G.R. No.

125027            August 12, 2002

ANITA MANGILA, petitioner,
vs.
COURT OF APPEALS and LORETA GUINA, respondents.

CARPIO, J.:

The Case

This is a petition fore review on certiorari under Rule 45 of the Rules of Court, seeking to set aside the Decision 1 of the
Court of Appeals affirming the Decision 2 of the Regional Trial Court, Branch 108, Pasay City. The trial court upheld the
writ of attachment and the declaration of default on petitioner while ordering her to pay private respondent P109,376.95
plus 18 percent interest per annum, 25 percent attorney’s fees and costs of suit.

The Facts

Petitioner Anita Mangila ("petitioner" for brevity) is an exporter of sea foods and doing business under the name and style
of Seafoods Products. Private respondent Loreta Guina ("private respondent" for brevity) is the President and General
Manager of Air Swift International, a single registered proprietorship engaged in the freight forwarding business.

Sometime in January 1988, petitioner contracted the freight forwarding services of private respondent for shipment of
petitioner’s products, such as crabs, prawns and assorted fishes, to Guam (USA) where petitioner maintains an outlet.
Petitioner agreed to pay private respondent cash on delivery. Private respondent’s invoice stipulates a charge of 18
percent interest per annum on all overdue accounts. In case of suit, the same invoice stipulates attorney’s fees equivalent
to 25 percent of the amount due plus costs of suit. 3

On the first shipment, petitioner requested for seven days within which to pay private respondent. However, for the next
three shipments, March 17, 24 and 31, 1988, petitioner failed to pay private respondent shipping charges amounting to
P109, 376.95.4

Despite several demands, petitioner never paid private respondent. Thus, on June 10, 1988, private respondent filed Civil
Case No. 5875 before the Regional Trial Court of Pasay City for collection of sum of money.

On August 1, 1988, the sheriff filed his Sheriff’s Return showing that summons was not served on petitioner. A woman
found at petitioner’s house informed the sheriff that petitioner transferred her residence to Sto. Niño, Guagua, Pampanga.
The sheriff found out further that petitioner had left the Philippines for Guam. 5

Thus, on September 13, 1988, construing petitioner’s departure from the Philippines as done with intent to defraud her
creditors, private respondent filed a Motion for Preliminary Attachment. On September 26, 1988, the trial court issued an
Order of Preliminary Attachment6 against petitioner. The following day, the trial court issued a Writ of Preliminary
Attachment.

The trial court granted the request of its sheriff for assistance from their counterparts in RTC, Pampanga. Thus, on
October 28, 1988, Sheriff Alfredo San Miguel of RTC Pampanga served on petitioner’s household help in San Fernando,
Pampanga, the Notice of Levy with the Order, Affidavit and Bond. 7

On November 7, 1988, petitioner filed an Urgent Motion to Discharge Attachment 8 without submitting herself to the
jurisdiction of the trial court. She pointed out that up to then, she had not been served a copy of the Complaint and the
summons. Hence, petitioner claimed the court had not acquired jurisdiction over her person. 9

In the hearing of the Urgent Motion to Discharge Attachment on November 11, 1988, private respondent sought and was
granted a re-setting to December 9, 1988. On that date, private respondent’s counsel did not appear, so the Urgent
Motion to Discharge Attachment was deemed submitted for resolution. 10

The trial court granted the Motion to Discharge Attachment on January 13, 1989 upon filing of petitioner’s counter-bond.
The trial court, however, did not rule on the question of jurisdiction and on the validity of the writ of preliminary attachment.

On December 26, 1988, private respondent applied for an alias summons, which the trial court issued on January 19,
1989.11 It was only on January 26, 1989 that summons was finally served on petitioner. 12
On February 9, 1989, petitioner filed a Motion to Dismiss the Complaint on the ground of improper venue. Private
respondent’s invoice for the freight forwarding service stipulates that "if court litigation becomes necessary to enforce
collection xxx the agreed venue for such action is Makati, Metro Manila." 13 Private respondent filed an Opposition
asserting that although "Makati" appears as the stipulated venue, the same was merely an inadvertence by the printing
press whose general manager executed an affidavit 14 admitting such inadvertence. Moreover, private respondent claimed
that petitioner knew that private respondent was holding office in Pasay City and not in Makati. 15 The lower court, finding
credence in private respondent’s assertion, denied the Motion to Dismiss and gave petitioner five days to file her Answer.
Petitioner filed a Motion for Reconsideration but this too was denied.

Petitioner filed her Answer16 on June 16, 1989, maintaining her contention that the venue was improperly laid.

On June 26, 1989, the trial court issued an Order setting the pre-trial for July 18, 1989 at 8:30 a.m. and requiring the
parties to submit their pre-trial briefs. Meanwhile, private respondent filed a Motion to Sell Attached Properties but the trial
court denied the motion.

On motion of petitioner, the trial court issued an Order resetting the pre-trial from July 18, 1989 to August 24, 1989 at 8:30
a.m..

On August 24, 1989, the day of the pre-trial, the trial court issued an Order 17 terminating the pre-trial and allowing the
private respondent to present evidence ex-parte  on September 12, 1989 at 8:30 a.m.. The Order stated that when the
case was called for pre-trial at 8:31 a.m., only the counsel for private respondent appeared. Upon the trial court’s second
call 20 minutes later, petitioner’s counsel was still nowhere to be found. Thus, upon motion of private respondent, the pre-
trial was considered terminated.

On September 12, 1989, petitioner filed her Motion for Reconsideration of the Order terminating the pre-trial. Petitioner
explained that her counsel arrived 5 minutes after the second call, as shown by the transcript of stenographic notes, and
was late because of heavy traffic. Petitioner claims that the lower court erred in allowing private respondent to present
evidence ex-parte  since there was no Order considering the petitioner as in default. Petitioner contends that the Order of
August 24, 1989 did not state that petitioner was declared as in default but still the court allowed private respondent to
present evidence ex-parte.18

On October 6, 1989, the trial court denied the Motion for Reconsideration and scheduled the presentation of private
respondent’s evidence ex-parte on October 10, 1989.1âwphi1.nêt

On October 10, 1989, petitioner filed an Omnibus Motion stating that the presentation of evidence ex-parte  should be
suspended because there was no declaration of petitioner as in default and petitioner’s counsel was not absent, but
merely late.

On October 18, 1989, the trial court denied the Omnibus Motion. 19

On November 20, 1989, the petitioner received a copy of the Decision of November 10, 1989, ordering petitioner to pay
respondent P109,376.95 plus 18 percent interest per annum, 25 percent attorney’s fees and costs of suit. Private
respondent filed a Motion for Execution Pending Appeal but the trial court denied the same.

The Ruling of the Court of Appeals

On December 15, 1995, the Court of Appeals rendered a decision affirming the decision of the trial court. The Court of
Appeals upheld the validity of the issuance of the writ of attachment and sustained the filing of the action in the RTC of
Pasay. The Court of Appeals also affirmed the declaration of default on petitioner and concluded that the trial court did not
commit any reversible error.

Petitioner filed a Motion for Reconsideration on January 5, 1996 but the Court of Appeals denied the same in a Resolution
dated May 20, 1996.

Hence, this petition.

The Issues

The issues raised by petitioner may be re-stated as follows:

 I.

WHETHER RESPONDENT COURT ERRED IN NOT HOLDING THAT THE WRIT OF ATTACHMENT WAS
IMPROPERLY ISSUED AND SERVED;

II.

WHETHER THERE WAS A VALID DECLARATION OF DEFAULT;

III.

WHETHER THERE WAS IMPROPER VENUE.

IV.

WHETHER RESPONDENT COURT ERRED IN DECLARING THAT PETITIONER IS OBLIGED TO PAY P109,
376.95, PLUS ATTORNEY’S FEES.20

The Ruling of the Court

Improper Issuance and Service of Writ of Attachment

Petitioner ascribes several errors to the issuance and implementation of the writ of attachment. Among petitioner’s
arguments are: first, there was no ground for the issuance of the writ since the intent to defraud her creditors had not been
established; second, the value of the properties levied exceeded the value of private respondent’s claim. However, the
crux of petitioner’s arguments rests on the question of the validity of the writ of attachment. Because of failure to serve
summons on her before or simultaneously with the writ’s implementation, petitioner claims that the trial court had not
acquired jurisdiction over her person and thus the service of the writ is void.

As a preliminary note, a distinction should be made between issuance and implementation of the writ of attachment. It is
necessary to distinguish between the two to determine when jurisdiction over the person of the defendant should be
acquired to validly implement the writ. This distinction is crucial in resolving whether there is merit in petitioner’s argument.

This Court has long settled the issue of when jurisdiction over the person of the defendant should be acquired in cases
where a party resorts to provisional remedies. A party to a suit may, at any time after filing the complaint, avail of the
provisional remedies under the Rules of Court. Specifically, Rule 57 on preliminary attachment speaks of the grant of the
remedy "at the commencement of the action or at any time thereafter." 21  This phrase refers to the date of filing of the
complaint which is the moment that marks "the commencement of the action." The reference plainly is to a time before
summons is served on the defendant, or even before summons issues.

In Davao Light & Power Co., Inc. v. Court of Appeals, 22 this Court clarified the actual time when jurisdiction should be
had:

"It goes without saying that whatever be the acts done by the Court prior to the acquisition of jurisdiction over the
person of defendant - issuance of summons, order of attachment and writ of attachment - these do not and
cannot bind and affect the defendant until and unless jurisdiction over his person is eventually obtained
by the court, either by service on him of summons or other coercive process or his voluntary submission to the
court’s authority. Hence, when the sheriff or other proper officer commences implementation of the writ of
attachment, it is essential that he serve on the defendant not only a copy of the applicant’s affidavit and
attachment bond, and of the order of attachment, as explicitly required by Section 5 of Rule 57, but also
the summons addressed to said defendant as well as a copy of the complaint xxx." (Emphasis supplied.)

Furthermore, we have held that the grant of the provisional remedy of attachment involves three stages: first, the court
issues the order granting the application; second, the writ of attachment issues pursuant to the order granting the writ; and
third, the writ is implemented. For the initial two stages, it is not necessary that jurisdiction over the person of the
defendant be first obtained. However, once the implementation of the writ commences, the court must have
acquired jurisdiction over the defendant for without such jurisdiction, the court has no power and authority to act in any
manner against the defendant. Any order issuing from the Court will not bind the defendant. 23
In the instant case, the Writ of Preliminary Attachment was issued on September 27, 1988 and implemented on October
28, 1988. However, the alias summons was served only on January 26, 1989 or almost three months after the
implementation of the writ of attachment.

The trial court had the authority to issue the Writ of Attachment on September 27 since a motion for its issuance can be
filed "at the commencement of the action." However, on the day the writ was implemented, the trial court should have,
previously or simultaneously with the implementation of the writ, acquired jurisdiction over the petitioner. Yet, as was
shown in the records of the case, the summons was actually served on petitioner several months after the writ had been
implemented.

Private respondent, nevertheless, claims that the prior or contemporaneous service of summons contemplated in Section
5 of Rule 57 provides for exceptions. Among such exceptions are "where the summons could not be served personally or
by substituted service despite diligent efforts or where the defendant is a resident temporarily absent therefrom x x x."
Private respondent asserts that when she commenced this action, she tried to serve summons on petitioner but the latter
could not be located at her customary address in Kamuning, Quezon City or at her new address in Guagua,
Pampanga.24 Furthermore, respondent claims that petitioner was not even in Pampanga; rather, she was in Guam
purportedly on a business trip.

Private respondent never showed that she effected substituted service on petitioner after her personal service failed.
Likewise, if it were true that private respondent could not ascertain the whereabouts of petitioner after a diligent inquiry,
still she had some other recourse under the Rules of Civil Procedure.

The rules provide for certain remedies in cases where personal service could not be effected on a party. Section 14, Rule
14 of the Rules of Court provides that whenever the defendant’s "whereabouts are unknown and cannot be ascertained
by diligent inquiry, service may, by leave of court, be effected upon him by publication in a newspaper of general
circulation x x x." Thus, if petitioner’s whereabouts could not be ascertained after the sheriff had served the summons at
her given address, then respondent could have immediately asked the court for service of summons by publication on
petitioner.25

Moreover, as private respondent also claims that petitioner was abroad at the time of the service of summons, this made
petitioner a resident who is temporarily out of the country. This is the exact situation contemplated in Section 16, 26 Rule 14
of the Rules of Civil Procedure, providing for service of summons by publication.

In conclusion, we hold that the alias summons belatedly served on petitioner cannot be deemed to have cured the fatal
defect in the enforcement of the writ. The trial court cannot enforce such a coercive process on petitioner without first
obtaining jurisdiction over her person. The preliminary writ of attachment must be served after or simultaneous with the
service of summons on the defendant whether by personal service, substituted service or by publication as warranted by
the circumstances of the case. 27 The subsequent service of summons does not confer a retroactive acquisition of
jurisdiction over her person because the law does not allow for retroactivity of a belated service.

Improper Venue

Petitioner assails the filing of this case in the RTC of Pasay and points to a provision in private respondent’s invoice which
contains the following:

"3. If court litigation becomes necessary to enforce collection, an additional equivalent (sic) to 25% of the principal
amount will be charged. The agreed venue for such action is Makati, Metro Manila, Philippines." 28

Based on this provision, petitioner contends that the action should have been instituted in the RTC of Makati and to do
otherwise would be a ground for the dismissal of the case.

We resolve to dismiss the case on the ground of improper venue but not for the reason stated by petitioner.

The Rules of Court provide that parties to an action may agree in writing on the venue on which an action should be
brought.29 However, a mere stipulation on the venue of an action is not enough to preclude parties from bringing a case in
other venues.30 The parties must be able to show that such stipulation is exclusive. Thus, absent words that show the
parties’ intention to restrict the filing of a suit in a particular place, courts will allow the filing of a case in any venue, as long
as jurisdictional requirements are followed. Venue stipulations in a contract, while considered valid and enforceable, do
not as a rule supersede the general rule set forth in Rule 4 of the Revised Rules of Court. 31 In the absence of qualifying or
restrictive words, they should be considered merely as an agreement on additional forum, not as limiting venue to the
specified place.32

In the instant case, the stipulation does not limit the venue exclusively to Makati. There are no qualifying or restrictive
words in the invoice that would evince the intention of the parties that Makati is the "only or exclusive" venue where the
action could be instituted. We therefore agree with private respondent that Makati is not the only venue where this case
could be filed.

Nevertheless, we hold that Pasay is not the proper venue for this case.

Under the 1997 Rules of Civil Procedure, the general rule is venue in personal actions is "where the defendant or any of
the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the
plaintiff."33 The exception to this rule is when the parties agree on an exclusive venue other than the places mentioned in
the rules. But, as we have discussed, this exception is not applicable in this case. Hence, following the general rule, the
instant case may be brought in the place of residence of the plaintiff or defendant, at the election of the plaintiff (private
respondent herein).

In the instant case, the residence of private respondent (plaintiff in the lower court) was not alleged in the complaint.
Rather, what was alleged was the postal address of her sole proprietorship, Air Swift International. It was only when
private respondent testified in court, after petitioner was declared in default, that she mentioned her residence to be in
Better Living Subdivision, Parañaque City.

In the earlier case of Sy v. Tyson Enterprises, Inc.,34  the reverse happened. The plaintiff in that case was Tyson
Enterprises, Inc., a corporation owned and managed by Dominador Ti. The complaint, however, did not allege the office
or place of business of the corporation, which was in Binondo, Manila. What was alleged was the residence of Dominador
Ti, who lived in San Juan, Rizal. The case was filed in the Court of First Instance of Rizal, Pasig. The Court there held that
the evident purpose of alleging the address of the corporation’s president and manager was to justify the filing of the suit
in Rizal, Pasig instead of in Manila. Thus, the Court ruled that there was no question that venue was improperly laid in that
case and held that the place of business of Tyson Enterpises, Inc. is considered as its residence for purposes of venue.
Furthermore, the Court held that the residence of its president is not the residence of the corporation because a
corporation has a personality separate and distinct from that of its officers and stockholders.

In the instant case, it was established in the lower court that petitioner resides in San Fernando, Pampanga 35 while private
respondent resides in Parañaque City. 36 However, this case was brought in Pasay City, where the business of private
respondent is found. This would have been permissible had private respondent’s business been a corporation, just like
the case in Sy v. Tyson Enterprises, Inc. However, as admitted by private respondent in her Complaint 37 in the lower
court, her business is a sole proprietorship, and as such, does not have a separate juridical personality that could enable
it to file a suit in court.38 In fact, there is no law authorizing sole proprietorships to file a suit in court. 39

A sole proprietorship does not possess a juridical personality separate and distinct from the personality of the owner of the
enterprise.40 The law merely recognizes the existence of a sole proprietorship as a form of business organization
conducted for profit by a single individual and requires its proprietor or owner to secure licenses and permits, register its
business name, and pay taxes to the national government. 41 The law does not vest a separate legal personality on the
sole proprietorship or empower it to file or defend an action in court. 42

Thus, not being vested with legal personality to file this case, the sole proprietorship is not the plaintiff in this case but
rather Loreta Guina in her personal capacity. In fact, the complaint in the lower court acknowledges in its caption that the
plaintiff and defendant are Loreta Guina and Anita Mangila, respectively. The title of the petition before us does not state,
and rightly so, Anita Mangila v. Air Swift International, but rather Anita Mangila v. Loreta Guina. Logically then, it is the
residence of private respondent Guina, the proprietor with the juridical personality, which should be considered as one of
the proper venues for this case.

All these considered, private respondent should have filed this case either in San Fernando, Pampanga (petitioner’s
residence) or Parañaque (private respondent’s residence). Since private respondent (complainant below) filed this case in
Pasay, we hold that the case should be dismissed on the ground of improper venue.

Although petitioner filed an Urgent Motion to Discharge Attachment in the lower court, petitioner expressly stated that she
was filing the motion without submitting to the jurisdiction of the court. At that time, petitioner had not been served the
summons and a copy of the complaint.43 Thereafter, petitioner timely filed a Motion to Dismiss 44 on the ground of improper
venue. Rule 16, Section 1 of the Rules of Court provides that a motion to dismiss may be filed "[W]ithin the time for but
before filing the answer to the complaint or pleading asserting a claim." Petitioner even raised the issue of improper venue
in his Answer45 as a special and affirmative defense. Petitioner also continued to raise the issue of improper venue in her
Petition for Review46 before this Court. We thus hold that the dismissal of this case on the ground of improper venue is
warranted.

The rules on venue, like other procedural rules, are designed to insure a just and orderly administration of justice or the
impartial and evenhanded determination of every action and proceeding. Obviously, this objective will not be attained if
the plaintiff is given unrestricted freedom to choose where to file the complaint or petition. 47

We find no reason to rule on the other issues raised by petitioner.1âwphi1.nêt

WHEREFORE, the petition is GRANTED on the grounds of improper venue and invalidity of the service of the writ of
attachment. The decision of the Court of Appeals and the order of respondent judge denying the motion to dismiss
are REVERSED and SET ASIDE. Civil Case No. 5875 is hereby dismissed without prejudice to refiling it in the proper
venue. The attached properties of petitioner are ordered returned to her immediately.

SO ORDERED.
G.R. No. 175048               February 10, 2009

EXCELLENT QUALITY APPAREL, INC., Petitioner,

vs.
WIN MULTI RICH BUILDERS, INC., represented by its President, WILSON G. CHUA, Respondent.

DECISION

TINGA, J.:

Before us is a Rule 45 petition 1 seeking the reversal of the Decision 2 and Resolution3 of the Court of Appeals in CA-
G.R. SP No. 84640. The Court of Appeals had annulled two orders 4 of the Regional Trial Court (RTC), Branch 32, of
Manila in Civil Case No. 04-108940. This case involves a claim for a sum of money which arose from a construction
dispute.

On 26 March 1996, petitioner Excellent Quality Apparel, Inc. (petitioner) then represented by Max L.F. Ying, Vice-
President for Productions, and Alfiero R. Orden, Treasurer, entered into a contract 5 with Multi-Rich Builders (Multi-
Rich) represented by Wilson G. Chua (Chua), its President and General Manager, for the construction of a garment
factory within the Cavite Philippine Economic Zone Authority (CPEZ). 6 The duration of the project was for a
maximum period of five (5) months or 150 consecutive calendar days. Included in the contract is an arbitration
clause which is as follows:

Article XIX : ARBITRATION CLAUSE

Should there be any dispute, controversy or difference between the parties arising out of this Contract that may not
be resolved by them to their mutual satisfaction, the matter shall be submitted to an Arbitration Committee of three
(3) members; one (1) chosen by the OWNER; one (1) chosen by the CONTRACTOR; and the Chairman thereof to
be chosen by two (2) members. The decision of the Arbitration Committee shall be final and binding on both the
parties hereto. The Arbitration shall be governed by the Arbitration Law (R.A. [No.] 876). The cost of arbitration shall
be borned [sic] jointly by both CONTRACTOR and OWNER on 50-50 basis. 7

The construction of the factory building was completed on 27 November 1996.

Respondent Win Multi-Rich Builders, Inc. (Win) was incorporated with the Securities and Exchange Commission
(SEC) on 20 February 1997 8 with Chua as its President and General Manager. On 26 January 2004, Win filed a
complaint for a sum of money9 against petitioner and Mr. Ying amounting to ₱8,634,448.20. It also prayed for the
issuance of a writ of attachment claiming that Mr. Ying was about to abscond and that petitioner was about to close.
Win obtained a surety bond 10 issued by Visayan Surety & Insurance Corporation. On 10 February 2004, the RTC
issued the Writ of Attachment11 against the properties of petitioner.

On 16 February 2004, Sheriff Salvador D. Dacumos of the RTC of Manila, Branch 32, went to the office of petitioner
in CPEZ to serve the Writ of Attachment, Summons 12 and the Complaint. Petitioner issued Equitable PCIBank
(PEZA Branch) Check No. 160149, dated 16 February 2004, in the amount of ₱8,634,448.20, to prevent the Sheriff
from taking possession of its properties. 13 The check was made payable to the Office of the Clerk of Court of the
RTC of Manila as a guarantee for whatever liability there may be against petitioner.

Petitioner filed an Omnibus Motion14 claiming that it was neither about to close. It also denied owing anything to Win,
as it had already paid all its obligations to it. Lastly, it questioned the jurisdiction of the trial court from taking
cognizance of the case. Petitioner pointed to the presence of the Arbitration Clause and it asserted that the case
should be referred to the Construction Industry Arbitration Commission (CIAC) pursuant to Executive Order (E.O.)
No. 1008.

In the hearing held on 10 February 2004, the counsel of Win moved that its name in the case be changed from "Win
Multi-Rich Builders, Inc." to "Multi-Rich Builders, Inc." It was only then that petitioner apparently became aware of
the variance in the name of the plaintiff. In the Reply 15 filed by petitioner, it moved to dismiss the case since Win was
not the contractor and neither a party to the contract, thus it cannot institute the case. Petitioner obtained a
Certificate of Non-Registration of Corporation/Partnership 16 from the SEC which certified that the latter did not have
any records of a "Multi-Rich Builders, Inc." Moreover, Win in its Rejoinder 17 did not

oppose the allegations in the Reply. Win admitted that it was only incorporated on 20 February 1997 while the
construction contract was executed on 26 March 1996. Likewise, it admitted that at the time of execution of the
contract, Multi-Rich was a registered sole proprietorship and was issued a business permit 18 by the Office of the
Mayor of Manila.

In an Order19 dated 12 April 2004, the RTC denied the motion and stated that the issues can be answered in a full-
blown trial. Upon its denial, petitioner filed its Answer and prayed for the dismissal of the case. 20 Win filed a
Motion21 to deposit the garnished amount to the court to protect its legal rights. In a Manifestation, 22 petitioner
vehemently opposed the deposit of the garnished amount. The RTC issued an Order 23 dated 20 April 2004, which
granted the motion to deposit the garnished amount. On the same date, Win filed a motion 24 to release the
garnished amount to it. Petitioner filed its opposition 25 to the motion claiming that the release of the money does not
have legal and factual basis.

On 18 June 2004, petitioner filed a petition for review on certiorari 26 under Rule 65 before the Court of Appeals,
which questioned the jurisdiction of the RTC and challenged the orders issued by the lower court with a prayer for
the issuance of a temporary retraining order and a writ of preliminary injunction. Subsequently, petitioner filed a
Supplemental Manifestation and Motion 27 and alleged that the money deposited with the RTC was turned over to
Win. Win admitted that the garnished amount had already been released to it. On 14 March 2006, the Court of
Appeals rendered its Decision 28 annulling the 12 April and 20 April 2004 orders of the RTC.1avvphi1 It also ruled
that the RTC had jurisdiction over the case since it is a suit for collection of sum of money. Petitioner filed a Motion
for Reconsideration29 which was subsequently denied in a resolution.30

Hence this petition.

Petitioner raised the following issues to wit: (1) does Win have a legal personality to institute the present case; (2)
does the RTC have jurisdiction over the case notwithstanding the presence of the arbitration clause; and (3) was the
issuance of the writ of attachment and the subsequent garnishment proper.

A suit may only be instituted by the real party in interest. Section 2, Rule 3 of the Rules of Court defines "parties in
interest" in this manner:

A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party
entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted
or defended in the name of the real party in interest.

Is Win a real party in interest? We answer in the negative.

Win admitted that the contract was executed between Multi-Rich and petitioner. It further admitted that Multi-Rich
was a sole proprietorship with a business permit issued by the Office of the Mayor of Manila. A sole proprietorship is
the oldest, simplest, and most prevalent form of business enterprise. 31 It is an unorganized business owned by one
person. The sole proprietor is personally liable for all the debts and obligations of the business. 32 In the case of
Mangila v. Court of Appeals,33 we held that:

x x x In fact, there is no law authorizing sole proprietorships to file a suit in court.

A sole proprietorship does not possess a juridical personality separate and distinct from the personality of the owner
of the enterprise. The law merely recognizes the existence of a sole proprietorship as a form of business
organization conducted for profit by a single individual and requires its proprietor or owner to secure licenses and
permits, register its business name, and pay taxes to the national government. The law does not vest a separate
legal personality on the sole proprietorship or empower it to file or defend an action in court.

The original petition was instituted by Win, which is a SEC-registered corporation. It filed a collection of sum of
money suit which involved a construction contract entered into by petitioner and Multi-Rich, a sole proprietorship.
The counsel of Win wanted to change the name of the plaintiff in the suit to Multi-Rich. The change cannot be
countenanced. The plaintiff in the collection suit is a corporation. The name cannot be changed to that of a sole
proprietorship. Again, a sole proprietorship is not vested with juridical personality to file or defend an action. 34

Petitioner had continuously contested the legal personality of Win to institute the case. Win was given ample
opportunity to adduce evidence to show that it had legal personality. It failed to do so.  Corpus Juris Secundum,
notes:

x x x where an individual or sole trader organizes a corporation to take over his business and all his assets, and it
becomes in effect merely an alter ego of the incorporator, the corporation, either on the grounds of implied
assumption of the debts or on the grounds that the business is the same and is merely being conducted under a
new guise, is liable for the incorporator's preexisting debts and liabilities. Clearly, where the corporation assumes or
accepts the debt of its predecessor in business it is liable and if the transfer of assets is in fraud of creditors it will be
liable to the extent of the assets transferred. The corporation is not liable on an implied assumption of debts from
the receipt of assets where the incorporator retains sufficient assets to pay the indebtedness, or where none of his
assets are transferred to the corporation, or where, although all the assets of the incorporator have been
transferred, there is a change in the persons carrying on the business and the corporation is not merely an alter ego
of the person to whose business it succeeded. 35

In order for a corporation to be able to file suit and claim the receivables of its predecessor in business, in this case
a sole proprietorship, it must show proof that the corporation had acquired the assets and liabilities of the sole
proprietorship. Win could have easily presented or attached any document e.g., deed of assignment which will show
whether the assets, liabilities and receivables of Multi-Rich were acquired by Win. Having been given the
opportunity to rebut the allegations made by petitioner, Win failed to use that opportunity. Thus, we cannot presume
that Multi-Rich is the predecessor-in-business of Win and hold that the latter has standing to institute the collection
suit.

Assuming arguendo that Win has legal personality, the petition will still be granted.

Section 4 of E.O. No. 100836 provides for the jurisdiction of the Construction Industry Arbitration Commission, to wit:

Section 4. Jurisdiction.—The CIAC shall have original and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties involved in construction in the Philippines, whether the disputes
arises before or after the completion of the contract, or after the abandonment or breach thereof. These disputes
may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must
agree to submit the same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual time and delays;
amount of damages and penalties; commencement time and delays; maintenance and defects; payment, default of
employer or contractor and changes in contract cost.

Excluded from the coverage of this law are disputes from employer-employee relationships which shall continue to
be covered by the Labor Code of the Philippines.

There is nothing in the law which limits the exercise of jurisdiction to complex or difficult cases. E.O. No. 1008 does
not distinguish between claims involving payment of money or not. 37 The CIAC acquires jurisdiction over a
construction contract by the mere fact that the parties agreed to submit to voluntary arbitration. 38 The law does not
preclude parties from stipulating a preferred forum or arbitral body but they may not divest the CIAC of jurisdiction
as provided by law.39 Arbitration is an alternative method of dispute resolution which is highly encouraged. 40 The
arbitration clause is a commitment on the part of the parties to submit to arbitration the disputes covered since that
clause is binding, and they are expected to

abide by it in good faith. 41 Clearly, the RTC should not have taken cognizance of the collection suit. The presence of
the arbitration clause vested jurisdiction to the CIAC over all construction disputes between Petitioner and Multi-
Rich. The RTC does not have jurisdiction.42
Based on the foregoing, there is no need to discuss the propriety of the issuance of the writ of attachment. However,
we cannot allow Win to retain the garnished amount which was turned over by the RTC. The RTC did not have
jurisdiction to issue the questioned writ of attachment and to order the release of the garnished funds.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals is hereby MODIFIED. Civil Case No.
04-108940 is DISMISSED. Win Multi-Rich Builders, Inc. is ORDERED to return the garnished amount of EIGHT
MILLION SIX HUNDRED THIRTY-FOUR THOUSAND FOUR HUNDRED

FORTY-EIGHT PESOS AND FORTY CENTAVOS (₱8,634,448.40),

which was turned over by the Regional Trial Court, to petitioner with legal interest of 12 percent (12%) per annum
upon finality of this Decision until payment.

SO ORDERED.
BACHE & CO. (PHIL.), INC. and FREDERICK E. SEGGERMAN, Petitioners, v. HON. JUDGE VIVENCIO M. RUIZ, MISAEL P. VERA, in his
capacity as Commissioner of Internal Revenue, ARTURO LOGRONIO, RODOLFO DE LEON, GAVINO VELASQUEZ, MIMIR DELLOSA,
NICANOR ALCORDO, JOHN DOE, JOHN DOE, JOHN DOE, and JOHN DOE, Respondents.

San Juan, Africa, Gonzales & San Agustin, for Petitioners.

Solicitor General Felix Q. Antonio, Assistant Solicitor General Crispin V . Bautista, Solicitor Pedro A. Ramirez and Special Attorney Jaime
M. Maza for Respondents.

DECISION

VILLAMOR, J.:

This is an original action of certiorari, prohibition and mandamus, with prayer for a writ of preliminary
mandatory and prohibitory injunction. In their petition Bache & Co. (Phil.), Inc., a corporation duly organized
and existing under the laws of the Philippines, and its President, Frederick E. Seggerman, pray this Court to
declare null and void Search Warrant No. 2-M-70 issued by respondent Judge on February 25, 1970; to order
respondents to desist from enforcing the same and/or keeping the documents, papers and effects seized by
virtue thereof, as well as from enforcing the tax assessments on petitioner corporation alleged by petitioners to
have been made on the basis of the said documents, papers and effects, and to order the return of the latter to
petitioners. We gave due course to the petition but did not issue the writ of preliminary injunction prayed for
therein.

The pertinent facts of this case, as gathered from record, are as follows:chanrob1es virtual 1aw library

On February 24, 1970, respondent Misael P. Vera, Commissioner of Internal Revenue, wrote a letter addressed
to respondent Judge Vivencio M. Ruiz requesting the issuance of a search warrant against petitioners for
violation of Section 46(a) of the National Internal Revenue Code, in relation to all other pertinent provisions
thereof, particularly Sections 53, 72, 73, 208 and 209, and authorizing Revenue Examiner Rodolfo de Leon, one
of herein respondents, to make and file the application for search warrant which was attached to the letter.

In the afternoon of the following day, February 25, 1970, respondent De Leon and his witness, respondent
Arturo Logronio, went to the Court of First Instance of Rizal. They brought with them the following papers:
respondent Vera’s aforesaid letter-request; an application for search warrant already filled up but still unsigned
by respondent De Leon; an affidavit of respondent Logronio subscribed before respondent De Leon; a deposition
in printed form of respondent Logronio already accomplished and signed by him but not yet subscribed; and a
search warrant already accomplished but still unsigned by respondent Judge.

At that time respondent Judge was hearing a certain case; so, by means of a note, he instructed his Deputy
Clerk of Court to take the depositions of respondents De Leon and Logronio. After the session had adjourned,
respondent Judge was informed that the depositions had already been taken. The stenographer, upon request
of respondent Judge, read to him her stenographic notes; and thereafter, respondent Judge asked respondent
Logronio to take the oath and warned him that if his deposition was found to be false and without legal basis,
he could be charged for perjury. Respondent Judge signed respondent de Leon’s application for search warrant
and respondent Logronio’s deposition, Search Warrant No. 2-M-70 was then sign by respondent Judge and
accordingly issued.

Three days later, or on February 28, 1970, which was a Saturday, the BIR agents served the search warrant
petitioners at the offices of petitioner corporation on Ayala Avenue, Makati, Rizal. Petitioners’ lawyers protested
the search on the ground that no formal complaint or transcript of testimony was attached to the warrant. The
agents nevertheless proceeded with their search which yielded six boxes of documents.

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

The petition should be granted for the following reasons:chanrob1es virtual 1aw library

1. Respondent Judge failed to personally examine the complainant and his witness.

The pertinent provisions of the Constitution of the Philippines and of the Revised Rules of Court
are:jgc:chanrobles.com.ph

"(3) The right of the people to be secure in their persons, houses, papers and effects against unreasonable
searches and seizures shall not be violated, and no warrants shall issue but upon probable cause, to be
determined by the judge after examination under oath or affirmation of the complainant and the witnesses he
may produce, and particularly describing the place to be searched, and the persons or things to be seized."
(Art. III, Sec. 1, Constitution.)

"SEC. 3. Requisites for issuing search warrant. — A search warrant shall not issue but upon probable cause in
connection with one specific offense to be determined by the judge or justice of the peace after examination
under oath or affirmation of the complainant and the witnesses he may produce, and particularly describing the
place to be searched and the persons or things to be seized.

"No search warrant shall issue for more than one specific offense.

"SEC. 4. Examination of the applicant. — The judge or justice of the peace must, before issuing the warrant,
personally examine on oath or affirmation the complainant and any witnesses he may produce and take their
depositions in writing, and attach them to the record, in addition to any affidavits presented to him." (Rule 126,
Revised Rules of Court.)

The examination of the complainant and the witnesses he may produce, required by Art. III, Sec. 1, par. 3, of
the Constitution, and by Secs. 3 and 4, Rule 126 of the Revised Rules of Court, should be conducted by the
judge himself and not by others. The phrase "which shall be determined by the judge after examination under
oath or affirmation of the complainant and the witnesses he may produce," appearing in the said constitutional
provision, was introduced by Delegate Francisco as an amendment to the draft submitted by the Sub-
Committee of Seven. The following discussion in the Constitutional Convention (Laurel, Proceedings of the
Philippine Constitutional Convention, Vol. III, pp. 755-757) is enlightening:jgc:chanrobles.com.ph

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

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

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

"SR. ORENSE. No cree Su Señoria que el tomar le declaracion de ese denunciante por escrito siempre requeriria
algun tiempo?.

"SR. FRANCISCO. Seria cuestio de un par de horas, pero por otro lado minimizamos en todo lo posible las
vejaciones injustas con la expedicion arbitraria de los mandamientos de registro. Creo que entre dos males
debemos escoger. el menor.

x              x              x

"MR. LAUREL. . . . The reason why we are in favor of this amendment is because we are incorporating in our
constitution something of a fundamental character. Now, before a judge could issue a search warrant, he must
be under the obligation to examine personally under oath the complainant and if he has any witness, the
witnesses that he may produce . . ."cralaw

virtua1aw libra
The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is more emphatic and candid, for it
requires the judge, before issuing a search warrant, to "personally examine on oath or affirmation the
complainant and any witnesses he may produce . . ."cralaw virtua1aw library

Personal examination by the judge of the complainant and his witnesses is necessary to enable him to
determine the existence or non-existence of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the
Constitution, and Sec. 3, Rule 126 of the Revised Rules of Court, both of which prohibit the issuance of warrants
except "upon probable cause." The determination of whether or not a probable cause exists calls for the
exercise of judgment after a judicial appraisal of facts and should not be allowed to be delegated in the absence
of any rule to the contrary.

In the case at bar, no personal examination at all was conducted by respondent Judge of the complainant
(respondent De Leon) and his witness (respondent Logronio). While it is true that the complainant’s application
for search warrant and the witness’ printed-form deposition were subscribed and sworn to before respondent
Judge, the latter did not ask either of the two any question the answer to which could possibly be the basis for
determining whether or not there was probable cause against herein petitioners. Indeed, the participants seem
to have attached so little significance to the matter that notes of the proceedings before respondent Judge were
not even taken. At this juncture it may be well to recall the salient facts. The transcript of stenographic notes
(pp. 61-76, April 1, 1970, Annex J-2 of the Petition) taken at the hearing of this case in the court below shows
that per instruction of respondent Judge, Mr. Eleodoro V. Gonzales, Special Deputy Clerk of Court, took the
depositions of the complainant and his witness, and that stenographic notes thereof were taken by Mrs. Gaspar.
At that time respondent Judge was at the sala hearing a case. After respondent Judge was through with the
hearing, Deputy Clerk Gonzales, stenographer Gaspar, complainant De Leon and witness Logronio went to
respondent Judge’s chamber and informed the Judge that they had finished the depositions. Respondent Judge
then requested the stenographer to read to him her stenographic notes. Special Deputy Clerk Gonzales testified
as follows:jgc:chanrobles.com.ph

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

"Q And thereafter?

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

"Q Who is this he?

"A The Honorable Judge.

"Q The deposition or the affidavit?

"A The affidavit, Your Honor."cralaw

virtua1aw library
Thereafter, respondent Judge signed the search warrant.

