellee Francisco did not inform Gutierrezs Estate or the Executrix (herein appellant) as
well as the trial court that the mortgaged properties had incurred tax delinquencies, and
that Final Notices dated July 9, 1982 had been sent by the City Treasurer of Caloocan
demanding payment of such tax arrears within ten (10) days from receipt thereof (Exhs. J &
J-1, pp. 37-38, record). Both notices which were addressed to
_______________
6 Seventeenth Division, composed of Justices Godardo A. Jacinto, ponente, Roberto A.

Barrios, and Renato C. Dacudao.
7 Rollo, 32-48.
746
746
Francisco vs. Mejia
Cardale Financing & Realty Corporation c/o Merryland Development Corporation
and sent to appellee Franciscos address at 83 Katipunan Road, White Plains, Quezon City,
gave warning that if the taxes were not paid within the aforesaid period, the properties
would be sold at public auction to satisfy the tax delinquencies.
To reiterate, notwithstanding receipt of the aforesaid notices, appellee Francisco did not
inform the Estate of Gutierrez or her executrix about the tax delinquencies and of the
impending auction sale of the said properties. Even a modicum of good faith and fair play
should have encouraged appellee Francisco to at least advise Gutierrezs Estate through her
executrix (herein appellant) and the trial court which was hearing the complaint for
rescission and recovery of said properties of such fact, so that the Estate of Gutierrez, which
had a real interest on the properties as mortgagee and as plaintiff in the rescission and
recovery suit, could at least take steps to forestall the auction sale and thereby preserve the
properties and protect its interests thereon. And not only did appellee Francisco allow the
auction sale to take place, but she used her other corporation (Merryland) in participating in
the auction sale and in acquiring the very properties which her first corporation (Cardale)
had mortgaged to Gutierrez. Again, appellee Francisco did not thereafter inform the Estate of
Gutierrez or its executrix (herein appellant) about the auction sale, thus precluding the
Estate from exercising its right of redemption. And it was only after the expiration of the
redemption period that appellee Francisco filed a Manifestation in Civil Case No. Q-12366
(Exh. I, p. 36, record), in which she disclosed for the first time to the trial court and appellant
that the properties subject of the case and on which Gutierrez or her Estate had a mortgage
lien, had been sold in a tax delinquency sale. And in order to further conceal her deceptive
maneuver, appellee Francisco did not divulge in her aforesaid Manifestation that it was her
other corporation (Merryland) that acquired the properties in the auction sale.
We are not impressed by appellees submission that no evidence was adduced to prove that
Cardale had the capacity to pay the tax arrears and therefore she or Cardale may not be
faulted for the tax delinquency sale of the properties in question. Appellee Franciscos bad
faith or deception did not necessarily lie in Cardales or her failure to settle the tax
deliquencies in question, but in not disclosing to Gutierrezs estate or its executrix (herein
appellant) which had a mortgage lien on said properties the tax delinquencies and the
impending auction sale of the encumbered properties.
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Francisco vs. Mejia
Appellee Franciscos deception is further shown by her concealment of the tax delinquency
sale of the properties from the estate or its executrix, thus preventing the latter from
availing of the right of redemption of said properties. That appellee Francisco divulged the
auction sale of the properties only after such redemption period had lapsed clearly betrays
her intention to keep Gutierrezs Estate or its Executrix from availing of such right. And as
the evidence would further show, appellee Francisco had a hand in securing for Merryland
consolidation of its ownership of the properties and in seeing to it that Merrylands Torrens
certificates for the properties were free from liens and encumbrances. All these appellee
Francisco did even as she was fully aware that Gutierrez or her estate had a valid and
subsisting mortgage lien on the said properties.
It is likewise worthy of note that early on appellee Francisco had testified in the action for
rescission of sale and recovery of possession and ownership of the properties which
Gutierrez filed against Cardale (Civil Case No. Q-12366) in her capacity as defendant
Cardales vice-president and treasurer. But then, for no plausible reason whatsoever, she lost
interest in continuing with the presentation of evidence for defendant Cardale. And then,
when appellant Mejia as executrix of Gutierrezs Estate filed on August 13, 1984 a Motion for
Decision in the aforesaid case, appellee Francisco moved to defer consideration of
appellants Motion on the pretext that defendant Cardale needed time to employ another
counsel. Significantly, in her aforesaid Motion for Postponement dated August 16, 1984
which appellee Francisco personally signed as Officer-in-Charge of Cardale, she also did not
disclose the fact that the properties subject matter of the case had long been sold at a tax
delinquency sale and acquired by her other corporation Merryland.
And as if what she had already accomplished were not enough fraudulence, appellee
Francisco, acting in behalf of Merryland, caused the issuance of new transfer certificates of
title in the name of Merryland, which did not anymore bear the mortgage lien in favor of
Gutierrez. In the meantime, to further avoid payment of the mortgage indebtedness owing
to Gutierrezs estate, Cardale corporation was dissolved. Finally, to put the properties
beyond the reach of the mortgagee, Gutierrezs estate, Merryland caused the subdivision of
such properties, which were subsequently sold on installment basis.
In its petition for certiorari, petitioners argue that there is no law requiring the mortgagor to
inform the mortgagee of the tax delinquencies, if any, of the mortgaged properties.
Moreover, petitioners claim that Cardales failure to pay the realty taxes, per se, does not
constitute fraud since it was not proven that Cardale was
748
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Francisco vs. Mejia
capable of paying the taxes). Petitioners also contend that if Mejia, as executrix of
Gutierrezs estate, was not remiss in her duty to pursue Civil Case No. 12366, she could
have easily learned of the non-payment of realty taxes on the subject properties and of the
auction sale that followed and thus, have redeemed the properties or availed of some other
remedy to conserve the estate of Gutierrez. In addition, Mejia could have annotated a notice
of lis pendens on the titles of the mortgaged properties, but she failed to do so. It is the
stand of petitioners that respondent has not adduced any proof that Francisco controlled
both Cardale and Merryland and that she used these two corporations to perpetuate a fraud
upon Gutierrez or her estate. Petitioners maintain that the evidence shows that, apart from
the meager share of petitioner Francisco, the stockholdings of both corporations comprise
other shareholders, and the stockholders of either of them, aside from petitioner Francisco
are composed of different persons. As to Civil Case No. 12366, petitioners insist that the
decision of the trial court in that case constitutes res judicata to the instant case.8
It is dicta in corporation law that a corporation is a juridical person with a separate and
distinct personality from that of the stockholders or members who compose it.9 However,
when the legal fiction of the separate corporate personality is abused, such as when the
same is used for fraudulent or wrongful ends, the courts have not hesitated to pierce the
corporate veil. One of the earliest formulations of this doctrine of piercing the corporate veil
was made in the American case of United States v. Milwaukee Refrigerator Transit Co.10
If any general rule can be laid down, in the present state of authority, it is that a corporation
will be looked upon as a legal entity as a general rule, and until sufficient reason to the
contrary appears; but, when the notion of legal entity is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, the law will regard the corporation as an
association of persons.
_______________
8 Ibid., 306-321.
9 Traders Royal Bank v. Court of Appeals, 177 SCRA 789 (1989); Cruz v. Dalisay, 152 SCRA
487 (1987).
10 142 Fed. 247 (1905).
749
VOL. 362, AUGUST 14, 2001