The participation of respondent Judge in the proceedings which led to the issuance of Search Warrant No. 2-M-
70 was thus limited to listening to the stenographer’s readings of her notes, to a few words of warning against
the commission of perjury, and to administering the oath to the complainant and his witness. This cannot be
consider a personal examination. If there was an examination at all of the complainant and his witness, it was
the one conducted by the Deputy Clerk of Court. But, as stated, the Constitution and the rules require a
personal examination by the judge. It was precisely on account of the intention of the delegates to the
Constitutional Convention to make it a duty of the issuing judge to personally examine the complainant and his
witnesses that the question of how much time would be consumed by the judge in examining them came up
before the Convention, as can be seen from the record of the proceedings quoted above. The reading of the
stenographic notes to respondent Judge did not constitute sufficient compliance with the constitutional mandate
and the rule; for by that manner respondent Judge did not have the opportunity to observe the demeanor of the
complainant and his witness, and to propound initial and follow-up questions which the judicial mind, on
account of its training, was in the best position to conceive. These were important in arriving at a sound
inference on the all-important question of whether or not there was probable cause.

2. The search warrant was issued for more than one specific offense.

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

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

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

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

Sec. 72 imposes surcharges for failure to render income tax returns and for rendering false and fraudulent
returns.

Sec. 73 provides the penalty for failure to pay the income tax, to make a return or to supply the information
required under the Tax Code.

Sec. 208 penalizes" [a]ny person who distills, rectifies, repacks, compounds, or manufactures any article
subject to a specific tax, without having paid the privilege tax therefore, or who aids or abets in the conduct of
illicit distilling, rectifying, compounding, or illicit manufacture of any article subject to specific tax . . .," and
provides that in the case of a corporation, partnership, or association, the official and/or employee who caused
the violation shall be responsible.

Sec. 209 penalizes the failure to make a return of receipts, sales, business, or gross value of output removed,
or to pay the tax due thereon.

The search warrant in question was issued for at least four distinct offenses under the Tax Code. The first is the
violation of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax returns), which are interrelated. The
second is the violation of Sec. 53 (withholding of income taxes at source). The third is the violation of Sec. 208
(unlawful pursuit of business or occupation); and the fourth is the violation of Sec. 209 (failure to make a return
of receipts, sales, business or gross value of output actually removed or to pay the tax due thereon). Even in
their classification the six above-mentioned provisions are embraced in two different titles: Secs. 46(a), 53, 72
and 73 are under Title II (Income Tax); while Secs. 208 and 209 are under Title V (Privilege Tax on Business
and Occupation).

Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-19550, June 19, 1967 (20 SCRA 383), is not
applicable, because there the search warrants were issued for "violation of Central Bank Laws, Internal Revenue
(Code) and Revised Penal Code;" whereas, here Search Warrant No 2-M-70 was issued for violation of only one
code, i.e., the National Internal Revenue Code. The distinction more apparent than real, because it was
precisely on account of the Stonehill incident, which occurred sometime before the present Rules of Court took
effect on January 1, 1964, that this Court amended the former rule by inserting therein the phrase "in
connection with one specific offense," and adding the sentence "No search warrant shall issue for more than one
specific offense," in what is now Sec. 3, Rule 126. Thus we said in Stonehill:jgc:chanrobles.com.ph

"Such is the seriousness of the irregularities committed in connection with the disputed search warrants, that
this Court deemed it fit to amend Section 3 of Rule 122 of the former Rules of Court that ‘a search warrant shall
not issue but upon probable cause in connection with one specific offense.’ Not satisfied with this qualification,
the Court added thereto a paragraph, directing that ‘no search warrant shall issue for more than one specific
offense.’"

3. The search warrant does not particularly describe the things to be seized.

The documents, papers and effects sought to be seized are described in Search Warrant No. 2-M-70 in this
manner:jgc:chanrobles.com.ph

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

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

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

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

‘Books of accounts, financial records, vouchers, journals, correspondence, receipts, ledgers, portfolios, credit
journals, typewriters, and other documents and/or paper showing all business transactions including
disbursement receipts, balance sheets and related profit and loss statements.’

"Thus, the warrants authorized the search for and seizure of records pertaining to all business transactions of
petitioners herein, regardless of whether the transactions were legal or illegal. The warrants sanctioned the
seizure of all records of the petitioners and the aforementioned corporations, whatever their nature, thus openly
contravening the explicit command of our Bill of Rights — that the things to be seized be particularly described
— as well as tending to defeat its major objective: the elimination of general warrants."cralaw virtua1aw library

While the term "all business transactions" does not appear in Search Warrant No. 2-M-70, the said warrant
nevertheless tends to defeat the major objective of the Bill of Rights, i.e., the elimination of general warrants,
for the language used therein is so all-embracing as to include all conceivable records of petitioner corporation,
which, if seized, could possibly render its business inoperative.

In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896, this Court had occasion to explain the purpose
of the requirement that the warrant should particularly describe the place to be searched and the things to be
seized, to wit:jgc:ch

". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97) specifically require that a search warrant
should particularly describe the place to be searched and the things to be seized. The evident purpose and
intent of this requirement is to limit the things to be seized to those, and only those, particularly described in
the search warrant — to leave the officers of the law with no discretion regarding what articles they shall seize,
to the end that ‘unreasonable searches and seizures’ may not be made, — that abuses may not be committed.
That this is the correct interpretation of this constitutional provision is borne out by American
authorities."cralaw virtua1aw library

The purpose as thus explained could, surely and effectively, be defeated under the search warrant issued in this
case.

A search warrant may be said to particularly describe the things to be seized when the description therein is as
specific as the circumstances will ordinarily allow (People v. Rubio; 57 Phil. 384); or when the description
expresses a conclusion of fact — not of law — by which the warrant officer may be guided in making the search
and seizure (idem., dissent of Abad Santos, J.,); or when the things described are limited to those which bear
direct relation to the offense for which the warrant is being issued (Sec. 2, Rule 126, Revised Rules of Court).
The herein search warrant does not conform to any of the foregoing tests. If the articles desired to be seized
have any direct relation to an offense committed, the applicant must necessarily have some evidence, other
than those articles, to prove the said offense; and the articles subject of search and seizure should come in
handy merely to strengthen such evidence. In this event, the description contained in the herein disputed
warrant should have mentioned, at least, the dates, amounts, persons, and other pertinent data regarding the
receipts of payments, certificates of stocks and securities, contracts, promissory notes, deeds of sale, messages
and communications, checks, bank deposits and withdrawals, records of foreign remittances, among others,
enumerated in the warrant.

Respondents contend that certiorari does not lie because petitioners failed to file a motion for reconsideration of
respondent Judge’s order of July 29, 1970. The contention is without merit. In the first place, when the
questions raised before this Court are the same as those which were squarely raised in and passed upon by the
court below, the filing of a motion for reconsideration in said court before certiorari can be instituted in this
Court is no longer a prerequisite. (Pajo, etc., Et. Al. v. Ago, Et Al., 108 Phil., 905). In the second place, the rule
requiring the filing of a motion for reconsideration before an application for a writ of certiorari can be
entertained was never intended to be applied without considering the circumstances. (Matutina v. Buslon, Et
Al., 109 Phil., 140.) In the case at bar time is of the essence in view of the tax assessments sought to be
enforced by respondent officers of the Bureau of Internal Revenue against petitioner corporation, On account of
which immediate and more direct action becomes necessary. (Matute v. Court of Appeals, Et Al., 26 SCRA 768.)
Lastly, the rule does not apply where, as in this case, the deprivation of petitioners’ fundamental right to due
process taints the proceeding against them in the court below not only with irregularity but also with nullity.
(Matute v. Court of Appeals, Et Al., supra.)

It is next contended by respondents that a corporation is not entitled to protection against unreasonable search
and seizures. Again, we find no merit in the contention.

"Although, for the reasons above stated, we are of the opinion that an officer of a corporation which is charged
with a violation of a statute of the state of its creation, or of an act of Congress passed in the exercise of its
constitutional powers, cannot refuse to produce the books and papers of such corporation, we do not wish to be
understood as holding that a corporation is not entitled to immunity, under the 4th Amendment, against
unreasonable searches and seizures. A corporation is, after all, but an association of individuals under an
assumed name and with a distinct legal entity. In organizing itself as a collective body it waives no
constitutional immunities appropriate to such body. Its property cannot be taken without compensation. It can
only be proceeded against by due process of law, and is protected, under the 14th Amendment, against
unlawful discrimination . . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)

"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was thought that a different rule applied to a
corporation, the ground that it was not privileged from producing its books and papers. But the rights of a
corporation against unlawful search and seizure are to be protected even if the same result might have been
achieved in a lawful way." (Silverthorne Lumber Company, Et. Al. v. United States of America, 251 U.S. 385, 64
L. ed. 319.)

In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly recognized the right of a corporation to object
against unreasonable searches and seizures, thus:jgc:chanrobles.com.ph

"As regards the first group, we hold that petitioners herein have no cause of action to assail the legality of the
contested warrants and of the seizures made in pursuance thereof, for the simple reason that said corporations
have their respective personalities, separate and distinct from the personality of herein petitioners, regardless
of the amount of shares of stock or the interest of each of them in said corporations, whatever, the offices they
hold therein may be. Indeed, it is well settled that the legality of a seizure can be contested only by the party
whose rights have been impaired thereby, and that the objection to an unlawful search and seizure is purely
personal and cannot be availed of by third parties. Consequently, petitioners herein may not validly object to
the use in evidence against them of the documents, papers and things seized from the offices and premises of
the corporations adverted to above, since the right to object to the admission of said papers in evidence
belongs exclusively to the corporations, to whom the seized effects belong, and may not be invoked by the
corporate officers in proceedings against them in their individual capacity . . ."cralaw virtua1aw library

In the Stonehill case only the officers of the various corporations in whose offices documents, papers and
effects were searched and seized were the petitioners. In the case at bar, the corporation to whom the seized
documents belong, and whose rights have thereby been impaired, is itself a petitioner. On that score, petitioner
corporation here stands on a different footing from the corporations in Stonehill.

The tax assessments referred to earlier in this opinion were, if not entirely — as claimed by petitioners — at
least partly — as in effect admitted by respondents — based on the documents seized by virtue of Search
Warrant No. 2-M-70. Furthermore, the fact that the assessments were made some one and one-half months
after the search and seizure on February 25, 1970, is a strong indication that the documents thus seized served
as basis for the assessments. Those assessments should therefore not be enforced.

PREMISES CONSIDERED, the petition is granted. Accordingly, Search Warrant No. 2-M-70 issued by respondent
Judge is declared null and void; respondents are permanently enjoined from enforcing the said search warrant;
the documents, papers and effects seized thereunder are ordered to be returned to petitioners; and respondent
officials the Bureau of Internal Revenue and their representatives are permanently enjoined from enforcing the
assessments mentioned in Annex "G" of the present petition, as well as other assessments based on the
documents, papers and effects seized under the search warrant herein nullified, and from using the same
against petitioners in any criminal or other proceeding. No pronouncement as to costs.

G.R. No. 75885 May 27, 1987

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

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

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

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

NARVASA, J.:

Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan Shipyard
and Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by President Corazon C. Aquino on
February 28, 1986 and March 12, 1986, respectively, and (2) the sequestration, takeover, and other orders issued, and
acts done, in accordance with said executive orders by the Presidential Commission on Good Government and/or its
Commissioners and agents, affecting said corporation.

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

a. The Basic Sequestration Order

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

RE: SEQUESTRATION ORDER

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

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

2. Baseco Quarry

3. Philippine Jai-Alai Corporation

4. Fidelity Management Co., Inc.

5. Romson Realty, Inc.

6. Trident Management Co.

7. New Trident Management

 8. Bay Transport

9. And all affiliate companies of Alfredo "Bejo" Romualdez

You are hereby ordered:

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

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

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

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

b. Order for Production of Documents

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

1. Stock Transfer Book

2. Legal documents, such as:

2.1. Articles of Incorporation

2.2. By-Laws

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

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

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

2.6. Existing contracts with suppliers/contractors/others.

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

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

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

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

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

8. Updated schedule of Accounts Receivable and Accounts Payable.

9. Complete list of depository banks for all funds with the authorized signatories for withdrawals thereof.
 10. Schedule of company investments and placements. 2

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

c. Orders Re Engineer Island

(1) Termination of Contract for Security Services

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

(2) Change of Mode of Payment of Entry Charges

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

d. Aborted Contract for Improvement of Wharf at Engineer Island

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

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

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

f. Order to Dispose of Scrap, etc.

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

g. The TAKEOVER Order

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

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

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

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

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

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

4. Ensures that the assets of the companies are not dissipated and used effectively and efficiently;
revenues are duly accounted for; and disburses funds only as may be necessary;

5. Does actions including among others, seeking of military support as may be necessary, that will ensure
compliance to this order;

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

h. Termination of Services of BASECO Officers

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

2. Petitioner's Plea and Postulates

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

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

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

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

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

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

b. Re Order to Produce Documents

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

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

BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its business
affairs by —

1) terminating its contract for security services with Fairways & Anchor, without the consent and against the will of the
contracting parties; and amending the mode of payment of entry fees stipulated in its Lease Contract with National
Stevedoring & Lighterage Corporation, these acts being in violation of the non-impairment clause of the constitution; 15

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

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

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

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

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

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

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

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

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

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

4. The Governing Law

a. Proclamation No. 3

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

b. Executive Order No. 1

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

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

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

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

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

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

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

c. Executive Order No. 2

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

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

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

Upon these premises, the 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, duties, agents, or nominees from transferring, conveying, encumbering, concealing
or dissipating said assets or properties in the Philippines and abroad, pending the outcome of appropriate
proceedings in the Philippines to determine whether any such assets or properties were acquired by them
 through or as a result of improper or illegal use of or the conversion of funds belonging to the Government
of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or
by taking undue advantage of their official position, authority, relationship, connection or influence to
unjustly enrich themselves at the expense and to the grave damage and prejudice of the Filipino people
and the Republic of the Philippines;

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

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

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

d. Executive Order No. 14

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

5. Contemplated Situations

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

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

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

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

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

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

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

There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-gotten wealth."
Neither can there be any debate about the proposition that assuming the above described factual premises of the
Executive Orders and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from
Marcos, his family and his dominions of the assets and properties involved, is not only a right but a duty on the part of
Government.

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

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

a. Need of Evidentiary Substantiation in Proper Suit

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

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

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

7. Provisional Remedies Prescribed by Law

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

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

a. Sequestration

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

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

c. Provisional Takeover

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

d. No Divestment of Title Over Property Seized

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

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

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

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

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

SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25,
1986 in relation to the recovery of ill-gotten wealth shag remain operative for not more than 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. 52

f. Kinship to Attachment Receivership

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

g. Remedies, Non-Judicial

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

h. Orders May Issue Ex Parte

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

8. Requisites for Validity

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

Both are assured under the executive orders in question and the rules and regulations promulgated by the PCGG.

a. Prima Facie Evidence as Basis for Orders

Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due process." 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.

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

9. Constitutional Sanction of Remedies

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

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

10. PCGG not a "Judge"; General Functions

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

11. Facts Preclude Grant of Relief to Petitioner

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

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

12. Organization and Stock Distribution of BASECO

BASECO describes itself in its petition as "a shiprepair and shipbuilding company * * incorporated as a domestic private
corporation * * (on Aug. 30, 1972) by a consortium of Filipino shipowners and shipping executives. Its main office is at
Engineer Island, Port Area, Manila, where its Engineer Island Shipyard is housed, and its main shipyard is located at
Mariveles Bataan." 73 Its Articles of Incorporation disclose that its authorized capital stock is P60,000,000.00 divided into
60,000 shares, of which 12,000 shares with a value of P12,000,000.00 have been subscribed, and on said subscription,
the aggregate sum of P3,035,000.00 has been paid by the incorporators. 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 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 1,248
la Cruz shares

3. Emilio T. Yap 2,508

shares

4. Jose 1,248
Fernandez shares

5. Jose Francisco 128 shares

6. Manuel S. 96 shares
Mendoza

7. Anthony P. Lee 1,248

shares

8. Hilario M. Ruiz 32 shares

9. Constante L. 8 shares
Fariñas

10. Fidelity 65,882

Management, Inc. shares

11. Trident 7,412

Management shares
 12. United Phil. 1,240
Lines shares

13. Renato M. 8 shares

Tanseco

14. Fidel Ventura 8 shares

15. Metro Bay 136,370

Drydock shares

16. Manuel Jacela 1 share

17. Jonathan G. 1 share

Lu

18. Jose J. 1 share

Tanchanco

19. Dioscoro 128 shares

Papa

20. Edward T. 4 shares

Marcelo

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

14. Subsequent Reduction of Price; Intervention of Marcos

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

15. Acquisition of 300 Hectares from Export Processing Zone Authority

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

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

17. Loans Obtained

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

18. Reports to President Marcos

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

a. BASECO President's Report

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

* * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan to BASECO

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

b. Romualdez' Report

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

MEMORANDUM:

FOR : The President

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

FROM: Capt. A.T. Romualdez.

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

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

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

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

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

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

1. Stock certificates indorsed and assigned in blank with assignments and waivers;  89

2. The articles of incorporation, the amended articles, and the by-laws of BASECO;

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

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

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

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

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

8. List of BASECO's fixed assets;

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

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

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

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

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

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

19. Marcos' Response to Reports

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

a. Instructions re "Spin-Off"

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

a. Equity participation of government shall be through LUSTEVECO and NDC in the amount of
P115,903,000 consisting of the following obligations of BASECO which are hereby authorized to be
converted to equity of the said new corporation, to wit:

1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation)

2. LUSTEVECO P32,538,000 (Reparation)

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

For immediate compliance. 92

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

b. Letter of Instructions No. 670

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

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

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

xxx xxx xxx

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

20. Evidence of Marcos'

Ownership of BASECO

It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control by President
Marcos of BASECO has been sufficiently shown.
Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised
control  over BASECO, but also that he actually owns well nigh one hundred percent of its outstanding stock.

It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock outstanding,
ostensibly owned by twenty (20) stockholders. 96 Four of these twenty are juridical persons: (1) Metro Bay
Drydock, recorded as holding 136,370 shares; (2) Fidelity Management, Inc.,  65,882 shares; (3) Trident
Management, 7,412 shares; and (4) United Phil. Lines, 1,240 shares. The first three corporations, among themselves,
own an aggregate of 209,664 shares of BASECO stock, or 95.82% of the outstanding stock.

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

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

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

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

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

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

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

By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days "to SUBMIT, as
undertaken by him, * * the certificates of stock issued to the stockholders of * * BASECO as of April 23, 1986, as listed in
Annex 'P' of the petition.' 101 Counsel thereafter moved for extension; and in his motion dated October 2, 1986, he
declared inter alia that "said certificates of stock are in the possession of third parties, among whom being the
respondents themselves * * and petitioner is still endeavoring to secure copies thereof from them." 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 Malacañang after the former President and his family fled the country." To this
manifestation BASECO's counsel replied on November 5, 1986, as already mentioned, Stubbornly insisting that the firm's
stockholders had not really assigned their stock. 105

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

21. Facts Justify Issuance of Sequestration and Takeover Orders

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

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

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

22. Executive Orders Not a Bill of Attainder

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

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

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

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

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

While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity
statute, it does not follow that a corporation, vested with special privileges and franchises, may refuse to
show its hand when charged with an abuse ofsuchprivileges * * 113
Relevant jurisprudence is also cited by the Solicitor General. 114

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

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

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

xxx xxx xxx

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

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

24. Scope and Extent of Powers of the PCGG

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

a. PCGG May Not Exercise Acts of Ownership

One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion  over property
sequestered, frozen or provisionally taken over. AS already earlier stressed with no little insistence, the act of
sequestration; freezing or provisional takeover of property does not import or bring about a divestment of title over said
property; does not make the PCGG the owner thereof. In relation to the property sequestered, frozen or provisionally
taken over, the PCGG is a conservator, not an owner. Therefore, it can not perform acts of strict ownership; and this is
specially true in the situations contemplated by the sequestration rules where, unlike cases of receivership, for example,
no court exercises effective supervision or can upon due application and hearing, grant authority for the performance of
acts of dominion.
Equally evident is that the resort to the provisional remedies in question should entail the least possible interference with
business operations or activities so that, in the event that the accusation of the business enterprise being "ill gotten" be
not proven, it may be returned to its rightful owner as far as possible in the same condition as it was at the time of
sequestration.

b. PCGG Has Only Powers of Administration

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

c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him;
Limitations Thereon

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

d. Voting of Sequestered Stock; Conditions Therefor

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

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

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

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

25. No Sufficient Showing of Other Irregularities

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

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

A. M. No. 09-6-9-SC               August 19, 2009

RE: Query of Mr. Roger C. Prioreschi Re Exemption from Legal and Filing Fees of the Good Shepherd Foundation, Inc.

RESOLUTION

BERSAMIN, J.:

In his letter dated May 22, 2009 addressed to the Chief Justice, Mr. Roger C. Prioreschi, administrator of the Good
Shepherd Foundation, Inc., wrote:

The Good Shepherd Foundation, Inc. is very grateful for your 1rst. Indorsement to pay a nominal fee of Php 5,000.00 and
the balance upon the collection action of 10 million pesos, thus giving us access to the Justice System previously denied
by an up-front excessive court fee.

The Hon. Court Administrator Jose Perez pointed out to the need of complying with OCA Circular No. 42-2005 and Rule
141 that reserves this "privilege" to indigent persons. While judges are appointed to interpret the law, this type of law
seems to be extremely detailed with requirements that do not leave much room for interpretations.

In addition, this law deals mainly with "individual indigent" and it does not include Foundations or Associations that work
with and for the most Indigent persons. As seen in our Article of Incorporation, since 1985 the Good Shepherd
Foundation, Inc. reached-out to the poorest among the poor, to the newly born and abandoned babies, to children who
never saw the smile of their mother, to old people who cannot afford a few pesos to pay for "common prescriptions", to
broken families who returned to a normal life. In other words, we have been working hard for the very Filipino people, that
the Government and the society cannot reach to, or have rejected or abandoned them.

Can the Courts grant to our Foundation who works for indigent and underprivileged people, the same option granted to
indigent people?
The two Executive Judges, that we have approached, fear accusations of favoritism or other kind of attack if they approve
something which is not clearly and specifically stated in the law or approved by your HONOR.

Can your Honor help us once more?

Grateful for your understanding, God bless you and your undertakings.

We shall be privileged if you find time to visit our orphanage – the Home of Love – and the Spiritual Retreat Center in
Antipolo City.

To answer the query of Mr. Prioreschi, the Courts cannot grant to foundations like the Good Shepherd Foundation, Inc.
the same exemption from payment of legal fees granted to indigent litigants even if the foundations are working for
indigent and underprivileged people.

The basis for the exemption from legal and filing fees is the free access clause, embodied in Sec. 11, Art. III of the 1987
Constitution, thus:

Sec. 11. Free access to the courts and quasi judicial bodies and adequate legal assistance shall not be denied to any
person by reason of poverty.

The importance of the right to free access to the courts and quasi judicial bodies and to adequate legal assistance cannot
be denied. A move to remove the provision on free access from the Constitution on the ground that it was already covered
by the equal protection clause was defeated by the desire to give constitutional stature to such specific protection of the
poor.1

In implementation of the right of free access under the Constitution, the Supreme Court promulgated rules, specifically,
Sec. 21, Rule 3, Rules of Court,2 and Sec. 19, Rule 141, Rules of Court,3 which respectively state thus:

Sec. 21. Indigent party. — A party may be authorized to litigate his action, claim or defense as an indigent if the court,
upon an ex parte application and hearing, is satisfied that the party is one who has no money or property sufficient and
available for food, shelter and basic necessities for himself and his family.

Such authority shall include an exemption from payment of docket and other lawful fees, and of transcripts of
stenographic notes which the court may order to be furnished him. The amount of the docket and other lawful fees which
the indigent was exempted from paying shall be a lien on any judgment rendered in the case favorable to the indigent,
unless the court otherwise provides.

Any adverse party may contest the grant of such authority at any time before judgment is rendered by the trial court. If the
court should determine after hearing that the party declared as an indigent is in fact a person with sufficient income or
property, the proper docket and other lawful fees shall be assessed and collected by the clerk of court. If payment is not
made within the time fixed by the court, execution shall issue for the payment thereof, without prejudice to such other
sanctions as the court may impose. (22a)1avvphi1

Sec. 19. Indigent litigants exempt from payment of legal fees.– Indigent litigants (a) whose gross income and that of their
immediate family do not exceed an amount double the monthly minimum wage of an employee and (b) who do not own
real property with a fair market value as stated in the current tax declaration of more than three hundred thousand
(P300,000.00) pesos shall be exempt from payment of legal fees.

The legal fees shall be a lien on any judgment rendered in the case favorable to the indigent litigant unless the court
otherwise provides.

To be entitled to the exemption herein provided, the litigant shall execute an affidavit that he and his immediate family do
not earn a gross income abovementioned, and they do not own any real property with the fair value aforementioned,
supported by an affidavit of a disinterested person attesting to the truth of the litigant’s affidavit. The current tax
declaration, if any, shall be attached to the litigant’s affidavit.

Any falsity in the affidavit of litigant or disinterested person shall be sufficient cause to dismiss the complaint or action or to
strike out the pleading of that party, without prejudice to whatever criminal liability may have been incurred.
The clear intent and precise language of the aforequoted provisions of the Rules of Court indicate that only a natural party
litigant may be regarded as an indigent litigant. The Good Shepherd Foundation, Inc., being a corporation invested by the
State with a juridical personality separate and distinct from that of its members, 4 is a juridical person. Among others, it has
the power to acquire and possess property of all kinds as well as incur obligations and bring civil or criminal actions, in
conformity with the laws and regulations of their organization. 5 As a juridical person, therefore, it cannot be accorded the
exemption from legal and filing fees granted to indigent litigants.

That the Good Shepherd Foundation, Inc. is working for indigent and underprivileged people is of no moment. Clearly, the
Constitution has explicitly premised the free access clause on a person’s poverty, a condition that only a natural person
can suffer.

There are other reasons that warrant the rejection of the request for exemption in favor of a juridical person. For one,
extending the exemption to a juridical person on the ground that it works for indigent and underprivileged people may be
prone to abuse (even with the imposition of rigid documentation requirements), particularly by corporations and entities
bent on circumventing the rule on payment of the fees. Also, the scrutiny of compliance with the documentation
requirements may prove too time-consuming and wasteful for the courts.

In view of the foregoing, the Good Shepherd Foundation, Inc. cannot be extended the exemption from legal and filing fees
despite its working for indigent and underprivileged people.

SO ORDERED.

G. R. No. 164317             February 6, 2006

ALFREDO CHING, Petitioner,
vs.
THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-VILLAVERT, JUDGE EDGARDO SUDIAM of the Regional Trial Court, Manila, Branch
52; RIZAL COMMERCIAL BANKING CORP. and THE PEOPLE OF THE PHILIPPINES, Respondents.

DECISION

CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari of the Decision 1 of the Court of Appeals (CA) in CA-G.R. SP
No. 57169 dismissing the petition for certiorari, prohibition and mandamus filed by petitioner Alfredo Ching, and its
Resolution2 dated June 28, 2004 denying the motion for reconsideration thereof.

Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in September to
October 1980, PBMI, through petitioner, applied with the Rizal Commercial Banking Corporation (respondent bank)
for the issuance of commercial letters of credit to finance its importation of assorted goods. 3

Respondent bank approved the application, and irrevocable letters of credit were issued in favor of petitioner. The
goods were purchased and delivered in trust to PBMI. Petitioner signed 13 trust receipts 4 as surety, acknowledging
delivery of the following goods:

T/R Date Granted Maturity Date Principal Description of Goods

Nos.

1845 12-05-80 03-05-81 P1,596,470.05 79.9425 M/T "SDK" Brand

Synthetic Graphite Electrode

1853 12-08-80 03-06-81 P198,150.67 3,000 pcs. (15 bundles)

Calorized Lance Pipes
 1824 11-28-80 02-26-81 P707,879.71 One Lot High Fired Refractory
Tundish Bricks

1798 11-21-80 02-19-81 P835,526.25 5 cases spare parts for CCM

1808 11-21-80 02-19-81 P370,332.52 200 pcs. ingot moulds

2042 01-30-81 04-30-81 P469,669.29 High Fired Refractory Nozzle

Bricks

1801 11-21-80 02-19-81 P2,001,715.17 Synthetic Graphite Electrode

[with] tapered pitch filed
nipples

1857 12-09-80 03-09-81 P197,843.61 3,000 pcs. (15 bundles

calorized lance pipes [)]

1895 12-17-80 03-17-81 P67,652.04 Spare parts for

Spectrophotometer

1911 12-22-80 03-20-81 P91,497.85 50 pcs. Ingot moulds

2041 01-30-81 04-30-81 P91,456.97 50 pcs. Ingot moulds

2099 02-10-81 05-11-81 P66,162.26 8 pcs. Kubota Rolls for rolling

mills

2100 02-10-81 05-12-81 P210,748.00 Spare parts for

Lacolaboratory Equipment5

Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sell but not by way
of conditional sale, pledge or otherwise; and in case such goods were sold, to turn over the proceeds thereof as
soon as received, to apply against the relative acceptances and payment of other indebtedness to respondent bank.
In case the goods remained unsold within the specified period, the goods were to be returned to respondent bank
without any need of demand. Thus, said "goods, manufactured products or proceeds thereof, whether in the form of
money or bills, receivables, or accounts separate and capable of identification" were respondent bank’s property.

When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their value
amounting to ₱6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for estafa 6 against
petitioner in the Office of the City Prosecutor of Manila.

After the requisite preliminary investigation, the City Prosecutor found probable cause estafa under Article 315,
paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree (P.D.) No. 115, otherwise known as
the Trust Receipts Law. Thirteen (13) Informations were filed against the petitioner before the Regional Trial Court
(RTC) of Manila. The cases were docketed as Criminal Cases No. 86-42169 to 86-42181, raffled to Branch 31 of
said court.

Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The appeal was dismissed
in a Resolution7 dated March 17, 1987, and petitioner moved for its reconsideration. On December 23, 1987, the
Minister of Justice granted the motion, thus reversing the previous resolution finding probable cause against
petitioner.8 The City Prosecutor was ordered to move for the withdrawal of the Informations.

This time, respondent bank filed a motion for reconsideration, which, however, was denied on February 24,
1988.9 The RTC, for its part, granted the Motion to Quash the Informations filed by petitioner on the ground that the
material allegations therein did not amount to estafa. 10
In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoñez, 11 holding that the penal
provision of P.D. No. 115 encompasses any act violative of an obligation covered by the trust receipt; it is not limited
to transactions involving goods which are to be sold (retailed), reshipped, stored or processed as a component of a
product ultimately sold. The Court also ruled that "the non-payment of the amount covered by a trust receipt is an
act violative of the obligation of the entrustee to pay."12

On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against petitioner before the Office
of the City Prosecutor of Manila. The case was docketed as I.S. No. 95B-07614.

Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there was no probable cause
to charge petitioner with violating P.D. No. 115, as petitioner’s liability was only civil, not criminal, having signed the
trust receipts as surety.13 Respondent bank appealed the resolution to the Department of Justice (DOJ) via petition
for review, alleging that the City Prosecutor erred in ruling:

1. That there is no evidence to show that respondent participated in the misappropriation of the goods
subject of the trust receipts;

2. That the respondent is a mere surety of the trust receipts; and

3. That the liability of the respondent is only civil in nature. 14

On July 13, 1999, the Secretary of Justice issued Resolution No. 250 15 granting the petition and reversing the
assailed resolution of the City Prosecutor. According to the Justice Secretary, the petitioner, as Senior Vice-
President of PBMI, executed the 13 trust receipts and as such, was the one responsible for the offense. Thus, the
execution of said receipts is enough to indict the petitioner as the official responsible for violation of P.D. No. 115.
The Justice Secretary also declared that petitioner could not contend that P.D. No. 115 covers only goods ultimately
destined for sale, as this issue had already been settled in Allied Banking Corporation v. Ordoñez, 16 where the Court
ruled that P.D. No. 115 is "not limited to transactions in goods which are to be sold (retailed), reshipped, stored or
processed as a component of a product ultimately sold but covers failure to turn over the proceeds of the sale of
entrusted goods, or to return said goods if unsold or not otherwise disposed of in accordance with the terms of the
trust receipts."

The Justice Secretary further stated that the respondent bound himself under the terms of the trust receipts not only
as a corporate official of PBMI but also as its surety; hence, he could be proceeded against in two (2) ways: first, as
surety as determined by the Supreme Court in its decision in Rizal Commercial Banking Corporation v. Court of
Appeals;17 and second, as the corporate official responsible for the offense under P.D. No. 115, via criminal
prosecution. Moreover, P.D. No. 115 explicitly allows the prosecution of corporate officers "without prejudice to the
civil liabilities arising from the criminal offense." Thus, according to the Justice Secretary, following Rizal
Commercial Banking Corporation, the civil liability imposed is clearly separate and distinct from the criminal liability
of the accused under P.D. No. 115.

Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13 Informations against
petitioner for violation of P.D. No. 115 before the RTC of Manila. The cases were docketed as Criminal Cases No.
99-178596 to 99-178608 and consolidated for trial before Branch 52 of said court. Petitioner filed a motion for
reconsideration, which the Secretary of Justice denied in a Resolution 18 dated January 17, 2000.

Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing the resolutions of the
Secretary of Justice on the following grounds:

1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE ACTING
OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS PROSECUTION DESPITE
THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED TO PROVE HIS PARTICIPATION IN THE
ALLEGED TRANSACTIONS.

2. THE RESPONDENT SECRETARY OF JUSTICE COMMITTED AN ACT IN GRAVE ABUSE OF

DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY CONTINUED PROSECUTION OF
 THE PETITIONER DESPITE THE LENGTH OF TIME INCURRED IN THE TERMINATION OF THE
PRELIMINARY INVESTIGATION THAT SHOULD JUSTIFY THE DISMISSAL OF THE INSTANT CASE.

3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY PROSECUTOR ACTED IN

GRAVE ABUSE OF DISCRETION AMOUNTING TO AN EXCESS OF JURISDICTION WHEN THEY
CONTINUED THE PROSECUTION OF THE PETITIONER DESPITE LACK OF SUFFICIENT BASIS. 19

In his petition, petitioner incorporated a certification stating that "as far as this Petition is concerned, no action or
proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any tribunal or agency. It is
finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending before
the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it hereby
undertakes to notify this Honorable Court within five (5) days from such notice." 20

In its Comment on the petition, the Office of the Solicitor General alleged that -

A.

THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER ALFREDO

CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED AND THAT THE ACTS OF
PETITIONER FALL WITHIN THE AMBIT OF VIOLATION OF P.D. [No.] 115 IN RELATION TO ARTICLE
315, PAR. 1(B) OF THE REVISED PENAL CODE.

B.

THERE IS NO MERIT IN PETITIONER’S CONTENTION THAT EXCESSIVE DELAY HAS MARRED THE
CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE CASE, JUSTIFYING ITS DISMISSAL.

C.

THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION AND MANDAMUS IS NOT
THE PROPER MODE OF REVIEW FROM THE RESOLUTION OF THE DEPARTMENT OF JUSTICE. THE
PRESENT PETITION MUST THEREFORE BE DISMISSED.21

On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and on procedural grounds.
On the procedural issue, it ruled that (a) the certification of non-forum shopping executed by petitioner and
incorporated in the petition was defective for failure to comply with the first two of the three-fold undertakings
prescribed in Rule 7, Section 5 of the Revised Rules of Civil Procedure; and (b) the petition for certiorari, prohibition
and mandamus was not the proper remedy of the petitioner.

On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of Justice were correctly
issued for the following reasons: (a) petitioner, being the Senior Vice-President of PBMI and the signatory to the
trust receipts, is criminally liable for violation of P.D. No. 115; (b) the issue raised by the petitioner, on whether he
violated P.D. No. 115 by his actuations, had already been resolved and laid to rest in Allied Bank Corporation v.
Ordoñez;22 and (c) petitioner was estopped from raising the

City Prosecutor’s delay in the final disposition of the preliminary investigation because he failed to do so in the DOJ.

Thus, petitioner filed the instant petition, alleging that:

THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE GROUND THAT THE
CERTIFICATION OF NON-FORUM SHOPPING INCORPORATED THEREIN WAS DEFECTIVE.

II
 THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS COMMITTED BY THE SECRETARY OF
JUSTICE IN COMING OUT WITH THE ASSAILED RESOLUTIONS. 23

The Court will delve into and resolve the issues seriatim.

The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He claims that the rules of
procedure should be used to promote, not frustrate, substantial justice. He insists that the Rules of Court should be
construed liberally especially when, as in this case, his substantial rights are adversely affected; hence, the
deficiency in his certification of non-forum shopping should not result in the dismissal of his petition.

The Office of the Solicitor General (OSG) takes the opposite view, and asserts that indubitably, the certificate of
non-forum shopping incorporated in the petition before the CA is defective because it failed to disclose essential
facts about pending actions concerning similar issues and parties. It asserts that petitioner’s failure to comply with
the Rules of Court is fatal to his petition. The OSG cited Section 2, Rule 42, as well as the ruling of this Court in
Melo v. Court of Appeals.24

We agree with the ruling of the CA that the certification of non-forum shopping petitioner incorporated in his petition
before the appellate court is defective. The certification reads:

It is further certified that as far as this Petition is concerned, no action or proceeding in the Supreme Court, the Court
of Appeals or different divisions thereof, or any tribunal or agency.

It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is pending
before the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal or agency, it
hereby undertakes to notify this Honorable Court within five (5) days from such notice. 25

Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition should be accompanied
by a sworn certification of non-forum shopping, as provided in the third paragraph of Section 3, Rule 46 of said
Rules. The latter provision reads in part:

SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. — The petition shall contain the
full names and actual addresses of all the petitioners and respondents, a concise statement of the matters involved,
the factual background of the case and the grounds relied upon for the relief prayed for.

xxx

The petitioner shall also submit together with the petition a sworn certification that he has not theretofore
commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or different
divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, he must state the status
of the same; and if he should thereafter learn that a similar action or proceeding has been filed or is pending before
the Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or agency, he
undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within five (5) days
therefrom. xxx

Compliance with the certification against forum shopping is separate from and independent of the avoidance of
forum shopping itself. The requirement is mandatory. The failure of the petitioner to comply with the foregoing
requirement shall be sufficient ground for the dismissal of the petition without prejudice, unless otherwise provided. 26

Indubitably, the first paragraph of petitioner’s certification is incomplete and unintelligible. Petitioner failed to certify
that he "had not heretofore commenced any other action involving the same issues in the Supreme Court, the Court
of Appeals or the different divisions thereof or any other tribunal or agency" as required by paragraph 4, Section 3,
Rule 46 of the Revised Rules of Court.

We agree with petitioner’s contention that the certification is designed to promote and facilitate the orderly
administration of justice, and therefore, should not be interpreted with absolute literalness. In his works on the
Revised Rules of Civil Procedure, former Supreme Court Justice Florenz Regalado states that, with respect to the
contents of the certification which the pleader may prepare, the rule of substantial compliance may be availed
of.27 However, there must be a special circumstance or compelling reason which makes the strict application of the
requirement clearly unjustified. The instant petition has not alleged any such extraneous circumstance. Moreover, as
worded, the certification cannot even be regarded as substantial compliance with the procedural requirement. Thus,
the CA was not informed whether, aside from the petition before it, petitioner had commenced any other action
involving the same issues in other tribunals.

On the merits of the petition, the CA ruled that the petitioner failed to establish that the Secretary of Justice
committed grave abuse of discretion in finding probable cause against the petitioner for violation of estafa under
Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D. No. 115. Thus, the appellate court
ratiocinated:

Be that as it may, even on the merits, the arguments advanced in support of the petition are not persuasive enough
to justify the desired conclusion that respondent Secretary of Justice gravely abused its discretion in coming out with
his assailed Resolutions. Petitioner posits that, except for his being the Senior Vice-President of the PBMI, there is
no iota of evidence that he was a participes crimines in violating the trust receipts sued upon; and that his liability, if
at all, is purely civil because he signed the said trust receipts merely as a xxx surety and not as the entrustee. These
assertions are, however, too dull that they cannot even just dent the findings of the respondent Secretary, viz:

"x x x it is apropos to quote section 13 of PD 115 which states in part, viz:

‘xxx If the violation or offense is committed by a corporation, partnership, association or other judicial entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or
persons therein responsible for the offense, without prejudice to the civil liabilities arising from the criminal offense.’

"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the thirteen (13)
trust receipts. As such, the law points to him as the official responsible for the offense. Since a corporation cannot
be proceeded against criminally because it cannot commit crime in which personal violence or malicious intent is
required, criminal action is limited to the corporate agents guilty of an act amounting to a crime and never against
the corporation itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus,
the execution by respondent of said receipts is enough to indict him as the official responsible for violation of PD
115.

"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which are ultimately
destined for sale and not goods, like those imported by PBM, for use in manufacture. This issue has already been
settled in the Allied Banking Corporation case, supra, where he was also a party, when the Supreme Court ruled
that PD 115 is ‘not limited to transactions in goods which are to be sold (retailed), reshipped, stored or processed as
a component or a product ultimately sold’ but ‘covers failure to turn over the proceeds of the sale of entrusted
goods, or to return said goods if unsold or disposed of in accordance with the terms of the trust receipts.’

"In regard to the other assigned errors, we note that the respondent bound himself under the terms of the trust
receipts not only as a corporate official of PBM but also as its surety. It is evident that these are two (2) capacities
which do not exclude the other. Logically, he can be proceeded against in two (2) ways: first, as surety as
determined by the Supreme Court in its decision in RCBC vs. Court of Appeals, 178 SCRA 739; and, secondly, as
the corporate official responsible for the offense under PD 115, the present case is an appropriate remedy under our
penal law.

"Moreover, PD 115 explicitly allows the prosecution of corporate officers ‘without prejudice to the civil liabilities
arising from the criminal offense’ thus, the civil liability imposed on respondent in RCBC vs. Court of Appeals case is
clearly separate and distinct from his criminal liability under PD 115.’" 28

Petitioner asserts that the appellate court’s ruling is erroneous because (a) the transaction between PBMI and
respondent bank is not a trust receipt transaction; (b) he entered into the transaction and was sued in his capacity
as PBMI Senior Vice-President; (c) he never received the goods as an entrustee for PBMI, hence, could not have
committed any dishonesty or abused the confidence of respondent bank; and (d) PBMI acquired the goods and
used the same in operating its machineries and equipment and not for resale.
The OSG, for its part, submits a contrary view, to wit:

34. Petitioner further claims that he is not a person responsible for the offense allegedly because "[b]eing charged
as the Senior Vice-President of Philippine Blooming Mills (PBM), petitioner cannot be held criminally liable as the
transactions sued upon were clearly entered into in his capacity as an officer of the corporation" and that [h]e never
received the goods as an entrustee for PBM as he never had or took possession of the goods nor did he commit
dishonesty nor "abuse of confidence in transacting with RCBC." Such argument is bereft of merit.

35. Petitioner’s being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him from any
liability. Petitioner’s responsibility as the corporate official of PBM who received the goods in trust is premised on
Section 13 of P.D. No. 115, which provides:

Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of
Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised Penal Code. If the violation or offense is committed by a corporation,
partnership, association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the
directors, officers, employees or other officials or persons therein responsible for the offense, without prejudice to
the civil liabilities arising from the criminal offense. (Emphasis supplied)

36. Petitioner having participated in the negotiations for the trust receipts and having received the goods for PBM, it
was inevitable that the petitioner is the proper corporate officer to be proceeded against by virtue of the PBM’s
violation of P.D. No. 115.29

The ruling of the CA is correct.

In Mendoza-Arce v. Office of the Ombudsman (Visayas),30 this Court held that the acts of a quasi-judicial officer may
be assailed by the aggrieved party via a petition for certiorari and enjoined (a) when necessary to afford adequate
protection to the constitutional rights of the accused; (b) when necessary for the orderly administration of justice; (c)
when the acts of the officer are without or in excess of authority; (d) where the charges are manifestly false and
motivated by the lust for vengeance; and (e) when there is clearly no prima facie case against the accused. 31 The
Court also declared that, if the officer conducting a preliminary investigation (in that case, the Office of the
Ombudsman) acts without or in excess of his authority and resolves to file an Information despite the absence of
probable cause, such act may be nullified by a writ of certiorari. 32

Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure, 33 the Information shall be prepared by
the Investigating Prosecutor against the respondent only if he or she finds probable cause to hold such respondent
for trial. The Investigating Prosecutor acts without or in excess of his authority under the Rule if the Information is
filed against the respondent despite absence of evidence showing probable cause therefor. 34 If the Secretary of
Justice reverses the Resolution of the Investigating Prosecutor who found no probable cause to hold the respondent
for trial, and orders such prosecutor to file the Information despite the absence of probable cause, the Secretary of
Justice acts contrary to law, without authority and/or in excess of authority. Such resolution may likewise be nullified
in a petition for certiorari under Rule 65 of the Revised Rules of Civil Procedure. 35

A preliminary investigation, designed to secure the respondent against hasty, malicious and oppressive prosecution,
is an inquiry to determine whether (a) a crime has been committed; and (b) whether there is probable cause to
believe that the accused is guilty thereof. It is a means of discovering the person or persons who may be reasonably
charged with a crime. Probable cause need not be based on clear and convincing evidence of guilt, as the
investigating officer acts upon probable cause of reasonable belief. Probable cause implies probability of guilt and
requires more than bare suspicion but less than evidence which would justify a conviction. A finding of probable
cause needs only to rest on evidence showing that more likely than not, a crime has been committed by the
suspect.36

However, while probable cause should be determined in a summary manner, there is a need to examine the
evidence with care to prevent material damage to a potential accused’s constitutional right to liberty and the
guarantees of freedom and fair play 37 and to protect the State from the burden of unnecessary expenses in
prosecuting alleged offenses and holding trials arising from false, fraudulent or groundless charges. 38

In this case, petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in issuing
the assailed resolutions. Indeed, he acted in accord with law and the evidence.

Section 4 of P.D. No. 115 defines a trust receipt transaction, thus:

Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this Decree,
is any transaction by and between a person referred to in this Decree as the entruster, and another person referred
to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests over
certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the
latter’s execution and delivery to the entruster of a signed document called a "trust receipt" wherein the entrustee
binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or
otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the
proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods,
documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms
and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following:

1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or
process the goods with the purpose of ultimate sale; Provided, That, in the case of goods delivered under
trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain
its title over the goods whether in its original or processed form until the entrustee has complied fully with his
obligation under the trust receipt; or (c) to load, unload, ship or otherwise deal with them in a manner
preliminary or necessary to their sale; or

2. In the case of instruments a) to sell or procure their sale or exchange; or b) to deliver them to a principal;
or c) to effect the consummation of some transactions involving delivery to a depository or register; or d) to
effect their presentation, collection or renewal.

The sale of goods, documents or instruments by a person in the business of selling goods, documents or
instruments for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such
goods, documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as
security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the
purview and coverage of this Decree.

An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt
transaction, and any successor in interest of such person for the purpose of payment specified in the trust receipt
agreement.39 The entrustee is obliged to: (1) hold the goods, documents or instruments in trust for the entruster and
shall dispose of them strictly in accordance with the terms and conditions of the trust receipt; (2) receive the
proceeds in trust for the entruster and turn over the same to the entruster to the extent of the amount owing to the
entruster or as appears on the trust receipt; (3) insure the goods for their total value against loss from fire, theft,
pilferage or other casualties; (4) keep said goods or proceeds thereof whether in money or whatever form, separate
and capable of identification as property of the entruster; (5) return the goods, documents or instruments in the
event of non-sale or upon demand of the entruster; and (6) observe all other terms and conditions of the trust
receipt not contrary to the provisions of the decree. 40

The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under
a trust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt,
or to the return of the goods, documents or instruments in case of non-sale, and to the enforcement of all other
rights conferred on him in the trust receipt; provided, such are not contrary to the provisions of the document. 41

In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt transactions
envisaged in P.D. No. 115. Respondent bank imported the goods and entrusted the same to PBMI under the trust
receipts signed by petitioner, as entrustee, with the bank as entruster. The agreement was as follows:
And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK as its property with
liberty to sell the same within ____days from the date of the execution of this Trust Receipt and for the Bank’s
account, but without authority to make any other disposition whatsoever of the said goods or any part thereof (or the
proceeds) either by way of conditional sale, pledge or otherwise.

I/we agree to keep the said goods insured to their full value against loss from fire, theft, pilferage or other casualties
as directed by the BANK, the sum insured to be payable in case of loss to the BANK, with the understanding that
the BANK is, not to be chargeable with the storage premium or insurance or any other expenses incurred on said
goods.

In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to the BANK, to apply
against the relative acceptances (as described above) and for the payment of any other indebtedness of mine/ours
to the BANK. In case of non-sale within the period specified herein, I/we agree to return the goods under this Trust
Receipt to the BANK without any need of demand.

I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the form of money or
bills, receivables, or accounts separate and capable of identification as property of the BANK. 42

It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of public policy, the
failure of person to turn over the proceeds of the sale of the goods covered by a trust receipt or to return said goods,
if not sold, is a public nuisance to be abated by the imposition of penal sanctions. 43

The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions involving goods procured
as a component of a product ultimately sold has been resolved in the affirmative in Allied Banking Corporation v.
Ordoñez.44 The law applies to goods used by the entrustee in the operation of its machineries and equipment. The
non-payment of the amount covered by the trust receipts or the non-return of the goods covered by the receipts, if
not sold or otherwise not disposed of, violate the entrustee’s obligation to pay the amount or to return the goods to
the entruster.

In Colinares v. Court of Appeals, 45 the Court declared that there are two possible situations in a trust receipt
transaction. The first is covered by the provision which refers to money received under the obligation involving the
duty to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision which
refers to merchandise received under the obligation to return it (devolvera) to the owner. 46 Thus, failure of the
entrustee to turn over the proceeds of the sale of the goods covered by the trust receipts to the entruster or to return
said goods if they were not disposed of in accordance with the terms of the trust receipt is a crime under P.D. No.
115, without need of proving intent to defraud. The law punishes dishonesty and abuse of confidence in the
handling of money or goods to the prejudice of the entruster, regardless of whether the latter is the owner or not. A
mere failure to deliver the proceeds of the sale of the goods, if not sold, constitutes a criminal offense that causes
prejudice, not only to another, but more to the public interest. 47

The Court rules that although petitioner signed the trust receipts merely as Senior Vice-President of PBMI and had
no physical possession of the goods, he cannot avoid prosecution for violation of P.D. No. 115.

The penalty clause of the law, Section 13 of P.D. No. 115 reads:

Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of
Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised Penal Code.1âwphi1 If the violation or offense is committed by a
corporation, partnership, association or other juridical entities, the penalty provided for in this Decree shall be
imposed upon the directors, officers, employees or other officials or persons therein responsible for the offense,
without prejudice to the civil liabilities arising from the criminal offense.

The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b), Article 315
of the Revised Penal Code, or estafa with abuse of confidence. It may be committed by a corporation or other
juridical entity or by natural persons. However, the penalty for the crime is imprisonment for the periods provided in
said Article 315, which reads:

ARTICLE 315. Swindling (estafa). – Any person who shall defraud another by any of the means mentioned
hereinbelow shall be punished by:

1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the
amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds
the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one
year for each additional 10,000 pesos; but the total penalty which may be imposed shall not exceed twenty
years. In such cases, and in connection with the accessory penalties which may be imposed and for the
purpose of the other provisions of this Code, the penalty shall be termed prision mayor or reclusion
temporal, as the case may be;

2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of the fraud is
over 6,000 pesos but does not exceed 12,000 pesos;

3rd. The penalty of arresto mayor in its maximum period to prision correccional in its minimum period, if such
amount is over 200 pesos but does not exceed 6,000 pesos; and

4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200 pesos, provided
that in the four cases mentioned, the fraud be committed by any of the following means; xxx

Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or other
officers or persons responsible for the offense, without prejudice to the civil liabilities of such corporation and/or
board of directors, officers, or other officials or employees responsible for the offense. The rationale is that such
officers or employees are vested with the authority and responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are held criminally accountable; thus, they have a responsible
share in the violations of the law.48

If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other officers
thereof responsible for the offense shall be charged and penalized for the crime, precisely because of the nature of
the crime and the penalty therefor. A corporation cannot be arrested and imprisoned; hence, cannot be penalized
for a crime punishable by imprisonment. 49 However, a corporation may be charged and prosecuted for a crime if the
imposable penalty is fine. Even if the statute prescribes both fine and imprisonment as penalty, a corporation may
be prosecuted and, if found guilty, may be fined.50

A crime is the doing of that which the penal code forbids to be done, or omitting to do what it commands. A
necessary part of the definition of every crime is the designation of the author of the crime upon whom the penalty is
to be inflicted. When a criminal statute designates an act of a corporation or a crime and prescribes punishment
therefor, it creates a criminal offense which, otherwise, would not exist and such can be committed only by the
corporation. But when a penal statute does not expressly apply to corporations, it does not create an offense for
which a corporation may be punished. On the other hand, if the State, by statute, defines a crime that may be
committed by a corporation but prescribes the penalty therefor to be suffered by the officers, directors, or employees
of such corporation or other persons responsible for the offense, only such individuals will suffer such
penalty.51 Corporate officers or employees, through whose act, default or omission the corporation commits a crime,
are themselves individually guilty of the crime. 52

The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies to those
corporate agents who themselves commit the crime and to those, who, by virtue of their managerial positions or
other similar relation to the corporation, could be deemed responsible for its commission, if by virtue of their
relationship to the corporation, they had the power to prevent the act. 53 Moreover, all parties active in promoting a
crime, whether agents or not, are principals. 54 Whether such officers or employees are benefited by their delictual
acts is not a touchstone of their criminal liability. Benefit is not an operative fact.
In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the separate
corporate personality of PBMI. In the words of Chief Justice Earl Warren, a corporate officer cannot protect himself
behind a corporation where he is the actual, present and efficient actor. 55

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioner.

SO ORDERED.

G.R. No. 145578 November 18, 2005

JOSE C. TUPAZ IV and PETRONILA C. TUPAZ, Petitioners,

vs.
THE COURT OF APPEALS and BANK OF THE PHILIPPINE ISLANDS, Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review1 of the Decision2 of the Court of Appeals dated 7 September 2000 and its Resolution dated 18
October 2000. The 7 September 2000 Decision affirmed the ruling of the Regional Trial Court, Makati, Branch 144 in a
case for estafa under Section 13, Presidential Decree No. 115. The Court of Appeals’ Resolution of 18 October 2000
denied petitioners’ motion for reconsideration.
 The Facts

Petitioners Jose C. Tupaz IV and Petronila C. Tupaz ("petitioners") were Vice-President for Operations and Vice-
President/Treasurer, respectively, of El Oro Engraver Corporation ("El Oro Corporation"). El Oro Corporation had a
contract with the Philippine Army to supply the latter with "survival bolos."

To finance the purchase of the raw materials for the survival bolos, petitioners, on behalf of El Oro Corporation, applied
with respondent Bank of the Philippine Islands ("respondent bank") for two commercial letters of credit. The letters of
credit were in favor of El Oro Corporation’s suppliers, Tanchaoco Manufacturing Incorporated 3 ("Tanchaoco Incorporated")
and Maresco Rubber and Retreading Corporation4 ("Maresco Corporation"). Respondent bank granted petitioners’
application and issued Letter of Credit No. 2-00896-3 for ₱564,871.05 to Tanchaoco Incorporated and Letter of Credit No.
2-00914-5 for ₱294,000 to Maresco Corporation.

Simultaneous with the issuance of the letters of credit, petitioners signed trust receipts in favor of respondent bank. On 30
September 1981, petitioner Jose C. Tupaz IV ("petitioner Jose Tupaz") signed, in his personal capacity, a trust receipt
corresponding to Letter of Credit No. 2-00896-3 (for ₱564,871.05). Petitioner Jose Tupaz bound himself to sell the goods
covered by the letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on
or before 29 December 1981.

On 9 October 1981, petitioners signed, in their capacities as officers of El Oro Corporation, a trust receipt corresponding
to Letter of Credit No. 2-00914-5 (for ₱294,000). Petitioners bound themselves to sell the goods covered by that letter of
credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before 8 December
1981.

After Tanchaoco Incorporated and Maresco Corporation delivered the raw materials to El Oro Corporation, respondent
bank paid the former ₱564,871.05 and ₱294,000, respectively.

Petitioners did not comply with their undertaking under the trust receipts. Respondent bank made several demands for
payments but El Oro Corporation made partial payments only. On 27 June 1983 and 28 June 1983, respondent bank’s
counsel5 and its representative6 respectively sent final demand letters to El Oro Corporation. El Oro Corporation replied
that it could not fully pay its debt because the Armed Forces of the Philippines had delayed paying for the survival bolos.

Respondent bank charged petitioners with estafa under Section 13, Presidential Decree No. 115 ("Section 13") 7 or Trust
Receipts Law ("PD 115"). After preliminary investigation, the then Makati Fiscal’s Office found probable cause to indict
petitioners. The Makati Fiscal’s Office filed the corresponding Informations (docketed as Criminal Case Nos. 8848 and
8849) with the Regional Trial Court, Makati, on 17 January 1984 and the cases were raffled to Branch 144 ("trial court") on
20 January 1984. Petitioners pleaded not guilty to the charges and trial ensued. During the trial, respondent bank
presented evidence on the civil aspect of the cases.

The Ruling of the Trial Court

On 16 July 1992, the trial court rendered judgment acquitting petitioners of estafa on reasonable doubt. However, the trial
court found petitioners solidarily liable with El Oro Corporation for the balance of El Oro Corporation’s principal debt under
the trust receipts. The dispositive portion of the trial court’s Decision provides:

WHEREFORE, judgment is hereby rendered ACQUITTING both accused Jose C. Tupaz, IV and Petronila Tupaz based
upon reasonable doubt.

However, El Oro Engraver Corporation, Jose C. Tupaz, IV and Petronila Tupaz, are hereby ordered, jointly and solidarily,
to pay the Bank of the Philippine Islands the outstanding principal obligation of ₱624,129.19 (as of January 23, 1992) with
the stipulated interest at the rate of 18% per annum; plus 10% of the total amount due as attorney’s fees; ₱5,000.00 as
expenses of litigation; and costs of the suit.8

In holding petitioners civilly liable with El Oro Corporation, the trial court held:

[S]ince the civil action for the recovery of the civil liability is deemed impliedly instituted with the criminal action, as in fact
the prosecution thereof was actively handled by the private prosecutor, the Court believes that the El Oro Engraver
Corporation and both accused Jose C. Tupaz and Petronila Tupaz, jointly and solidarily should be held civilly liable to the
Bank of the Philippine Islands. The mere fact that they were unable to collect in full from the AFP and/or the Department
of National Defense the proceeds of the sale of the delivered survival bolos manufactured from the raw materials covered
by the trust receipt agreements is no valid defense to the civil claim of the said complainant and surely could not wipe out
their civil obligation. After all, they are free to institute an action to collect the same. 9

Petitioners appealed to the Court of Appeals. Petitioners contended that: (1) their acquittal "operates to extinguish [their]
civil liability" and (2) at any rate, they are not personally liable for El Oro Corporation’s debts.

The Ruling of the Court of Appeals

In its Decision of 7 September 2000, the Court of Appeals affirmed the trial court’s ruling. The appellate court held:

It is clear from [Section 13, PD 115] that civil liability arising from the violation of the trust receipt agreement is distinct
from the criminal liability imposed therein. In the case of Vintola vs. Insular Bank of Asia and America, our Supreme Court
held that acquittal in the estafa case (P.D. 115) is no bar to the institution of a civil action for collection. This is because in
such cases, the civil liability of the accused does not arise ex delicto but rather based ex contractu  and as such is distinct
and independent from any criminal proceedings and may proceed regardless of the result of the latter. Thus, an
independent civil action to enforce the civil liability may be filed against the corporation aside from the criminal action
against the responsible officers or employees.

xxx

[W]e hereby hold that the acquittal of the accused-appellants from the criminal charge of estafa did not operate to
extinguish their civil liability under the letter of credit-trust receipt arrangement with plaintiff-appellee, with which they dealt
both in their personal capacity and as officers of El Oro Engraver Corporation, the letter of credit applicant and principal
debtor.

Appellants argued that they cannot be held solidarily liable with their corporation, El Oro Engraver Corporation, alleging
that they executed the subject documents including the trust receipt agreements only in their capacity as such corporate
officers. They said that these instruments are mere pro-forma and that they executed these instruments on the strength of
a board resolution of said corporation authorizing them to apply for the opening of a letter of credit in favor of their
suppliers as well as to execute the other documents necessary to accomplish the same.

Such contention, however, is contradicted by the evidence on record. The trust receipt agreement indicated in clear and
unmistakable terms that the accused signed the same as surety  for the corporation and that they bound themselves
directly and immediately liable in the event of default with respect to the obligation under the letters of credit which were
made part of the said agreement, without need of demand. Even in the application for the letter of credit, it is likewise
clear that the undertaking of the accused is that of a surety as indicated [in] the following words: "In consideration of your
establishing the commercial letter of credit herein applied for substantially in accordance with the foregoing, the
undersigned Applicant and Surety hereby agree, jointly and severally, to each and all stipulations, provisions and
conditions on the reverse side hereof."

xxx

Having contractually agreed to hold themselves solidarily liable with El Oro Engraver Corporation under the subject trust
receipt agreements with appellee Bank of the Philippine Islands, herein accused-appellants may not, therefore, invoke the
separate legal personality of the said corporation to evade their civil liability under the letter of credit-trust receipt
arrangement with said appellee, notwithstanding their acquittal in the criminal cases filed against them. The trial court thus
did not err in holding the appellants solidarily liable with El Oro Engraver Corporation for the outstanding principal
obligation of ₱624,129.19 (as of January 23, 1992) with the stipulated interest at the rate of 18% per annum, plus 10% of
the total amount due as attorney’s fees, ₱5,000.00 as expenses of litigation and costs of suit. 10

Hence, this petition. Petitioners contend that:

1. A JUDGMENT OF ACQUITTAL OPERATE[S] TO EXTINGUISH THE CIVIL LIABILITY OF PETITIONERS[;]

2. GRANTING WITHOUT ADMITTING THAT THE QUESTIONED OBLIGATION WAS INCURRED BY THE
CORPORATION, THE SAME IS NOT YET DUE AND PAYABLE;
3. GRANTING THAT THE QUESTIONED OBLIGATION WAS ALREADY DUE AND PAYABLE, xxx PETITIONERS ARE
NOT PERSONALLY LIABLE TO xxx RESPONDENT BANK, SINCE THEY SIGNED THE LETTER[S] OF CREDIT AS
‘SURETY’ AS OFFICERS OF EL ORO, AND THEREFORE, AN EXCLUSIVE LIABILITY OF EL ORO; [AND]

4. IN THE ALTERNATIVE, THE QUESTIONED TRANSACTIONS ARE SIMULATED AND VOID. 11

The Issues

The petition raises these issues:

(1) Whether petitioners bound themselves personally liable for El Oro Corporation’s debts under the trust receipts;

(2) If so —

(a) whether petitioners’ liability is solidary with El Oro Corporation; and

(b) whether petitioners’ acquittal of estafa under Section 13, PD 115 extinguished their civil liability.

The Ruling of the Court

The petition is partly meritorious. We affirm the Court of Appeals’ ruling with the modification that petitioner Jose Tupaz is
liable as guarantor of El Oro Corporation’s debt under the trust receipt dated 30 September 1981.

On Petitioners’ Undertaking Under

the Trust Receipts

A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts incurred by these
individuals, acting as such corporate agents, are not theirs but the direct liability of the corporation they represent. 12 As an
exception, directors or officers are personally liable for the corporation’s debts only if they so contractually agree or
stipulate.13

Here, the dorsal side of the trust receipts contains the following stipulation:

To the Bank of the Philippine Islands

In consideration of your releasing to ………………………………… under the terms of this Trust Receipt the goods
described herein, I/We, jointly and severally, agree and promise to pay to you, on demand, whatever sum or sums of
money which you may call upon me/us to pay to you, arising out of, pertaining to, and/or in any way connected with, this
Trust Receipt, in the event of default and/or non-fulfillment in any respect of this undertaking on the part of the said
……………………………………. I/we further agree that my/our liability in this guarantee shall be DIRECT AND
IMMEDIATE, without any need whatsoever on your part to take any steps or exhaust any legal remedies that you may
have against the said …………………………………. before making demand upon me/us. 14 (Capitalization in the original)

In the trust receipt dated 9 October 1981, petitioners signed below this clause as officers of El Oro Corporation. Thus,
under petitioner Petronila Tupaz’s signature are the words "Vice-Pres–Treasurer" and under petitioner Jose Tupaz’s
signature are the words "Vice-Pres–Operations." By so signing that trust receipt, petitioners did not bind themselves
personally liable for El Oro Corporation’s obligation. In Ong v. Court of Appeals,15 a corporate representative signed a
solidary guarantee clause in two trust receipts in his capacity as corporate representative. There, the Court held that the
corporate representative did not undertake to guarantee personally the payment of the corporation’s debts, thus:

[P]etitioner did not sign in his personal capacity the solidary guarantee clause found on the dorsal portion of the trust
receipts. Petitioner placed his signature after the typewritten words "ARMCO INDUSTRIAL CORPORATION" found at the
end of the solidary guarantee clause. Evidently, petitioner did not undertake to guaranty personally the payment of the
principal and interest of ARMAGRI’s debt under the two trust receipts.

Hence, for the trust receipt dated 9 October 1981, we sustain petitioners’ claim that they are not personally liable for El
Oro Corporation’s obligation.
For the trust receipt dated 30 September 1981, the dorsal portion of which petitioner Jose Tupaz signed alone, we find
that he did so in his personal capacity. Petitioner Jose Tupaz did not indicate that he was signing as El Oro Corporation’s
Vice-President for Operations. Hence, petitioner Jose Tupaz bound himself personally liable for El Oro Corporation’s
debts. Not being a party to the trust receipt dated 30 September 1981, petitioner Petronila Tupaz is not liable under such
trust receipt.

The Nature of Petitioner Jose Tupaz’s Liability

Under the Trust Receipt Dated 30 September 1981

As stated, the dorsal side of the trust receipt dated 30 September 1981 provides:

To the Bank of the Philippine Islands

In consideration of your releasing to ………………………………… under the terms of this Trust Receipt the goods
described herein, I/We, jointly and severally, agree and promise to pay to you, on demand, whatever sum or sums of
money which you may call upon me/us to pay to you, arising out of, pertaining to, and/or in any way connected with, this
Trust Receipt, in the event of default and/or non-fulfillment in any respect of this undertaking on the part of the said
……………………………………. I/we further agree that my/our liability in this guarantee shall be DIRECT AND
IMMEDIATE, without any need whatsoever on your part to take any steps or exhaust any legal remedies that you may
have against the said ……………………………………………. Before making demand upon me/us. (Underlining supplied;
capitalization in the original)

The lower courts interpreted this to mean that petitioner Jose Tupaz bound himself solidarily liable with El Oro Corporation
for the latter’s debt under that trust receipt.

This is error.

In Prudential Bank v. Intermediate Appellate Court,16 the Court interpreted a substantially identical clause 17 in a trust
receipt signed by a corporate officer who bound himself personally liable for the corporation’s obligation. The petitioner in
that case contended that the stipulation "we jointly and severally agree and undertake" rendered the corporate officer
solidarily liable with the corporation. We dismissed this claim and held the corporate officer liable as guarantor only. The
Court further ruled that had there been more than one signatories to the trust receipt, the solidary liability would exist
between the guarantors. We held:

Petitioner [Prudential Bank] insists that by virtue of the clear wording of the xxx clause "x x x we jointly and severally agree
and undertake x x x," and the concluding sentence on exhaustion, [respondent] Chi’s liability therein is solidary.

xxx

Our xxx reading of the questioned solidary guaranty clause yields no other conclusion than that the obligation of Chi is
only that of a guarantor. This is further bolstered by the last sentence which speaks of waiver of exhaustion, which,
nevertheless, is ineffective in this case because the space therein for the party whose property may not be exhausted was
not filled up. Under Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised by a guarantor
before he may be held liable for the obligation. Petitioner likewise admits that the questioned provision is a  solidary
guaranty clause, thereby clearly distinguishing it from a contract of surety. It, however, described the guaranty as solidary
between the guarantors; this would have been correct if two (2) guarantors had signed it. The clause "we jointly and
severally agree and undertake" refers to the undertaking of the two (2) parties who are to sign it or to the liability existing
between themselves. It does not refer to the undertaking between either one or both of them on the one hand and the
petitioner on the other with respect to the liability described under the trust receipt. xxx

Furthermore, any doubt as to the import or true intent of the solidary guaranty clause should be resolved against the
petitioner. The trust receipt, together with the questioned solidary guaranty clause, is on a form drafted and prepared
solely by the petitioner; Chi’s participation therein is limited to the affixing of his signature thereon. It is, therefore, a
contract of adhesion; as such, it must be strictly construed against the party responsible for its preparation. 18 (Underlining
supplied; italicization in the original)

However, respondent bank’s suit against petitioner Jose Tupaz stands despite the Court’s finding that he is liable as
guarantor only. First, excussion is not a pre-requisite to secure judgment against a guarantor. The guarantor can still
demand deferment of the execution of the judgment against him until after the assets of the principal debtor shall have
been exhausted.19 Second, the benefit of excussion may be waived. 20 Under the trust receipt dated 30 September 1981,
petitioner Jose Tupaz waived excussion when he agreed that his "liability in [the] guaranty shall be DIRECT AND
IMMEDIATE, without any need whatsoever on xxx [the] part [of respondent bank] to take any steps or exhaust any legal
remedies xxx." The clear import of this stipulation is that petitioner Jose Tupaz waived the benefit of excussion under his
guarantee.

As guarantor, petitioner Jose Tupaz is liable for El Oro Corporation’s principal debt and other accessory liabilities (as
stipulated in the trust receipt and as provided by law) under the trust receipt dated 30 September 1981. That trust receipt
(and the trust receipt dated 9 October 1981) provided for payment of attorney’s fees equivalent to 10% of the total amount
due and an "interest at the rate of 7% per annum, or at such other rate as the bank may fix, from the date due until paid
xxx."21 In the applications for the letters of credit, the parties stipulated that drafts drawn under the letters of credit are
subject to interest at the rate of 18% per annum.22

The lower courts correctly applied the 18% interest rate per annum considering that the face value of each of the trust
receipts is based on the drafts drawn under the letters of credit. Based on the guidelines laid down in

Eastern Shipping Lines, Inc. v. Court of Appeals,23  the accrued stipulated interest earns 12% interest per annum  from
the time of the filing of the Informations in the Makati Regional Trial Court on 17 January 1984. Further, the total amount
due as of the date of the finality of this Decision will earn interest at 18% per annum until fully paid since this was the
stipulated rate in the applications for the letters of credit. 24

The accounting of El Oro Corporation’s debts as of 23 January 1992, which the trial court used, is no longer useful as it
does not specify the amounts owing under each of the trust receipts. Hence, in the execution of this Decision, the trial
court shall compute El Oro Corporation’s total liability under each of the trust receipts dated 30 September 1981 and 9
October 1981 based on the following formula:25

TOTAL AMOUNT DUE = [principal + interest + interest on interest] – partial payments made 26

Interest = principal x 18 % per annum x no. of years from due date 27 until finality of judgment

Interest on interest = interest computed as of the filing of the complaint (17 January 1984) x 12% x no. of years until
finality of judgment

Attorney’s fees is 10% of the total amount computed as of finality of judgment

Total amount due as of the date of finality of judgment will earn an interest of 18% per annum until fully paid.

In so delegating this task, we reiterate what we said in Rizal Commercial Banking Corporation v. Alfa RTW
Manufacturing Corporation28 where we also ordered the trial court to compute the amount of obligation due based on a
formula substantially similar to that indicated above:

The total amount due xxx [under] the xxx contract[] xxx may be easily determined by the trial court through a simple
mathematical computation based on the formula specified above. Mathematics is an exact science, the application of
which needs no further proof from the parties.

Petitioner Jose Tupaz’s Acquittal did not

Extinguish his Civil Liability

The rule is that where the civil action is impliedly instituted with the criminal action, the civil liability is not extinguished by
acquittal —

[w]here the acquittal is based on reasonable doubt xxx as only preponderance of evidence is required in civil cases;
where the court expressly declares that the liability of the accused is not criminal but only civil in nature xxx as, for
instance, in the felonies of estafa, theft, and malicious mischief committed by certain relatives who thereby incur only civil
liability (See Art. 332, Revised Penal Code); and, where the civil liability does not arise from or is not based upon the
criminal act of which the accused was acquitted xxx.29 (Emphasis supplied)
Here, respondent bank chose not to file a separate civil action 30 to recover payment under the trust receipts. Instead,
respondent bank sought to recover payment in Criminal Case Nos. 8848 and 8849. Although the trial court acquitted
petitioner Jose Tupaz, his acquittal did not extinguish his civil liability. As the Court of Appeals correctly held, his liability
arose not from the criminal act of which he was acquitted (ex delito) but from the trust receipt contract (ex contractu) of 30
September 1981. Petitioner Jose Tupaz signed the trust receipt of 30 September 1981 in his personal capacity.

On the other Matters Petitioners Raise

Petitioners raise for the first time in this appeal the contention that El Oro Corporation’s debts under the trust receipts are
not yet due and demandable. Alternatively, petitioners assail the trust receipts as simulated. These assertions have no
merit. Under the terms of the trust receipts dated 30 September 1981 and 9 October 1981, El Oro Corporation’s debts fell
due on 29 December 1981 and 8 December 1981, respectively.

Neither is there merit to petitioners’ claim that the trust receipts were simulated. During the trial, petitioners did not deny
applying for the letters of credit and subsequently executing the trust receipts to secure payment of the drafts drawn under
the letters of credit.

WHEREFORE, we GRANT the petition in part. We AFFIRM the Decision of the Court of Appeals dated 7 September
2000 and its Resolution dated 18 October 2000 with the following MODIFICATIONS:

1) El Oro Engraver Corporation is principally liable for the total amount due under the trust receipts dated 30 September
1981 and 9 October 1981, as computed by the Regional Trial Court, Makati, Branch 144, upon finality of this Decision,
based on the formula provided above;

2) Petitioner Jose C. Tupaz IV is liable for El Oro Engraver Corporation’s total debt under the trust receipt dated 30
September 1981 as thus computed by the Regional Trial Court, Makati, Branch 144; and

3) Petitioners Jose C. Tupaz IV and Petronila C. Tupaz are not liable under the trust receipt dated 9 October 1981.

SO ORDERED.

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

PHILIPPINE NATIONAL BANK, petitioner,

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

Medina, Locsin, Coruña, & Sumbillo for petitioner.

Manuel Lim & Associates for private respondents.

ANTONIO, J.:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The petitioner contends that the Court of Appeals erred:

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

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

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

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

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

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

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

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

On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no longer interested in continuing the lease
of sugar quota allotment. The crop year 1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota, resulting in
her loss in the sum of P2,800.00 which she should have received had the lease in favor of Tuazon been implemented.
It has been clearly shown that when the Branch Manager of petitioner required the parties to raise the consideration of the
lease from P2.50 to P2.80 per picul, or a total of P2,800-00, they readily agreed. Hence, in his letter to the Branch
Manager of the Bank on August 10, 1956, Tuazon informed him that the minimum lease rental of P2.80 per picul was
acceptable to him and that he even offered to use the loan secured by him from petitioner to pay in full the sum of
P2,800.00 which was the total consideration of the lease. This arrangement was not only satisfactory to the Branch
Manager but it was also approves by Vice-President J. V. Buenaventura of the PNB. Under that arrangement, Rita Gueco
Tapnio could have realized the amount of P2,800.00, which was more than enough to pay the balance of her
indebtedness to the Bank which was secured by the bond of Philamgen.

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

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

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

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

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

FIRST DIVISION

[G.R. NO. 160039 : June 29, 2004]

RAYMUNDO ODANI SECOSA, EL BUENASENSO SYand DASSAD WAREHOUSINGand PORT SERVICES, INCORPORATED, Petitioners, v. HEIRS
OF ERWIN SUAREZ FRANCISCO, Respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a Petition for Review under Rule 45 of the Rules of Court seeking the reversal of the
decision1 of the Court of Appeals dated February 27, 2003 in CA-G.R. CV No. 61868, which
affirmed in toto the June 19, 1998 decision2 of Branch 20 of the Regional Trial Court of Manila in Civil
Case No. 96-79554.

The facts are as follows:chanroblesvirtua1awlibrary

On June 27, 1996, at around 4:00 p.m., Erwin Suarez Francisco, an eighteen year old third year
physical therapy student of the Manila Central University, was riding a motorcycle along Radial 10
Avenue, near the Veteran Shipyard Gate in the City of Manila.At the same time, Petitioner,
Raymundo Odani Secosa, was driving an Isuzu cargo truck with plate number PCU-253 on the same
road. The truck was owned by petitioner, Dassad Warehousing and Port Services, Inc.

Traveling behind the motorcycle driven by Francisco was a sand and gravel truck, which in turn was
being tailed by the Isuzu truck driven by Secosa.The three vehicles were traversing the southbound
lane at a fairly high speed.When Secosa overtook the sand and gravel truck, he bumped the
motorcycle causing Francisco to fall.The rear wheels of the Isuzu truck then ran over Francisco, which
resulted in his instantaneous death.Fearing for his life, petitioner Secosa left his truck and fled the
scene of the collision.3 cralawred

Respondents, the parents of Erwin Francisco, thus filed an action for damages against Raymond
Odani Secosa, Dassad Warehousing and Port Services, Inc. and Dassads president, El Buenasucenso
Sy.The complaint was docketed as Civil Case No.96-79554 of the RTC of Manila, Branch 20.