749
Francisco vs. Mejia
Since then a good number of cases have firmly implanted this doctrine in Philippine
jurisprudence.11 One such case is Umali v. Court of Appeals12 wherein the Court declared
that
Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore
exist, the legal fiction that a corporation is an entity with a juridical personality separate and
distinct from its members or stockholders may be disregarded. In such cases, the
corporation will be considered as a mere association of persons. The members or
stockholders of the corporation will be considered as the corporation, that is, liability will
attach directly to the officers and stockholders. The doctrine applies when the corporate
fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime, or
when it is made as a shield to confuse the legitimate issues, or where a corporation is the
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.
With specific regard to corporate officers, the general rule is that the officer cannot be held
personally liable with the corporation, whether civilly or otherwise, for the consequences of
his acts, if he acted for and in behalf of the corporation, within the scope of his authority and
in good faith. In such cases, the officers acts are properly attributed to the corporation.13
However, if it is proven
_______________
11 Commissioner of Internal Revenue v. Norton and Harrison, 11 SCRA 714 (1964); Namarco
v. Associated Finance Co., 19 SCRA 962 (1967); Diatagon Labor Federation Local 110 of the
ULGWP v. Ople, 101 SCRA 534 (1980); Umali v. Court of Appeals, 189 SCRA 529 (1990);
Indophil Textile Mill Workers Union v. Calica, 205 SCRA 697 (1992); Uichico v. NLRC, 273
SCRA 35 (1997); San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 296
SCRA 631 (1998); Luxuria Homes, Inc. v. Court of Appeals, 302 SCRA 315 (1999); Francisco
Motors Corporation v. Court of Appeals, 309 SCRA 72 (1999); Vlason Enterprises Corporation
v. Court of Appeals, 310 SCRA 26 (1999); Complex Electronics Employees Association v.
NLRC, 310 SCRA 403 (1999); Compania Maritima, Inc. v. Court of Appeals, 318 SCRA 169
(1999).
12 189 SCRA 529 (1990).
13 Benguet Electric Cooperative, Inc. v. NLRC, 209 SCRA 55 (1992); Pabalan v. NLRC, 184
SCRA 495 (1990); Mindanao Motor Line, Inc. v. Court of Industrial Relations, 6 SCRA 710
(1962).
750
750
Francisco vs. Mejia
that the officer has used the corporate fiction to defraud a third party,14 or that he has
acted negligently, maliciously or in bad faith,15 then the corporate veil shall be lifted and he
shall be held personally liable for the particular corporate obligation involved.
The Court, after an assiduous study of this case, is convinced that the totality of the
circumstances appertaining conduce to the inevitable conclusion that petitioner Francisco
acted in bad faith. The events leading up to the loss by the Gutierrez estate of its mortgage
security attest to this. It has been established that Cardale failed to comply with its
obligation to pay the balance of the purchase price for the four parcels of land it bought from
Gutierrez covered by TCT Nos. 7531 to 7534, which obligation was secured by a mortgage
upon the lands covered by TCT Nos. 7531, 7532 and 7533. This prompted Gutierrez to file an
action for rescission of the Deed of Sale with Mortgage (Civil Case No. Q-12366), but the
case dragged on for about fourteen years when Cardale, as represented by Francisco, who
was Vice-President and Treasurer of the same,16 lost interest in completing its presentation
of evidence.
Even before 1984 when Mejia, in her capacity as executrix of Gutierrezs estate, filed a
Motion for Decision with the trial court, there is no question that Francisco knew that the
properties subject of the mortgage had become tax delinquent. In fact, as treasurer of
Cardale, Francisco herself was the officer charged with the responsibility of paying the realty
taxes on the corporations properties. This was admitted by the trial court in its decision.17
In addition, notices dated 9 July 1982 from the City Treasurer of Caloocan demanding
payment of the tax arrears on the subject properties and giving warning that if the realty
taxes were not paid within the given period then such properties would be sold at public
auction to satisfy the tax delinquencies were sent directly to
_______________
14 Palay, Inc. v. Clave, 124 SCRA 638 (1983).

15 ARB Construction Co., Inc. v. Court of Appeals, 332 SCRA 427 (2000); Santos v. NLRC, 254
SCRA 673 (1996); Mindanao Motor Line, Inc. v. Court of Industrial Relations, 6 SCRA 710
(1962).
16 CA Decision, 11.
17 Trial Court Decision in Civil Case No. Q-49766, promulgated on 15 April 1988, 7.
751
VOL. 362, AUGUST 14, 2001

751
Francisco vs. Mejia
Franciscos address in White Plains, Quezon City.18 Thus, as early as 1982, Francisco could
have informed the Gutierrez estate or the trial court in Civil Case No, Q-12366 of the tax
arrears and of the notice from the City Treasurer so that the estate could have taken the
necessary steps to prevent the auction sale and to protect its interests in the mortgaged
properties, but she did no such thing. Finally, in 1983, the properties were levied upon and
sold at public auction wherein Merrylanda corporation where Francisco is a stockholder19
and concurrently acts as President and director20was the highest bidder.
When Mejia filed the Motion for Decision in Civil Case No. Q-12366,21 the period for
redeeming the properties subject of the tax sale had not yet expired.22 Under the Realty
Property Tax Code,23 pursuant to which the tax levy and sale were prosecuted,24 both the
delinquent taxpayer and in his absence, any person holding a lien or claim over the property
shall have the right to redeem the property within one year from the date of registration of
the sale.25 However, if these persons fail to redeem the property within the time provided,
then the purchaser acquires the property free from any encumbrance or third party claim
whatsoever.26 Cardale made no attempts to redeem the mortgaged property during this
time. Moreover, instead of informing Mejia or the trial court in Q-12366 about the tax sale,
the records show that Francisco filed a Motion for Postponement27 in behalf of Cardale
even signing the motion in her capacity as officer-in-chargewhich worked to defer the
_______________
18 CA Decision, 12-13.
19 Petitioners Memorandum, 11.
20 CA Decision, 11.
21 Motion for Decision was filed on 13 August 1984.
22 Public auction of the subject properties took place on 1 and 12 September 1983.
23 Presidential Decree No. 464 (PD 464).
24 Trial Court Decision in Civil Case No. Q-49766, promulgated on 15 April 1988, 9.
25 PD 464, Sec. 78.
26 Id., Sec. 80.
27 Dated 16 August 1984.
752
752
Francisco vs. Mejia
hearing of Mejias Motion for Decision. No mention was made by Francisco of the tax sale in
the motion for postponement. Only after the redemption period had expired did Francisco
decide to reveal what had transpired by filing a Manifestation stating that the properties
subject of the mortgage in favor of Gutierrez had been sold at a tax delinquency sale;
however, Francisco failed to mention that it was Merryland that acquired the properties since
she was probably afraid that if she did so the court would see behind her fraudulent scheme.
In this regard, it is also significant to note that it was Francisco herself who filed the petitions
for consolidation of title and who helped secure for Merryland titles over the subject
properties free from any encumbrance or third-party claim whatsoever.
It is exceedingly apparent to the Court that the totality of Franciscos actions clearly betray
an intention to conceal the tax delinquencies, levy and public auction of the subject
properties from the estate of Gutierrez and the trial court in Civil Case No. Q-12366 until
after the expiration of the redemption period when the remotest possibility for the recovery
of the properties would be extinguished.28 Consequently, Francisco had effectively deprived
the estate of Gutierrez of its rights as mortgagee over the three parcels of land which were
sold to Cardale. If Francisco was acting in good faith, then she should have disclosed the
status of the mortgaged properties to the trial court in Civil Case No. Q-12366especially
after Mejia had filed a Motion for Decision, in response to which she filed a motion for
postponement wherein she could easily have mentioned the tax salesince this action
directly affected such properties which were the subject of both the sale and mortgage.
That Merryland acquired the property at the public auction only serves to shed more light
upon Franciscos fraudulent purposes. Based on the findings of the Court of Appeals,
Francisco is the controlling stockholder and President of Merryland.29 Thus, aside
_______________
28 As earlier explained, under Section 80 of the Real Property Tax Code, if the delinquent
taxpayer or any person holding a lien or claim over the property fails to redeem the same,
then the purchaser acquires the property free from any encumbrance or third party claim
whatsoever.
29 CA Decision, 11.
753
VOL. 362, AUGUST 14, 2001