On June 19, 1998, after a full-blown trial, the court a quo rendered a decision in favor of herein
respondents, the dispositive portion of which states:chanroblesvirtua1awlibrary

WHEREFORE, premised on the foregoing, judgment is hereby rendered in favor of the plaintiffs
ordering the defendants to pay plaintiffs jointly and severally:chanroblesvirtua1awlibrary

1.The sum of P55,000.00 as actual and compensatory damages;chanroblesvirtuallawlibrary

2.The sum of P20,000.00 for the repair of the motorcycle;chanroblesvirtuallawlibrary

3.The sum of P100,000.00 for the loss of earning capacity;chanroblesvirtuallawlibrary

4.The sum of P500,000.00 as moral damages;chanroblesvirtuallawlibrary

5.The sum of P50,000.00 as exemplary damages;chanroblesvirtuallawlibrary

6.The sum of P50,000.00 as attorneys fees plus cost of suit.

SO ORDERED.

Petitioners appealed the decision to the Court of Appeals, which affirmed the appealed decision in
toto.4 cralawred

Hence the present petition, based on the following arguments:

 I.

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE DECISION OF THE TRIAL
COURT THAT PETITIONER DASSAD DID NOT EXERCISE THE DILIGENCE OF A GOOD FATHER OF A
FAMILY IN THE SELECTION AND SUPERVISION OF ITS EMPLOYEES WHICH IS NOT IN ACCORDANCE
WITH ARTICLE 2180 OF THE NEW CIVIL CODE AND RELATED JURISPRUDENCE ON THE MATTER.

II.

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE DECISION OF THE TRIAL
COURT IN HOLDING PETITIONER EL BUENASENSO SY SOLIDARILY LIABLE WITH PETITIONERS
DASSAD AND SECOSA IN VIOLATION OF THE CORPORATION LAW AND RELATED JURISPRUDENCE
ON THE MATTER.

III.

THE JUDGMENT OF THE TRIAL COURT AS AFFIRMED BY THE COURT OF APPEALS AWARDING
P500,000.00 AS MORAL DAMAGES IS MANIFESTLY ABSURD, MISTAKEN AND UNJUST. 5 cralawred

The petition is partly impressed with merit.

On the issue of whether petitioner Dassad Warehousing and Port Services, Inc. exercised the
diligence of a good father of a family in the selection and supervision of its employees, we find the
assailed decision to be in full accord with pertinent provisions of law and established jurisprudence.

Article 2176 of the Civil Code provides:chanroblesvirtua1awlibrary

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

On the other hand, Article 2180, in pertinent part, states:chanroblesvirtua1awlibrary

The obligation imposed by article 2176 is demandable not only for ones own acts or omissions, but
also for those of persons for whom one is responsible x x x.

Employers shall be liable for the damages caused by their employees and household helpers acting
within the scope of their assigned tasks, even though the former are not engaged in any business or
industry x x x.

The responsibility treated of in this article shall cease when the persons herein mentioned prove that
they observed all the diligence of a good father of a family to prevent damage.

Based on the foregoing provisions, when an injury is caused by the negligence of an employee, there
instantly arises a presumption that there was negligence on the part of the employer either in the
selection of his employee or in the supervision over him after such selection.The presumption,
however, may be rebutted by a clear showing on the part of the employer that it exercised the care
and diligence of a good father of a family in the selection and supervision of his employee.Hence, to
evade solidary liability for quasi-delict committed by an employee, the employer must adduce
sufficient proof that it exercised such degree of care. 6 cralawred

How does an employer prove that he indeed exercised the diligence of a good father of a family in
the selection and supervision of his employee? The case of Metro Manila Transit Corporation v. Court
of Appeals7 is instructive:chanroblesvirtua1awlibrary
In fine, the party, whether plaintiff or defendant, who asserts the affirmative of the issue has the
burden of presenting at the trial such amount of evidence required by law to obtain a favorable
judgment8 . .. In making proof in its or his case, it is paramount that the best and most complete
evidence is formally entered.9 cralawred

Coming now to the case at bar, while there is no rule which requires that testimonial evidence, to
hold sway, must be corroborated by documentary evidence, inasmuch as the witnesses testimonies
dwelt on mere generalities, we cannot consider the same as sufficiently persuasive proof that there
was observance of due diligence in the selection and supervision of employees. Petitioners attempt to
prove its deligentissimi patris familias in the selection and supervision of employees through oral
evidence must fail as it was unable to buttress the same with any other evidence, object or
documentary, which might obviate the apparent biased nature of the testimony. 10 cralawred

Our view that the evidence for petitioner MMTC falls short of the required evidentiary quantum as
would convincingly and undoubtedly prove its observance of the diligence of a good father of a family
has its precursor in the underlying rationale pronounced in the earlier case of Central Taxicab Corp.
v. Ex-Meralco Employees Transportation Co., et al., 11 set amidst an almost identical factual setting,
where we held that:chanroblesvirtua1awlibrary

The failure of the defendant company to produce in court any record or other documentary proof
tending to establish that it had exercised all the diligence of a good father of a family in the selection
and supervision of its drivers and buses, notwithstanding the calls therefor by both the trial court and
the opposing counsel, argues strongly against its pretensions.

We are fully aware that there is no hard-and-fast rule on the quantum of evidence needed to prove
due observance of all the diligence of a good father of a family as would constitute a valid defense to
the legal presumption of negligence on the part of an employer or master whose employee has by his
negligence, caused damage to another. x x x (R) educing the testimony of Albert to its proper
proportion, we do not have enough trustworthy evidence left to go by. We are of the considered
opinion, therefore, that the believable evidence on the degree of care and diligence that has been
exercised in the selection and supervision of Roberto Leon y Salazar, is not legally sufficient to
overcome the presumption of negligence against the defendant company.

The above-quoted ruling was reiterated in a recent case again involving the Metro Manila Transit
Corporation,12 thus:chanroblesvirtua1awlibrary

In the selection of prospective employees, employers are required to examine them as to their
qualifications, experience, and service records. 13 On the other hand, with respect to the supervision
of employees, employers should formulate standard operating procedures, monitor their
implementation, and impose disciplinary measures for breaches thereof. To establish these factors in
a trial involving the issue of vicarious liability, employers must submit concrete proof, including
documentary evidence.

In this case, MMTC sought to prove that it exercised the diligence of a good father of a family with
respect to the selection of employees by presenting mainly testimonial evidence on its hiring
procedure. According to MMTC, applicants are required to submit professional driving licenses,
certifications of work experience, and clearances from the National Bureau of Investigation; to
undergo tests of their driving skills, concentration, reflexes, and vision; and, to complete training
programs on traffic rules, vehicle maintenance, and standard operating procedures during emergency
cases.

xxx

Although testimonies were offered that in the case of Pedro Musa all these precautions were followed,
the records of his interview, of the results of his examinations, and of his service were not
presented.. . [T]here is no record that Musa attended such training programs and passed the said
examinations before he was employed. No proof was presented that Musa did not have any record of
traffic violations. Nor were records of daily inspections, allegedly conducted by supervisors, ever
presented.. . The failure of MMTC to present such documentary proof puts in doubt the credibility of
its witnesses.

Jurisprudentially, therefore, the employer must not merely present testimonial evidence to prove that
he observed the diligence of a good father of a family in the selection and supervision of his
employee, but he must also support such testimonial evidence with concrete or documentary
evidence. The reason for this is to obviate the biased nature of the employers testimony or that of his
witnesses.14 cralawred

Applying the foregoing doctrines to the present case, we hold that petitioner Dassad Warehousing
and Port Services, Inc. failed to conclusively prove that it had exercised the requisite diligence of a
good father of a family in the selection and supervision of its employees.

Edilberto Duerme, the lone witness presented by Dassad Warehousing and Port Services, Inc. to
support its position that it had exercised the diligence of a good father of a family in the selection and
supervision of its employees, testified that he was the one who recommended petitioner Raymundo
Secosa as a driver to Dassad Warehousing and Port Services, Inc.; that it was his duty to scrutinize
the capabilities of drivers; and that he believed petitioner to be physically and mentally fit for he had
undergone rigid training and attended the PPA safety seminar.15 cralawred

Petitioner Dassad Warehousing and Port Services, Inc. failed to support the testimony of its lone
witness with documentary evidence which would have strengthened its claim of due diligence in the
selection and supervision of its employees.Such an omission is fatal to its position, on account of
which, Dassad can be rightfully held solidarily liable with its co-petitioner Raymundo Secosa for the
damages suffered by the heirs of Erwin Francisco.

However, we find that petitioner El Buenasenso Sy cannot be held solidarily liable with his co-
petitioners. While it may be true that Sy is the president of petitioner Dassad Warehousing and Port
Services, Inc., such fact is not by itself sufficient to hold him solidarily liable for the liabilities
adjudged against his co-petitioners.

It is a settled precept in this jurisdiction that a corporation is invested by law with a personality
separate from that of its stockholders or members. 16 It has a personality separate and distinct from
those of the persons composing it as well as from that of any other entity to which it may be related.
Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not in itself sufficient ground for disregarding the separate corporate
personality.17 A corporations authority to act and its liability for its actions are separate and apart
from the individuals who own it.18 cralawred

The so-called veil of corporation fiction treats as separate and distinct the affairs of a corporation and
its officers and stockholders. 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. 19 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
wrongdoing must be clearly and convincingly established. 20 It cannot be presumed.21 cralawred

The records of this case are bereft of any evidence tending to show the presence of any grounds
enumerated above that will justify the piercing of the veil of corporate fiction such as to hold the
president of Dassad Warehousing and Port Services, Inc. solidarily liable with it.
The Isuzu cargo truck which ran over Erwin Francisco was registered in the name of Dassad
Warehousing and Port Services, Inc., and not in the name of El Buenasenso Sy.Raymundo Secosa is
an employee of Dassad Warehousing and Port Services, Inc. and not of El Buenasenso Sy.All these
things, when taken collectively, point toward El Buenasenso Sys exclusion from liability for damages
arising from the death of Erwin Francisco.

Having both found Raymundo Secosa and Dassad Warehousing and Port Services, Inc. liable for
negligence for the death of Erwin Francisco on June 27, 1996, we now consider the question of moral
damages which his parents, herein respondents, are entitled to recover.Petitioners assail the award
of moral damages of P500,000.00 for being manifestly absurd, mistaken and unjust.We are not
persuaded.

Under Article 2206, the spouse, legitimate and illegitimate descendants and ascendants of the
deceased may demand moral damages for mental anguish for the death of the deceased. The reason
for the grant of moral damages has been explained in this wise:chanroblesvirtua1awlibrary

.. . the award of moral damages is aimed at a restoration, within the limits possible, of the spiritual
status quo ante; and therefore, it must be proportionate to the suffering inflicted. The intensity of the
pain experienced by the relatives of the victim is proportionate to the intensity of affection for him
and bears no relation whatsoever with the wealth or means of the offender. 22 cralawred

In the instant case, the spouses Francisco presented evidence of the searing pain that they felt when
the premature loss of their son was relayed to them. That pain was highly evident in the testimony of
the father who was forever deprived of a son, a son whose untimely death came at that point when
the latter was nearing the culmination of every parents wish to educate their children.The death of
Francis has indeed left a void in the lives of the respondents. Antonio Francisco testified on the effect
of the death of his son, Francis, in this manner:chanroblesvirtua1awlibrary

Q: (Atty. Balanag) :What did you do when you learned that your son was killed on June 27, 1996?
chanroblesvirtualawlibrary

A: (ANTONIO FRANCISCO) :I boxed the door and pushed the image of St. Nio telling why this
happened to us.

Q: Mr. Witness, how did you feel when you learned of the untimely death of your son, Erwin Suares
(sic) ?chanroblesvirtualawlibrary

A: Masakit po ang mawalan ng anak. Its really hard for me, the thought that my son is dead.

xxx

Q: How did your family react to the death of Erwin Suarez Francisco?chanroblesvirtualawlibrary

A: All of my family and relatives were felt (sic) sorrow because they knew that my son is (sic) good.

Q: We know that it is impossible to put money terms(s) [on] the life of [a] human, but since you are
now in court and if you were to ask this court how much would you and your family compensate?
(sic)

A: Even if they pay me millions, they cannot remove the anguish of my son (sic). 23 cralawred

Moral damages are emphatically not intended to enrich a plaintiff at the expense of the defendant.
They are awarded to allow the former to obtain means, diversion or amusements that will serve to
alleviate the moral suffering he has undergone due to the defendants culpable action and must,
perforce, be proportional to the suffering inflicted. 24 We have previously held as proper an award of
P500,000.00 as moral damages to the heirs of a deceased family member who died in a vehicular
accident. In our 2002 decision in Metro Manila Transit Corporation v. Court of Appeals, et al.,25 we
affirmed the award of moral damages of P500,000.00 to the heirs of the victim, a mother, who died
from injuries she sustained when a bus driven by an employee of the petitioner hit her.In the case at
bar, we likewise affirm the portion of the assailed decision awarding the moral damages.

Since the petitioners did not question the other damages adjudged against them by the court   a quo,
we affirm the award of these damages to the Respondents.

WHEREFORE, the petition is DENIED.The assailed decision is AFFIRMED with the MODIFICATION
that petitioner El Buenasenso Sy is ABSOLVED from any liability adjudged against his co-petitioners
in this case.

Costs against petitioners.

SO ORDERED.
G.R. No. 126297               February 2, 2010

PROFESSIONAL SERVICES, INC., Petitioner,

vs.
THE COURT OF APPEALS and NATIVIDAD and ENRIQUE AGANA, Respondents.

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

G.R. No. 126467

NATIVIDAD [substituted by her children Marcelino Agana III, Enrique Agana, Jr., Emma Agana-Andaya, Jesus Agana and Raymund Agana] and ENRIQUE
AGANA, Petitioners,
vs.
THE COURT OF APPEALS and JUAN FUENTES, Respondents.

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

G.R. No. 127590

MIGUEL AMPIL, Petitioner,
vs.
NATIVIDAD and ENRIQUE AGANA, Respondents.

RESOLUTION

CORONA, J.:

With prior leave of court,1 petitioner Professional Services, Inc. (PSI) filed a second motion for reconsideration 2 urging
referral thereof to the Court en banc and seeking modification of the decision dated January 31, 2007 and resolution
dated February 11, 2008 which affirmed its vicarious and direct liability for damages to respondents Enrique Agana and
the heirs of Natividad Agana (Aganas).

Manila Medical Services, Inc. (MMSI),3 Asian Hospital, Inc. (AHI),4 and Private Hospital Association of the Philippines
(PHAP)5 all sought to intervene in these cases invoking the common ground that, unless modified, the assailed decision
and resolution will jeopardize the financial viability of private hospitals and jack up the cost of health care.

The Special First Division of the Court granted the motions for intervention of MMSI, AHI and PHAP (hereafter
intervenors),6 and referred en consulta to the Court en banc the motion for prior leave of court and the second motion for
reconsideration of PSI.7

Due to paramount public interest, the Court en banc accepted the referral8 and heard the parties on oral arguments on
one particular issue: whether a hospital may be held liable for the negligence of physicians-consultants allowed to practice
in its premises.9

To recall the salient facts, PSI, together with Dr. Miguel Ampil (Dr. Ampil) and Dr. Juan Fuentes (Dr. Fuentes), was
impleaded by Enrique Agana and Natividad Agana (later substituted by her heirs), in a complaint 10 for damages filed in the
Regional Trial Court (RTC) of Quezon City, Branch 96, for the injuries suffered by Natividad when Dr. Ampil and Dr.
Fuentes neglected to remove from her body two gauzes 11 which were used in the surgery they performed on her on April
11, 1984 at the Medical City General Hospital. PSI was impleaded as owner, operator and manager of the hospital.

In a decision12 dated March 17, 1993, the RTC held PSI solidarily liable with Dr. Ampil and Dr. Fuentes for damages. 13 On
appeal, the Court of Appeals (CA), absolved Dr. Fuentes but affirmed the liability of Dr. Ampil and PSI, subject to the right
of PSI to claim reimbursement from Dr. Ampil. 141avvphi1

On petition for review, this Court, in its January 31, 2007 decision, affirmed the CA decision. 15 PSI filed a motion for
reconsideration16 but the Court denied it in a resolution dated February 11, 2008. 17

The Court premised the direct liability of PSI to the Aganas on the following facts and law:

First, there existed between PSI and Dr. Ampil an employer-employee relationship as contemplated in the December 29,
1999 decision in Ramos v. Court of Appeals18 that "for purposes of allocating responsibility in medical negligence cases,
an employer-employee relationship exists between hospitals and their consultants." 19 Although the Court in Ramos later
issued a Resolution dated April 11, 2002 20 reversing its earlier finding on the existence of an employment relationship
between hospital and doctor, a similar reversal was not warranted in the present case because the defense raised by PSI
consisted of a mere general denial of control or responsibility over the actions of Dr. Ampil. 21

Second, by accrediting Dr. Ampil and advertising his qualifications, PSI created the public impression that he was its
agent.22 Enrique testified that it was on account of Dr. Ampil's accreditation with PSI that he conferred with said doctor
about his wife's (Natividad's) condition. 23 After his meeting with Dr. Ampil, Enrique asked Natividad to personally consult
Dr. Ampil.24 In effect, when Enrigue and Natividad engaged the services of Dr. Ampil, at the back of their minds was that
the latter was a staff member of a prestigious hospital. Thus, under the doctrine of apparent authority applied in  Nogales,
et al. v. Capitol Medical Center, et al.,25 PSI was liable for the negligence of Dr. Ampil.

Finally, as owner and operator of Medical City General Hospital, PSI was bound by its duty to provide comprehensive
medical services to Natividad Agana, to exercise reasonable care to protect her from harm, 26 to oversee or supervise all
persons who practiced medicine within its walls, and to take active steps in fixing any form of negligence committed within
its premises.27 PSI committed a serious breach of its corporate duty when it failed to conduct an immediate investigation
into the reported missing gauzes.28

PSI is now asking this Court to reconsider the foregoing rulings for these reasons:

The declaration in the 31 January 2007 Decision vis-a-vis the 11 February 2009 Resolution that the ruling in Ramos vs.
Court of Appeals (G.R. No. 134354, December 29, 1999) that "an employer-employee relations exists between hospital
and their consultants" stays should be set aside for being inconsistent with or contrary to the import of the resolution
granting the hospital's motion for reconsideration in Ramos vs. Court of Appeals (G.R. No. 134354, April 11, 2002), which
is applicable to PSI since the Aganas failed to prove an employer-employee relationship between PSI and Dr. Ampil and
PSI proved that it has no control over Dr. Ampil. In fact, the trial court has found that there is no employer-employee
relationship in this case and that the doctor's are independent contractors.

II

Respondents Aganas engaged Dr. Miguel Ampil as their doctor and did not primarily and specifically look to the Medical
City Hospital (PSI) for medical care and support; otherwise stated, respondents Aganas did not select Medical City
Hospital (PSI) to provide medical care because of any apparent authority of Dr. Miguel Ampil as its agent since the latter
was chosen primarily and specifically based on his qualifications and being friend and neighbor.

III

PSI cannot be liable under doctrine of corporate negligence since the proximate cause of Mrs. Agana's injury was the
negligence of Dr. Ampil, which is an element of the principle of corporate negligence. 29

In their respective memoranda, intervenors raise parallel arguments that the Court's ruling on the existence of an
employer-employee relationship between private hospitals and consultants will force a drastic and complex alteration in
the long-established and currently prevailing relationships among patient, physician and hospital, with burdensome
operational and financial consequences and adverse effects on all three parties. 30

The Aganas comment that the arguments of PSI need no longer be entertained for they have all been traversed in the
assailed decision and resolution.31

After gathering its thoughts on the issues, this Court holds that PSI is liable to the Aganas, not under the principle
of respondeat superior for lack of evidence of an employment relationship with Dr. Ampil but under the principle of
ostensible agency for the negligence of Dr. Ampil and, pro hac vice, under the principle of corporate negligence for its
failure to perform its duties as a hospital.

While in theory a hospital as a juridical entity cannot practice medicine, 32 in reality it utilizes doctors, surgeons and medical
practitioners in the conduct of its business of facilitating medical and surgical treatment. 33 Within that reality, three legal
relationships crisscross: (1) between the hospital and the doctor practicing within its premises; (2) between the hospital
and the patient being treated or examined within its premises and (3) between the patient and the doctor. The exact
nature of each relationship determines the basis and extent of the liability of the hospital for the negligence of the doctor.

Where an employment relationship exists, the hospital may be held vicariously liable under Article 2176 34 in relation to
Article 218035 of the Civil Code or the principle of respondeat superior. Even when no employment relationship exists but it
is shown that the hospital holds out to the patient that the doctor is its agent, the hospital may still be vicariously liable
under Article 2176 in relation to Article 1431 36 and Article 186937 of the Civil Code or the principle of apparent
authority.38 Moreover, regardless of its relationship with the doctor, the hospital may be held directly liable to the patient for
its own negligence or failure to follow established standard of conduct to which it should conform as a corporation. 39

This Court still employs the "control test" to determine the existence of an employer-employee relationship between
hospital and doctor. In Calamba Medical Center, Inc. v. National Labor Relations Commission, et al.40 it held:

Under the "control test", an employment relationship exists between a physician and a hospital if the hospital controls both
the means and the details of the process by which the physician is to accomplish his task.

x x x           x x x          x x x

As priorly stated, private respondents maintained specific work-schedules, as determined by petitioner through its medical
director, which consisted of 24-hour shifts totaling forty-eight hours each week and which were strictly to be observed
under pain of administrative sanctions.

That petitioner exercised control over respondents gains light from the undisputed fact that in the emergency
room, the operating room, or any department or ward for that matter, respondents' work is monitored through its
nursing supervisors, charge nurses and orderlies. Without the approval or consent of petitioner or its medical
director, no operations can be undertaken in those areas. For control test to apply, it is not essential for the
employer to actually supervise the performance of duties of the employee, it being enough that it has the right to
wield the power. (emphasis supplied)

Even in its December 29, 1999 decision41 and April 11, 2002 resolution42 in Ramos, the Court found the control test
decisive.

In the present case, it appears to have escaped the Court's attention that both the RTC and the CA found no employment
relationship between PSI and Dr. Ampil, and that  the Aganas did not question such finding. In its March 17, 1993
decision, the RTC found "that defendant doctors were not employees of PSI in its hospital, they being merely consultants
without any employer-employee relationship and in the capacity of independent contractors." 43 The Aganas never
questioned such finding.

PSI, Dr. Ampil and Dr. Fuentes appealed 44 from the RTC decision but only on the issues of negligence, agency and
corporate liability. In its September 6, 1996 decision, the CA mistakenly referred to PSI and Dr. Ampil as employer-
employee, but it was clear in its discussion on the matter that it viewed their relationship as one of mere apparent
agency.45

The Aganas appealed from the CA decision, but only to question the exoneration of Dr. Fuentes. 46 PSI also appealed from
the CA decision, and it was then that the issue of employment, though long settled, was unwittingly resurrected.

In fine, as there was no dispute over the RTC finding that PSI and Dr. Ampil had no employer-employee relationship, such
finding became final and conclusive even to this Court. 47 There was no reason for PSI to have raised it as an issue in its
petition. Thus, whatever discussion on the matter that may have ensued was purely academic.

Nonetheless, to allay the anxiety of the intervenors, the Court holds that, in this particular instance, the concurrent finding
of the RTC and the CA that PSI was not the employer of Dr. Ampil is correct. Control as a determinative factor in testing
the employer-employee relationship between doctor and hospital under which the hospital could be held vicariously liable
to a patient in medical negligence cases is a requisite fact to be established by preponderance of evidence. Here, there
was insufficient evidence that PSI exercised the power of control or wielded such power over the means and the details of
the specific process by which Dr. Ampil applied his skills in the treatment of Natividad. Consequently, PSI cannot be held
vicariously liable for the negligence of Dr. Ampil under the principle of respondeat superior.
There is, however, ample evidence that the hospital (PSI) held out to the patient (Natividad) 48 that the doctor (Dr. Ampil)
was its agent. Present are the two factors that determine apparent authority: first, the hospital's implied manifestation to
the patient which led the latter to conclude that the doctor was the hospital's agent; and second, the patient’s reliance
upon the conduct of the hospital and the doctor, consistent with ordinary care and prudence. 49

Enrique testified that on April 2, 1984, he consulted Dr. Ampil regarding the condition of his wife; that after the meeting
and as advised by Dr. Ampil, he "asked [his] wife to go to Medical City to be examined by [Dr. Ampil]"; and that the next
day, April 3, he told his daughter to take her mother to Dr. Ampil. 50 This timeline indicates that it was Enrique who actually
made the decision on whom Natividad should consult and where, and that the latter merely acceded to it. It explains the
testimony of Natividad that she consulted Dr. Ampil at the instigation of her daughter. 51

Moreover, when asked what impelled him to choose Dr. Ampil, Enrique testified:

Atty. Agcaoili

On that particular occasion, April 2, 1984, what was your reason for choosing Dr. Ampil to contact with in connection with
your wife's illness?

A. First, before that, I have known him to be a specialist on that part of the body as a surgeon, second, I have known him
to be a staff member of the Medical City which is a prominent and known hospital. And third, because he is a neighbor,
I expect more than the usual medical service to be given to us, than his ordinary patients. 52 (emphasis supplied)

Clearly, the decision made by Enrique for Natividad to consult Dr. Ampil was significantly influenced by the impression
that Dr. Ampil was a staff member of Medical City General Hospital, and that said hospital was well known and prominent.
Enrique looked upon Dr. Ampil not as independent of but as integrally related to Medical City.

PSI's acts tended to confirm and reinforce, rather than negate, Enrique's view. It is of record that PSI required a "consent
for hospital care"53 to be signed preparatory to the surgery of Natividad. The form reads:

Permission is hereby given to the medical, nursing and laboratory staff of the Medical City General Hospital to perform
such diagnostic procedures and to administer such medications and treatments as may be deemed necessary or
advisable by the physicians of this hospital for and during the confinement of xxx. (emphasis supplied)

By such statement, PSI virtually reinforced the public impression that Dr. Ampil was a physician of its hospital, rather than
one independently practicing in it; that the medications and treatments he prescribed were necessary and desirable; and
that the hospital staff was prepared to carry them out.1avvphi1

PSI pointed out in its memorandum that Dr. Ampil's hospital affiliation was not the exclusive basis of the Aganas’ decision
to have Natividad treated in Medical City General Hospital, meaning that, had Dr. Ampil been affiliated with another
hospital, he would still have been chosen by the Aganas as Natividad's surgeon. 54

The Court cannot speculate on what could have been behind the Aganas’ decision but would rather adhere strictly to the
fact that, under the circumstances at that time, Enrique decided to consult Dr. Ampil for he believed him to be a staff
member of a prominent and known hospital. After his meeting with Dr. Ampil, Enrique advised his wife Natividad to go to
the Medical City General Hospital to be examined by said doctor, and the hospital acted in a way that fortified Enrique's
belief.

This Court must therefore maintain the ruling that PSI is vicariously liable for the negligence of Dr. Ampil as its ostensible
agent.

Moving on to the next issue, the Court notes that PSI made the following admission in its Motion for Reconsideration:

51. Clearly, not being an agent or employee of petitioner PSI, PSI [sic] is not liable for Dr. Ampil's acts during the
operation. Considering further that Dr. Ampil was personally engaged as a doctor by Mrs. Agana, it is incumbent upon Dr.
Ampil, as "Captain of the Ship", and as the Agana's doctor to advise her on what to do with her situation vis-a-vis the two
missing gauzes. In addition to noting the missing gauzes, regular check-ups were made and no signs of
complications were exhibited during her stay at the hospital, which could have alerted petitioner PSI's hospital to
render and provide post-operation services to and tread on Dr. Ampil's role as the doctor of Mrs. Agana. The
absence of negligence of PSI from the patient's admission up to her discharge is borne by the finding of facts in
this case. Likewise evident therefrom is the absence of any complaint from Mrs. Agana after her discharge from
the hospital which had she brought to the hospital's attention, could have alerted petitioner PSI to act
accordingly and bring the matter to Dr. Ampil's attention. But this was not the case. Ms. Agana complained ONLY
to Drs. Ampil and Fuentes, not the hospital. How then could PSI possibly do something to fix the negligence
committed by Dr. Ampil when it was not informed about it at all.55 (emphasis supplied)

PSI reiterated its admission when it stated that had Natividad Agana "informed the hospital of her discomfort and pain, the
hospital would have been obliged to act on it."56

The significance of the foregoing statements is critical.

First, they constitute judicial admission by PSI that while it had no power to control the means or method by which Dr.
Ampil conducted the surgery on Natividad Agana, it had the  power to review or cause the review of what may have
irregularly transpired within its walls strictly for the purpose of determining whether some form of negligence may have
attended any procedure done inside its premises, with the ultimate end of protecting its patients.

Second, it is a judicial admission that, by virtue of the nature of its business as well as its prominence 57 in the hospital
industry, it assumed a duty to "tread on" the "captain of the ship" role of any doctor rendering services within its premises
for the purpose of ensuring the safety of the patients availing themselves of its services and facilities.

Third, by such admission, PSI defined the standards of its corporate conduct under the circumstances of this case,
specifically: (a) that it had a corporate duty to Natividad even after her operation to ensure her safety as a patient; (b) that
its corporate duty was not limited to having its nursing staff note or record the two missing gauzes and (c) that its
corporate duty extended to determining Dr. Ampil's role in it, bringing the matter to his attention, and correcting his
negligence.

And finally, by such admission, PSI barred itself from arguing in its second motion for reconsideration that the concept of
corporate responsibility was not yet in existence at the time Natividad underwent treatment; 58 and that if it had any
corporate responsibility, the same was limited to reporting the missing gauzes and did not include "taking an active step in
fixing the negligence committed."59 An admission made in the pleading cannot be controverted by the party making such
admission and is conclusive as to him, and all proofs submitted by him contrary thereto or inconsistent therewith should
be ignored, whether or not objection is interposed by a party. 60

Given the standard of conduct that PSI defined for itself, the next relevant inquiry is whether the hospital measured up to
it.

PSI excuses itself from fulfilling its corporate duty on the ground that Dr. Ampil assumed the personal responsibility of
informing Natividad about the two missing gauzes. 61 Dr. Ricardo Jocson, who was part of the group of doctors that
attended to Natividad, testified that toward the end of the surgery, their group talked about the missing gauzes but Dr.
Ampil assured them that he would personally notify the patient about it. 62 Furthermore, PSI claimed that there was no
reason for it to act on the report on the two missing gauzes because Natividad Agana showed no signs of complications.
She did not even inform the hospital about her discomfort. 63

The excuses proffered by PSI are totally unacceptable.

To begin with, PSI could not simply wave off the problem and nonchalantly delegate to Dr. Ampil the duty to review what
transpired during the operation. The purpose of such review would have been to pinpoint when, how and by whom two
surgical gauzes were mislaid so that necessary remedial measures could be taken to avert any jeopardy to Natividad’s
recovery. Certainly, PSI could not have expected that purpose to be achieved by merely hoping that the person likely to
have mislaid the gauzes might be able to retrace his own steps. By its own standard of corporate conduct, PSI's duty to
initiate the review was non-delegable.

While Dr. Ampil may have had the primary responsibility of notifying Natividad about the missing gauzes, PSI imposed
upon itself the separate and independent responsibility of initiating the inquiry into the missing gauzes. The purpose of the
first would have been to apprise Natividad of what transpired during her surgery, while the purpose of the second would
have been to pinpoint any lapse in procedure that led to the gauze count discrepancy, so as to prevent a recurrence
thereof and to determine corrective measures that would ensure the safety of Natividad. That Dr. Ampil negligently failed
to notify Natividad did not release PSI from its self-imposed separate responsibility.
Corollary to its non-delegable undertaking to review potential incidents of negligence committed within its premises, PSI
had the duty to take notice of medical records prepared by its own staff and submitted to its custody, especially when
these bear earmarks of a surgery gone awry. Thus, the record taken during the operation of Natividad which reported a
gauze count discrepancy should have given PSI sufficient reason to initiate a review. It should not have waited for
Natividad to complain.

As it happened, PSI took no heed of the record of operation and consequently did not initiate a review of what transpired
during Natividad’s operation. Rather, it shirked its responsibility and passed it on to others – to Dr. Ampil whom it
expected to inform Natividad, and to Natividad herself to complain before it took any meaningful step. By its inaction,
therefore, PSI failed its own standard of hospital care. It committed corporate negligence.

It should be borne in mind that the corporate negligence ascribed to PSI is different from the medical negligence attributed
to Dr. Ampil. The duties of the hospital are distinct from those of the doctor-consultant practicing within its premises in
relation to the patient; hence, the failure of PSI to fulfill its duties as a hospital corporation gave rise to a direct liability
to the Aganas distinct from that of Dr. Ampil.

All this notwithstanding, we make it clear that PSI’s hospital liability based on ostensible agency and corporate negligence
applies only to this case, pro hac vice. It is not intended to set a precedent and should not serve as a basis to hold
hospitals liable for every form of negligence of their doctors-consultants under any and all circumstances. The ruling is
unique to this case, for the liability of PSI arose from an implied agency with Dr. Ampil and an admitted corporate duty to
Natividad.64

Other circumstances peculiar to this case warrant this ruling, 65 not the least of which being that the agony wrought upon
the Aganas has gone on for 26 long years, with Natividad coming to the end of her days racked in pain and agony. Such
wretchedness could have been avoided had PSI simply done what was logical: heed the report of a guaze count
discrepancy, initiate a review of what went wrong and take corrective measures to ensure the safety of Nativad. Rather,
for 26 years, PSI hemmed and hawed at every turn, disowning any such responsibility to its patient. Meanwhile, the
options left to the Aganas have all but dwindled, for the status of Dr. Ampil can no longer be ascertained. 66

Therefore, taking all the equities of this case into consideration, this Court believes ₱15 million would be a fair and
reasonable liability of PSI, subject to 12% p.a. interest from the finality of this resolution to full satisfaction.

WHEREFORE, the second motion for reconsideration is DENIED and the motions for intervention are NOTED.

Professional Services, Inc. is ORDERED pro hac vice to pay Natividad (substituted by her children Marcelino Agana III,
Enrique Agana, Jr., Emma Agana-Andaya, Jesus Agana and Raymund Agana) and Enrique Agana the total amount of
₱15 million, subject to 12% p.a. interest from the finality of this resolution to full satisfaction.

No further pleadings by any party shall be entertained in this case.

Let the long-delayed entry of judgment be made in this case upon receipt by all concerned parties of this resolution.

SO ORDERED.
G.R. No. 165443               April 16, 2009

CALATAGAN GOLF CLUB, INC. Petitioner,

vs.
SIXTO CLEMENTE, JR., Respondent.

DECISION

TINGA, J.:

Seeking the reversal of the Decision 1 dated 1 June 2004 of the Court of Appeals in CA-G.R. SP No. 62331 and
the reinstatement of the Decision dated 15 November 2000 of the Securities and Exchange Commission (SEC)
in SEC Case No. 04-98-5954, petitioner Calatagan Golf Club, Inc. (Calatagan) filed this Rule 45 petition
against respondent Sixto Clemente, Jr. (Clemente).

The key facts are undisputed.

Clemente applied to purchase one share of stock of Calatagan, indicating in his application for membership his
mailing address at "Phimco Industries, Inc. – P.O. Box 240, MCC," complete residential address, office and
residence telephone numbers, as well as the company (Phimco) with which he was connected, Calatagan
issued to him Certificate of Stock No. A-01295 on 2 May 1990 after paying ₱120,000.00 for the share.2

Calatagan charges monthly dues on its members to meet expenses for general operations, as well as costs for
upkeep and improvement of the grounds and facilities. The provision on monthly dues is incorporated in
Calatagan’s Articles of Incorporation and By-Laws. It is also reproduced at the back of each certificate of
stock.3 As reproduced in the dorsal side of Certificate of Stock No. A-01295, the provision reads:

5. The owners of shares of stock shall be subject to the payment of monthly dues in an amount as may be
prescribed in the by-laws or by the Board of Directors which shall in no case be less that [sic] ₱50.00 to meet
the expenses for the general operations of the club, and the maintenance and improvement of its premises and
facilities, in addition to such fees as may be charged for the actual use of the facilities x x x

When Clemente became a member the monthly charge stood at ₱400.00. He paid ₱3,000.00 for his monthly
dues on 21 March 1991 and another ₱5,400.00 on 9 December 1991. Then he ceased paying the dues. At that
point, his balance amounted to ₱400.00.4

Ten (10) months later, Calatagan made the initial step to collect Clemente’s back accounts by sending a
demand letter dated 21 September 1992. It was followed by a second letter dated 22 October 1992. Both
letters were sent to Clemente’s mailing address as indicated in his membership application but were sent back
to sender with the postal note that the address had been closed.5

Calatagan declared Clemente delinquent for having failed to pay his monthly dues for more than sixty (60)
days, specifically ₱5,600.00 as of 31 October 1992. Calatagan also included Clemente’s name in the list of
delinquent members posted on the club’s bulletin board. On 1 December 1992, Calatagan’s board of directors
adopted a resolution authorizing the foreclosure of shares of delinquent members, including Clemente’s; and
the public auction of these shares.

On 7 December 1992, Calatagan sent a third and final letter to Clemente, this time signed by its Corporate
Secretary, Atty. Benjamin Tanedo, Jr. The letter contains a warning that unless Clemente settles his
outstanding dues, his share would be included among the delinquent shares to be sold at public auction on 15
January 1993. Again, this letter was sent to Clemente’s mailing address that had already been closed.6

On 5 January 1993, a notice of auction sale was posted on the Club’s bulletin board, as well as on the club’s
premises. The auction sale took place as scheduled on 15 January 1993, and Clemente’s share sold for
₱64,000.7 According to the Certificate of Sale issued by Calatagan after the sale, Clemente’s share was
purchased by a Nestor A. Virata.8 At the time of the sale, Clemente’s accrued monthly dues amounted to
₱5,200.00.9 A notice of foreclosure of Clemente’s share was published in the 26 May 1993 issue of the
Business World.10

Clemente learned of the sale of his share only in November of 1997. 11 He filed a claim with the Securities and
Exchange Commission (SEC) seeking the restoration of his shareholding in Calatagan with damages.

On 15 November 2000, the SEC rendered a decision dismissing Clemente’s complaint. Citing Section 69 of
the Corporation Code which provides that the sale of shares at an auction sale can only be questioned within
six (6) months from the date of sale, the SEC concluded that Clemente’s claim, filed four (4) years after the
sale, had already prescribed. The SEC further held that Calatagan had complied with all the requirements for a
valid sale of the subject share, Clemente having failed to inform Calatagan that the address he had earlier
supplied was no longer his address. Clemente, the SEC ruled, had acted in bad faith in assuming as he
claimed that his non-payment of monthly dues would merely render his share "inactive."

Clemente filed a petition for review with the Court of Appeals. On 1 June 2004, the Court of Appeals
promulgated a decision reversing the SEC. The appellate court restored Clemente’s one share with a directive
to Calatagan to issue in his a new share, and awarded to Clemente a total of ₱400,000.00 in damages, less
the unpaid monthly dues of ₱5,200.00.

In rejecting the SEC’s finding that the action had prescribed, the Court of Appeals cited the SEC’s own ruling in
SEC Case No. 4160, Caram v. Valley Golf Country Club, Inc., that Section 69 of the Corporation Code
specifically refers to unpaid subscriptions to capital stock, and not to any other debt of stockholders. With the
insinuation that Section 69 does not apply to unpaid membership dues in non-stock corporations, the appellate
court employed Article 1140 of the Civil Code as the proper rule of prescription. The provision sets the
prescription period of actions to recover movables at eight (8) years.

The Court of Appeals also pointed out that since that Calatagan’s first two demand letters had been returned to
it as sender with the notation about the closure of the mailing address, it very well knew that its third and final
demand letter also sent to the same mailing address would not be received by Clemente. It noted the by-law
requirement that within ten (10) days after the Board has ordered the sale at auction of a member’s share of
stock for indebtedness, the Corporate Secretary shall notify the owner thereof and advise the Membership
Committee of such fact. Finally, the Court of Appeals ratiocinated that "a person who is in danger of the
imminent loss of his property has the right to be notified and be given the chance to prevent the loss."12

Hence, the present appeal.

Calatagan maintains that the action of Clemente had prescribed pursuant to Section 69 of the Corporation
Code, and that the requisite notices under both the law and the by-laws had been rendered to Clemente.

Section 69 of the Code provides that an action to recover delinquent stock sold must be commenced by the
filing of a complaint within six (6) months from the date of sale. As correctly pointed out by the Court of
Appeals, Section 69 is part of Title VIII of the Code entitled "Stocks and Stockholders" and refers specifically to
unpaid subscriptions to capital stock, the sale of which is governed by the immediately preceding Section 68.

The Court of Appeals debunked both Calatagan’s and the SEC’s reliance on Section 69 by citing another SEC
ruling in the case of Caram v. Valley Golf. In connection with Section 69, Calatagan raises a peripheral point
made in the SEC’s Caram ruling. In Caram, the SEC, using as take-off Section 6 of the Corporation Code
which refers to "such rights, privileges or restrictions as may be stated in the articles of incorporation," pointed
out that the Articles of Incorporation of Valley Golf does not "impose any lien, liability or restriction on the Golf
Share [of Caram]," but only its (Valley Golf’s) By-Laws does. Here, Calatagan stresses that its own Articles of
Incorporation does provide that the monthly dues assessed on owners of shares of the corporation, along with
all other obligations of the shareholders to the club, "shall constitute a first lien on the shares… and in the
event of delinquency such shares may be ordered sold by the Board of Directors in the manner provided in the
By-Laws to satisfy said dues or other obligations of the shareholders." 13 With its illative but incomprehensible
logic, Calatagan concludes that the prescriptive period under Section 69 should also apply to the sale of
Clemente’s share as the lien that Calatagan perceives to be a restriction is stated in the articles of
incorporation and not only in the by-laws.

We remain unconvinced.

There are fundamental differences that defy equivalence or even analogy between the sale of delinquent stock
under Section 68 and the sale that occurred in this case. At the root of the sale of delinquent stock is the non-
payment of the subscription price for the share of stock itself. The stockholder or subscriber has yet to fully pay
for the value of the share or shares subscribed. In this case, Clemente had already fully paid for the share in
Calatagan and no longer had any outstanding obligation to deprive him of full title to his share. Perhaps the
analogy could have been made if Clemente had not yet fully paid for his share and the non-stock corporation,
pursuant to an article or by-law provision designed to address that situation, decided to sell such share as a
consequence. But that is not the case here, and there is no purpose for us to apply Section 69 to the case at
bar.

Calatagan argues in the alternative that Clemente’s suit is barred by Article 1146 of the Civil Code which
establishes four (4) years as the prescriptive period for actions based upon injury to the rights of the plaintiff on
the hypothesis that the suit is purely for damages. As a second alternative still, Calatagan posits that
Clemente’s action is governed by Article 1149 of the Civil Code which sets five (5) years as the period of
prescription for all other actions whose prescriptive periods are not fixed in the Civil Code or in any other law.
Neither article is applicable but Article 1140 of the Civil Code which provides that an action to recover
movables shall prescribe in eight (8) years. Calatagan’s action is for the recovery of a share of stock, plus
damages.

Calatagan’s advertence to the fact that the constitution of a lien on the member’s share by virtue of the explicit
provisions in its Articles of Incorporation and By-Laws is relevant but ultimately of no help to its cause.
Calatagan’s Articles of Incorporation states that the "dues, together with all other obligations of members to the
club, shall constitute a first lien on the shares, second only to any lien in favor of the national or local
government, and in the event of delinquency such shares may be ordered sold by the Board of Directors in the
manner provided in the By-Laws to satisfy said dues or other obligations of the stockholders." 14 In turn, there
are several provisions in the By-laws that govern the payment of dues, the lapse into delinquency of the
member, and the constitution and execution on the lien. We quote these provisions:

ARTICLE XII – MEMBER’S ACCOUNT

SEC. 31. (a) Billing Members, Posting of Delinquent Members – The Treasurer shall bill al members monthly.
As soon as possible after the end of every month, a statement showing the account of bill of a member for said
month will be prepared and sent to him. If the bill of any member remains unpaid by the 20th of the month
following that in which the bill was incurred, the Treasurer shall notify him that if his bill is not paid in full by the
end of the succeeding month his name will be posted as delinquent the following day at the Clubhouse bulletin
board. While posted, a member, the immediate members of his family, and his guests, may not avail of the
facilities of the Club.

(b) Members on the delinquent list for more than 60 days shall be reported to the Board and their
shares or the shares of the juridical entities they represent shall thereafter be ordered sold by the Board
at auction to satisfy the claims of the Club as provided for in Section 32 hereon. A member may pay his
overdue account at any time before the auction sale.
Sec. 32. Lien on Shares; Sale of Share at Auction- The club shall have a first lien on every share of stock to
secure debts of the members to the Club. This lien shall be annotated on the certificates of stock and may be
enforced by the Club in the following manner:

(a) Within ten (10) days after the Board has ordered the sale at auction of a member’s share of stock
for indebtedness under Section 31(b) hereof, the Secretary shall notify the owner thereof, and shall
advise the Membership Committee of such fact.

(b) The Membership Committee shall then notify all applicants on the Waiting List and all registered
stockholders of the availability of a share of stock for sale at auction at a specified date, time and place,
and shall post a notice to that effect in the Club bulletin board for at least ten (10) days prior to the
auction sale.

(c) On the date and hour fixed, the Membership Committee shall proceed with the auction by viva voce
bidding and award the sale of the share of stock to the highest bidder.

(d) The purchase price shall be paid by the winning bidder to the Club within twenty-four (24) hours
after the bidding. The winning bidder or the representative in the case of a juridical entity shall become
a Regular Member upon payment of the purchase price and issuance of a new stock certificate in his
name or in the name of the juridical entity he represents. The proceeds of the sale shall be paid by the
Club to the selling stockholder after deducting his obligations to the Club.

(e) If no bids be received or if the winning bidder fails to pay the amount of this bid within twenty-four
(24) hours after the bidding, the auction procedures may be repeated from time to time at the discretion
of the Membership Committee until the share of stock be sold.

(f) If the proceeds from the sale of the share of stock are not sufficient to pay in full the indebtedness of
the member, the member shall continue to be obligated to the Club for the unpaid balance. If the
member whose share of stock is sold fails or refuse to surrender the stock certificate for cancellation,
cancellation shall be effected in the books of the Club based on a record of the proceedings. Such
cancellation shall render the unsurrendered stock certificate null and void and notice to this effect shall
be duly published.

It is plain that Calatagan had endeavored to install a clear and comprehensive procedure to govern the
payment of monthly dues, the declaration of a member as delinquent, and the constitution of a lien on the
shares and its eventual public sale to answer for the member’s debts. Under Section 91 of the Corporation
Code, membership in a non-stock corporation "shall be terminated in the manner and for the causes provided
in the articles of incorporation or the by-laws." The By-law provisions are elaborate in explaining the manner
and the causes for the termination of membership in Calatagan, through the execution on the lien of the share.
The Court is satisfied that the By-Laws, as written, affords due protection to the member by assuring that the
member should be notified by the Secretary of the looming execution sale that would terminate membership in
the club. In addition, the By-Laws guarantees that after the execution sale, the proceeds of the sale would be
returned to the former member after deducting the outstanding obligations. If followed to the letter, the
termination of membership under this procedure outlined in the By-Laws would accord with substantial justice.

Yet, did Calatagan actually comply with the by-law provisions when it sold Clemente’s share? The appellate
court’s finding on this point warrants our approving citation, thus:

In accordance with this provision, Calatagan sent the third and final demand letter to Clemente on December
7, 1992. The letter states that if the amount of delinquency is not paid, the share will be included among the
delinquent shares to be sold at public auction. This letter was signed by Atty. Benjamin Tanedo, Jr., Calatagan
Golf’s Corporate Secretary. It was again sent to Clemente’s mailing address – Phimco Industries Inc.,
P.O. Box 240, MCC Makati. As expected, it was returned because the post office box had been closed.
Under the By-Laws, the Corporate Secretary is tasked to "give or cause to be given, all notices required by law
or by these By-Laws. .. and … keep a record of the addresses of all stockholders. As quoted above, Sec. 32
(a) of the By-Laws further provides that "within ten (10) days after the Board has ordered the sale at auction of
a member’s share of stock for indebtedness under Section 31 (b) hereof, the Secretary shall notify the owner
thereof and shall advise the Membership Committee of such fact.," The records do not disclose what report the
Corporate Secretary transmitted to the Membership Committee to comply with Section 32(a). Obviously, the
reason for this mandatory requirement is to give the Membership Committee the opportunity to find out, before
the share is sold, if proper notice has been made to the shareholder member.

We presume that the Corporate Secretary, as a lawyer is knowledgeable on the law and on the standards of
good faith and fairness that the law requires. As custodian of corporate records, he should also have known
that the first two letters sent to Clemente were returned because the P.O. Box had been closed. Thus, we are
surprised – given his knowledge of the law and of corporate records – that he would send the third and final
letter – Clemente’s last chance before his share is sold and his membership lost – to the same P.O. Box that
had been closed.

Calatagan argues that it "exercised due diligence before the foreclosure sale" and "sent several notices to
Clemente’s specified mailing address." We do not agree; we cannot label as due diligence Calatagan’s act of
sending the December 7, 1992 letter to Clemente’s mailing address knowing fully well that the P.O. Box had
been closed. Due diligence or good faith imposes upon the Corporate Secretary – the chief repository of all
corporate records – the obligation to check Clemente’s other address which, under the By-Laws, have to be
kept on file and are in fact on file. One obvious purpose of giving the Corporate Secretary the duty to keep the
addresses of members on file is specifically for matters of this kind, when the member cannot be reached
through his or her mailing address. Significantly, the Corporate Secretary does not have to do the actual
verification of other addressees on record; a mere clerk can do the very simple task of checking the files as in
fact clerks actually undertake these tasks. In fact, one telephone call to Clemente’s phone numbers on file
would have alerted him of his impending loss.

Ultimately, the petition must fail because Calatagan had failed to duly observe both the spirit and letter of its
own by-laws. The by-law provisions was clearly conceived to afford due notice to the delinquent member of the
impending sale, and not just to provide an intricate façade that would facilitate Calatagan’s sale of the share.
But then, the bad faith on Calatagan’s part is palpable. As found by the Court of Appeals, Calatagan very well
knew that Clemente’s postal box to which it sent its previous letters had already been closed, yet it persisted in
sending that final letter to the same postal box. What for? Just for the exercise, it appears, as it had known
very well that the letter would never actually reach Clemente.1avvphi1

It is noteworthy that Clemente in his membership application had provided his residential address along with
his residence and office telephone numbers. Nothing in Section 32 of Calatagan’s By-Laws requires that the
final notice prior to the sale be made solely through the member’s mailing address. Clemente cites our
aphorism-like pronouncement in Rizal Commercial Banking Corporation v. Court of Appeals 15 that "[a] simple
telephone call and an ounce of good faith x x x could have prevented this present controversy." That
memorable observation is quite apt in this case.

Calatagan’s bad faith and failure to observe its own By-Laws had resulted not merely in the loss of Clemente’s
privilege to play golf at its golf course and avail of its amenities, but also in significant pecuniary damage to
him. For that loss, the only blame that could be thrown Clemente’s way was his failure to notify Calatagan of
the closure of the P.O. Box. That lapse, if we uphold Calatagan would cost Clemente a lot. But, in the first
place, does he deserve answerability for failing to notify the club of the closure of the postal box? Indeed,
knowing as he did that Calatagan was in possession of his home address as well as residence and office
telephone numbers, he had every reason to assume that the club would not be at a loss should it need to
contact him. In addition, according to Clemente, he was not even aware of the closure of the postal box, the
maintenance of which was not his responsibility but his employer Phimco’s.

The utter bad faith exhibited by Calatagan brings into operation Articles 19, 20 and 21 of the Civil
Code,16 under the Chapter on Human Relations. These provisions, which the Court of Appeals did apply,
enunciate a general obligation under law for every person to act fairly and in good faith towards one another. A
non-stock corporation like Calatagan is not exempt from that obligation in its treatment of its members. The
obligation of a corporation to treat every person honestly and in good faith extends even to its shareholders or
members, even if the latter find themselves contractually bound to perform certain obligations to the
corporation. A certificate of stock cannot be a charter of dehumanization.

We turn to the matter of damages. The award of actual damages is of course warranted since Clemente has
sustained pecuniary injury by reason of Calatagan’s wrongful violation of its own By-Laws. It would not be
feasible to deliver Clemente’s original Certificate of Stock because it had already been cancelled and a new
one issued in its place in the name of the purchases at the auction who was not impleaded in this case.
However, the Court of Appeals instead directed that Calatagan to issue to Clemente a new certificate of stock.
That sufficiently redresses the actual damages sustained by Clemente. After all, the certificate of stock is
simply the evidence of the share.

The Court of Appeals also awarded Clemente ₱200,000.00 as moral damages, ₱100,000.00 as exemplary
damages, and ₱100,000.00 as attorney’s fees. We agree that the award of such damages is warranted.

The Court of Appeals cited Calatagan for violation of Article 32 of the Civil Code, which allows recovery of
damages from any private individual "who directly or indirectly obstructs, defeats, violates or in any manner
impedes or impairs" the right "against deprivation of property without due process of laws." The plain letter of
the provision squarely entitles Clemente to damages from Calatagan. Even without Article 32 itself, Calatagan
will still be bound to pay moral and exemplary damages to Clemente. The latter was able to duly prove that he
had sustained mental anguish, serious anxiety and wounded feelings by reason of Calatagan’s acts, thereby
entitling him to moral damages under Article 2217 of the Civil Code. Moreover, it is evident that Calatagan’s
bad faith as exhibited in the

course of its corporate actions warrants correction for the public good, thereby justifying exemplary damages
under Article 2229 of the Civil Code.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals is AFFIRMED. Costs against
petitioner.

SO ORDERED.
 G.R. No. 128690 January 21, 1999

ABS-CBN BROADCASTING CORPORATION, petitioner,

vs.
HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA PRODUCTION, INC., and VICENTE DEL ROSARIO, respondents.

DAVIDE, JR., CJ.:

In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) seeks to reverse and
set aside the decision 1 of 31 October 1996 and the resolution 2 of 10 March 1997 of the Court of Appeals in CA-G.R. CV
No. 44125. The former affirmed with modification the decision 3 of 28 April 1993 of the Regional Trial Court (RTC) of
Quezon City, Branch 80, in Civil Case No. Q-92-12309. The latter denied the motion to reconsider the decision of 31
October 1996.

The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:

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

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

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

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

6 January 1992

Dear Vic,

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

From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I hope
you will understand my position. Most of the action pictures in the list do not have big action stars in the
cast. They are not for primetime. In line with this I wish to mention that I have not scheduled for telecast
several action pictures in out very first contract because of the cheap production value of these movies as
well as the lack of big action stars. As a film producer, I am sure you understand what I am trying to say
as Viva produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in our
non-primetime slots. We have to cover the amount that was paid for these movies because as you very
well know that non-primetime advertising rates are very low. These are the unaired titles in the first
contract.

1. Kontra Persa [sic].

2. Raider Platoon.

3. Underground guerillas

4. Tiger Command

5. Boy de Sabog

6. Lady Commando

7. Batang Matadero

8. Rebelyon

I hope you will consider this request of mine.

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

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

Thanking you and with my warmest regards.

(Signed)

Charo Santos-Concio

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

On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio Lopez III, met at the
Tamarind Grill Restaurant in Quezon City to discuss the package proposal of Viva. What transpired in that
lunch meeting is the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario
allegedly agreed that ABS-CRN was granted exclusive film rights to fourteen (14) films for a total
consideration of P36 million; that he allegedly put this agreement as to the price and number of films in a
"napkin'' and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On
the other hand, Del Rosario denied having made any agreement with Lopez regarding the 14 Viva films;
denied the existence of a napkin in which Lopez wrote something; and insisted that what he and Lopez
discussed at the lunch meeting was Viva's film package offer of 104 films (52 originals and 52 re-runs) for
a total price of P60 million. Mr. Lopez promising [sic]to make a counter proposal which came in the form
of a proposal contract Annex "C" of the complaint (Exh. "1"·- Viva; Exh. "C" - 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 Viva's offer to sell the 104 films, after the rejection of the same
package by ABS-CBN.
 On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note from Ms.
Concio, (Exh. "5" - Viva), which reads: "Here's the draft of the contract. I hope you find everything in
order," to which was attached a draft exhibition agreement (Exh. "C''- ABS-CBN; Exh. "9" - Viva, p. 3) a
counter-proposal covering 53 films, 52 of which came from the list sent by defendant Del Rosario and one
film was added by Ms. Concio, for a consideration of P35 million. Exhibit "C" provides that ABS-CBN is
granted films right to 53 films and contains a right of first refusal to "1992 Viva Films." The said counter
proposal was however rejected by Viva's Board of Directors [in the] evening of the same day, April 7,
1992, as Viva would not sell anything less than the package of 104 films for P60 million pesos (Exh. "9" -
Viva), and such rejection was relayed to Ms. Concio.

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

On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of
preliminary injunction and/or temporary restraining order against private respondents Republic Broadcasting
Corporation 5 (hereafter RBS ), Viva Production (hereafter VIVA), and Vicente Del Rosario. The complaint was docketed
as Civil Case No. Q-92-12309.

On 27 May 1992, RTC issued a temporary restraining order 6 enjoining private respondents from proceeding with the
airing, broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the film Maging Sino
Ka Man, which was scheduled to be shown on private respondents RBS' channel 7 at seven o'clock in the evening of said
date.

On 17 June 1992, after appropriate proceedings, the RTC issued an

order 7 directing the issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35 million bond. ABS-CBN
moved for the reduction of the bond, 8 while private respondents moved for reconsideration of the order and offered to put
up a counterbound. 9

In the meantime, private respondents filed separate answers with counterclaim. 10 RBS also set up a cross-claim against
VIVA..

On 3 August 1992, the RTC issued an order 11 dissolving the writ of preliminary injunction upon the posting by RBS of a
P30 million counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However, it
reduced petitioner's injunction bond to P15 million as a condition precedent for the reinstatement of the writ of preliminary
injunction should private respondents be unable to post a counterbond.

At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the court, agreed to explore the possibility of an
amicable settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30
million counterbond in the event that no settlement would be reached.

As the parties failed to enter into an amicable settlement RBS posted on 1 October 1992 a counterbond, which the RTC
approved in its Order of 15 October 1992.13

On 19 October 1992, ABS-CBN filed a motion for reconsideration 14 of the 3 August and 15 October 1992 Orders, which
RBS opposed. 15

On 29 October 1992, the RTC conducted a pre-trial. 16

Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition 17 challenging the
RTC's Orders of 3 August and 15 October 1992 and praying for the issuance of a writ of preliminary injunction to enjoin
the RTC from enforcing said orders. The case was docketed as CA-G.R. SP No. 29300.

On 3 November 1992, the Court of Appeals issued a temporary restraining order 18 to enjoin the airing, broadcasting, and
televising of any or all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a decision 19 dismissing the petition in CA -G.R. No. 29300 for
being premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January 1993,
which was docketed as G.R. No. 108363.

In the meantime the RTC received the evidence for the parties in Civil Case No. Q-192-1209. Thereafter, on 28 April
1993, it rendered a decision 20 in favor of RBS and VIVA and against ABS-CBN disposing as follows:

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

(1) The complaint is hereby dismissed;

(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:

a) P107,727.00, the amount of premium paid by RBS to the surety which

issued defendant RBS's bond to lift the injunction;

b) P191,843.00 for the amount of print advertisement for "Maging Sino

Ka Man" in various newspapers;

c) Attorney's fees in the amount of P1 million;

d) P5 million as and by way of moral damages;

e) P5 million as and by way of exemplary damages;

(3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of
reasonable attorney's fees.

(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.

(5) Plaintiff to pay the costs.

According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement between
Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was
disapproved during the meeting of the Board on 7 April 1992. Hence, there was no basis for ABS-CBN's demand that
VIVA signed the 1992 Film Exhibition Agreement. Furthermore, the right of first refusal under the 1990 Film Exhibition
Agreement had previously been exercised per Ms. Concio's letter to Del Rosario ticking off ten titles acceptable to them,
which would have made the 1992 agreement an entirely new contract.

On 21 June 1993, this Court denied21 ABS-CBN's petition for review in G.R. No. 108363, as no reversible error was
committed by the Court of Appeals in its challenged decision and the case had "become moot and academic in view of the
dismissal of the main action by the court a quo  in its decision" of 28 April 1993.

Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected contract
between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private respondents VIVA
and Del Rosario also appealed seeking moral and exemplary damages and additional attorney's fees.

In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABS-CBN and
VIVA had not been perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, it's agent,
might have agreed with Lopez III. The appellate court did not even believe ABS-CBN's evidence that Lopez III actually
wrote down such an agreement on a "napkin," as the same was never produced in court. It likewise rejected ABS-CBN's
insistence on its right of first refusal and ratiocinated as follows:

As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered
into between Appellant ABS-CBN and appellant VIVA under Exhibit "A" in 1990, and that parag. 1.4
thereof provides:
 1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films
for TV telecast under such terms as may be agreed upon by the parties hereto, provided,
however, that such right shall be exercised by ABS-CBN within a period of fifteen (15)
days from the actual offer in writing (Records, p. 14).

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

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

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

The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records, pp. 86-88; Decision,
p. 11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The
Vice President of ABS-CBN, Ms. Charo Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3,
Records, p. 89) where ABS-CBN exercised its right of refusal by rejecting the offer of VIVA.. As aptly
observed by the trial court, with the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its
right of first refusal. And even if We reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to
4-C) when another list was sent to ABS-CBN after the letter of Mrs. Concio, still the fifteen (15) day period
within which ABS-CBN shall exercise its right of first refusal has already expired. 22

Accordingly, respondent court sustained the award of actual damages consisting in the cost of print advertisements and
the premium payments for the counterbond, there being adequate proof of the pecuniary loss which RBS had suffered as
a result of the filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found
reasonable basis therefor, holding that RBS's reputation was debased by the filing of the complaint in Civil Case No. Q-
92-12309 and by the non-showing of the film "Maging Sino Ka Man." Respondent court also held that exemplary damages
were correctly imposed by way of example or correction for the public good in view of the filing of the complaint despite
petitioner's knowledge that the contract with VIVA had not been perfected, It also upheld the award of attorney's fees,
reasoning that with ABS-CBN's act of instituting Civil Case No, Q-92-1209, RBS was "unnecessarily forced to litigate."
The appellate court, however, reduced the awards of moral damages to P2 million, exemplary damages to P2 million, and
attorney's fees to P500, 000.00.

On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was "RBS and not
VIVA which was actually prejudiced when the complaint was filed by 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

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

PRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONDERANCE OF EVIDENCE ADDUCED
BY PETITIONER TO THE CONTRARY.

II

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

RESPONDENT RBS.

III

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

RBS.
 IV

. . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS.

ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film
Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopez's
testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of the second
list (the 1992 Film Exhibition Agreement) and upon agreement thereon, wrote the same on a paper napkin. It also asserts
that the contract has already been effective, as the elements thereof, namely, consent, object, and consideration were
established. It then concludes that the Court of Appeals' pronouncements were not supported by law and jurisprudence,
as per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v. Court of Appeals, 23 which cited Toyota Shaw,
Inc. v. Court of Appeals, 24 Ang Yu Asuncion v. Court of Appeals, 25 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 or the injunction; or if it was determined to put up a counterbond, it could
have presented a cash bond. Furthermore under Article 2203 of the Civil Code, the party suffering loss or injury is also
required to exercise the diligence of a good father of a family to minimize the damages resulting from the act or omission.
As regards the cost of print advertisements, RBS had not convincingly established that this was a loss attributable to the
non showing "Maging Sino Ka Man"; on the contrary, it was brought out during trial that with or without the case or the
injunction, RBS would have spent such an amount to generate interest in the film.

ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages. The
controversy involving ABS-CBN and RBS did not in any way originate from business transaction between them. The
claims for such damages did not arise from any contractual dealings or from specific acts committed by ABS-CBN against
RBS that may be characterized as wanton, fraudulent, or reckless; they arose by virtue only of the filing of the complaint,
An award of moral and exemplary damages is not warranted where the record is bereft of any proof that a party acted
maliciously or in bad faith in filing an action. 27 In any case, free resort to courts for redress of wrongs is a matter of public
policy. The law recognizes the right of every one to sue for that which he honestly believes to be his right without fear of
standing trial for damages where by lack of sufficient evidence, legal technicalities, or a different interpretation of the laws
on the matter, the case would lose ground. 28 One who makes use of his own legal right does no injury. 29 If damage
results front the filing of the complaint, it is damnum absque injuria. 30 Besides, moral damages are generally not awarded
in favor of a juridical person, unless it enjoys a good reputation that was debased by the offending party resulting in social
humiliation.31

As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual, legal, or equitable justification.
In sustaining the trial court's award, the Court of Appeals acted in clear disregard of the doctrines laid down in  Buan
v.  Camaganacan  32 that the text of the decision should state the reason why attorney's fees are being awarded;
otherwise, the award should be disallowed. Besides, no bad faith has been imputed on, much less proved as having been
committed by, ABS-CBN. It has been held that "where no sufficient showing of bad faith would be reflected in a party' s
persistence in a case other than an erroneous conviction of the righteousness of his cause, attorney's fees shall not be
recovered as cost." 33

On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent any meeting of
minds between them regarding the object and consideration of the alleged contract. It affirms that the ABS-CBN's claim of
a right of first refusal was correctly rejected by the trial court. RBS insist the premium it had paid for the counterbond
constituted a pecuniary loss upon which it may recover. It was obliged to put up the counterbound due to the injunction
procured by ABS-CBN. Since the trial court found that ABS-CBN had no cause of action or valid claim against RBS and,
therefore not entitled to the writ of injunction, RBS could recover from ABS-CBN the premium paid on the counterbond.
Contrary to the claim of ABS-CBN, the cash bond would prove to be more expensive, as the loss would be equivalent to
the cost of money RBS would forego in case the P30 million came from its funds or was borrowed from banks.

RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film "Maging Sino
Ka Man" because the print advertisements were put out to announce the showing on a particular day and hour on
Channel 7, i.e., in its entirety at one time, not a series to be shown on a periodic basis. Hence, the print advertisement
were good and relevant for the particular date showing, and since the film could not be shown on that particular date and
hour because of the injunction, the expenses for the advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions purely for
the purpose of harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS-CBN must be
held liable for such damages. Citing  Tolentino,34 damages may be awarded in cases of abuse of rights even if the act
done is not illicit and there is abuse of rights were plaintiff institutes and action purely for the purpose of harassing or
prejudicing the defendant.

In support of its stand that a juridical entity can recover moral and exemplary damages, private respondents 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-CBN's acts in this case. When
RBS was not able to fulfill its commitment to the viewing public to show the film "Maging Sino Ka Man" on
the scheduled dates and times (and on two occasions that RBS advertised), it suffered serious
embarrassment and social humiliation. When the showing was canceled, late viewers called up RBS'
offices and subjected RBS to verbal abuse ("Announce kayo nang announce, hindi ninyo naman
ilalabas," "nanloloko yata kayo") (Exh. 3-RBS, par. 3). This alone was not something RBS brought upon
itself. it was exactly what ABS-CBN had planned to happen.

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

The first is that the humiliation suffered by RBS is national extent. RBS operations as a broadcasting
company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watch
television. It is not an exaggeration to state, and it is a matter of judicial notice that almost every other
person in the country watches television. The humiliation suffered by RBS is multiplied by the number of
televiewers who had anticipated the showing of the film "Maging Sino Ka Man" on May 28 and November
3, 1992 but did not see it owing to the cancellation. Added to this are the advertisers who had placed
commercial spots for the telecast and to whom RBS had a commitment in consideration of the placement
to show the film in the dates and times specified.

The second is that it is a competitor that caused RBS to suffer the humiliation. The humiliation and injury
are far greater in degree when caused by an entity whose ultimate business objective is to lure customers
(viewers in this case) away from the competition. 36

For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of Appeals do
not support ABS-CBN's claim that there was a perfected contract. Such factual findings can no longer be disturbed in this
petition for review under Rule 45, as only questions of law can be raised, not questions of fact. On the issue of damages
and attorneys fees, they adopted the arguments of RBS.

The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN, and (2)
whether RBS is entitled to damages and attorney's fees. It may be noted that the award of attorney's fees of P212,000 in
favor of VIVA is not assigned as another error.

I.

The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons whereby one
binds himself to give something or to render some service to another 37 for a consideration. there is no contract unless the
following requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of the contract;
and (3) cause of the obligation, which is established. 38 A contract undergoes three stages:

(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the
moment of agreement of the parties;

(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of
the contract; and

(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the
contract. 39
Contracts that are consensual in nature are perfected upon mere meeting of the minds, Once there is concurrence
between the offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is
produced. The offer must be certain. To convert the offer into a contract, the acceptance must be absolute and must not
qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the
proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer and is a rejection of the
original offer. Consequently, when something is desired which is not exactly what is proposed in the offer, such
acceptance is not sufficient to generate consent because any modification or variation from the terms of the offer annuls
the offer.40

When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the
package of films, said package of 104 VIVA films was VIVA's offer to ABS-CBN 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 counter-offer
of Mr. Lopez during his conference with Del Rosario at Tamarind Grill Restaurant. Clearly, there was no acceptance of
VIVA's offer, for it was met by a counter-offer which substantially varied the terms of the offer.

ABS-CBN's reliance in Limketkai Sons Milling, Inc. v.  Court of

Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is misplaced. In these cases, it was held that an
acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance as long
as "it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request
is granted or not." This ruling was, however, reversed in the resolution of 29 March 1996, 43 which ruled that the
acceptance of all offer must be unqualified and absolute, i.e., it "must be identical in all respects with that of the offer so as
to produce consent or meeting of the minds."

On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material but
merely clarificatory of what had previously been agreed upon. It cited the statement in Stuart v.  Franklin Life Insurance
Co.44 that "a vendor's change in a phrase of the offer to purchase, which change does not essentially change the terms of
the offer, does not amount to a rejection of the offer and the tender of a 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 VIVA's offer. Hence, they underwent a period of
bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft contract, VIVA through its Board of
Directors, rejected such counter-offer, Even if it be conceded arguendo that Del Rosario had accepted the counter-offer,
the acceptance did not bind VIVA, as there was no proof whatsoever that Del Rosario had the specific authority to do so.

Under Corporation Code,46 unless otherwise provided by said Code, corporate powers, such as the power; to enter into
contracts; are exercised by the Board of Directors. However, the Board may delegate such powers to either an executive
committee or officials or contracted managers. The delegation, except for the executive committee, must be for specific
purposes, 47 Delegation to officers makes the latter agents of the corporation; accordingly, the general rules of agency as
to the bindings effects of their acts would
apply. 48 For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must
specially authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN's counter-offer was
best evidenced by his submission of the draft contract to VIVA's Board of Directors for the latter's approval. In any event,
there was between Del Rosario and Lopez III no meeting of minds. The following findings of the trial court are instructive:

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

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

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

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

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

which gives a total consideration of P36 million (P19,950,000.00 plus P16,050,000.00. equals
P36,000,000.00).

On cross-examination Mr. Lopez testified:

Q. What was written in this napkin?

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

Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim.

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

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

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

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

Q. Now, Mr. Witness, and after that Tamarind meeting ... the second meeting wherein
you claimed that you have the meeting of the minds between you and Mr. Vic del
Rosario, what happened?

A. Vic Del Rosario was supposed to call us up and tell us specifically the result of the
discussion with the Board of Directors.

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 140 films be
maintained (Exh. "7-1" - Viva ). 49

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

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

II

However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII,
Book IV of the Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by
stipulation, one is entitled to compensation for actual damages only for such pecuniary loss suffered by him as he has
duly proved. 51 The indemnification shall comprehend not only the value of the loss suffered, but also that of the profits
that the obligee failed to obtain. 52 In contracts and quasi-contracts the damages which may be awarded are dependent on
whether the obligor acted with good faith or otherwise, It case of good faith, the damages recoverable are those which are
the natural and probable consequences of the breach of the obligation and which the parties have foreseen or could have
reasonably foreseen at the time of the constitution of the obligation. If the obligor acted with fraud, bad faith, malice, or
wanton attitude, he shall be responsible for all damages which may be reasonably attributed to the non-performance of
the obligation. 53 In crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural and
probable consequences of the act or omission complained of, whether or not such damages has been foreseen or could
have reasonably been foreseen by the defendant.54

Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent
personal injury, or for injury to the plaintiff's business standing or commercial credit. 55

The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the
fact of filing of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Thus paragraph 12 of
RBS's Answer with Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges:
 12. ABS-CBN filed the complaint knowing fully well that it has no cause of action RBS. As a result thereof,
RBS suffered actual damages in the amount of P6,621,195.32. 56

Needless to state the award of actual damages cannot be comprehended under the above law on actual damages. RBS
could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows:

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

Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall
indemnify the latter for tile same.

Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.

It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the defendant
may suffer by reason of the writ are recoverable from the injunctive bond. 57 In this case, ABS-CBN had not yet filed the
required bond; as a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge
the order on the matter, Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be
held responsible for the premium RBS paid for the counterbond.

Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of sufficient legal basis.
The RTC issued a temporary restraining order and later, a writ of preliminary injunction on the basis of its determination
that there existed sufficient ground for the issuance thereof. Notably, the RTC did not dissolve the injunction on the
ground of lack of legal and factual basis, but because of the plea of RBS that it be allowed to put up a counterbond.

As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as actual
or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. 58

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

As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines
what are included in moral damages, while Article 2219 enumerates the cases where they may be recovered, Article 2220
provides that moral damages may be recovered in breaches of contract where the defendant acted fraudulently or in bad
faith. RBS's claim for moral damages could possibly fall only under item (10) of Article 2219, thereof which reads:

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

Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered. and not to
impose a penalty on the wrongdoer.62 The award is not meant to enrich the complainant at the expense of the defendant,
but to enable the injured party to obtain means, diversion, or amusements that will serve to obviate then moral suffering
he has undergone. It is aimed at the restoration, within the limits of the possible, of the spiritual  status quo ante, and
should be proportionate to the suffering inflicted. 63 Trial courts must then guard against the award of exorbitant damages;
they should exercise balanced restrained and measured objectivity to avoid suspicion that it was due to passion,
prejudice, or corruption on the part of the trial court. 64

The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having
existence only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience physical
suffering and mental anguish, which call be experienced only by one having a nervous system. 65 The statement in People
v.  Manero 66 and Mambulao Lumber Co.  v. PNB  67 that a corporation may recover moral damages if it "has a good
reputation that is debased, resulting in social humiliation" is an obiter dictum. On this score alone the award for damages
must be set aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed
by way of example or correction for the public good, in addition to moral, temperate, liquidated or compensatory
damages. 68 They are recoverable in criminal cases as part of the civil liability when the crime was committed with one or
more aggravating circumstances; 69 in quasi-contracts, if the defendant acted with gross negligence; 70 and in contracts
and quasi-contracts, if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. 71

It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi-
delict, Hence, the claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of the Civil
Code.

The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which is
exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general
sanction for all other provisions of law which do not especially provide for their own sanction; while Article 21 deals with
acts contra bonus mores, and has the following elements; (1) there is an act which is legal, (2) but which is contrary to
morals, good custom, public order, or public policy, and (3) and it is done with intent to injure. 72

Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral obliquity. 73 Such must be substantiated by
evidence. 74

There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the merits of
its cause after it had undergone serious negotiations culminating in its formal submission of a draft contract. Settled is the
rule that the adverse result of an action does not per se make the action wrongful and subject the actor to damages, for
the law could not have meant to impose a penalty on the right to litigate. If damages result from a person's exercise of a
right, it is damnum absque injuria.75

WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No,
44125 is hereby REVERSED except as to unappealed award of attorney's fees in favor of VIVA Productions,
Inc.1âwphi1.nêt

No pronouncement as to costs.

SO ORDERED.
G.R. No. 128066               June 19, 2000

JARDINE DAVIES INC., petitioner,

vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

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

G.R. No. 128069

PURE FOODS CORPORATION, petitioner,

vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

BELLOSILLO, J.:

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

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

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

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

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

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

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

3. All materials shall be brand new;

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

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

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

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

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

Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President Teodoro L.
Dimayuga unilaterally canceled the award as "significant factors were uncovered and brought to (their) attention which
dictate (the) cancellation and warrant a total review and re-bid of (the) project." Consequently, FEMSCO protested the
cancellation of the award and sought a meeting with PUREFOODS. However, on 26 March 1993, before the matter could
be resolved, PUREFOODS already awarded the project and entered into a contract with JARDINE NELL, a division of
Jardine Davies, Inc. (hereafter JARDINE), which incidentally was not one of the bidders.1âwphi1.nêt

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

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

On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the sum of
P2,300,000.00 representing the value of engineering services it rendered; (b) to pay FEMSCO the sum of US$14,000.00
or its peso equivalent, and P900,000.00 representing contractor's mark-up on installation work, considering that it would
be impossible to compel PUREFOODS to honor, perform and fulfill its contractual obligations in view of PUREFOOD's
contract with JARDINE and noting that construction had already started thereon; (c) to pay attorney's fees in an amount
equivalent to 20% of the total amount due; and, (d) to pay the costs. The trial court dismissed the counterclaim filed by
PUREFOODS for lack of factual and legal basis.
Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994 Resolution of
the trial court which granted the Demurrer to Evidence filed by JARDINE resulting in the dismissal of the complaint against
it, while PUREFOODS appealed the 28 July 1994 Decision of the same court which ordered it to pay FEMSCO.

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

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

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

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

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

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

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

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

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

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

In Babasa v.  Court of Appeals  8 we distinguished between a condition imposed on the perfection of a contract and a
condition imposed merely on the performance of an obligation. While failure to comply with the first condition results in the
failure of a contract, failure to comply with the second merely gives the other party options and/or remedies to protect his
interests.