753
Francisco vs. Mejia
from the instrumental role she played as an officer of Cardale, in evading that corporations
legitimate obligations to Gutierrez, it appears that Franciscos actions were also oriented
towards securing advantages for another corporation in which she had a substantial interest.
We cannot agree, however, with the Court of Appeals decision to hold Merryland solidarily
liable with Francisco. The only act imputable to Merryland in relation to the mortgaged
properties is that it purchased the same and this by itself is not a fraudulent or wrongful act.
No evidence has been adduced to establish that Merryland was a mere alter ego or business
conduit of Francisco. Time and again, it has been reiterated that mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation
is not of itself sufficient ground for disregarding the separate corporate personality.30
Neither has it been alleged or proven that Merryland is so organized and controlled and its
of Cardale.31 Even assuming that the businesses of Cardale and Merryland are interrelated,
this alone is not justification for disregarding their separate personalities, absent any
showing that Merryland was purposely used as a shield to defraud creditors and third
persons of their rights.32 Thus, Merrylands separate juridical personality must be upheld.
Based on a statement of account submitted by Mejia, the Court of Appeals awarded
P4,314,271.43 in favor of the estate of Gutierrez which represents the unpaid balance of the
purchase price in the amount of P629,000.00 with an interest rate of nine percent (9%) per
annum, in accordance with the agreement of the parties under the Deed of Sale with
Mortgage,33 as of December 1988.34
_______________
30 Pabalan v. NLRC, 184 SCRA 495 (1990); Palay, Inc. v. Clave, 124 SCRA 638 (1983), citing
Liddel & Co. v. Collector of Internal Revenue, 2 SCRA 632 (1961).
31 Umali v. Court of Appeals, 189 SCRA 529 (1990).
32 Diatagon Labor Federation Local 110 of the ULGWP v. Ople, 101 SCRA 534 (1980). See
also Complex Electronics Employees Association v. NLRC, 310 SCRA 403 (1999); San Juan
Structural and Steel Fabricators, Inc. v. Court of Appeals, 296 SCRA 631 (1998).
33 Rollo, 47-48.
34 Ibid., 338.
754
754
Francisco vs. Mejia
Therefore, in addition to the amount awarded by the appellate court, Francisco should pay
the estate of Gutierrez interest on the unpaid balance of the purchase price (in the amount
of P629,000.00) at the rate of nine percent (9%) per annum computed from January, 1989
until fully satisfied.
Finally, contrary to petitioners assertions, we agree with the Court of Appeals that the
decision of the trial court in Civil Case No. Q-12366 does not constitute res judicata insofar
as the present case is concerned because the decision in the first case was not a judgment
on the merits. Rather, it was merely based upon the premise that since Cardale had been
dissolved and the property acquired by another corporation, the action for rescission would
not prosper. As a matter of fact, it was even expressly stated by the trial court that the
parties should ventilate their issues in another action.
WHEREFORE, the 13 April 1999 Decision of the Court of Appeals is hereby accordingly
MODIFIED so as to hold ADALIA FRANCISCO solely liable to the estate of Gutierrez for the
amount of P4,314,271.43 and for interest on the unpaid balance of the purchase price (in
the amount of P629,000.00) at the rate of nine percent (9%) per annum computed from
January, 1989 until fully satisfied. MERRYLAND is hereby absolved from all liability.
SO ORDERED.
Melo (Chairman), Vitug, Panganiban and Sandoval-Gutierrez, JJ., concur.
Judgment modified.
Notes.The corporate veil cannot be used to shield an otherwise blatant violation of the
prohibition against forum-shoppingshareholders, whether suing as the majority in direct
actions or as the minority in a derivative suit, cannot be allowed to trifle with court
processes. (First Philippine International Bank vs. Court of Appeals, 252 SCRA 259 [1996])
755
VOL. 362, AUGUST 14, 2001

755
Go, Jr. vs. Court of Appeals
The separate and distinct personality of a corporation is merely a fiction created by law for
convenience and to promote justice; When the notion of separate juridical personality is
used to defeat public convenience, justify wrong, protect fraud or defend crime, or is used as
a device to defeat the Labor laws, this separate personality of the corporation may be
disregarded or the veil of corporate fiction pierced. (Concept Builders, Inc. vs. National Labor
Relations Commission, 257 SCRA 149 [1996])
Even if the corporate fiction of a juridical entity is disregarded, still private individuals cannot
be divested of their shares of stock unless, in a proper forum, they have been shown to have
committed some wrongdoing in acquiring them. (Republic vs. Sandiganbayan, 266 SCRA 515
[1997])
o0o [Francisco vs. Mejia, 362 SCRA 738(2001)]
602
LBC Express, Inc. vs. Court of Appeals
G.R. No. 108670. September 21, 1994.*
LBC EXPRESS, INC., petitioner, vs. THE COURT OF APPEALS, ADOLFO M. CARLOTO, and
RURAL BANK OF LABASON, INC., respondents.
Damages; Moral damages cannot be awarded to a corporation, an artificial person which has
no feelings, emotions or senses, and which cannot experience physical suffering and mental
anguish.The respondent court erred in awarding moral damages to the Rural Bank of
Labason, Inc., an artificial person. 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 lifeall of which cannot be suffered by respondent bank as an artificial person.
Same; Equity; The right to recover moral damages is based on equity and he who comes to
court to demand equity must come with clean hands.We can neither sustain the award of
moral damages in favor of the private respondents. The right to recover moral damages is
based on equity. Moral damages are recoverable only if the case falls under Article 2219 of
the Civil Code in relation to Article 21. Part of conventional wisdom is that he who comes to
court to demand equity, must come with clean hands. In the case at bench, respondent
Carloto
_______________
* SECOND DIVISION.
603