We thus agree with the conclusion of respondent appellate court which affirmed the trial court —

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

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

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

Petitioner PUREFOODS also argues that it was never in bad faith.1avvphi1 On the contrary, it believed in good faith that
no such contract was perfected. We are not convinced. We subscribe to the factual findings and conclusions of the trial
court which were affirmed by the appellate court —

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

This Court has awarded in the past moral damages to a corporation whose reputation has been besmirched.  12 In the
instant case, respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered
equipment from its suppliers on account of the urgency of the project, only to be canceled later. We thus sustain
respondent appellate court's award of moral damages. We however reduce the award from P2,000,000.00 to
P1,000,000.00, as moral damages are never intended to enrich the recipient. Likewise, the award of exemplary damages
by way of example for the public good is excessive and should be reduced to P100,000.00.
Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it to pay moral
damages to respondent FEMSCO as it supposedly induced PUREFOODS to violate the contract with FEMSCO. We
agree. While it may seem that petitioners PUREFOODS and JARDINE connived to deceive respondent FEMSCO, we find
no specific evidence on record to support such perception. Likewise, there is no showing whatsoever that petitioner
JARDINE induced petitioner PUREFOODS. The similarity in the design submitted to petitioner PUREFOODS by both
petitioner JARDINE and respondent FEMSCO, and the tender of a lower quotation by petitioner JARDINE are insufficient
to show that petitioner JARDINE indeed induced petitioner PUREFOODS to violate its contract with respondent FEMSCO.

WHEREFORE, judgment is hereby rendered as follows:

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

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

SO ORDERED.

G.R. No. 172428             November 28, 2008

HERMAN C. CRYSTAL, LAMBERTO C. CRYSTAL, ANN GEORGIA C. SOLANTE, and DORIS C. MAGLASANG, as Heirs of Deceased SPOUSES RAYMUNDO I.
CRYSTAL and DESAMPARADOS C. CRYSTAL, petitioners,
vs.
BANK OF THE PHILIPPINE ISLANDS, respondent.

DECISION

TINGA, J.:

Before us is a Petition for Review 1 of the Decision2 and Resolution3 of the Court of Appeals dated 24 October 2005
and 31 March 2006, respectively, in CA G.R. CV No. 72886, which affirmed the 8 June 2001 decision of the
Regional Trial Court, Branch 5, of Cebu City.4

The facts, as culled from the records, follow.

On 28 March 1978, spouses Raymundo and Desamparados Crystal obtained a P300,000.00 loan in behalf of the
Cebu Contractors Consortium Co. (CCCC) from the Bank of the Philippine Islands-Butuan branch (BPI-Butuan). The
loan was secured by a chattel mortgage on heavy equipment and machinery of CCCC. On the same date, the
spouses executed in favor of BPI-Butuan a Continuing Suretyship 5 where they bound themselves as surety of
CCCC in the aggregate principal sum of not exceeding P300,000.00. Thereafter, or on 29 March 1979, Raymundo
Crystal executed a promissory note6 for the amount of P300,000.00, also in favor of BPI-Butuan.

Sometime in August 1979, CCCC renewed a previous loan, this time from BPI, Cebu City branch (BPI-Cebu City).
The renewal was evidenced by a promissory note 7 dated 13 August 1979, signed by the spouses in their personal
capacities and as managing partners of CCCC. The promissory note states that the spouses are jointly and
severally liable with CCCC. It appears that before the original loan could be granted, BPI-Cebu City required CCCC
to put up a security.

However, CCCC had no real property to offer as security for the loan; hence, the spouses executed a real estate
mortgage8 over their own real property on 22 September 1977. 9 On 3 October 1977, they executed another real
estate mortgage over the same lot in favor of BPI-Cebu City, to secure an additional loan of P20,000.00 of CCCC.10
CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when they became due. CCCC, as well as the
spouses, failed to pay their obligations despite demands. Thus, BPI resorted to the foreclosure of the chattel
mortgage and the real estate mortgage. The foreclosure sale on the chattel mortgage was initially stalled with the
issuance of a restraining order against BPI. 11 However, following BPI’s compliance with the necessary requisites of
extrajudicial foreclosure, the foreclosure sale on the chattel mortgage was consummated on 28 February 1988, with
the proceeds amounting to P240,000.00 applied to the loan from BPI-Butuan which had then
reached P707,393.90.12 Meanwhile, on 7 July 1981, Insular Bank of Asia and America (IBAA), through its Vice-
President for Legal and Corporate Affairs, offered to buy the lot subject of the two (2) real

estate mortgages and to pay directly the spouses’ indebtedness in exchange for the release of the mortgages. BPI
rejected IBAA’s offer to pay.13

BPI filed a complaint for sum of money against CCCC and the spouses before the Regional Trial Court of Butuan
City (RTC Butuan), seeking to recover the deficiency of the loan of CCCC and the spouses with BPI-Butuan. The
trial court ruled in favor of BPI. Pursuant to the decision, BPI instituted extrajudicial foreclosure of the spouses’
mortgaged property.14

On 10 April 1985, the spouses filed an action for Injunction With Damages, With A Prayer For A Restraining Order
and/ or Writ of Preliminary Injunction.15 The spouses claimed that the foreclosure of the real estate mortgages is
illegal because BPI should have exhausted CCCC’s properties first, stressing that they are mere guarantors of the
renewed loans. They also prayed that they be awarded moral and exemplary damages, attorney’s fees, litigation
expenses and cost of suit. Subsequently, the spouses filed an amended complaint, 16 additionally alleging that CCCC
had opened and maintained a foreign currency savings account (FCSA-197) with bpi, Makati branch (BPI-Makati),
and that said FCSA was used as security for a P450,000.00 loan also extended by BPI-Makati. The P450,000.00
loan was allegedly paid, and thereafter the spouses demanded the return of the FCSA passbook. BPI rejected the
demand; thus, the spouses were unable to withdraw from the said account to pay for their other obligations to BPI.

The trial court dismissed the spouses’ complaint and ordered them to pay moral and exemplary damages and
attorney’s fees to BPI.17 It ruled that since the spouses agreed to bind themselves jointly and severally, they are
solidarily liable for the loans; hence, BPI can validly foreclose the two real estate mortgages. Moreover, being
guarantors-mortgagors, the spouses are not entitled to the benefit of exhaustion. Anent the FCSA, the trial court
found that CCCC originally had FCDU SA No. 197 with BPI, Dewey Boulevard branch, which was transferred to
BPI-Makati as FCDU SA 76/0035, at the request of Desamparados Crystal. FCDU SA 76/0035 was thus closed, but
Desamparados Crystal failed to surrender the passbook because it was lost. The transferred FCSA in BPI-Makati
was the one used as security for CCCC’s P450,000.00 loan from BPI-Makati. CCCC was no longer allowed to
withdraw from FCDU SA No. 197 because it was already closed.

The spouses appealed the decision of the trial court to the Court of Appeals, but their appeal was dismissed. 18 The
spouses moved for the reconsideration of the decision, but the Court of Appeals also denied their motion for
reconsideration.19 Hence, the present petition.

Before the Court, petitioners who are the heirs of the spouses argue that the failure of the spouses to pay the BPI-
Cebu City loan of P120,000.00 was due to BPI’s illegal refusal to accept payment for the loan unless
the P300,000.00 loan from BPI-Butuan would also be paid. Consequently, in view of BPI’s unjust refusal to accept
payment of the BPI-Cebu City loan, the loan obligation of the spouses was extinguished, petitioners contend.

The contention has no merit. Petitioners rely on IBAA’s offer to purchase the mortgaged lot from them and to directly
pay BPI out of the proceeds thereof to settle the loan. 20 BPI’s refusal to agree to such payment scheme cannot
extinguish the spouses’ loan obligation. In the first place, IBAA is not privy to the loan agreement or the promissory
note between the spouses and BPI. Contracts, after all, take effect only between the parties, their successors in
interest, heirs

and assigns.21 Besides, under Art. 1236 of the Civil Code, the creditor is not bound to accept payment or
performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to
the contrary. We see no stipulation in the promissory note which states that a third person may fulfill the spouses’
obligation. Thus, it is clear that the spouses alone bear responsibility for the same.
In any event, the promissory note is the controlling repository of the obligation of the spouses. Under the promissory
note, the spouses defined the parameters of their obligation as follows:

On or before June 29, 1980 on demand, for value received, I/we promise to pay, jointly and severally, to the
BANK OF THE PHILIPPINE ISLANDS, at its office in the city of Cebu Philippines, the sum of ONE
HUNDRED TWENTY THOUSAND PESOS (P120,0000.00), Philippine Currency, subject to periodic
installments on the principal as follows: P30,000.00 quarterly amortization starting September 28, 1979. x x
x 22

A solidary obligation is one in which each of the debtors is liable for the entire obligation, and each of the creditors is
entitled to demand the satisfaction of the whole obligation from any or all of the debtors. 23 A liability is solidary "only
when the obligation expressly so states, when the law so provides or when the nature of the

obligation so requires."24 Thus, when the obligor undertakes to be "jointly and severally" liable, it means that the
obligation is solidary,25 such as in this case. By stating "I/we promise to pay, jointly and severally, to the BANK OF
THE PHILIPPINE ISLANDS," the spouses agreed to be sought out and be demanded payment from, by BPI. BPI
did demand payment from them, but they failed to comply with their obligation, prompting BPI’s valid resort to the
foreclosure of the chattel mortgage and the real estate mortgages.

More importantly, the promissory note, wherein the spouses undertook to be solidarily liable for the principal loan,
partakes the nature of a suretyship and therefore is an additional security for the loan. Thus we held in one case
that if solidary liability was instituted to "guarantee" a principal obligation, the law deems the contract to be one of
suretyship.26 And while a contract of a surety is in essence secondary only to a valid principal obligation, the surety’s
liability to the creditor or promisee of the principal is said to be direct, primary, and absolute; in other words, the
surety is directly and equally bound with the principal. The surety therefore becomes liable for the debt or duty of
another even if he possesses no direct or personal interest over the obligations nor does he receive any benefit
therefrom.27

Petitioners contend that the Court of Appeals erred in not granting their counterclaims, considering that they
suffered moral damages in view of the unjust refusal of BPI to accept the payment scheme proposed by IBAA and
the allegedly unjust and illegal foreclosure of the real estate mortgages on their property. 28 Conversely, they argue
that the Court of Appeals erred in awarding moral damages to BPI, which is a corporation, as well as exemplary
damages, attorney’s fees and expenses of litigation. 29

We do not agree. Moral damages are meant to compensate the claimant for any physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injuries
unjustly caused.30 Such damages, to be recoverable, must be the proximate result of a wrongful act or omission the
factual basis for which is satisfactorily established by the aggrieved party. 31 There being no wrongful or unjust act on
the part of BPI in demanding payment from them and in seeking the foreclosure of the chattel and real estate
mortgages, there is no lawful basis for award of damages in favor of the spouses.

Neither is BPI entitled to moral damages. A juridical person is generally not entitled to moral damages because,
unlike a natural person, it cannot experience physical suffering or such sentiments as wounded feelings, serious
anxiety, mental anguish or moral shock.32 The Court of Appeals found BPI as "being famous and having gained its
familiarity and respect not only in the Philippines but also in the whole world because of its good will and good
reputation must protect and defend the same against any unwarranted suit such as the case at bench." 33 In holding
that BPI is entitled to moral damages, the Court of Appeals relied on the case of People v. Manero,34 wherein the
Court ruled that "[i]t is only when a juridical person has a good reputation that is debased, resulting in social
humiliation, that moral damages may be awarded."35

We do not agree with the Court of Appeals. A statement similar to that made by the Court in Manero can be found in
the case of Mambulao Lumber Co. v. PNB, et al.,36 thus:

x x x 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. A corporation may have good reputation which, if besmirched may also be a
ground for the award of moral damages. x x x (Emphasis supplied)
Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of Appeals, et al.,37 and Filipinas Broadcasting
Network, Inc. v. Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM),38 the
Court held that the statements in Manero and Mambulao were mere obiter dicta, implying that the award of moral
damages to corporations is not a hard and fast rule. Indeed, while the Court may allow the grant of moral damages
to corporations, it is not automatically granted; there must still be proof of the existence of the factual basis of the
damage and its causal relation to the defendant’s acts. This is so because moral damages, though incapable of
pecuniary estimation, 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. 39

The spouses’ complaint against BPI proved to be unfounded, but it does not automatically entitle BPI to moral
damages. Although the institution of a clearly unfounded civil suit can at times be a legal

justification for an award of attorney's fees, such filing, however, has almost invariably been held not to be a ground
for an award of moral damages. The rationale for the rule is that the law could not have meant to impose a penalty
on the right to litigate. Otherwise, moral damages must every time be awarded in favor of the prevailing defendant
against an unsuccessful plaintiff. 40 BPI may have been inconvenienced by the suit, but we do not see how it could
have possibly suffered besmirched reputation on account of the single suit alone. Hence, the award of moral
damages should be deleted.

The awards of exemplary damages and attorney’s fees, however, are proper. Exemplary damages, on the other
hand, are imposed by way of example or correction for the public good, when the party to a contract acts in a
wanton, fraudulent, oppressive or malevolent manner, while attorney’s fees are allowed when exemplary damages
are awarded and when the party to a suit is compelled to incur expenses to protect his interest. 41 The spouses
instituted their complaint against BPI notwithstanding the fact that they were the ones who failed to pay their
obligations. Consequently, BPI was forced to litigate and defend its interest. For these reasons, BPI is entitled to the
awards of exemplary damages and attorney’s fees.

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals dated 24 October 2005
and 31 March 2006, respectively, are hereby AFFIRMED, with the MODIFICATION that the award of moral
damages to Bank of the Philippine Islands is DELETED.

Costs against the petitioners.

SO ORDERED.
G.R. No. 141994             January 17, 2005

FILIPINAS BROADCASTING NETWORK, INC., petitioner,

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

DECISION

CARPIO, J.:

The Case

This petition for review1 assails the 4 January 1999 Decision 2 and 26 January 2000 Resolution of the Court of Appeals in
CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14 December 1992 Decision 3 of the Regional
Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of Appeals held Filipinas Broadcasting Network,
Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and ordered them to solidarily pay Ago
Medical and Educational Center-Bicol Christian College of Medicine moral damages, attorney’s fees and costs of suit.

The Antecedents

"Exposé" is a radio documentary 4 program hosted by Carmelo ‘Mel’ Rima ("Rima") and Hermogenes ‘Jun’ Alegre
("Alegre").5 Exposé is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting Network, Inc.
("FBNI"). "Exposé" is heard over Legazpi City, the Albay municipalities and other Bicol areas. 6

In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students,
teachers and parents against Ago Medical and Educational Center-Bicol Christian College of Medicine ("AMEC") and its
administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago ("Ago"), as Dean of AMEC’s
College of Medicine, filed a complaint for damages 7 against FBNI, Rima and Alegre on 27 February 1990. Quoted are
portions of the allegedly libelous broadcasts:

JUN ALEGRE:

Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them to
pass all subjects because if they fail in any subject they will repeat their year level, taking up all subjects
including those they have passed already. Several students had approached me stating that they had consulted with
the DECS which told them that there is no such regulation. If [there] is no such regulation why is AMEC doing the same?

xxx

Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS.
xxx

Third: Students are required to take and pay for the subject even if the subject does not have an instructor - such
greed for money on the part of AMEC’s administration. Take the subject Anatomy: students would pay for the subject
upon enrolment because it is offered by the school. However there would be no instructor for such subject. Students
would be informed that course would be moved to a later date because the school is still searching for the appropriate
instructor.

xxx

It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past
few years since its inception because of funds support from foreign foundations. If you will take a look at the AMEC
premises you’ll find out that the names of the buildings there are foreign soundings. There is a McDonald Hall. Why not
Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the support of foreign foundations for
AMEC is substantial, isn’t it? With the report which is the basis of the expose in DZRC today, it would be very easy for
detractors and enemies of the Ago family to stop the flow of support of foreign foundations who assist the medical school
on the basis of the latter’s purpose. But if the purpose of the institution (AMEC) is to deceive students at cross purpose
with its reason for being it is possible for these foreign foundations to lift or suspend their donations temporarily. 8

xxx

On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of
Mass Communication in their effort to minimize expenses in terms of salary are absorbing or continues to accept
"rejects". For example how many teachers in AMEC are former teachers of Aquinas University but were removed
because of immorality? Does it mean that the present administration of AMEC have the total definite moral foundation
from catholic administrator of Aquinas University. I will prove to you my friends, that  AMEC is a dumping ground,
garbage, not merely of moral and physical misfits. Probably they only qualify in terms of intellect. The Dean of Student
Affairs of AMEC is Justita Lola, as the family name implies. She is too old to work, being an old woman. Is the AMEC
administration exploiting the very [e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just
patiently making use of Dean Justita Lola were if she is very old. As in atmospheric situation – zero visibility – the plane
cannot land, meaning she is very old, low pay follows. By the way, Dean Justita Lola is also the chairman of the
committee on scholarship in AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made
use of her.

xxx

MEL RIMA:

xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this
mean? Immoral and physically misfits as teachers.

May I say I’m sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are
too old. As an aviation, your case is zero visibility. Don’t insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason
is practical cost saving in salaries, because an old person is not fastidious, so long as she has money to buy the
ingredient of beetle juice. The elderly can get by – that’s why she (Lola) was taken in as Dean.

xxx

xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by
evil. When they become members of society outside of campus will be liabilities rather than assets.  What do you
expect from a doctor who while studying at AMEC is so much burdened with unreasonable imposition? What do you
expect from a student who aside from peculiar problems – because not all students are rich – in their struggle to improve
their social status are even more burdened with false regulations. xxx 9 (Emphasis supplied)

The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposés, FBNI, Rima and
Alegre "transmitted malicious imputations, and as such, destroyed plaintiffs’ (AMEC and Ago) reputation." AMEC and Ago
included FBNI as defendant for allegedly failing to exercise due diligence in the selection and supervision of its
employees, particularly Rima and Alegre.

On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer 10 alleging that the broadcasts
against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly impelled by a sense of public duty
to report the "goings-on in AMEC, [which is] an institution imbued with public interest."

Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, collaborating
counsel of Atty. Lozares, filed a Motion to Dismiss 11 on FBNI’s behalf. The trial court denied the motion to dismiss.
Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the selection and supervision of
Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an application; (2) be
interviewed; and (3) undergo an apprenticeship and training program after passing the interview. FBNI likewise claimed
that it always reminds its broadcasters to "observe truth, fairness and objectivity in their broadcasts and to refrain from
using libelous and indecent language." Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga
Brodkaster sa Pilipinas  ("KBP") accreditation test and to secure a KBP permit.

On 14 December 1992, the trial court rendered a Decision 12 finding FBNI and Alegre liable for libel except Rima. The trial
court held that the broadcasts are libelous per se. The trial court rejected the broadcasters’ claim that their utterances
were the result of straight reporting because it had no factual basis. The broadcasters did not even verify their reports
before airing them to show good faith. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise
diligence in the selection and supervision of its employees.

In absolving Rima from the charge, the trial court ruled that Rima’s only participation was when he agreed with Alegre’s
exposé. The trial court found Rima’s statement within the "bounds of freedom of speech, expression, and of the press."
The dispositive portion of the decision reads:

WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by
the controversial utterances, which are not found by this court to be really very serious and damaging, and there
being no showing that indeed the enrollment of plaintiff school dropped, defendants Hermogenes "Jun" Alegre, Jr.
and Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly and severally ordered to pay
plaintiff Ago Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the amount of
₱300,000.00 moral damages, plus ₱30,000.00 reimbursement of attorney’s fees, and to pay the costs of suit.

SO ORDERED. 13 (Emphasis supplied)

Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision to
the Court of Appeals. The Court of Appeals affirmed the trial court’s judgment with modification. The appellate court made
Rima solidarily liable with FBNI and Alegre. The appellate court denied Ago’s claim for damages and attorney’s fees
because the broadcasts were directed against AMEC, and not against her. The dispositive portion of the Court of Appeals’
decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel Rima
is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.

SO ORDERED.14
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000
Resolution.

Hence, FBNI filed this petition.15

The Ruling of the Court of Appeals

The Court of Appeals upheld the trial court’s ruling that the questioned broadcasts are libelous per se and that FBNI, Rima
and Alegre failed to overcome the legal presumption of malice. The Court of Appeals found Rima and Alegre’s claim that
they were actuated by their moral and social duty to inform the public of the students’ gripes as insufficient to justify the
utterance of the defamatory remarks.

Finding no factual basis for the imputations against AMEC’s administrators, the Court of Appeals ruled that the broadcasts
were made "with reckless disregard as to whether they were true or false." The appellate court pointed out that FBNI,
Rima and Alegre failed to present in court any of the students who allegedly complained against AMEC. Rima and Alegre
merely gave a single name when asked to identify the students. According to the Court of Appeals, these circumstances
cast doubt on the veracity of the broadcasters’ claim that they were "impelled by their moral and social duty to inform the
public about the students’ gripes."

The Court of Appeals found Rima also liable for libel since he remarked that "(1) AMEC-BCCM is a dumping ground for
morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita Lola to minimize expenses on its
employees’ salaries; and (3) AMEC burdened the students with unreasonable imposition and false regulations." 16

The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its employees for
allowing Rima and Alegre to make the radio broadcasts without the proper KBP accreditation. The Court of Appeals
denied Ago’s claim for damages and attorney’s fees because the libelous remarks were directed against AMEC, and not
against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages,
attorney’s fees and costs of suit.1awphi1.nét

Issues

FBNI raises the following issues for resolution:

I. WHETHER THE BROADCASTS ARE LIBELOUS;

II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;

III. WHETHER THE AWARD OF ATTORNEY’S FEES IS PROPER; and

IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL
DAMAGES, ATTORNEY’S FEES AND COSTS OF SUIT.

The Court’s Ruling

We deny the petition.

This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against
AMEC.17 While AMEC did not point out clearly the legal basis for its complaint, a reading of the complaint reveals that
AMEC’s cause of action is based on Articles 30 and 33 of the Civil Code. Article 30 18 authorizes a separate civil action to
recover civil liability arising from a criminal offense. On the other hand, Article 33 19 particularly provides that the injured
party may bring a separate civil action for damages in cases of defamation, fraud, and physical injuries. AMEC also
invokes Article 1920 of the Civil Code to justify its claim for damages. AMEC cites Articles 2176 21 and 218022 of the Civil
Code to hold FBNI solidarily liable with Rima and Alegre.

I.

Whether the broadcasts are libelous

A libel23 is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission,
condition, status, or circumstance tending to cause the dishonor, discredit, or contempt of a natural or juridical person, or
to blacken the memory of one who is dead.24

There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to
cause it dishonor, discredit and contempt. Rima and Alegre’s remarks such as "greed for money on the part of AMEC’s
administrators"; "AMEC is a dumping ground, garbage of xxx moral and physical misfits"; and AMEC students who
graduate "will be liabilities rather than assets" of the society are libelous per se. Taken as a whole, the broadcasts suggest
that AMEC is a money-making institution where physically and morally unfit teachers abound.

However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly impelled
by their civic duty to air the students’ gripes. FBNI alleges that there is no evidence that ill will or spite motivated Rima and
Alegre in making the broadcasts. FBNI further points out that Rima and Alegre exerted efforts to obtain AMEC’s side and
gave Ago the opportunity to defend AMEC and its administrators. FBNI concludes that since there is no malice, there is
no libel.

FBNI’s contentions are untenable.

Every defamatory imputation is presumed malicious. 25 Rima and Alegre failed to show adequately their good intention and
justifiable motive in airing the supposed gripes of the students. As hosts of a documentary or public affairs program, Rima
and Alegre should have presented the public issues "free from inaccurate and misleading information."26 Hearing the
students’ alleged complaints a month before the exposé, 27 they had sufficient time to verify their sources and information.
However, Rima and Alegre hardly made a thorough investigation of the students’ alleged gripes. Neither did they inquire
about nor confirm the purported irregularities in AMEC from the Department of Education, Culture and Sports. Alegre
testified that he merely went to AMEC to verify his report from an alleged AMEC official who refused to disclose any
information. Alegre simply relied on the words of the students "because they were many and not because there is proof
that what they are saying is true."28 This plainly shows Rima and Alegre’s reckless disregard of whether their report was
true or not.

Contrary to FBNI’s claim, the broadcasts were not "the result of straight reporting." Significantly, some courts in the United
States apply the privilege of "neutral reportage" in libel cases involving matters of public interest or public figures. Under
this privilege, a republisher who accurately and disinterestedly reports certain defamatory statements made against public
figures is shielded from liability, regardless of the republisher’s subjective awareness of the truth or falsity of the
accusation.29 Rima and Alegre cannot invoke the privilege of neutral reportage because unfounded comments abound in
the broadcasts. Moreover, there is no existing controversy involving AMEC when the broadcasts were made. The
privilege of neutral reportage applies where the defamed person is a public figure who is involved in an existing
controversy, and a party to that controversy makes the defamatory statement. 30

However, FBNI argues vigorously that malice in law does not apply to this case. Citing  Borjal v. Court of
Appeals,31 FBNI contends that the broadcasts "fall within the coverage of qualifiedly privileged communications" for being
commentaries on matters of public interest. Such being the case, AMEC should prove malice in fact or actual malice.
Since AMEC allegedly failed to prove actual malice, there is no libel.

FBNI’s reliance on Borjal is misplaced. In Borjal, the Court elucidated on the "doctrine of fair comment," thus:

[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or
slander. The doctrine of fair comment means that while in general every discreditable imputation publicly made is deemed
false, because every man is presumed innocent until his guilt is judicially proved, and every false imputation is deemed
malicious, nevertheless, when the discreditable imputation is directed against a public person in his public capacity, it is
not necessarily actionable. In order that such discreditable imputation to a public official may be actionable, it must
either be a false allegation of fact or a comment based on a false supposition. If the comment is an expression of
opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might
reasonably be inferred from the facts.32 (Emphasis supplied)

True, AMEC is a private learning institution whose business of educating students is "genuinely imbued with public
interest." The welfare of the youth in general and AMEC’s students in particular is a matter which the public has the right
to know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts dealt with matters of public interest.
However, unlike in Borjal, the questioned broadcasts are not based on established facts. The record supports the
following findings of the trial court:
xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff,
yet, defendants have not presented in court, nor even gave name of a single student who made the complaint to them,
much less present written complaint or petition to that effect. To accept this defense of defendants is too dangerous
because it could easily give license to the media to malign people and establishments based on flimsy excuses that there
were reports to them although they could not satisfactorily establish it. Such laxity would encourage careless and
irresponsible broadcasting which is inimical to public interests.

Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not
verify and analyze the truth of the reports before they aired it, in order to prove that they are in good faith.

Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet, plaintiff
produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before the controversial
broadcast, accreditation to offer Physical Therapy course had already been given the plaintiff, which certificate is signed
by no less than the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants
could have easily known this were they careful enough to verify. And yet, defendants were very categorical and sounded
too positive when they made the erroneous report that plaintiff had no permit to offer Physical Therapy courses which they
were offering.

The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not to
be true also. The truth is there is no Mcdonald Foundation existing. Although a big building of plaintiff school was given
the name Mcdonald building, that was only in order to honor the first missionary in Bicol of plaintiffs’ religion, as explained
by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single centavo appears to be received by plaintiff
school from the aforementioned McDonald Foundation which does not exist.

Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in
one subject, they are made to repeat all the other subject[s], even those they have already passed, nor their claim that the
school charges laboratory fees even if there are no laboratories in the school. No evidence was presented to prove the
bases for these claims, at least in order to give semblance of good faith.

As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out Dean
Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was
found to be 75 years old. xxx Even older people prove to be effective teachers like Supreme Court Justices who are still
very much in demand as law professors in their late years. Counsel for defendants is past 75 but is found by this court to
be still very sharp and effective.l^vvphi1.net So is plaintiffs’ counsel.

Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile.

The contention that plaintiffs’ graduates become liabilities rather than assets of our society is a mere conclusion. Being
from the place himself, this court is aware that majority of the medical graduates of plaintiffs pass the board examination
easily and become prosperous and responsible professionals. 33

Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion happens to
be mistaken, as long as it might reasonably be inferred from the facts. 34 However, the comments of Rima and Alegre were
not backed up by facts. Therefore, the broadcasts are not privileged and remain libelous per se.

The broadcasts also violate the Radio Code 35 of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. ("Radio Code"). Item
I(B) of the Radio Code provides:

B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES

1. x x x

4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and
misleading information. x x x Furthermore, the station shall strive to present balanced discussion of issues. x x
x.

xxx
 7. The station shall be responsible at all times in the supervision of public affairs, public issues and commentary
programs so that they conform to the provisions and standards of this code.

8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest,
general welfare and good order in the presentation of public affairs and public issues. 36 (Emphasis supplied)

The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct
governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code of conduct imposed by the
radio broadcast industry on its own members. The Radio Code is a public warranty by the radio broadcast industry that
radio broadcast practitioners are subject to a code by which their conduct are measured for lapses, liability and sanctions.

The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their
profession, just like other professionals. A professional code of conduct provides the standards for determining whether a
person has acted justly, honestly and with good faith in the exercise of his rights and performance of his duties as
required by Article 1937 of the Civil Code. A professional code of conduct also provides the standards for determining
whether a person who willfully causes loss or injury to another has acted in a manner contrary to morals or good customs
under Article 2138 of the Civil Code.

II.

Whether AMEC is entitled to moral damages

FBNI contends that AMEC is not entitled to moral damages because it is a corporation. 39

A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience
physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral shock. 40 The Court of
Appeals cites Mambulao Lumber Co. v. PNB, et al.41 to justify the award of moral damages. However, the Court’s
statement in Mambulao that "a corporation may have a good reputation which, if besmirched, may also be a ground for
the award of moral damages" is an obiter dictum.42

Nevertheless, AMEC’s claim for moral damages falls under item 7 of Article 2219 43 of the Civil Code. This provision
expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. Article
2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a juridical person such as a
corporation can validly complain for libel or any other form of defamation and claim for moral damages. 44

Moreover, where the broadcast is libelous per se, the law implies damages. 45 In such a case, evidence of an honest
mistake or the want of character or reputation of the party libeled goes only in mitigation of damages. 46 Neither in such a
case is the plaintiff required to introduce evidence of actual damages as a condition precedent to the recovery of some
damages.47 In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.

However, we find the award of ₱300,000 moral damages unreasonable. The record shows that even though the
broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its reputation. Therefore,
we reduce the award of moral damages from ₱300,000 to ₱150,000.

III.

Whether the award of attorney’s fees is proper

FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorney’s fees. FBNI
adds that the instant case does not fall under the enumeration in Article 2208 48 of the Civil Code.

The award of attorney’s fees is not proper because AMEC failed to justify satisfactorily its claim for attorney’s fees. AMEC
did not adduce evidence to warrant the award of attorney’s fees. Moreover, both the trial and appellate courts failed to
explicitly state in their respective decisions the rationale for the award of attorney’s fees. 49 In Inter-Asia Investment
Industries, Inc. v. Court of Appeals ,50 we held that:

[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and
counsel’s fees are not to be awarded every time a party wins a suit. The power of the court to award attorney’s fees
under Article 2208 of the Civil Code demands factual, legal and equitable justification, without which the award is
a conclusion without a premise, its basis being improperly left to speculation and conjecture . In all events, the
court must explicitly state in the text of the decision, and not only in the decretal portion thereof, the legal reason for the
award of attorney’s fees.51 (Emphasis supplied)

While it mentioned about the award of attorney’s fees by stating that it "lies within the discretion of the court and depends
upon the circumstances of each case," the Court of Appeals failed to point out any circumstance to justify the award.

IV.

Whether FBNI is solidarily liable with Rima and Alegre for moral damages, attorney’s fees and costs of suit

FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorney’s fees
because it exercised due diligence in the selection and supervision of its employees, particularly Rima and Alegre. FBNI
maintains that its broadcasters, including Rima and Alegre, undergo a "very regimented process" before they are allowed
to go on air. "Those who apply for broadcaster are subjected to interviews, examinations and an apprenticeship program."

FBNI further argues that Alegre’s age and lack of training are irrelevant to his competence as a broadcaster. FBNI points
out that the "minor deficiencies in the KBP accreditation of Rima and Alegre do not in any way prove that FBNI did not
exercise the diligence of a good father of a family in selecting and supervising them." Rima’s accreditation lapsed due to
his non-payment of the KBP annual fees while Alegre’s accreditation card was delayed allegedly for reasons attributable
to the KBP Manila Office. FBNI claims that membership in the KBP is merely voluntary and not required by any law or
government regulation.

FBNI’s arguments do not persuade us.

The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they
commit.52 Joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance,
cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit. 53 Thus,
AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil Code.1a\^/phi1.net

As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from the
libelous broadcasts. As stated by the Court of Appeals, "recovery for defamatory statements published by radio or
television may be had from the owner of the station, a licensee, the operator of the station, or a person who procures,
or participates in, the making of the defamatory statements." 54 An employer and employee are solidarily liable for a
defamatory statement by the employee within the course and scope of his or her employment, at least when the employer
authorizes or ratifies the defamation. 55 In this case, Rima and Alegre were clearly performing their official duties as hosts
of FBNI’s radio program Exposé when they aired the broadcasts. FBNI neither alleged nor proved that Rima and Alegre
went beyond the scope of their work at that time. There was likewise no showing that FBNI did not authorize and ratify the
defamatory broadcasts.

Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection and supervision of
its employees, particularly Rima and Alegre. FBNI merely showed that it exercised diligence in the selection of its
broadcasters without introducing any evidence to prove that it observed the same diligence in the  supervision of Rima
and Alegre. FBNI did not show how it exercised diligence in supervising its broadcasters. FBNI’s alleged constant
reminder to its broadcasters to "observe truth, fairness and objectivity and to refrain from using libelous and indecent
language" is not enough to prove due diligence in the supervision of its broadcasters. Adequate training of the
broadcasters on the industry’s code of conduct, sufficient information on libel laws, and continuous evaluation of the
broadcasters’ performance are but a few of the many ways of showing diligence in the supervision of broadcasters.

FBNI claims that it "has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in mind
their qualifications." However, no clear and convincing evidence shows that Rima and Alegre underwent FBNI’s
"regimented process" of application. Furthermore, FBNI admits that Rima and Alegre had deficiencies in their KBP
accreditation,56 which is one of FBNI’s requirements before it hires a broadcaster. Significantly, membership in the KBP,
while voluntary, indicates the broadcaster’s strong commitment to observe the broadcast industry’s rules and regulations.
Clearly, these circumstances show FBNI’s lack of diligence in selecting and supervising Rima and Alegre. Hence, FBNI is
solidarily liable to pay damages together with Rima and Alegre.

WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26 January
2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the MODIFICATION that the award of moral damages is
reduced from ₱300,000 to ₱150,000 and the award of attorney’s fees is deleted. Costs against petitioner.
SO ORDERED.

G.R. No. L-22973           January 30, 1968

MAMBULAO LUMBER COMPANY, plaintiff-appellant,

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

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

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

ANGELES, J.:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo took possession of the chattels mortgaged by the
plaintiff and made an inventory thereof in the presence of a PC Sergeant and a policeman of the municipality of Jose
Panganiban. On November 9, 1961, the said Deputy Sheriff issued the corresponding notice of public auction sale of
the mortgaged chattels to be held on November 21, 1961, at 10:00 a.m., at the plaintiff's compound situated in the
municipality of Jose Panganiban, Province of Camarines Norte.
On November 19, 1961, the plaintiff sent separate letters, posted as registered air mail matter, one to the Naga Branch
of the PNB and another to the Provincial Sheriff of Camarines Norte, protesting against the foreclosure of the real estate
and chattel mortgages on the grounds that they could not be effected unless a Court's order was issued against it
(plaintiff) for said purpose and that the foreclosure proceedings, according to the terms of the mortgage contracts,
should be made in Manila. In said letter to the Naga Branch of the PNB, it was intimated that if the public auction sale
would be suspended and the plaintiff would be given an extension of ninety (90) days, its obligation would be settled
satisfactorily because an important negotiation was then going on for the sale of its "whole interest" for an amount more
than sufficient to liquidate said obligation.

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

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

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

In a letter dated December 16, 1961, the plaintiff advised the Provincial Sheriff of Camarines Norte that it had fully paid
its obligation to the PNB, and enclosed therewith a copy of its letter to the latter dated December 14, 1961.

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

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

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

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

In the afternoon of the same day, Salgado received a telegram from plaintiff's President directing him not to deliver the
"chattels" without court order, with the information that the company was then filing an action for damages against the
PNB. On the following day, May 25, 1962, two trucks and men of Mariano Bundok arrived but Salgado did not permit
them to take out any equipment from inside the compound of the plaintiff. Thru the intervention, however, of the local
police and PC soldiers, the trucks of Mariano Bundok were able finally to haul the properties originally mortgaged by the
plaintiff to the PNB, which were bought by it at the foreclosure sale and subsequently sold to Mariano Bundok.
Upon the foregoing facts, the trial court rendered the decision appealed from which, as stated in the first paragraph of this
opinion, sentenced the Mambulao Lumber Company to pay to the defendant PNB the sum of P3,582.52 with interest thereon at
the rate of 6% per annum from December 22, 1961 (day following the date of the questioned foreclosure of plaintiff's chattels)
until fully paid, and the costs. Mambulao Lumber Company interposed the instant appeal.

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

The first question Mambulao Lumber Company poses is that which relates to the amount of its indebtedness to the PNB arising
out of the principal loans and the accrued interest thereon. It is contended that its obligation under the terms of the two
promissory notes it had executed in favor of the PNB amounts only to P56,485.87 as of November 21, 1961, when the sale of
real property was effected, and not P58,213.51 as found by the trial court.

There is merit to this claim. Examining the terms of the promissory note executed by the appellant in favor of the PNB, we find
that the agreed interest on the loan of P43,000.00 — P27,500.00 released on August 2, 1956 as per promissory note of even
date (Exhibit C-3), and P15,500.00 released on October 19, 1956, as per promissory note of the same date (Exhibit C-4) — was
six per cent (6%) per annum from the respective date of said notes "until paid". In the statement of account of the appellant as of
September 22, 1961, submitted by the PNB, it appears that in arriving at the total indebtedness of P57,646.59 as of that date,
the PNB had compounded the principal of the loan and the accrued 6% interest thereon each time the yearly amortizations
became due, and on the basis of these compounded amounts charged additional delinquency interest on them up to September
22, 1961; and to this erroneously computed total of P57,646.59, the trial court added 6% interest per annum from September 23,
1961 to November 21 of the same year. In effect, the PNB has claimed, and the trial court has adjudicated to it,  interest on
accrued interests  from the time the various amortizations of the loan became due until the real estate mortgage executed to
secure the loan was extra-judicially foreclosed on November 21, 1961. This is an error. Section 5 of Act No. 2655 expressly
provides that in computing the interest on any obligation, promissory note or other instrument or contract, compound interest
shall not be reckoned, except by agreement, or in default thereof, whenever the debt is judicially claimed. This is also the clear
mandate of Article 2212 of the new Civil Code which provides that interest due shall earn legal interest only from the time it is
judicially demanded, and of Article 1959 of the same code which ordains that interest due and unpaid shall not earn interest. Of
course, the parties may, by stipulation, capitalize the interest due and unpaid, which as added principal shall earn new interest;
but such stipulation is nowhere to be found in the terms of the promissory notes involved in this case. Clearly therefore, the trial
court fell into error when it awarded interest on accrued interests, without any agreement to that effect and before they had been
judicially demanded.