603
is not without fault. He was fully aware that his rural banks obligation would mature on
November 21, 1984 and his bank has set aside cash for these bills payable. He was all set to
go to Manila to settle this obligation. He has received the documents necessary for the
approval of their rediscounting application with the Central Bank. He has also received the
plane ticket to go to Manila. Nevertheless, he did not immediately proceed to Manila but
instead tarried for days allegedly claiming his ONE THOUSAND PESOS (P1,000.00) pocket
money. Due to his delayed trip, he failed to submit the rediscounting papers to the Central
Bank on time and his bank was penalized THIRTY-TWO THOUSAND PESOS (P32,000.00) for
failure to pay its obligation on its due date. The undue importance given by respondent
Carloto to his ONE THOUSAND PESOS (P1,000.00) pocket money is inexplicable for it was not
indispensable for him to follow up his banks rediscounting application with Central Bank.
Same; Same; The attitude of a party in needing the money to invite people for snack or
dinner in the course of following-up official business with the Central Bank speaks ill of his
business dealings.According to said respondent, he needed the money to invite people
for a snack or dinner. The attitude of said respondent speaks ill of his ways of business
dealings and cannot be countenanced by this Court. Verily, it will be revolting to our sense of
ethics to use it as basis for awarding damages in favor of private respondent Carloto and the
Rural Bank of Labason, Inc.
Same; Same; Bad faith under the law cannot be presumed and it must be established by
clear and convincing evidence.We also hold that respondents failed to show that petitioner
LBCs late delivery of the cashpack was motivated by personal malice or bad faith, whether
intentional or thru gross negligence. In fact, it was proved during the trial that the cashpack
was consigned on November 16, 1984, a Friday. It was sent to Cebu on November 19, 1984,
the next business day. Considering this circumstance, petitioner cannot be charged with
gross neglect of duty. Bad faith under the law can not be presumed; it must be established
by clear and convincing evidence.
Same; Same; Contracts; In breach of contract cases where the defendant is not shown to
have acted fraudulently or in bad faith, liability for damages is limited to the natural and
probable consequences of the breach of the obligation which the parties had foreseen or
could reasonably have foreseen.Again, the unbroken jurisprudence is that in breach of
contract cases where the defendant is not shown to have acted fraudulently or in bad faith,
liability for damages is limited to the
604
604
the parties had foreseen or could reasonably have foreseen. The damages, however, will not
include liability for moral damages.
Same; Same; Same; In a contractual or quasi-contractual relationship, exemplary damages
may be awarded only if the defendant had acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.Prescinding from these premises, the award of
exemplary damages made by the respondent court would have no legal leg to support itself.
Under Article 2232 of the Civil Code, in a contractual or quasicontractual relationship,
exemplary damages may be awarded only if the defendant had acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner. The established facts do not so
warrant the characterization of the action of petitioner LBC.

Emmanuel D. Agustin for petitioner.
Bernardo P. Concha for private respondents.

PUNO, J.:
In this Petition for Review on Certiorari, petitioner LBC questions the decision1 of respondent
Court of Appeals affirming the judgment of the Regional Trial Court of Dipolog City, Branch 8,
awarding moral and exemplary damages, reimbursement of P32,000.00, and costs of suit;
but deleting the amount of attorneys fees.
Private respondent Adolfo Carloto, incumbent President-Man-ager of private respondent
Rural Bank of Labason, alleged that on November 12, 1984, he was in Cebu City transacting
business with the Central Bank Regional Office. He was instructed to proceed to Manila on or
before November 21, 1984 to follow-up the Rural Banks plan of payment of rediscounting
obligations with Central Banks main office in Manila.2 He then purchased a
_______________
1 Herrera, Manuel, J., Ponente; Torres, Justo, and Gutierrez, Angelina, JJ., concurring.
2 Rollo, Court of Appeals Decision, p. 78.
605

605
Carloto-Concha to send him ONE THOUSAND PESOS (P1,000.00) for his pocket money in
going to Manila and some rediscounting papers thru petitioners LBC Office at Dipolog City.3
On November 16, 1984, Mrs. Concha thru her clerk, Adelina Antigo consigned thru LBC
Dipolog Branch the pertinent documents and the sum of ONE THOUSAND PESOS (P1,000.00)
to respondent Carloto at No. 2 Greyhound Subdivision, Kinasangan, Pardo, Cebu City. This
was evidenced by LBC Air Cargo, Inc., Cashpack Delivery Receipt No. 34805.
On November 17, 1984, the documents arrived without the cashpack. Respondent Carloto
made personal follow-ups on that same day, and also on November 19 and 20, 1984 at
LBCs office in Cebu but petitioner failed to deliver to him the cashpack.
Consequently, respondent Carloto said he was compelled to go to Dipolog City on November
24, 1984 to claim the money at LBCs office. His effort was once more in vain. On November
27, 1984, he went back to Cebu City at LBCs office. He was, however, advised that the
money has been returned to LBCs office in Dipolog City upon shippers request. Again, he
demanded for the ONE THOUSAND PESOS (P1,000.00) and refund of FORTY-NINE PESOS
(P49.00) LBC revenue charges. He received the money only on December 15, 1984 less the
revenue charges.
Respondent Carloto claimed that because of the delay in the transmittal of the cashpack, he
failed to submit the rediscounting documents to Central Bank on time. As a consequence,
his rural bank was made to pay the Central Bank THIRTY-TWO THOUSAND PESOS
(P32,000.00) as penalty interest.4 He allegedly suffered embarrassment and humiliation.
Petitioner LBC, on the other hand, alleged that the cashpack was forwarded via PAL to LBC
Cebu City branch on November 22, 1984.5 On the same day, it was delivered at respondent
Carlotos residence at No. 2 Greyhound Subdivision, Kinasangan, Pardo, Cebu City. However,
he was not around to receive it. The delivery man served instead a claim notice to insure he
would
______________
3 Ibid.
4 Ibid., p. 79.
5 Ibid.
606
606
Delivery Receipt No. 342805. Notwithstanding the said notice, respondent Carloto did not
claim the cashpack at LBC Cebu. On November 23, 1984, it was returned to the shipper,
Elsie CarlotoConcha at Dipolog City.
Claiming that petitioner LBC wantonly and recklessly disregarded its obligation, respondent
Carloto instituted an action for Damages Arising from Non-performance of Obligation
docketed as Civil Case No. 3679 before the Regional Trial Court of Dipolog City on January 4,
1985. On June 25, 1988, an amended complaint was filed where respondent rural bank
joined as one of the plain-tiffs and prayed for the reimbursement of THIRTY-TWO THOUSAND
PESOS (P32,000.00).
After hearing, the trial court rendered its decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Ordering the defendant LBC Air Cargo, Inc. to pay unto plaintiff Adolfo M. Carloto and
Rural Bank of Labason, Inc., moral damages in the amount of P10,000.00; exemplary
damages in the amount of P5,000.00; attorneys fees in the amount of P3,000.00 and
litigation expenses of P1,000.00;
2. Sentencing defendant LBC Air Cargo, Inc., to reimburse plaintiff Rural Bank of Labason,
Inc. the sum of P32,000.00 which the latter paid as penalty interest to the Central Bank of
the Philippines as penalty interest for failure to rediscount its due bills on time arising from
the defendants failure to deliver the cashpack, with legal interest computed from the date
of filing of this case; and
3. Ordering defendant to pay the costs of these proceedings.
SO ORDERED.6
On appeal, respondent court modified the judgment by deleting the award of attorneys
fees. Petitioners Motion for Reconsideration was denied in a Resolution dated January 11,
1993.
Hence, this petition raising the following questions, to wit:
1. Whether or not respondent Rural Bank of Labason, Inc., being an artificial person should
be awarded moral damages.
________________
6 Rollo, pp. 127-128, penned by Regional Trial Court Judge Pelagio R. Lachica.
607

607
2. Whether or not the award of THIRTY-TWO THOUSAND PESOS (P32,000.00) was made with
grave abuse of discretion.
3. Whether or not the respondent Court of Appeals gravely abused its discretion in affirming
the trial courts decision ordering petitioner LBC to pay moral and exemplary damages
despite performance of its obligation.
We find merit in the petition.
The respondent court erred in awarding moral damages to the Rural Bank of Labason, Inc.,
an artificial person.
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.7 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.8 Mental suffering can be experienced
only by one having a nervous system and it flows from real ills, sorrows, and griefs of life9
all of which cannot be suffered by respondent bank as an artificial person.
We can neither sustain the award of moral damages in favor of the private respondents. The
right to recover moral damages is based on equity. Moral damages are recoverable only if
the case falls under Article 2219 of the Civil Code in relation to Article 21.10 Part of
conventional wisdom is that he who comes to court to demand equity, must come with clean
hands.
In the case at bench, respondent Carloto is not without fault. He was fully aware that his
rural banks obligation would mature on November 21, 1984 and his bank has set aside cash
for these bills payable.11 He was all set to go to Manila to settle this obligation. He has
received the documents necessary for the approval of their rediscounting application with
the Central Bank. He has also received the plane ticket to go to Manila. Nevertheless, he
________________
7 Civil Code, Article 2217.

8 Tamayo vs. University of Negros Occidental, 58 OG No. 37, p. 6023, September 10, 1962.
9 Supra., at p. 6032.
10 Garciano vs. Court of Appeals, G.R. No. 96126, August 10, 1992, 212 SCRA 436.
11 Rollo, p. 214.
608
608
did not immediately proceed to Manila but instead tarried for days allegedly claiming his
ONE THOUSAND PESOS (P1,000.00) pocket money. Due to his delayed trip, he failed to
submit the rediscounting papers to the Central Bank on time and his bank was penalized
THIRTY-TWO THOUSAND PESOS (P32,000.00) for failure to pay its obligation on its due date.
The undue importance given by respondent Carloto to his ONE THOUSAND PESOS
(P1,000.00) pocket money is inexplicable for it was not indispensable for him to follow up his
banks rediscounting application with Central Bank. According to said respondent, he needed
the money to invite people for a snack or dinner.12 The attitude of said respondent speaks
ill of his ways of business dealings and cannot be countenanced by this Court. Verily, it will
be revolting to our sense of ethics to use it as basis for awarding damages in favor of private
respondent Carloto and the Rural Bank of Labason, Inc.
We also hold that respondents failed to show that petitioner LBCs late delivery of the
cashpack was motivated by personal malice or bad faith, whether intentional or thru gross
negligence. In fact, it was proved during the trial that the cashpack was consigned on
November 16, 1984, a Friday. It was sent to Cebu on November 19, 1984, the next business
day. Considering this circumstance, petitioner cannot be charged with gross neglect of duty.
Bad faith under the law can not be presumed; it must be established by clear and convincing
evidence.13 Again, the unbroken jurisprudence is that in breach of contract cases where the
defendant is not shown to have acted fraudulently or in bad faith, liability for damages is
limited to the natural and probable consequences of the breach of the obligation which the
parties had foreseen or could reasonably have foreseen. The damages, however, will not
include liability for moral damages.14
Prescinding from these premises, the award of exemplary damages made by the respondent
court would have no legal leg to support itself. Under Article 2232 of the Civil Code, in a
______________
12 Id., p. 216.
13 See Peoples Bank and Trust Co. vs. Syvels Inc., No. L-29280, August 11, 1988, 164 SCRA
247.
14 See China Airlines Limited vs. Court of Appeals, G.R. No. 94590, July 29, 1992, 211 SCRA
897.
609

609
contractual or quasi-contractual relationship, exemplary damages may be awarded only if
the defendant had acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner. The established facts do not so warrant the characterization of the action of
petitioner LBC.
IN VIEW WHEREOF, the Decision of the respondent court dated September 30, 1992 is
REVERSED and SET ASIDE; and the Complaint in Civil Case No. 3679 is ordered DISMISSED.
No costs.
SO ORDERED.
Narvasa (C.J., Chairman), Padilla, Regalado and Mendoza, JJ., concur.
Judgment reversed and set aside.
Notes.The National Telecommunications Commission has no jurisdiction to impose a fine.
(Radio Communications of the Philippines, Inc. vs. National Telecommunications Commission,
215 SCRA 455 [1992])
The award of attorneys fees must be disallowed where the award of exemplary damages is
eliminated. (Albenson Enterprises Corporation vs. Court of Appeals, 217 SCRA 16 [1993])
o0o
[LBC Express, Inc. vs. Court of Appeals, 236 SCRA 602(1994)]
VOL. 381, APRIL 17, 2002

293
Alfafara vs. Acebedo Optical Co., Inc.
G.R. No. 148384. April 17, 2002.*
DOCTORS ROSA P. ALFAFARA, VIVIAN DYHONGPO, MARIA TORRES, EMMA YBAEZ, ELSA
CABARDO, REBECCA SANTIAGO, PRISCILLA NARVASA, SUSIE CHAN, CLARO CINCO, FELIPE
CINCO, CARMEN MODESTO, FELISA LIMKIMSO, ARLENE DORIO, ROSALINDA BONO, and
SUSAN YU, in their own behalf and in behalf of all the other 80 optometrists-members of the
SAMAHAN NG OPTOMETRISTS SA PILIPINAS-CEBU CHAPTER, petitioners, vs. ACEBEDO
OPTICAL CO., INC., respondent.
Remedial Law; Injunctions; Only natural persons can engage in the practice of optometry
and not corporations; Respondent is merely engaged in the business of selling optical
products, not in the practice of optometry, whether directly or indirectly, through its hired
optometrists.An optometrist is a person who has been certified by the Board of
Optometry and registered with the Professional Regulation Commission as qualified to
practice optometry in the Philippines. Thus, only natural persons can engage in the practice
of optometry and not corporations. Respondent, which is not a natural person, cannot take
the licensure examinations for optometrist and, therefore, it cannot be registered as an
optometrist under R.A. No. 1998. It is noteworthy that, in Apacionado, the Court did not find
Acebedo to be engaged in the practice of Optometry. The optometrists in
______________
* SECOND DIVISION.
294
294
that case were found guilty of unprofessional conduct and their licenses were suspended for
two (2) years for having participated, in their capacities as optometrists, in the
implementation of the promotional advertisement of Acebedo. In contrast, in the case at bar,
respondent is merely engaged in the business of selling optical products, not in the practice
of optometry, whether directly or indirectly, through its hired optometrists.
Same; Same; The fact that Acebedo hired optometrists who practiced their profession in the
course of their employment in Acebedos optical shops did not mean that it was itself
engaged in the practice of optometry.Acebedo simply dispensed optical and ophthalmic
instruments and supplies. It was pointed out that R.A. No. 1998 does not prohibit
corporations from employing licensed optometrists. What it prohibits is the practice of
optometry by individuals who do not have a license to practice. The prohibition is addressed
to natural persons who are required to have a valid certificate of registration as
optometrist and who must be of good moral character. This Court affirmed the ruling of
the appeals court and explained that even under R.A. No. 8050 (Revised Optometry Law)
there is no prohibition against the hiring by corporations of optometrists. The fact that
Acebedo hired optometrists who practiced their profession in the course of their employment
in Acebedos optical, shops did not mean that it was itself engaged in the practice of
optometry.
Same; Same; The optometrists are employees of respondent, their practice of optometry is
separate and distinct from the business of respondent of selling optical products.While the
optometrists are employees of respondent, their practice of optometry is separate and
distinct from the business of respondent of selling optical products. They are personally
liable for acts done in the course of their practice in the same way that if respondent is sued
in court in connection with its business of selling optical products, the optometrists need not
be impleaded as party defendants. In that regard, the Board of Optometry and the
Professional Regulation Commission regulate their practice and have exclusive original
jurisdiction over them.