Appellant next assails the award of attorney's fees and the expenses of the foreclosure sale in favor of the PNB. With respect to
the amount of P298.54 allowed as expenses of the extra-judicial sale of the real property, appellant maintains that the same has
no basis, factual or legal, and should not have been awarded. It likewise decries the award of attorney's fees which, according to
the appellant, should not be deducted from the proceeds of the sale of the real property, not only because there is no express
agreement in the real estate mortgage contract to pay attorney's fees in case the same is extra-judicially foreclosed, but also for
the reason that the PNB neither spent nor incurred any obligation to pay attorney's fees in connection with the said extra-judicial
foreclosure under consideration.

There is reason for the appellant to assail the award of P298.54 as expenses of the sale. In this respect, the trial court said:

The parcel of land, together with the buildings and improvements existing thereon covered by Transfer Certificate of
Title No. 381, was sold for P56,908. There was, however, no evidence how much was the expenses of the foreclosure
sale although from the pertinent provisions of the Rules of Court, the Sheriff's fees would be P1 for advertising the sale
(par. k, Sec. 7, Rule 130 of the Old Rules) and P297.54 as his commission for the sale (par. n, Sec. 7, Rule 130 of the
Old Rules) or a total of P298.54.

There is really no evidence of record to support the conclusion that the PNB is entitled to the amount awarded as expenses of
the extra-judicial foreclosure sale. The court below committed error in applying the provisions of the Rules of Court for purposes
of arriving at the amount awarded. It is to be borne in mind that the fees enumerated under paragraphs k and n, Section 7, of
Rule 130 (now Rule 141) are demandable, only by a sheriff serving processes of the court in connection with judicial foreclosure
of mortgages under Rule 68 of the new Rules, and not in cases of extra-judicial foreclosure of mortgages under Act 3135. The
law applicable is Section 4 of Act 3135 which provides that the officer conducting the sale is entitled to collect a fee of P5.00 for
each day of actual work performed in addition to his expenses in connection with the foreclosure sale. Admittedly, the PNB failed
to prove during the trial of the case, that it actually spent any amount in connection with the said foreclosure sale. Neither may
expenses for publication of the notice be legally allowed in the absence of evidence on record to support it.  1 It is true, as pointed
out by the appellee bank, that courts should take judicial notice of the fees provided for by law which need not be proved; but in
the absence of evidence to show at least the number of working days the sheriff concerned actually spent in connection with the
extra-judicial foreclosure sale, the most that he may be entitled to, would be the amount of P10.00 as a reasonable allowance for
two day's work — one for the preparation of the necessary notices of sale, and the other for conducting the auction sale and
issuance of the corresponding certificate of sale in favor of the buyer. Obviously, therefore, the award of P298.54 as expenses of
the sale should be set aside.
But the claim of the appellant that the real estate mortgage does not provide for attorney's fees in case the same is extra-
judicially foreclosed, cannot be favorably considered, as would readily be revealed by an examination of the pertinent provision
of the mortgage contract. The parties to the mortgage appear to have stipulated under paragraph (c) thereof, inter alia:

. . . For the purpose of extra-judicial foreclosure, the Mortgagor hereby appoints the Mortgagee his attorney-in-fact to
sell the property mortgaged under Act 3135, as amended, to sign all documents and to perform all acts requisite and
necessary to accomplish said purpose and to appoint its substitute as such attorney-in-fact with the same powers as
above specified. In case of judicial foreclosure, the Mortgagor hereby consents to the appointment of the Mortgagee or
any of its employees as receiver, without any bond, to take charge of the mortgaged property at once, and to hold
possession of the same and the rents, benefits and profits derived from the mortgaged property before the sale, less the
costs and expenses of the receivership; the Mortgagor hereby agrees further that in all cases, attorney's fees hereby
fixed at Ten Per cent (10%) of the total indebtedness then unpaid which in no case shall be less than P100.00 exclusive
of all fees allowed by law, and the expenses of collection shall be the obligation of the Mortgagor and shall with priority,
be paid to the Mortgagee out of any sums realized as rents and profits derived from the mortgaged property or from the
proceeds realized from the sale of the said property and this mortgage shall likewise stand as security therefor. . . .

We find the above stipulation to pay attorney's fees clear enough to cover both cases of foreclosure sale mentioned thereunder,
i.e., judicially or extra-judicially. While the phrase "in all cases" appears to be part of the second sentence, a reading of the
whole context of the stipulation would readily show that it logically refers to extra-judicial foreclosure found in the first sentence
and to judicial foreclosure mentioned in the next sentence. And the ambiguity in the stipulation suggested and pointed out by the
appellant by reason of the faulty sentence construction should not be made to defeat the otherwise clear intention of the parties
in the agreement.

It is suggested by the appellant, however, that even if the above stipulation to pay attorney's fees were applicable to the extra-
judicial foreclosure sale of its real properties, still, the award of P5,821.35 for attorney's fees has no legal justification,
considering the circumstance that the PNB did not actually spend anything by way of attorney's fees in connection with the sale.
In support of this proposition, appellant cites authorities to the effect: (1) that when the mortgagee has neither paid nor incurred
any obligation to pay an attorney in connection with the foreclosure sale, the claim for such fees should be denied;  2 and (2) that
attorney's fees will not be allowed when the attorney conducting the foreclosure proceedings is an officer of the corporation
(mortgagee) who receives a salary for all the legal services performed by him for the corporation. 3 These authorities are indeed
enlightening; but they should not be applied in this case. The very same authority first cited suggests that said principle is not
absolute, for there is authority to the contrary. As to the fact that the foreclosure proceeding's were handled by an attorney of the
legal staff of the PNB, we are reluctant to exonerate herein appellant from the payment of the stipulated attorney's fees on this
ground alone, considering the express agreement between the parties in the mortgage contract under which appellant became
liable to pay the same. At any rate, we find merit in the contention of the appellant that the award of P5,821.35 in favor of the
PNB as attorney's fees is unconscionable and unreasonable, considering that all that the branch attorney of the said bank did in
connection with the foreclosure sale of the real property was to file a petition with the provincial sheriff of Camarines Norte
requesting the latter to sell the same in accordance with the provisions of Act 3135.

The principle that courts should reduce stipulated attorney's fees whenever it is found under the circumstances of the case that
the same is unreasonable, is now deeply rooted in this jurisdiction to entertain any serious objection to it. Thus, this Court has
explained:

But the principle that it may be lawfully stipulated that the legal expenses involved in the collection of a debt shall be
defrayed by the debtor does not imply that such stipulations must be enforced in accordance with the terms, no matter
how injurious or oppressive they may be. The lawful purpose to be accomplished by such a stipulation is to permit the
creditor to receive the amount due him under his contract without a deduction of the expenses caused by the
delinquency of the debtor. It should not be permitted for him to convert such a stipulation into a source of speculative
profit at the expense of the debtor.

Contracts for attorney's services in this jurisdiction stands upon an entirely different footing from contracts for the
payment of compensation for any other services. By express provision of section 29 of the Code of Civil Procedure, an
attorney is not entitled in the absence of express contract to recover more than a reasonable compensation for his
services; and even when an express contract is made the court can ignore it and limit the recovery to reasonable
compensation if the amount of the stipulated fee is found by the court to be unreasonable. This is a very different rule
from that announced in section 1091 of the Civil Code with reference to the obligation of contracts in general, where it is
said that such obligation has the force of law between the contracting parties. Had the plaintiff herein made an express
contract to pay his attorney an uncontingent fee of P2,115.25 for the services to be rendered in reducing the note here
in suit to judgment, it would not have been enforced against him had he seen fit to oppose it, as such a fee is obviously
far greater than is necessary to remunerate the attorney for the work involved and is therefore unreasonable. In order to
enable the court to ignore an express contract for an attorney's fees, it is not necessary to show, as in other contracts,
that it is contrary to morality or public policy (Art. 1255, Civil Code). It is enough that it is unreasonable or
unconscionable. 4
Since then this Court has invariably fixed counsel fees on a quantum meruit basis whenever the fees stipulated appear
excessive, unconscionable, or unreasonable, because a lawyer is primarily a court officer charged with the duty of assisting the
court in administering impartial justice between the parties, and hence, the fees should be subject to judicial control. Nor should
it be ignored that sound public policy demands that courts disregard stipulations for counsel fees, whenever they appear to be a
source of speculative profit at the expense of the debtor or mortgagor.  5 And it is not material that the present action is between
the debtor and the creditor, and not between attorney and client. As court have power to fix the fee as between attorney and
client, it must necessarily have the right to say whether a stipulation like this, inserted in a mortgage contract, is valid.  6

In determining the compensation of an attorney, the following circumstances should be considered: the amount and character of
the services rendered; the responsibility imposed; the amount of money or the value of the property affected by the controversy,
or involved in the employment; the skill and experience called for in the performance of the service; the professional standing of
the attorney; the results secured; and whether or not the fee is contingent or absolute, it being a recognized rule that an attorney
may properly charge a much larger fee when it is to be contingent than when it is not.  7 From the stipulation in the mortgage
contract earlier quoted, it appears that the agreed fee is 10% of the total indebtedness, irrespective of the manner the
foreclosure of the mortgage is to be effected. The agreement is perhaps fair enough in case the foreclosure proceedings is
prosecuted judicially but, surely, it is unreasonable when, as in this case, the mortgage was foreclosed extra-judicially, and all
that the attorney did was to file a petition for foreclosure with the sheriff concerned. It is to be assumed though, that the said
branch attorney of the PNB made a study of the case before deciding to file the petition for foreclosure; but even with this in
mind, we believe the amount of P5,821.35 is far too excessive a fee for such services. Considering the above circumstances
mentioned, it is our considered opinion that the amount of P1,000.00 would be more than sufficient to compensate the work
aforementioned.

The next issue raised deals with the claim that the proceeds of the sale of the real properties alone together with the amount it
remitted to the PNB later was more than sufficient to liquidate its total obligation to herein appellee bank. Again, we find merit in
this claim. From the foregoing discussion of the first two errors assigned, and for purposes of determining the total obligation of
herein appellant to the PNB as of November 21, 1961 when the real estate mortgage was foreclosed, we have the following
illustration in support of this conclusion:1äwphï1.ñët

A. -

I. Principal Loan

(a) Promissory note dated August 2, 1956 P27,500.00

(1) Interest at 6% per annum from Aug. 2, 1956 to Nov. 21, 1961 8,751.78

(b) Promissory note dated October 19, 1956 P15,500.00

(1) Interest at 6% per annum from Oct.19, 1956 to Nov. 21, 1961 4,734.08

II. Sheriff's fees [for two (2) day's work] 10.00

III. Attorney's fee 1,000.00

Total obligation as of Nov. 21, 1961 P57,495.86

B. -

I. Proceeds of the foreclosure sale of the real estate mortgage on Nov. 21, 1961 P56,908.00

II. Additional amount remitted to the PNB on Dec. 18, 1961 738.59

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

Deduct: Total obligation to the PNB P57,495.86

Excess Payment to the PNB P 150.73

========
From the foregoing illustration or computation, it is clear that there was no further necessity to foreclose the mortgage of herein
appellant's chattels on December 21, 1961; and on this ground alone, we may declare the sale of appellant's chattels on the
said date, illegal and void. But we take into consideration the fact that the PNB must have been led to believe that the stipulated
10% of the unpaid loan for attorney's fees in the real estate mortgage was legally maintainable, and in accordance with such
belief, herein appellee bank insisted that the proceeds of the sale of appellant's real property was deficient to liquidate the
latter's total indebtedness. Be that as it may, however, we still find the subsequent sale of herein appellant's chattels illegal and
objectionable on other grounds.

That appellant vigorously objected to the foreclosure of its chattel mortgage after the foreclosure of its real estate mortgage on
November 21, 1961, can not be doubted, as shown not only by its letter to the PNB on November 19, 1961, but also in its letter
to the provincial sheriff of Camarines Norte on the same date. These letters were followed by another letter to the appellee bank
on December 14, 1961, wherein herein appellant, in no uncertain terms, reiterated its objection to the scheduled sale of its
chattels on December 21, 1961 at Jose Panganiban, Camarines Norte for the reasons therein stated that: (1) it had settled in full
its total obligation to the PNB by the sale of the real estate and its subsequent remittance of the amount of P738.59; and (2) that
the contemplated sale at Jose Panganiban would violate their agreement embodied under paragraph (i) in the Chattel Mortgage
which provides as follows:

(i) In case of both judicial and extra-judicial foreclosure under Act 1508, as amended, the parties hereto agree that the
corresponding complaint for foreclosure or the petition for sale should be filed with the courts or the sheriff of the City of
Manila, as the case may be; and that the Mortgagor shall pay attorney's fees hereby fixed at ten per cent (10%) of the
total indebtedness then unpaid but in no case shall it be less than P100.00, exclusive of all costs and fees allowed by
law and of other expenses incurred in connection with the said foreclosure. [Emphasis supplied]

Notwithstanding the abovequoted agreement in the chattel mortgage contract, and in utter disregard of the objection of herein
appellant to the sale of its chattels at Jose Panganiban, Camarines Norte and not in the City of Manila as agreed upon, the PNB
proceeded with the foreclosure sale of said chattels. The trial court, however, justified said action of the PNB in the decision
appealed from in the following rationale:

While it is true that it was stipulated in the chattel mortgage contract that a petition for the extra-judicial foreclosure
thereof should be filed with the Sheriff of the City of Manila, nevertheless, the effect thereof was merely to provide
another place where the mortgage chattel could be sold in addition to those specified in the Chattel Mortgage Law.
Indeed, a stipulation in a contract cannot abrogate much less impliedly repeal a specific provision of the statute.
Considering that Section 14 of Act No. 1508 vests in the mortgagee the choice where the foreclosure sale should be
held, hence, in the case under consideration, the PNB had three places from which to select, namely: (1) the place of
residence of the mortgagor; (2) the place of the mortgaged chattels were situated; and (3) the place stipulated in the
contract. The PNB selected the second and, accordingly, the foreclosure sale held in Jose Panganiban, Camarines
Norte, was legal and valid.

To the foregoing conclusion, We disagree. While the law grants power and authority to the mortgagee to sell the mortgaged
property at a public place in the municipality where the mortgagor resides or where the property is situated,  8 this Court has held
that the sale of a mortgaged chattel may be made in a place other than that where it is found, provided that the owner thereof
consents thereto; or that there is an agreement to this effect between the mortgagor and the mortgagee.  9 But when, as in this
case, the parties agreed to have the sale of the mortgaged chattels in the City of Manila, which, any way, is the residence of the
mortgagor, it cannot be rightly said that mortgagee still retained the power and authority to select from among the places
provided for in the law and the place designated in their agreement over the objection of the mortgagor. In providing that the
mortgaged chattel may be sold at the place of residence of the mortgagor or the place where it is situated, at the option of the
mortgagee, the law clearly contemplated benefits not only to the mortgagor but to the mortgagee as well. Their right arising
thereunder, however, are personal to them; they do not affect either public policy or the rights of third persons. They may validly
be waived. So, when herein mortgagor and mortgagee agreed in the mortgage contract that in cases of both judicial and extra-
judicial foreclosure under Act 1508, as amended, the corresponding complaint for foreclosure or the petition for sale should be
filed with the courts or the Sheriff of Manila, as the case may be, they waived their corresponding rights under the law. The
correlative obligation arising from that agreement have the force of law between them and should be complied with in good
faith. 10

By said agreement the parties waived the legal venue, and such waiver is valid and legally effective, because it, was
merely a personal privilege they waived, which is not contrary, to public policy or to the prejudice of third persons. It is a
general principle that a person may renounce any right which the law gives unless such renunciation is expressly
prohibited or the right conferred is of such nature that its renunciation would be against public policy. 11

On the other hand, if a place of sale is specified in the mortgage and statutory requirements in regard thereto are
complied with, a sale is properly conducted in that place. Indeed, in the absence of a statute to the contrary, a sale
conducted at a place other than that stipulated for in the mortgage is invalid, unless the mortgagor consents to such
sale. 12
Moreover, Section 14 of Act 1508, as amended, provides that the officer making the sale should make a return of his doings
which shall particularly describe the articles sold and the amount received from each article. From this, it is clear that the law
requires that sale be made article by article, otherwise, it would be impossible for him to state the amount received for each item.
This requirement was totally disregarded by the Deputy Sheriff of Camarines Norte when he sold the chattels in question in bulk,
notwithstanding the fact that the said chattels consisted of no less than twenty different items as shown in the bill of sale. 13 This
makes the sale of the chattels manifestly objectionable. And in the absence of any evidence to show that the mortgagor had
agreed or consented to such sale in gross, the same should be set aside.

It is said that the mortgagee is guilty of conversion when he sells under the mortgage but not in accordance with its terms, or
where the proceedings as to the sale of foreclosure do not comply with the statute. 14 This rule applies squarely to the facts of
this case where, as earlier shown, herein appellee bank insisted, and the appellee deputy sheriff of Camarines Norte proceeded
with the sale of the mortgaged chattels at Jose Panganiban, Camarines Norte, in utter disregard of the valid objection of the
mortgagor thereto for the reason that it is not the place of sale agreed upon in the mortgage contract; and the said deputy sheriff
sold all the chattels (among which were a skagit with caterpillar engine, three GMC 6 x 6 trucks, a Herring Hall Safe, and
Sawmill equipment consisting of a 150 HP Murphy Engine, plainer, large circular saws etc.) as a single lot in violation of the
requirement of the law to sell the same article by article. The PNB has resold the chattels to another buyer with whom it appears
to have actively cooperated in subsequently taking possession of and removing the chattels from appellant compound by force,
as shown by the circumstance that they had to take along PC soldiers and municipal policemen of Jose Panganiban who placed
the chief security officer of the premises in jail to deprive herein appellant of its possession thereof. To exonerate itself of any
liability for the breach of peace thus committed, the PNB would want us to believe that it was the subsequent buyer alone, who
is not a party to this case, that was responsible for the forcible taking of the property; but assuming this to be so, still the PNB
cannot escape liability for the conversion of the mortgaged chattels by parting with its interest in the property. Neither would its
claim that it afterwards gave a chance to herein appellant to repurchase or redeem the chattels, improve its position, for the
mortgagor is not under obligation to take affirmative steps to repossess the chattels that were converted by the mortgagee. 15 As
a consequence of the said wrongful acts of the PNB and the Deputy Sheriff of Camarines Norte, therefore, We have to declare
that herein appellant is entitled to collect from them, jointly and severally, the full value of the chattels in question at the time they
were illegally sold by them. To this effect was the holding of this Court in a similar situation. 16

The effect of this irregularity was, in our opinion to make the plaintiff liable to the defendant for the full value of the truck
at the time the plaintiff thus carried it off to be sold; and of course, the burden is on the defendant to prove the damage
to which he was thus subjected. . . .

This brings us to the problem of determining the value of the mortgaged chattels at the time of their sale in 1961. The trial court
did not make any finding on the value of the chattels in the decision appealed from and denied altogether the right of the
appellant to recover the same. We find enough evidence of record, however, which may be used as a guide to ascertain their
value. The record shows that at the time herein appellant applied for its loan with the PNB in 1956, for which the chattels in
question were mortgaged as part of the security therefore, herein appellant submitted a list of the chattels together with its
application for the loan with a stated value of P107,115.85. An official of the PNB made an inspection of the chattels in the same
year giving it an appraised value of P42,850.00 and a market value of P85,700.00. 17 The same chattels with some additional
equipment acquired by herein appellant with part of the proceeds of the loan were reappraised in a re-inspection conducted by
the same official in 1958, in the report of which he gave all the chattels an appraised value of P26,850.00 and a market value of
P48,200.00. 18 Another re-inspection report in 1959 gave the appraised value as P19,400.00 and the market value at
P25,600.00. 19 The said official of the PNB who made the foregoing reports of inspection and re-inspections testified in court that
in giving the values appearing in the reports, he used a conservative method of appraisal which, of course, is to be expected of
an official of the appellee bank. And it appears that the values were considerably reduced in all the re-inspection reports for the
reason that when he went to herein appellant's premises at the time, he found the chattels no longer in use with some of the
heavier equipments dismantled with parts thereof kept in the bodega; and finding it difficult to ascertain the value of the
dismantled chattels in such condition, he did not give them anymore any value in his reports. Noteworthy is the fact, however,
that in the last re-inspection report he made of the chattels in 1961, just a few months before the foreclosure sale, the same
inspector of the PNB reported that the heavy equipment of herein appellant were "lying idle and rusty" but were "with a shed free
from rains" 20 showing that although they were no longer in use at the time, they were kept in a proper place and not exposed to
the elements. The President of the appellant company, on the other hand, testified that its caterpillar (tractor) alone is worth
P35,000.00 in the market, and that the value of its two trucks acquired by it with part of the proceeds of the loan and included as
additional items in the mortgaged chattels were worth no less than P14,000.00. He likewise appraised the worth of its Murphy
engine at P16,000.00 which, according to him, when taken together with the heavy equipments he mentioned, the sawmill itself
and all other equipment forming part of the chattels under consideration, and bearing in mind the current cost of equipments
these days which he alleged to have increased by about five (5) times, could safely be estimated at P120,000.00. This
testimony, except for the appraised and market values appearing in the inspection and re-inspection reports of the PNB official
earlier mentioned, stand uncontroverted in the record; but We are not inclined to accept such testimony at its par value, knowing
that the equipments of herein appellant had been idle and unused since it stopped operating its sawmill in 1958 up to the time of
the sale of the chattels in 1961. We have no doubt that the value of chattels was depreciated after all those years of inoperation,
although from the evidence aforementioned, We may also safely conclude that the amount of P4,200.00 for which the chattels
were sold in the foreclosure sale in question was grossly unfair to the mortgagor. Considering, however, the facts that the
appraised value of P42,850.00 and the market value of P85,700.00 originally given by the PNB official were admittedly
conservative; that two 6 x 6 trucks subsequently bought by the appellant company had thereafter been added to the chattels;
and that the real value thereof, although depreciated after several years of inoperation, was in a way maintained because the
depreciation is off-set by the marked increase in the cost of heavy equipment in the market, it is our opinion that the market
value of the chattels at the time of the sale should be fixed at the original appraised value of P42,850.00.

Herein appellant's claim for moral damages, however, seems to have no legal or factual basis. Obviously, an artificial person like
herein appellant corporation cannot experience physical sufferings, mental anguish, fright, serious anxiety, wounded feelings,
moral shock or social humiliation which are basis of moral damages. 21 A corporation may have a good reputation which, if
besmirched, may also be a ground for the award of moral damages. The same cannot be considered under the facts of this
case, however, not only because it is admitted that herein appellant had already ceased in its business operation at the time of
the foreclosure sale of the chattels, but also for the reason that whatever adverse effects of the foreclosure sale of the chattels
could have upon its reputation or business standing would undoubtedly be the same whether the sale was conducted at Jose
Panganiban, Camarines Norte, or in Manila which is the place agreed upon by the parties in the mortgage contract.

But for the wrongful acts of herein appellee bank and the deputy sheriff of Camarines Norte in proceeding with the sale in utter
disregard of the agreement to have the chattels sold in Manila as provided for in the mortgage contract, to which their attentions
were timely called by herein appellant, and in disposing of the chattels in gross for the miserable amount of P4,200.00, herein
appellant should be awarded exemplary damages in the sum of P10,000.00. The circumstances of the case also warrant the
award of P3,000.00 as attorney's fees for herein appellant.

WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision appealed from should be, as hereby, it is set aside.
The Philippine National Bank and the Deputy Sheriff of the province of Camarines Norte are ordered to pay, jointly and
severally, to Mambulao Lumber Company the total amount of P56,000.73, broken as follows: P150.73 overpaid by the latter to
the PNB, P42,850.00 the value of the chattels at the time of the sale with interest at the rate of 6% per annum from December
21, 1961, until fully paid, P10,000.00 in exemplary damages, and P3,000.00 as attorney's fees. Costs against both appellees.

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 PLEÑAGO, ROGER BEDAÑO, RODRIGO ESPIA,
ARSENIO VILLAMOR, JR., JOHN DOE and PETER DOE, accused.

SEVERINO LINES, RUDY LINES, EFREN PLEÑAGO and ROGER BENDAÑO, accused-appellants.

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 priest-killer" 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 heir vineyard in the hinterlands of Mindanao.2

In the aftermath of the murder, police authorities launched 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 . . . 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 Pleñago and Roger Bedaño 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) 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
Pleñago and Roger Bedaño 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 Pleñago and Roger Bedaño
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
Pleñago and Roger Bedaño, 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 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
street-post 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 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 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 Pleñago 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 Pleñago and Roger
Bedaño contend that the trial court erred in disregarding their respective 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 Bedaño 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 co-accused, 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 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
well-settled 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 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 morning . . . 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 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. 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 explained 28 —

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 thus 29 —

Q Who suggested that Fr. Peter be the first to be killed?

A All of them in the group.

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."

x x x           x x x          x x x

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.

x x x           x x x          x x x

Q What about Efren Pleñago?

A He also agreed and even commented laughing "go ahead".

Q Roger Bedaño, 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 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.

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
held 34 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.

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.
G.R. No. 155650             July 20, 2006

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner,

vs.
COURT OF APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF PARAÑAQUE, SANGGUNIANG PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF
PARAÑAQUE, and CITY TREASURER OF PARAÑAQUE, respondents.

DECISION

CARPIO, J.:

The Antecedents

Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in
Parañaque City under Executive Order No. 903, otherwise known as the Revised Charter of the Manila International Airport
Authority ("MIAA Charter"). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E. Marcos.
Subsequently, Executive Order Nos. 9091 and 2982 amended the MIAA Charter.

As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA Complex. The
MIAA Charter transferred to MIAA approximately 600 hectares of land, 3 including the runways and buildings ("Airport Lands and
Buildings") then under the Bureau of Air Transportation. 4 The MIAA Charter further provides that no portion of the land
transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved by the President of the
Philippines.5

On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion No. 061. The OGCC opined that
the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21 of the MIAA
Charter. Thus, MIAA negotiated with respondent City of Parañaque to pay the real estate tax imposed by the City. MIAA then
paid some of the real estate tax already due.

On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the City of Parañaque for the taxable years
1992 to 2001. MIAA's real estate tax delinquency is broken down as follows:

TAX
TAXABLE YEAR TAX DUE PENALTY TOTAL
DECLARATION
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.95 P232,070,863.47 P 624,506,725.42

1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75

#9476101 for P28,676,480.00

#9476103 for P49,115.006

On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy and warrants of levy on the Airport
Lands and Buildings. The Mayor of the City of Parañaque threatened to sell at public auction the Airport Lands and Buildings
should MIAA fail to pay the real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.

On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061. The OGCC pointed out that Section
206 of the Local Government Code requires persons exempt from real estate tax to show proof of exemption. The OGCC opined
that Section 21 of the MIAA Charter is the proof that MIAA is exempt from real estate tax.

On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition and injunction, with prayer for
preliminary injunction or temporary restraining order. The petition sought to restrain the City of Parañaque from imposing real
estate tax on, levying against, and auctioning for public sale the Airport Lands and Buildings. The petition was docketed as CA-
G.R. SP No. 66878.

On 5 October 2001, the Court of Appeals dismissed the petition because MIAA filed it beyond the 60-day reglementary period.
The Court of Appeals also denied on 27 September 2002 MIAA's motion for reconsideration and supplemental motion for
reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for review. 7

Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the Barangay Halls of Barangays Vitalez,
Sto. Niño, and Tambo, Parañaque City; in the public market of Barangay La Huerta; and in the main lobby of the Parañaque City
Hall. The City of Parañaque published the notices in the 3 and 10 January 2003 issues of the  Philippine Daily Inquirer, a
newspaper of general circulation in the Philippines. The notices announced the public auction sale of the Airport Lands and
Buildings to the highest bidder on 7 February 2003, 10:00 a.m., at the Legislative Session Hall Building of Parañaque City.

A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this Court an Urgent  Ex-Parte and
Reiteratory Motion for the Issuance of a Temporary Restraining Order. The motion sought to restrain respondents — the City of
Parañaque, City Mayor of Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of Parañaque, and the City
Assessor of Parañaque ("respondents") — from auctioning the Airport Lands and Buildings.

On 7 February 2003, this Court issued a temporary restraining order (TRO) effective immediately. The Court ordered
respondents to cease and desist from selling at public auction the Airport Lands and Buildings. Respondents received the TRO
on the same day that the Court issued it. However, respondents received the TRO only at 1:25 p.m. or three hours after the
conclusion of the public auction.

On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.

On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the directive issued during the hearing,
MIAA, respondent City of Parañaque, and the Solicitor General subsequently submitted their respective Memoranda.

MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. However, MIAA
points out that it cannot claim ownership over these properties since the real owner of the Airport Lands and Buildings is the
Republic of the Philippines. The MIAA Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of the
general public. Since the Airport Lands and Buildings are devoted to public use and public service, the ownership of these
properties remains with the State. The Airport Lands and Buildings are thus inalienable and are not subject to real estate tax by
local governments.

MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax. MIAA
insists that it is also exempt from real estate tax under Section 234 of the Local Government Code because the Airport Lands
and Buildings are owned by the Republic. To justify the exemption, MIAA invokes the principle that the government cannot tax
itself. MIAA points out that the reason for tax exemption of public property is that its taxation would not inure to any public
advantage, since in such a case the tax debtor is also the tax creditor.

Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption privileges of
"government-owned and-controlled corporations" upon the effectivity of the Local Government Code. Respondents also
argue that a basic rule of statutory construction is that the express mention of one person, thing, or act excludes all others. An
international airport is not among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents
assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax.

Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos 8 where we held that the Local
Government Code has withdrawn the exemption from real estate tax granted to international airports. Respondents further argue
that since MIAA has already paid some of the real estate tax assessments, it is now estopped from claiming that the Airport
Lands and Buildings are exempt from real estate tax.

The Issue

This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are exempt from real estate tax
under existing laws. If so exempt, then the real estate tax assessments issued by the City of Parañaque, and all proceedings
taken pursuant to such assessments, are void. In such event, the other issues raised in this petition become moot.

The Court's Ruling

We rule that MIAA's Airport Lands and Buildings are exempt from real estate tax imposed by local governments.

First, MIAA is not a government-owned or controlled corporation but an instrumentality of the National Government and thus
exempt from local taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines and thus exempt
from real estate tax.

1. MIAA is Not a Government-Owned or Controlled Corporation

Respondents argue that MIAA, being a government-owned or controlled corporation, is not exempt from real estate tax.
Respondents claim that the deletion of the phrase "any government-owned or controlled so exempt by its charter" in Section
234(e) of the Local Government Code withdrew the real estate tax exemption of government-owned or controlled corporations.
The deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the entities exempt from real
estate tax.

There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax. However, MIAA is not
a government-owned or controlled corporation. Section 2(13) of the Introductory Provisions of the Administrative Code of 1987
defines a government-owned or controlled corporation as follows:

SEC. 2. General Terms Defined. – x x x x

(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-stock

corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned
by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)

A government-owned or controlled corporation must be "organized as a stock or non-stock corporation." MIAA is not
organized as a stock or non-stock corporation. MIAA is not a stock corporation because it has  no capital stock divided into
shares. MIAA has no stockholders or voting shares. Section 10 of the MIAA Charter 9 provides:

SECTION 10. Capital. — The capital of the Authority to be contributed by the National Government shall be increased
from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion (P10,000,000,000.00) Pesos to consist of:

(a) The value of fixed assets including airport facilities, runways and equipment and such other properties, movable and
immovable[,] which may be contributed by the National Government or transferred by it from any of its agencies, the
valuation of which shall be determined jointly with the Department of Budget and Management and the Commission on
Audit on the date of such contribution or transfer after making due allowances for depreciation and other deductions
taking into account the loans and other liabilities of the Authority at the time of the takeover of the assets and other
properties;

(b) That the amount of P605 million as of December 31, 1986 representing about seventy percentum (70%) of the
unremitted share of the National Government from 1983 to 1986 to be remitted to the National Treasury as provided for
in Section 11 of E. O. No. 903 as amended, shall be converted into the equity of the National Government in the
Authority. Thereafter, the Government contribution to the capital of the Authority shall be provided in the General
Appropriations Act.

Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.

Section 3 of the Corporation Code 10 defines a stock corporation as one whose "capital stock is divided into shares and x x x
authorized to distribute to the holders of such shares dividends x x x." MIAA has capital but it is not divided into shares of
stock. MIAA has no stockholders or voting shares. Hence, MIAA is not a stock corporation.

MIAA is also not a non-stock corporation because it has no members. Section 87 of the Corporation Code defines a non-stock
corporation as "one where no part of its income is distributable as dividends to its members, trustees or officers." A non-stock
corporation must have members. Even if we assume that the Government is considered as the sole member of MIAA, this will
not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of their income to their members.
Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to the National
Treasury.11 This prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are "organized for charitable, religious, educational,
professional, cultural, recreational, fraternal, literary, scientific, social, civil service, or similar purposes, like trade, industry,
agriculture and like chambers." MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate
an international and domestic airport for public use.

Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or controlled
corporation. What then is the legal status of MIAA within the National Government?

MIAA is a government instrumentality vested with corporate powers to perform efficiently its governmental functions. MIAA is
like any other government instrumentality, the only difference is that MIAA is vested with corporate powers. Section 2(10) of the
Introductory Provisions of the Administrative Code defines a government "instrumentality" as follows:

SEC. 2. General Terms Defined. –– x x x x

 (10) Instrumentality refers to any agency of the National Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied)

When the law vests in a government instrumentality corporate powers, the instrumentality does not become a corporation.
Unless the government instrumentality is organized as a stock or non-stock corporation, it remains a government instrumentality
exercising not only governmental but also corporate powers. Thus, MIAA exercises the governmental powers of eminent
domain,12 police authority13 and the levying of fees and charges. 14 At the same time, MIAA exercises "all the powers of a
corporation under the Corporation Law, insofar as these powers are not inconsistent with the provisions of this Executive
Order."15

Likewise, when the law makes a government instrumentality operationally autonomous, the instrumentality remains part of the
National Government machinery although not integrated with the department framework. The MIAA Charter expressly states
that transforming MIAA into a "separate and autonomous body" 16 will make its operation more "financially viable."17

Many government instrumentalities are vested with corporate powers but they do not become stock or non-stock corporations,
which is a necessary condition before an agency or instrumentality is deemed a government-owned or controlled corporation.
Examples are the Mactan International Airport Authority, the Philippine Ports Authority, the University of the Philippines
and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are not organized
as stock or non-stock corporations as required by Section 2(13) of the Introductory Provisions of the Administrative Code. These
government instrumentalities are sometimes loosely called government corporate entities. However, they are not government-
owned or controlled corporations in the strict sense as understood under the Administrative Code, which is the governing law
defining the legal relationship and status of government entities.

A government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which states:

SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided
herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to
the levy of the following:

xxxx

(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and local
government units.(Emphasis and underscoring supplied)

Section 133(o) recognizes the basic principle that local governments cannot tax the national government, which historically
merely delegated to local governments the power to tax. While the 1987 Constitution now includes taxation as one of the powers
of local governments, local governments may only exercise such power "subject to such guidelines and limitations as the
Congress may provide."18

When local governments invoke the power to tax on national government instrumentalities, such power is construed strictly
against local governments. The rule is that a tax is never presumed and there must be clear language in the law imposing the
tax. Any doubt whether a person, article or activity is taxable is resolved against taxation. This rule applies with greater force
when local governments seek to tax national government instrumentalities.

Another rule is that a tax exemption is strictly construed against the taxpayer claiming the exemption. However, when Congress
grants an exemption to a national government instrumentality from local taxation, such exemption is construed liberally in favor
of the national government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:

The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself or its
agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to be
handled by government in the course of its operations. For these reasons, provisions granting exemptions to
government agencies may be construed liberally, in favor of non tax-liability of such agencies. 19

There is, moreover, no point in national and local governments taxing each other, unless a sound and compelling policy requires
such transfer of public funds from one government pocket to another.

There is also no reason for local governments to tax national government instrumentalities for rendering essential public
services to inhabitants of local governments. The only exception is when the legislature clearly intended to tax
government instrumentalities for the delivery of essential public services for sound and compelling policy
considerations. There must be express language in the law empowering local governments to tax national government
instrumentalities. Any doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that "unless otherwise provided" in the Code, local governments
cannot tax national government instrumentalities. As this Court held in Basco v. Philippine Amusements and Gaming
Corporation:

The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the
operation of constitutional laws enacted by Congress to carry into execution the powers vested in the federal
government. (MC Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)

This doctrine emanates from the "supremacy" of the National Government over local governments.

"Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part
of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v.
Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to
seriously burden it in the accomplishment of them." (Antieau, Modern Constitutional Law, Vol. 2, p. 140,
emphasis supplied)

Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may
perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340
US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra)
cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. 20

2. Airport Lands and Buildings of MIAA are Owned by the Republic

a. Airport Lands and Buildings are of Public Dominion

The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic
of the Philippines. The Civil Code provides:

ARTICLE 419. Property is either of public dominion or of private ownership.

ARTICLE 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the
State, banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for the
development of the national wealth. (Emphasis supplied)

ARTICLE 421. All other property of the State, which is not of the character stated in the preceding article, is patrimonial
property.

ARTICLE 422. Property of public dominion, when no longer intended for public use or for public service, shall form part
of the patrimonial property of the State.

No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like " roads, canals, rivers,
torrents, ports and bridges constructed by the State," are owned by the State. The term "ports" includes seaports and
airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code,
the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the
Philippines.

The Airport Lands and Buildings are devoted to public use because they are used by the public for international and
domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from the public does not
remove the character of the Airport Lands and Buildings as properties for public use. The operation by the government of a
tollway does not change the character of the road as one for public use. Someone must pay for the maintenance of the road,
either the public indirectly through the taxes they pay the government, or only those among the public who actually use the road
through the toll fees they pay upon using the road. The tollway system is even a more efficient and equitable manner of taxing
the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it is of public dominion or not. Article
420 of the Civil Code defines property of public dominion as one "intended for public use." Even if the government collects toll
fees, the road is still "intended for public use" if anyone can use the road under the same terms and conditions as the rest of the
public. The charging of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and other
conditions for the use of the road do not affect the public character of the road.

The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the
income that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport
for public use. Such fees are often termed user's tax. This means taxing those among the public who actually use a public facility
instead of taxing all the public including those who never use the particular public facility. A user's tax is more equitable — a
principle of taxation mandated in the 1987 Constitution. 21

The Airport Lands and Buildings of MIAA, which its Charter calls the "principal airport of the Philippines for both international and
domestic air traffic,"22 are properties of public dominion because they are intended for public use.  As properties of public
dominion, they indisputably belong to the State or the Republic of the Philippines.

b. Airport Lands and Buildings are Outside the Commerce of Man

The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of public dominion.  As properties of
public dominion, the Airport Lands and Buildings are outside the commerce of man. The Court has ruled repeatedly that
properties of public dominion are outside the commerce of man. As early as 1915, this Court already ruled in  Municipality of
Cavite v. Rojas that properties devoted to public use are outside the commerce of man, thus:

According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the provincial
and town roads, the squares, streets, fountains, and public waters, the promenades, and public works of general
service supported by said towns or provinces."