The Law Firm of Hermosisima and Inso for petitioners.
Chato & Eleazar for Acebedo Optical, Inc.
295
VOL. 381, APRIL 17, 2002

295
MENDOZA, J.:
This is a petition for review on certiorari of the decision,1 dated January 20, 2000, of the
Court of Appeals, setting aside the decision,2 dated September 3, 1993, of the Regional Trial
Court, Branch 9, Cebu City, which enjoined respondent Acebedo Optical Co., Inc., its agents,
representatives, and/or employees from practicing optometry, as defined in 1(a) of Republic
Act No. 1998, in the province and cities of Cebu, and the resolution, dated May 10, 2001, of
the appeals court denying petitioners motion for reconsideration.
Petitioners are optometrists. They brought, in their own behalf and in behalf of 80 other
optometrists, who are members of the Samahan ng Optometrists sa Pilipinas-Cebu Chapter,
an injunctive suit in the Regional Trial Court, Branch 9, Cebu City to enjoin respondent
Acebedo Optical Co., Inc. and its agents, representatives, and/or employees from practicing
optometry in the province of Cebu. In their complaint, they alleged that respondent opened
several optical shops in Cebu and announced to the public, through leaflets, newspapers,
and other forms of advertisement, the availability of ready-to-wear eyeglasses for sale at
P60.00 each and free services by optometrists in such outlets. They claimed that, through
the licensed optometrists under its employ, respondent had been engaging in the practice of
optometry by examining the human eye, analyzing the ocular functions, prescribing
ophthalmic lenses, prisms, and contact lenses; and conducting ocular exercises, visual
trainings, orthoptics, prosthetics, and other preventive or corrective measures for the aid,
correction, or relief of the human eye. They contended that such acts of respondent were
done in violation of the Optometry Law (R.A. No. 1998)3 and the Code of Ethics for
Optometrists, promulgated by the Board of Examiners in
______________
1 Per Justice Teodoro P. Regino and concurred in by Justices Ruben T. Reyes (Chairman) and
Eriberto U. Rosario, Jr., all of the Sixteenth Division.
2 Per Judge Benigno G. Gaviola.
3 Act to Regulate the Practice of Optometry in the Philippines, approved June 22, 1957.
296
296
Optometry on July 11, 1983. They sought payment to them of attorneys fees, litigation
expenses, and the costs of the suit.4
The trial court at first dismissed the suit but, on motion of petitioners, reinstated the action
and granted their prayer for a writ of preliminary injunction and/or restraining order.
Petitioners argued that the case involved a pure question of law, i.e., whether or not
respondents hiring of optometrists was violative of the applicable laws, and that, as such,
the case was an exception to the rule requiring exhaustion of administrative remedies as a
condition for the filing of an injunctive suit. They further alleged that the Board of Optometry
held itself to be without jurisdiction over the president of respondent Acebedo Company as
he was not duly registered with the Professional Regulation Commission.
In its answer, respondent averred that the advertisements referred to by petitioner were part
of its promotion to make known to the public the opening of its new branches in Cebu; that
incidental to its business of selling optical products, it hired duly licensed optometrists who
conducted eye examination, prescribed ophthalmic lenses, and rendered other services; that
it exercised neither control nor supervision over the optometrists under its employ; and that
the hired optometrists exercised neither control nor supervision in the sale of optical
products and accessories by respondent. By way of special and affirmative defense,
respondent stated that the optometrists should be impleaded as party-defendants because
they were indispensable parties; that the trial court had no jurisdiction over the case; that
the filing of the complaint was barred by res judicata as similar suits had been previously
dismissed by the Court of First Instance of Lucena City and the Securities and Exchange
Commission; and that the petitioners were guilty of forum-shopping. Respondent sought the
recovery of P100,000.00 as moral damages, P500,000.00 as exemplary damages, and
P100,000.00 as attorneys fees.5
During the pre-trial conference, the parties entered into the following stipulation of facts:
that the petitioners were duly licensed optometrists; that the petitioners were all members
of the Sama______________
4 RTC Decision, pp. 1-2; Rollo, pp. 66-67.

5 Id., p. 4; id., p. 69.
297
VOL. 381, APRIL 17, 2002

297
han ng Optometrists ng Pilipinas (SOP)-Cebu Chapter; that SOP-Cebu Chapter was a chapter
of SOP Incorporated, a national organization; that the SOP-Cebu Chapter had a program
called Sight Saving Month; that the Sight Saving Month program was also a program of
the SOP nationwide; that petitioners SOP Sight Saving Month program provided free
consultations; that respondent was a corporation with several outlets in Cebu; that
respondent was selling optical products and ready-to-wear eyeglasses of limited grades;
that during the opening of its new branches in Cebu, the respondent advertised its products
through leaflets, newspapers, and other similar means, such as streamers and loudspeakers
on board a vehicle; that respondent hired optometrists who conducted eye examinations,
prescribed ophthalmic lenses, and rendered other optometry services; and that while the
hired optometrists received their salary from respondent, they are not precluded from
seeking other sources of income.6
The evidence for the petitioners showed that respondent advertised its ready-to-wear
eyeglasses in newspapers, posters pasted on the walls, and announcements made in roving
jeeps. A witness testified that he purchased a pair of eyeglasses for P66.00 (P60.00 plus
P6.00 for VAT) without any prior eye examination by an optometrist. A week later, he had
vision difficulty and consulted an optometrist who advised him to buy a pair of eyeglasses
with the correct grade. Petitioners thus sought to prove that the selling of ready-to-wear
eyeglasses by respondent was detrimental to the public.
On the other hand, respondent maintained that before the customers purchased the readyto-wear eyeglasses on display, they either have a prior prescription from an optometrist or
had to be examined first by the branch optometrist. Customers thus had the option either to
buy the ready-to-wear eyeglasses on display or to order a new pair of eyeglasses.
After hearing, judgment was rendered in favor of petitioners. The trial court found that the
hiring of licensed optometrists by the respondent was unlawful because it resulted in the
practice of the Optometry profession by respondent, a juridical person. It ruled
______________
6 Pre-trial Order dated August 6, 1991, pp. 2-3; Rollo, pp. 63-64.
298
298
that respondent could not raise the issue of res judicata as there was no decision on the
merits of the case rendered by any court of competent jurisdiction and, consequently,
petitioners could not be guilty of forum-shopping. As to petitioners failure to implead the
optometrists in the employ of respondent, the trial court explained that since the issue
involved the propriety of respondents hiring of optometrists to perform optometry services,
the optometrists did not have to be impleaded as defendants. As to whether respondents
selling of ready-to-wear eyeglasses to customers without prior eye examination violated
the applicable laws and was detrimental to the public, the trial court ruled that petitioners
failed to substantiate such claim.
Respondent appealed to the Court of Appeals contending that the trial court erred in holding
that respondent was illegally engaged in the practice of optometry; that being indispensable
parties, the licensed optometrists employed by respondent should have been impleaded as
defendants; and that the trial court erred in not holding that petitioners, by filing several
harassment suits before various fora, were guilty of forum-shopping.
The Court of Appeals reversed the decision of the trial court and dismissed the complaint of
petitioners. Citing the case of Samahan ng Optometrists sa Pilipinas, Ilocos Sur-Abra Chapter
v. Acebedo International Corporation,7 the appeals court ruled that respondents hiring of
licensed optometrists did not constitute practice of optometry nor violate any law. As to the
second issue raised, the Court of Appeals stated that since the complaint was lodged solely
against respondent for its hiring of optometrists, whatever decision the trial court would
render would solely affect respondent since what was sought to be restrained was the
employment of licensed optometrists; hence, the optometrists were not indispensable
parties. Anent the issue of forum-shopping, the appeals court found no cogent reason to
reverse the findings of the trial court that the administrative case before the Professional
Regulation Commission was not decided on the merits while the letters of petitioners sent to
government officials did not constitute judicial proceedings.
______________
7 270 SCRA 298 (1997).

299
VOL. 381, APRIL 17, 2002

299
Petitioners filed a motion for reconsideration but their motion was denied. Hence, this
petition alleging that the Court of Appeals erred in holding that respondent Acebedo was not
engaged in the practice of Optometry.
The petition has no merit.
First. Petitioners contend that the ruling in Samahan ng Optometrists sa Pilipinas, Ilocos SurAbra Chapter v. Acebedo International Corporation 8 is no longer controlling because of the
later case of Apacionado v. Professional Regulation Commission.9 In Apacionado, petitioners
Ma. Cristina Apacionado and Zenaida Robil, who were employed by Acebedo as
optometrists, were suspended from the practice of optometry for two (2) years by the Board
of Optometry for violation of R.A. No. 1998 and Art. III, 6 of the Code of Ethics for
Optometrists for having participated in the promotional advertisement of Acebedo, entitled
Libreng Konsulta sa Mata: Reading Glasses P60.00, held from July 5-14, 1989 in
Tuguegarao, Cagayan. In affirming the suspension of the optometrists, the Professional
Regulation Commission found that by rendering professional services to Acebedos clientele
(free eye consultations and refractions), petitioners were guilty of unprofessional conduct.
Consequently, their professional licenses as optometrists were suspended for two (2) years.
This was because the services of the two optometrists were the ones being offered to the
public for free. The decision of the Professional Regulation Commission was affirmed by the
Court of Appeals and later by this Court. As our resolution, dated July 12, 1999,10 stated in
pertinent parts:
Thus, the instant petition which must likewise fail.
The Court finds the decision of the Court of Appeals to be in accordance with the law. The
Rules and Regulation[s] of the Board of Examiners for [O]ptometry are quite explicit, and
Rule 56 provides:
Rule 56. Acts Constituting Unprofessional Conduct.It shall be considered unprofessional for
any registered optometrist:
______________
8 Id.
9 (Minute Res.), G.R. No. 135941 July 12, 1999.
10 See fn 9; Rollo, pp. 42-44 of G.R. No. 135941.
300
300
(1) To make optometric examinations outside of his regular clinic, unless he shall have
received an unsolicited written request by the person or persons to be examined;
(2) To advertise a price or prices [of] spectacle frames, mountings, or ophthalmic lenses and
other ophthalmic devices used in the practice of Optometry and to be associated with, or
remain in the employ of, any person who does such advertising;
....
(4) To advertise free examination, examination included, discounts, installments,
wholesale and retail, or similar words and phrases which would tend to remove the spirit of
professionalism;
....
(11) To use Mobile Units for conducting refraction in any area within ten (10) kilometers of a
Municipality.
Likewise, Section 6 of the Code of Ethics for optometrists states:
SEC. 6. The following are deemed, among others, to be unethical and are deemed to
constitute unprofessional conduct:
....
c. Performing optometric examination outside of the regular office, unless he shall have
received unsolicited request to make such an examination.
....
u. To use Mobile Units for conducting refraction in any area within ten (10) kilometers of a
Municipality.
These provisions petitioners, through Acebedo, were found to have violated.
Petitioners cannot deny that it was their skills as optometrists as well as their licenses which
Acebedo used in order to enable itself to render optometric services to its clientele. Under
such arrangement, petitioners acted as tools of Acebedo so that the latter can offer the
whole package of services to its clientele.
Corollarily, Republic Act No. 1998 pertinently provides:
SEC. 20. Revocation or suspension of certificate.The Board may, after giving proper notice
and hearing to the party concerned, revoke or suspend a certificate of registration for the
causes mentioned in the next preceding section, or for unprofessional conduct. . . .
301
VOL. 381, APRIL 17, 2002

301
Having knowingly allowed themselves to be used as tools in furtherance of [the]
unauthorized practice of optometry, petitioners are clearly liable for unethical and
unprofessional practice of their profession. The Court, thus finds no error committed by the
Court of Appeals.
WHEREFORE, petition is denied due course.
Petitioners cite the Tennessee Supreme Court statement in Lens Crafter, Inc. v. Sunquist,11
stating that:
The logical result would be that corporations and business partnerships might practice law,
medicine, dentistry or any other profession by the simple expedient of employing licensed
agents. And, if this were permitted, professional standards would be practically destroyed
and professions requiring special training would be commercialized, to the public
detriment. . . . The ethics of any profession is based upon personal or individual
responsibility.
The contention has no merit. An optometrist is a person who has been certified by the
Board of Optometry and registered with the Professional Regulation Commission as qualified
to practice optometry in the Philippines.12 Thus, only natural persons can engage in the
practice of optometry and not corporations. Respondent, which is not a natural person,
cannot take the licensure examinations for optometrist and, therefore, it cannot be
registered as an optometrist under R.A. No. 1998. It is noteworthy that, in Apacionado, the
Court did not find Acebedo to be engaged in the practice of Optometry. The optometrists in
that case were found guilty of unprofessional conduct and their licenses were suspended for
two (2) years for having participated, in their capacities as optometrists, in the
implementation of the promotional advertisement of Acebedo. In contrast, in the case at bar,
respondent is merely engaged in the business of selling optical products, not in
______________
11 33 S.W. 3d. 772.

12 1(b) of R.A. No. 1998; 3(b) of R.A. No. 8050 (An Act Regulating the Practice of
Optometry, Upgrading Optometric Education, Integrating Optometrists, and For Other
Purposes,), otherwise known as the Revised Optometry Law of 1995; 2(i), Rule 1 of
PRC/BO Resolution No. 03, Series of 1997 (Rules and Regulations Governing the
Examination and Registration of Optometrists and the Regulation of the Practice of
Optometry).
302
302
the practice of optometry, whether directly or indirectly, through its hired optometrists.
In Samahan ng Optometrists sa Pilipinas, Ilocos Sur-Abra Chapter v. Acebedo International
Corporation,13 petitioners opposed respondent Acebedos application for a municipal permit
to operate a branch in Candon, Ilocos Sur. They brought suit to enjoin respondent Acebedo
from employing optometrists as this allegedly constituted an indirect violation of R.A. No.
1998, which prohibits corporations from exercising professions reserved only to natural
persons. The committee created by the Mayor of Candon to pass on Acebedos application
denied the same and ordered the closure of Acebedo optical shops. Acebedo appealed but
its appeal was dismissed by the trial court on the ground that it was practicing optometry.
On appeal, the Court of Appeals held that Acebedo was not operating as an optical clinic nor
engaged in the practice of optometry, although it employed licensed optometrists. Acebedo
simply dispensed optical and ophthalmic instruments and supplies. It was pointed out that
R.A. No. 1998 does not prohibit corporations from employing licensed optometrists. What it
prohibits is the practice of optometry by individuals who do not have a license to practice.
The prohibition is addressed to natural persons who are required to have a valid certificate
of registration as optometrist and who must be of good moral character. This Court
affirmed the ruling of the appeals court and explained that even under R.A. No. 8050
(Revised Optometry Law) there is no prohibition against the hiring by corporations of
optometrists. The fact that Acebedo hired optometrists who practiced their profession in the
course of their employment in Acebedos optical, shops did not mean that it was itself
engaged in the practice of optometry.
We see no reason to deviate from the ruling that a duly licensed optometrist is not
prohibited from being employed by respondent and that respondent cannot be said to be
exercising the optometry profession by reason of such employment.
Second. Petitioners argue that an optometrist, who is employed by a corporation, such as
Acebedo, is not acting on his own capacity but as an employee or agent of the corporation.
They contend that,
______________
13 270 SCRA 298 (1997).

303
VOL. 381, APRIL 17, 2002

303
as a mere employee or agent, such optometrist cannot be held personally liable for his acts
done in the course of his employment as an optometrist under the following provisions of
the Civil Code. Thus,
Art. 1897. The agent who acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority without
giving such party sufficient notice of his powers.
Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
This contention likewise has no merit. While the optometrists are employees of respondent,
their practice of optometry is separate and distinct from the business of respondent of
selling optical products. They are personally liable for acts done in the course of their
practice in the same way that if respondent is sued in court in connection with its business
of selling optical products, the optometrists need not be impleaded as party defendants. In
that regard, the Board of Optometry and the Professional Regulation Commission regulate
their practice and have exclusive original jurisdiction over them.
In the later case of Acebedo Optical Company, Inc. v. Court of Appeals,14 petitioner Acebedo
was granted by the City Mayor of Iligan a business permit subject to certain conditions, to
wit:
1. Since it is a corporation, Acebedo cannot put up an optical clinic but only a commercial
store;
2. Acebedo cannot examine and/or prescribe reading and similar optical glasses for patients,
because these are functions of optical clinics;
3. Acebedo cannot sell reading and similar eyeglasses without a prescription having first
been made by an independent optometrist (not its employee) or independent optical clinic.
Acebedo can only sell directly to the public, without need of a prescription, Ray-Ban and
similar eyeglasses;
______________
14 329 SCRA 314 (2000).

304
304
4. Acebedo cannot advertise optical lenses and eyeglasses, but can advertise Ray-Ban and
similar glasses and frames;
5. Acebedo is allowed to grind lenses but only upon the prescription of an independent
optometrist.
The Samahang Optometrist sa Pilipinas-Iligan Chapter sought the cancellation and/or
revocation of Acebedos permit on the ground that it had violated the conditions for its
business permit. After due investigation, Acebedo was found guilty of violating the
conditions of its permit and, as a consequence, its permit was cancelled. Acebedo was
advised that its permit would not be renewed. Acebedo filed a petition for certiorari,
prohibition, and mandamus in the Regional Trial Court, but its petition was dismissed for
non-exhaustion of administrative remedies. Acebedo then filed a petition for certiorari,
prohibition, and mandamus with the Court of Appeals. At first, its petition was dismissed. On
appeal, however, the decision of the Court of Appeals was reversed. This Court held that a
business permit is issued primarily to regulate the conduct of a business and, therefore, the
City Mayor cannot, through the issuance of such permit, regulate the practice of a
profession, like optometry. This Court held Acebedo to be entitled to a permit to do business
as an optical shop because, although it had duly licensed optometrists in its employ, it did
not apply for a license to engage in the practice of optometry as a corporate body or entity.
WHEREFORE, the petition is DENIED for lack of showing that the Court of Appeals committed
a reversible error.
SO ORDERED.
Bellosillo (Chairman), Quisumbing and De Leon, Jr., JJ., concur.
Corona, J., Took no part in the deliberation of this case.
Petition denied.
Note.The writ of injunction was not proper in the absence of any legal right on the part of
the petitioners. (Suico Industrial Corporation vs. Court of Appeals, 301 SCRA 212 [1999])
o0o [Alfafara vs. Acebedo Optical Co., Inc., 381 SCRA 293(2002)]

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G.R. Nos. 116124-25. November 22, 2000.*

organized to put an end to controversy. This purpose should not be negated by an

The facts are stated in the opinion of the Court.

VOL. 345, NOVEMBER 22, 2000

As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and

1 Rollo, pp. 60-63.

VOL. 345, NOVEMBER 22, 2000

12 Id., pp. 382-383.

VOL. 345, NOVEMBER 22, 2000

16 Id., pp. 57-58.

17 CORPORATION CODE, Section 2.

VOL. 345, NOVEMBER 22, 2000

19 252 SCRA 259, 287-288 [1996].

VOL. 345, NOVEMBER 22, 2000

27 TSN, March 24, 1982; Rollo, pp. 69-150.

VOL. 345, NOVEMBER 22, 2000

28 65 SCRA 613 11975].

Settlement of estate of a decedent; Ancillary administrator; Scope of his power and

VOL. 26, NOVEMBER 29, 1968

The facts are stated in the opinion of the Court.

Confronted by an obstinate and adamant refusal of the

VOL. 26, NOVEMBER 29, 1968

SUPREME COURT REPORTS ANNOTATED

VOL. 26, NOVEMBER 29, 1968

8 70 Phil. 325 (1940). Cf. Perkins v. Dizon, 69 Phil. 186 (1939).

VOL. 26, NOVEMBER 29, 1968

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

VOL. 26, NOVEMBER 29, 1968

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

VOL. 26, NOVEMBER 29, 1968

findings of the Veterans' Administrator, in actions where he is a party, conclusive on our

22 101 Phil. 762 (1957).

VOL. 26, NOVEMBER 29, 1968

VOL. 343, OCTOBER 19, 2000

The facts are stated in the opinion of the Court.

Romulo Atencia for respondent Khan.

VOL. 343, OCTOBER 19, 2000

VOL. 343, OCTOBER 19, 2000

VOL. 343, OCTOBER 19, 2000

VOL. 343, OCTOBER 19, 2000

An unincorporated association which represents itself to be a corporation will be estopped

15 CA Decision, p. 11, Rollo, p. 46.

VOL. 343, OCTOBER 19, 2000

ABS CBN 301 SCRA 589

VOL. 301, JANUARY 21 1999

VOL. 301, JANUARY 21 1999

VOL. 301, JANUARY 21 1999

The facts are stated in the opinion of the Court.

Gancayco Law Offices for petitioners.

VOL. 301, JANUARY 21 1999

VOL. 301, JANUARY 21 1999

4 RTC Decision, Rollo, 146-149.

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

VOL. 301, JANUARY 21 1999

On 18 December 1992, the Court of Appeals promulgated a decision19 dismissing the

21 Vol. 2, OR, 2030-2035.

VOL. 301, JANUARY 21 1999

. . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND

. . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE

VOL. 301, JANUARY 21 1999

. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT

. . . IN AWARDING ATTORNEYS FEES IN FAVOR OF RBS.

23 250 SCRA 523 [1995].