The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907 withdraw or
exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant Hilaria Rojas. In
leasing a portion of said plaza or public place to the defendant for private use the plaintiff municipality exceeded its
authority in the exercise of its powers by executing a contract over a thing of which it could not dispose, nor is it
empowered so to do.

The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the object of
a contract, and plazas and streets are outside of this commerce, as was decided by the supreme court of Spain in its
decision of February 12, 1895, which says: "Communal things that cannot be sold because they are by their very
nature outside of commerce are those for public use, such as the plazas, streets, common lands, rivers,
fountains, etc." (Emphasis supplied) 23

Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are outside the commerce of man:

xxx Town plazas are properties of public dominion, to be devoted to public use and to be made available to the
public in general. They are outside the commerce of man and cannot be disposed of or even leased by the
municipality to private parties. While in case of war or during an emergency, town plazas may be occupied temporarily
by private individuals, as was done and as was tolerated by the Municipality of Pozorrubio, when the emergency has
ceased, said temporary occupation or use must also cease, and the town officials should see to it that the town plazas
should ever be kept open to the public and free from encumbrances or illegal private constructions. 24 (Emphasis
supplied)

The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be the subject of an
auction sale.25

Properties of public dominion, being for public use, are not subject to levy, encumbrance or disposition through public or private
sale. Any encumbrance, levy on execution or auction sale of any property of public dominion is void for being contrary to public
policy. Essential public services will stop if properties of public dominion are subject to encumbrances, foreclosures and auction
sale. This will happen if the City of Parañaque can foreclose and compel the auction sale of the 600-hectare runway of the MIAA
for non-payment of real estate tax.

Before MIAA can encumber26 the Airport Lands and Buildings, the President must first withdraw from public use the Airport
Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act No. 141, which "remains to this day the
existing general law governing the classification and disposition of lands of the public domain other than timber and mineral
lands,"27 provide:
 SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the President may
designate by proclamation any tract or tracts of land of the public domain as reservations for the use of the Republic of
the Philippines or of any of its branches, or of the inhabitants thereof, in accordance with regulations prescribed for this
purposes, or for quasi-public uses or purposes when the public interest requires it, including reservations for highways,
rights of way for railroads, hydraulic power sites, irrigation systems, communal pastures or lequas communales, public
parks, public quarries, public fishponds, working men's village and other improvements for the public benefit.

SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall be  non-
alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until again declared
alienable under the provisions of this Act or by proclamation of the President. (Emphasis and underscoring
supplied)

Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these properties
remain properties of public dominion and are inalienable. Since the Airport Lands and Buildings are inalienable in their present
status as properties of public dominion, they are not subject to levy on execution or foreclosure sale. As long as the Airport
Lands and Buildings are reserved for public use, their ownership remains with the State or the Republic of the Philippines.

The authority of the President to reserve lands of the public domain for public use, and to withdraw such public use, is reiterated
in Section 14, Chapter 4, Title I, Book III of the Administrative Code of 1987, which states:

SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government. — (1) The President shall
have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of the
public domain, the use of which is not otherwise directed by law. The reserved land shall thereafter remain
subject to the specific public purpose indicated until otherwise provided by law or proclamation;

x x x x. (Emphasis supplied)

There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by law or presidential proclamation
from public use, they are properties of public dominion, owned by the Republic and outside the commerce of man.

c. MIAA is a Mere Trustee of the Republic

MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic. Section 48, Chapter 12, Book I of the
Administrative Code allows instrumentalities like MIAA to hold title to real properties owned by the Republic, thus:

SEC. 48. Official Authorized to Convey Real Property. — Whenever real property of the Government is authorized by
law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following:

(1) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless the
authority therefor is expressly vested by law in another officer.

(2) For property belonging to the Republic of the Philippines but titled in the name of any political subdivision
or of any corporate agency or instrumentality, by the executive head of the agency or instrumentality. (Emphasis
supplied)

In MIAA's case, its status as a mere trustee of the Airport Lands and Buildings is clearer because even its executive head
cannot sign the deed of conveyance on behalf of the Republic. Only the President of the Republic can sign such deed of
conveyance.28

d. Transfer to MIAA was Meant to Implement a Reorganization

The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and Buildings from the Bureau of Air
Transportation of the Department of Transportation and Communications. The MIAA Charter provides:

SECTION 3. Creation of the Manila International Airport Authority. — x x x x

The land where the Airport is presently located as well as the surrounding land area of approximately six
hundred hectares, are hereby transferred, conveyed and assigned to the ownership and administration of the
Authority, subject to existing rights, if any. The Bureau of Lands and other appropriate government agencies shall
undertake an actual survey of the area transferred within one year from the promulgation of this Executive Order and
the corresponding title to be issued in the name of the Authority. Any portion thereof shall not be disposed through
 sale or through any other mode unless specifically approved by the President of the Philippines. (Emphasis
supplied)

SECTION 22. Transfer of Existing Facilities and Intangible Assets. — All existing public airport facilities, runways,
lands, buildings and other property, movable or immovable, belonging to the Airport, and all assets, powers, rights,
interests and privileges belonging to the Bureau of Air Transportation relating to airport works or air operations,
including all equipment which are necessary for the operation of crash fire and rescue facilities, are hereby transferred
to the Authority. (Emphasis supplied)

SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air Transportation and
Transitory Provisions. — The Manila International Airport including the Manila Domestic Airport as a division under the
Bureau of Air Transportation is hereby abolished.

x x x x.

The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic receiving cash, promissory notes or
even stock since MIAA is not a stock corporation.

The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport Lands and Buildings to MIAA, thus:

WHEREAS, the Manila International Airport as the principal airport of the Philippines for both international and domestic
air traffic, is required to provide standards of airport accommodation and service comparable with the best airports in
the world;

WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded to meet the current
and future air traffic and other demands of aviation in Metro Manila;

WHEREAS, a management and organization study has indicated that the objectives of providing high standards of
accommodation and service within the context of a financially viable operation, will best be achieved by a
separate and autonomous body; and

WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the President of the
Philippines is given continuing authority to reorganize the National Government, which authority includes the
creation of new entities, agencies and instrumentalities of the Government[.] (Emphasis supplied)

The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer
beneficial ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a division in the
Bureau of Air Transportation into a separate and autonomous body. The Republic remains the beneficial owner of the
Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership rights over MIAA's
assets adverse to the Republic.

The MIAA Charter expressly provides that the Airport Lands and Buildings "shall not be disposed through sale or through
any other mode unless specifically approved by the President of the Philippines." This only means that the Republic
retained the beneficial ownership of the Airport Lands and Buildings because under Article 428 of the Civil Code, only the "owner
has the right to x x x dispose of a thing." Since MIAA cannot dispose of the Airport Lands and Buildings, MIAA does not own the
Airport Lands and Buildings.

At any time, the President can transfer back to the Republic title to the Airport Lands and Buildings without the Republic paying
MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one who can authorize the sale or
disposition of the Airport Lands and Buildings. This only confirms that the Airport Lands and Buildings belong to the Republic.

e. Real Property Owned by the Republic is Not Taxable

Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic of the
Philippines." Section 234(a) provides:

SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment of the real property
tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;
 x x x. (Emphasis supplied)

This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments from
imposing "[t]axes, fees or charges of any kind on the National Government, its agencies and  instrumentalities x x x." The real
properties owned by the Republic are titled either in the name of the Republic itself or in the name of agencies or
instrumentalities of the National Government. The Administrative Code allows real property owned by the Republic to be titled in
the name of agencies or instrumentalities of the national government. Such real properties remain owned by the Republic and
continue to be exempt from real estate tax.

The Republic may grant the beneficial use of its real property to an agency or instrumentality of the national government. This
happens when title of the real property is transferred to an agency or instrumentality even as the Republic remains the owner of
the real property. Such arrangement does not result in the loss of the tax exemption. Section 234(a) of the Local Government
Code states that real property owned by the Republic loses its tax exemption only if the "beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person." MIAA, as a government instrumentality, is not a taxable person
under Section 133(o) of the Local Government Code. Thus, even if we assume that the Republic has granted to MIAA the
beneficial use of the Airport Lands and Buildings, such fact does not make these real properties subject to real estate tax.

However, portions of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate tax.
For example, the land area occupied by hangars that MIAA leases to private corporations is subject to real estate tax. In such a
case, MIAA has granted the beneficial use of such land area for a consideration to a  taxable person and therefore such land
area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court ruled:

Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased
to private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by the
hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property
taxes.29

3. Refutation of Arguments of Minority

The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the Local Government Code of
1991 withdrew the tax exemption of "all persons, whether natural or juridical" upon the effectivity of the Code. Section 193
provides:

SEC. 193. Withdrawal of Tax Exemption Privileges – Unless otherwise provided in this Code, tax exemptions or
incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-
owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. No. 6938, non-
stock and non-profit hospitals and educational institutions are hereby withdrawn upon effectivity of this Code. (Emphasis
supplied)

The minority states that MIAA is indisputably a juridical person. The minority argues that since the Local Government Code
withdrew the tax exemption of all juridical persons, then MIAA is not exempt from real estate tax. Thus, the minority declares:

It is evident from the quoted provisions of the Local Government Code that the withdrawn exemptions from
realty tax cover not just GOCCs, but all persons. To repeat, the provisions lay down the explicit proposition that the
withdrawal of realty tax exemption applies to all persons. The reference to or the inclusion of GOCCs is only clarificatory
or illustrative of the explicit provision.

The term "All persons" encompasses the two classes of persons recognized under our laws, natural and
juridical persons. Obviously, MIAA is not a natural person. Thus, the determinative test is not just whether
MIAA is a GOCC, but whether MIAA is a juridical person at all. (Emphasis and underscoring in the original)

The minority posits that the "determinative test" whether MIAA is exempt from local taxation is its status — whether MIAA is a
juridical person or not. The minority also insists that "Sections 193 and 234 may be examined in isolation from Section 133(o) to
ascertain MIAA's claim of exemption."

The argument of the minority is fatally flawed. Section 193 of the Local Government Code expressly withdrew the tax exemption
of all juridical persons "[u]nless otherwise provided in this Code." Now, Section 133(o) of the Local Government
Code expressly provides otherwise, specifically prohibiting local governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) states:
 SEC. 133. Common Limitations on the Taxing Powers of Local Government Units. – Unless otherwise provided herein,
the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the
following:

xxxx

(o) Taxes, fees or charges of any kinds on the National Government, its agencies and instrumentalities, and local
government units. (Emphasis and underscoring supplied)

By express mandate of the Local Government Code, local governments cannot impose any kind of tax on national government
instrumentalities like the MIAA. Local governments are devoid of power to tax the national government, its agencies and
instrumentalities. The taxing powers of local governments do not extend to the national government, its agencies and
instrumentalities, "[u]nless otherwise provided in this Code" as stated in the saving clause of Section 133. The saving clause
refers to Section 234(a) on the exception to the exemption from real estate tax of real property owned by the Republic.

The minority, however, theorizes that unless exempted in Section 193 itself, all juridical persons are subject to tax by local
governments. The minority insists that the juridical persons exempt from local taxation are limited to the three classes of entities
specifically enumerated as exempt in Section 193. Thus, the minority states:

x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly registered under
Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational institutions. It would be belaboring
the obvious why the MIAA does not fall within any of the exempt entities under Section 193. (Emphasis supplied)

The minority's theory directly contradicts and completely negates Section 133(o) of the Local Government Code. This theory will
result in gross absurdities. It will make the national government, which itself is a juridical person, subject to tax by local
governments since the national government is not included in the enumeration of exempt entities in Section 193. Under this
theory, local governments can impose any kind of local tax, and not only real estate tax, on the national government.

Under the minority's theory, many national government instrumentalities with juridical personalities will also be subject to any
kind of local tax, and not only real estate tax. Some of the national government instrumentalities vested by law with juridical
personalities are: Bangko Sentral ng Pilipinas,30 Philippine Rice Research Institute, 31 Laguna Lake

Development Authority,32 Fisheries Development Authority,33 Bases Conversion Development Authority, 34 Philippine Ports

Authority,35 Cagayan de Oro Port Authority,36 San Fernando Port Authority,37 Cebu Port Authority,38 and Philippine National
Railways.39

The minority's theory violates Section 133(o) of the Local Government Code which expressly prohibits local governments from
imposing any kind of tax on national government instrumentalities. Section 133(o) does not distinguish between national
government instrumentalities with or without juridical personalities. Where the law does not distinguish, courts should not
distinguish. Thus, Section 133(o) applies to all national government instrumentalities, with or without juridical personalities. The
determinative test whether MIAA is exempt from local taxation is not whether MIAA is a juridical person, but whether it is a
national government instrumentality under Section 133(o) of the Local Government Code. Section 133(o) is the specific
provision of law prohibiting local governments from imposing any kind of tax on the national government, its agencies and
instrumentalities.

Section 133 of the Local Government Code starts with the saving clause "[u]nless otherwise provided in this Code." This means
that unless the Local Government Code grants an express authorization, local governments have no power to tax the national
government, its agencies and instrumentalities. Clearly, the rule is local governments have no power to tax the national
government, its agencies and instrumentalities. As an exception to this rule, local governments may tax the national
government, its agencies and instrumentalities only if the Local Government Code expressly so provides.

The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of the Code, which makes the
national government subject to real estate tax when it gives the beneficial use of its real properties to a taxable entity. Section
234(a) of the Local Government Code provides:

SEC. 234. Exemptions from Real Property Tax – The following are exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial
use thereof has been granted, for consideration or otherwise, to a taxable person.

x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate tax. The exception to this exemption is
when the government gives the beneficial use of the real property to a taxable entity.

The exception to the exemption in Section 234(a) is the only instance when the national government, its agencies and
instrumentalities are subject to any kind of tax by local governments. The exception to the exemption applies only to real estate
tax and not to any other tax. The justification for the exception to the exemption is that the real property, although owned by the
Republic, is not devoted to public use or public service but devoted to the private gain of a taxable person.

The minority also argues that since Section 133 precedes Section 193 and 234 of the Local Government Code, the later
provisions prevail over Section 133. Thus, the minority asserts:

x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of construction, in
case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a juridical person, is subject to real
property taxes, the general exemptions attaching to instrumentalities under Section 133(o) of the Local Government
Code being qualified by Sections 193 and 234 of the same law. (Emphasis supplied)

The minority assumes that there is an irreconcilable conflict between Section 133 on one hand, and Sections 193 and 234 on
the other. No one has urged that there is such a conflict, much less has any one presenteda persuasive argument that there is
such a conflict. The minority's assumption of an irreconcilable conflict in the statutory provisions is an egregious error for two
reasons.

First, there is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its subordination to
other provisions of the Code when Section 193 states "[u]nless otherwise provided in this Code." By its own words, Section 193
admits the superiority of other provisions of the Local Government Code that limit the exercise of the taxing power in Section
193. When a provision of law grants a power but withholds such power on certain matters, there is no conflict between the grant
of power and the withholding of power. The grantee of the power simply cannot exercise the power on matters withheld from its
power.

Second, Section 133 is entitled "Common Limitations on the Taxing Powers of Local Government Units." Section 133 limits the
grant to local governments of the power to tax, and not merely the exercise of a delegated power to tax. Section 133 states that
the taxing powers of local governments "shall not extend to the levy" of any kind of tax on the national government, its agencies
and instrumentalities. There is no clearer limitation on the taxing power than this.

Since Section 133 prescribes the "common limitations" on the taxing powers of local governments, Section 133 logically prevails
over Section 193 which grants local governments such taxing powers. By their very meaning and purpose, the "common
limitations" on the taxing power prevail over the grant or exercise of the taxing power. If the taxing power of local governments in
Section 193 prevails over the limitations on such taxing power in Section 133, then local governments can impose any kind of
tax on the national government, its agencies and instrumentalities — a gross absurdity.

Local governments have no power to tax the national government, its agencies and instrumentalities, except as otherwise
provided in the Local Government Code pursuant to the saving clause in Section 133 stating "[u]nless otherwise provided in this
Code." This exception — which is an exception to the exemption of the Republic from real estate tax imposed by local
governments — refers to Section 234(a) of the Code. The exception to the exemption in Section 234(a) subjects real property
owned by the Republic, whether titled in the name of the national government, its agencies or instrumentalities, to real estate tax
if the beneficial use of such property is given to a taxable entity.

The minority also claims that the definition in the Administrative Code of the phrase "government-owned or controlled
corporation" is not controlling. The minority points out that Section 2 of the Introductory Provisions of the Administrative Code
admits that its definitions are not controlling when it provides:

SEC. 2. General Terms Defined. — Unless the specific words of the text, or the context as a whole, or a particular
statute, shall require a different meaning:

xxxx

The minority then concludes that reliance on the Administrative Code definition is "flawed."

The minority's argument is a non sequitur. True, Section 2 of the Administrative Code recognizes that a statute may require a
different meaning than that defined in the Administrative Code. However, this does not automatically mean that the definition in
the Administrative Code does not apply to the Local Government Code. Section 2 of the Administrative Code clearly states that
"unless the specific words x x x of a particular statute shall require a different meaning," the definition in Section 2 of the
Administrative Code shall apply. Thus, unless there is specific language in the Local Government Code defining the phrase
"government-owned or controlled corporation" differently from the definition in the Administrative Code, the definition in the
Administrative Code prevails.

The minority does not point to any provision in the Local Government Code defining the phrase "government-owned or
controlled corporation" differently from the definition in the Administrative Code. Indeed, there is none. The Local Government
Code is silent on the definition of the phrase "government-owned or controlled corporation." The Administrative Code, however,
expressly defines the phrase "government-owned or controlled corporation." The inescapable conclusion is that the
Administrative Code definition of the phrase "government-owned or controlled corporation" applies to the Local Government
Code.

The third whereas clause of the Administrative Code states that the Code "incorporates in a unified document the major
structural, functional and procedural principles and rules of governance." Thus, the Administrative Code is the governing law
defining the status and relationship of government departments, bureaus, offices, agencies and instrumentalities. Unless a
statute expressly provides for a different status and relationship for a specific government unit or entity, the provisions of the
Administrative Code prevail.

The minority also contends that the phrase "government-owned or controlled corporation" should apply only to corporations
organized under the Corporation Code, the general incorporation law, and not to corporations created by special charters. The
minority sees no reason why government corporations with special charters should have a capital stock. Thus, the minority
declares:

I submit that the definition of "government-owned or controlled corporations" under the Administrative Code refer to
those corporations owned by the government or its instrumentalities which are created not by legislative enactment, but
formed and organized under the Corporation Code through registration with the Securities and Exchange Commission.
In short, these are GOCCs without original charters.

xxxx

It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs whose full
ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered to declare dividends or
alienate their capital shares.

The contention of the minority is seriously flawed. It is not in accord with the Constitution and existing legislations. It will also
result in gross absurdities.

First, the Administrative Code definition of the phrase "government-owned or controlled corporation" does not distinguish
between one incorporated under the Corporation Code or under a special charter. Where the law does not distinguish, courts
should not distinguish.

Second, Congress has created through special charters several government-owned corporations organized as stock
corporations. Prime examples are the Land Bank of the Philippines and the Development Bank of the Philippines. The special
charter40 of the Land Bank of the Philippines provides:

SECTION 81. Capital. — The authorized capital stock of the Bank shall be nine billion pesos, divided into seven
hundred and eighty million common shares with a par value of ten pesos each, which shall be fully subscribed by the
Government, and one hundred and twenty million preferred shares with a par value of ten pesos each, which shall be
issued in accordance with the provisions of Sections seventy-seven and eighty-three of this Code. (Emphasis supplied)

Likewise, the special charter41 of the Development Bank of the Philippines provides:

SECTION 7. Authorized Capital Stock – Par value. — The capital stock of the Bank shall be Five Billion Pesos to be
divided into Fifty Million common shares with par value of P100 per share. These shares are available for subscription
by the National Government. Upon the effectivity of this Charter, the National Government shall subscribe to Twenty-
Five Million common shares of stock worth Two Billion Five Hundred Million which shall be deemed paid for by the
Government with the net asset values of the Bank remaining after the transfer of assets and liabilities as provided in
Section 30 hereof. (Emphasis supplied)

Other government-owned corporations organized as stock corporations under their special charters are the Philippine Crop
Insurance Corporation,42 Philippine International Trading Corporation,43 and the Philippine National Bank44 before it was
reorganized as a stock corporation under the Corporation Code. All these government-owned corporations organized under
special charters as stock corporations are subject to real estate tax on real properties owned by them. To rule that they are not
government-owned or controlled corporations because they are not registered with the Securities and Exchange Commission
would remove them from the reach of Section 234 of the Local Government Code, thus exempting them from real estate tax.

Third, the government-owned or controlled corporations created through special charters are those that meet the two conditions
prescribed in Section 16, Article XII of the Constitution. The first condition is that the government-owned or controlled
corporation must be established for the common good. The second condition is that the government-owned or controlled
corporation must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution provides:

SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or regulation of private
corporations. Government-owned or controlled corporations may be created or established by special charters in the
interest of the common good and subject to the test of economic viability. (Emphasis and underscoring supplied)

The Constitution expressly authorizes the legislature to create "government-owned or controlled corporations" through special
charters only if these entities are required to meet the twin conditions of common good and economic viability. In other words,
Congress has no power to create government-owned or controlled corporations with special charters unless they are made to
comply with the two conditions of common good and economic viability. The test of economic viability applies only to
government-owned or controlled corporations that perform economic or commercial activities and need to compete in the market
place. Being essentially economic vehicles of the State for the common good — meaning for economic development purposes
— these government-owned or controlled corporations with special charters are usually organized as stock corporations just like
ordinary private corporations.

In contrast, government instrumentalities vested with corporate powers and performing governmental or public functions need
not meet the test of economic viability. These instrumentalities perform essential public services for the common good, services
that every modern State must provide its citizens. These instrumentalities need not be economically viable since the government
may even subsidize their entire operations. These instrumentalities are not the "government-owned or controlled corporations"
referred to in Section 16, Article XII of the 1987 Constitution.

Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities vested with corporate
powers but performing essential governmental or public functions. Congress has plenary authority to create government
instrumentalities vested with corporate powers provided these instrumentalities perform essential government functions or public
services. However, when the legislature creates through special charters corporations that perform economic or commercial
activities, such entities — known as "government-owned or controlled corporations" — must meet the test of economic viability
because they compete in the market place.

This is the situation of the Land Bank of the Philippines and the Development Bank of the Philippines and similar government-
owned or controlled corporations, which derive their income to meet operating expenses solely from commercial transactions in
competition with the private sector. The intent of the Constitution is to prevent the creation of government-owned or controlled
corporations that cannot survive on their own in the market place and thus merely drain the public coffers.

Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the Constitutional Commission the purpose
of this test, as follows:

MR. OPLE: Madam President, the reason for this concern is really that when the government creates a corporation,
there is a sense in which this corporation becomes exempt from the test of economic performance. We know what
happened in the past. If a government corporation loses, then it makes its claim upon the taxpayers' money through
new equity infusions from the government and what is always invoked is the common good. That is the reason why this
year, out of a budget of P115 billion for the entire government, about P28 billion of this will go into equity infusions to
support a few government financial institutions. And this is all taxpayers' money which could have been relocated to
agrarian reform, to social services like health and education, to augment the salaries of grossly underpaid public
employees. And yet this is all going down the drain.

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a
restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market
test so that they become viable. And so, Madam President, I reiterate, for the committee's consideration and I am glad
that I am joined in this proposal by Commissioner Foz, the insertion of the standard of "ECONOMIC VIABILITY OR THE
ECONOMIC TEST," together with the common good.45

Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in his textbook The 1987 Constitution
of the Republic of the Philippines: A Commentary:

The second sentence was added by the 1986 Constitutional Commission. The significant addition, however, is the
phrase "in the interest of the common good and subject to the test of economic viability." The addition includes the
 ideas that they must show capacity to function efficiently in business and that they should not go into activities which the
private sector can do better. Moreover, economic viability is more than financial viability but also includes capability to
make profit and generate benefits not quantifiable in financial terms. 46 (Emphasis supplied)

Clearly, the test of economic viability does not apply to government entities vested with corporate powers and performing
essential public services. The State is obligated to render essential public services regardless of the economic viability of
providing such service. The non-economic viability of rendering such essential public service does not excuse the State from
withholding such essential services from the public.

However, government-owned or controlled corporations with special charters, organized essentially for economic or commercial
objectives, must meet the test of economic viability. These are the government-owned or controlled corporations that are usually
organized under their special charters as stock corporations, like the Land Bank of the Philippines and the Development Bank of
the Philippines. These are the government-owned or controlled corporations, along with government-owned or controlled
corporations organized under the Corporation Code, that fall under the definition of "government-owned or controlled
corporations" in Section 2(10) of the Administrative Code.

The MIAA need not meet the test of economic viability because the legislature did not create MIAA to compete in the market
place. MIAA does not compete in the market place because there is no competing international airport operated by the private
sector. MIAA performs an essential public service as the primary domestic and international airport of the Philippines. The
operation of an international airport requires the presence of personnel from the following government agencies:

1. The Bureau of Immigration and Deportation, to document the arrival and departure of passengers, screening out
those without visas or travel documents, or those with hold departure orders;

2. The Bureau of Customs, to collect import duties or enforce the ban on prohibited importations;

3. The quarantine office of the Department of Health, to enforce health measures against the spread of infectious
diseases into the country;

4. The Department of Agriculture, to enforce measures against the spread of plant and animal diseases into the country;

5. The Aviation Security Command of the Philippine National Police, to prevent the entry of terrorists and the escape of
criminals, as well as to secure the airport premises from terrorist attack or seizure;

6. The Air Traffic Office of the Department of Transportation and Communications, to authorize aircraft to enter or leave
Philippine airspace, as well as to land on, or take off from, the airport; and

7. The MIAA, to provide the proper premises — such as runway and buildings — for the government personnel,
passengers, and airlines, and to manage the airport operations.

All these agencies of government perform government functions essential to the operation of an international airport.

MIAA performs an essential public service that every modern State must provide its citizens. MIAA derives its revenues
principally from the mandatory fees and charges MIAA imposes on passengers and airlines. The terminal fees that MIAA
charges every passenger are regulatory or administrative fees 47 and not income from commercial transactions.

MIAA falls under the definition of a government instrumentality under Section 2(10) of the Introductory Provisions of the
Administrative Code, which provides:

SEC. 2. General Terms Defined. – x x x x

(10) Instrumentality refers to any agency of the National Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special
funds, and enjoying operational autonomy, usually through a charter. x x x (Emphasis supplied)

The fact alone that MIAA is endowed with corporate powers does not make MIAA a government-owned or controlled
corporation. Without a change in its capital structure, MIAA remains a government instrumentality under Section 2(10) of the
Introductory Provisions of the Administrative Code. More importantly, as long as MIAA renders essential public services, it need
not comply with the test of economic viability. Thus, MIAA is outside the scope of the phrase "government-owned or controlled
corporations" under Section 16, Article XII of the 1987 Constitution.
The minority belittles the use in the Local Government Code of the phrase "government-owned or controlled corporation" as
merely "clarificatory or illustrative." This is fatal. The 1987 Constitution prescribes explicit conditions for the creation of
"government-owned or controlled corporations." The Administrative Code defines what constitutes a "government-owned or
controlled corporation." To belittle this phrase as "clarificatory or illustrative" is grave error.

To summarize, MIAA is not a government-owned or controlled corporation under Section 2(13) of the Introductory Provisions of
the Administrative Code because it is not organized as a stock or non-stock corporation. Neither is MIAA a government-owned
or controlled corporation under Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the test of
economic viability. MIAA is a government instrumentality vested with corporate powers and performing essential public services
pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government instrumentality, MIAA is
not subject to any kind of tax by local governments under Section 133(o) of the Local Government Code. The exception to the
exemption in Section 234(a) does not apply to MIAA because MIAA is not a taxable entity under the Local Government Code.
Such exception applies only if the beneficial use of real property owned by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of public dominion.
Properties of public dominion are owned by the State or the Republic. Article 420 of the Civil Code provides:

Art. 420. The following things are property of public dominion:

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State,
banks, shores, roadsteads, and others of similar character;

(2) Those which belong to the State, without being for public use, and are intended for some public service or for the
development of the national wealth. (Emphasis supplied)

The term "ports x x x constructed by the State" includes airports and seaports. The Airport Lands and Buildings of MIAA are
intended for public use, and at the very least intended for public service. Whether intended for public use or public service, the
Airport Lands and Buildings are properties of public dominion. As properties of public dominion, the Airport Lands and Buildings
are owned by the Republic and thus exempt from real estate tax under Section 234(a) of the Local Government Code.

4. Conclusion

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal relation and
status of government units, agencies and offices within the entire government machinery, MIAA is a government instrumentality
and not a government-owned or controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a
government instrumentality is not a taxable person because it is not subject to "[t]axes, fees or charges of any kind" by local
governments. The only exception is when MIAA leases its real property to a "taxable person" as provided in Section 234(a) of
the Local Government Code, in which case the specific real property leased becomes subject to real estate tax. Thus, only
portions of the Airport Lands and Buildings leased to taxable persons like private parties are subject to real estate tax by the City
of Parañaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are properties of
public dominion and thus owned by the State or the Republic of the Philippines. Article 420 specifically mentions "ports x x x
constructed by the State," which includes public airports and seaports, as properties of public dominion and owned by the
Republic. As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport Lands and
Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code. This Court has also
repeatedly ruled that properties of public dominion are not subject to execution or foreclosure sale.

WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the Court of Appeals of 5 October 2001 and
27 September 2002 in CA-G.R. SP No. 66878. We DECLARE the Airport Lands and Buildings of the Manila International Airport
Authority EXEMPT from the real estate tax imposed by the City of Parañaque. We declare VOID all the real estate tax
assessments, including the final notices of real estate tax delinquencies, issued by the City of Parañaque on the Airport Lands
and Buildings of the Manila International Airport Authority, except for the portions that the Manila International Airport Authority
has leased to private parties. We also declare VOID the assailed auction sale, and all its effects, of the Airport Lands and
Buildings of the Manila International Airport Authority.

No costs.

SO ORDERED.
G.R. No. 177131               June 7, 2011

BOY SCOUTS OF THE PHILIPPINES, Petitioner,

vs.
COMMISSION ON AUDIT, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:
The jurisdiction of the Commission on Audit (COA) over the Boy Scouts of the Philippines (BSP) is the subject matter of
this controversy that reached us via petition for prohibition 1 filed by the BSP under Rule 65 of the 1997 Rules of Court. In
this petition, the BSP seeks that the COA be prohibited from implementing its June 18, 2002 Decision, 2 its February 21,
2007 Resolution,3 as well as all other issuances arising therefrom, and that all of the foregoing be rendered null and void. 4

Antecedent Facts and Background of the Case

This case arose when the COA issued Resolution No. 99-011 5 on August 19, 1999 ("the COA Resolution"), with the
subject "Defining the Commission’s policy with respect to the audit of the Boy Scouts of the Philippines." In its whereas
clauses, the COA Resolution stated that the BSP was created as a public corporation under Commonwealth Act No. 111,
as amended by Presidential Decree No. 460 and Republic Act No. 7278; that in Boy Scouts of the Philippines v. National
Labor Relations Commission,6 the Supreme Court ruled that the BSP, as constituted under its charter, was a
"government-controlled corporation within the meaning of Article IX(B)(2)(1) of the Constitution"; and that "the BSP is
appropriately regarded as a government instrumentality under the 1987 Administrative Code." 7 The COA Resolution also
cited its constitutional mandate under Section 2(1), Article IX (D). Finally, the COA Resolution reads:

NOW THEREFORE, in consideration of the foregoing premises, the COMMISSION PROPER HAS RESOLVED, AS IT
DOES HEREBY RESOLVE, to conduct an annual financial audit of the Boy Scouts of the Philippines in accordance with
generally accepted auditing standards, and express an opinion on whether the financial statements which include the
Balance Sheet, the Income Statement and the Statement of Cash Flows present fairly its financial position and results of
operations.

xxxx

BE IT RESOLVED FURTHERMORE, that for purposes of audit supervision, the Boy Scouts of the Philippines shall be
classified among the government corporations belonging to the Educational, Social, Scientific, Civic and Research Sector
under the Corporate Audit Office I, to be audited, similar to the subsidiary corporations, by employing the team audit
approach.8 (Emphases supplied.)

The BSP sought reconsideration of the COA Resolution in a letter 9 dated November 26, 1999 signed by the BSP National
President Jejomar C. Binay, who is now the Vice President of the Republic, wherein he wrote:

It is the position of the BSP, with all due respect, that it is not subject to the Commission’s jurisdiction on the following
grounds:

1. We reckon that the ruling in the case of Boy Scouts of the Philippines vs. National Labor Relations
Commission, et al. (G.R. No. 80767) classifying the BSP as a government-controlled corporation is anchored on
the "substantial Government participation" in the National Executive Board of the BSP. It is to be noted that the
case was decided when the BSP Charter is defined by Commonwealth Act No. 111 as amended by Presidential
Decree 460.

However, may we humbly refer you to Republic Act No. 7278 which amended the BSP’s charter after the cited case was
decided. The most salient of all amendments in RA No. 7278 is the alteration of the composition of the National Executive
Board of the BSP.

The said RA virtually eliminated the "substantial government participation" in the National Executive Board by removing:
(i) the President of the Philippines and executive secretaries, with the exception of the Secretary of Education, as
members thereof; and (ii) the appointment and confirmation power of the President of the Philippines, as Chief Scout,
over the members of the said Board.

The BSP believes that the cited case has been superseded by RA 7278. Thereby weakening the case’s conclusion that
the BSP is a government-controlled corporation (sic). The 1987 Administrative Code itself, of which the BSP vs. NLRC
relied on for some terms, defines government-owned and controlled corporations as agencies organized as stock or non-
stock corporations which the BSP, under its present charter, is not.

Also, the Government, like in other GOCCs, does not have funds invested in the BSP. What RA 7278 only provides is that
the Government or any of its subdivisions, branches, offices, agencies and instrumentalities can from time to time donate
and contribute funds to the BSP.
xxxx

Also the BSP respectfully believes that the BSP is not "appropriately regarded as a government instrumentality under the
1987 Administrative Code" as stated in the COA resolution. As defined by Section 2(10) of the said code, instrumentality
refers to "any agency of the National Government, not integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying
operational autonomy, usually through a charter."

The BSP is not an entity administering special funds. It is not even included in the DECS National Budget. x x x

It may be argued also that the BSP is not an "agency" of the Government. The 1987 Administrative Code, merely referred
the BSP as an "attached agency" of the DECS as distinguished from an actual line agency of departments that are
included in the National Budget. The BSP believes that an "attached agency" is different from an "agency." Agency, as
defined in Section 2(4) of the Administrative Code, is defined as any of the various units of the Government including a
department, bureau, office, instrumentality, government-owned or controlled corporation or local government or distinct
unit therein.

Under the above definition, the BSP is neither a unit of the Government; a department which refers to an executive
department as created by law (Section 2[7] of the Administrative Code); nor a bureau which refers to any principal
subdivision or unit of any department (Section 2[8], Administrative Code). 10

Subsequently, requests for reconsideration of the COA Resolution were also made separately by Robert P. Valdellon,
Regional Scout Director, Western Visayas Region, Iloilo City and Eugenio F. Capreso, Council Scout Executive of
Calbayog City.11

In a letter12 dated July 3, 2000, Director Crescencio S. Sunico, Corporate Audit Officer (CAO) I of the COA, furnished the
BSP with a copy of the Memorandum 13 dated June 20, 2000 of Atty. Santos M. Alquizalas, the COA General Counsel. In
said Memorandum, the COA General Counsel opined that Republic Act No. 7278 did not supersede the Court’s ruling in
Boy Scouts of the Philippines v. National Labor Relations Commission, even though said law eliminated the substantial
government participation in the selection of members of the National Executive Board of the BSP. The Memorandum
further provides:

Analysis of the said case disclosed that the substantial government participation is only one (1) of the three (3) grounds
relied upon by the Court in the resolution of the case. Other considerations include  the character of the BSP’s purposes
and functions which has a public aspect and the statutory designation of the BSP as a "public corporation". These
grounds have not been deleted by R.A. No. 7278. On the contrary, these were strengthened as evidenced by the
amendment made relative to BSP’s purposes stated in Section 3 of R.A. No. 7278.

On the argument that BSP is not appropriately regarded as "a government instrumentality" and "agency" of the
government, such has already been answered and clarified. The Supreme Court has elucidated this matter in the BSP
case when it declared that BSP is regarded as, both a "government-controlled corporation with an original charter" and as
an "instrumentality" of the Government. Likewise, it is not disputed that the Administrative Code of 1987 designated the
BSP as one of the attached agencies of DECS. Being an attached agency, however, it does not change its nature as a
government-controlled corporation with original charter and, necessarily, subject to COA audit jurisdiction. Besides,
Section 2(1), Article IX-D of the Constitution provides that COA shall have the power, authority, and duty to examine, audit
and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned
or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies or instrumentalities, including
government-owned or controlled corporations with original charters. 14

Based on the Memorandum of the COA General Counsel, Director Sunico wrote:

In view of the points clarified by said Memorandum upholding COA Resolution No. 99-011, we have to comply with the
provisions of the latter, among which is to conduct an annual financial audit of the Boy Scouts of the Philippines. 15

In a letter dated November 20, 2000 signed by Director Amorsonia B. Escarda, CAO I, the COA informed the BSP that a
preliminary survey of its organizational structure, operations and accounting system/records shall be conducted on
November 21 to 22, 2000.16

Upon the BSP’s request, the audit was deferred for thirty (30) days. The BSP then filed a Petition for Review with Prayer
for Preliminary Injunction and/or Temporary Restraining Order before the COA. This was denied by the COA in its
questioned Decision, which held that the BSP is under its audit jurisdiction. The BSP moved for reconsideration but this
was likewise denied under its questioned Resolution.17

This led to the filing by the BSP of this petition for prohibition with preliminary injunction and temporary restraining order
against the COA.

The Issue

As stated earlier, the sole issue to be resolved in this case is whether the BSP falls under the COA’s audit jurisdiction.

The Parties’ Respective Arguments

The BSP contends that Boy Scouts of the Philippines v. National Labor Relations Commission is inapplicable for purposes
of determining the audit jurisdiction of the COA as the issue therein was the jurisdiction of the National Labor Relations
Commission over a case for illegal dismissal and unfair labor practice filed by certain BSP employees. 18

While the BSP concedes that its functions do relate to those that the government might otherwise completely assume on
its own, it avers that this alone was not determinative of the COA’s audit jurisdiction over it. The BSP further avers that the
Court in Boy Scouts of the Philippines v. National Labor Relations Commission "simply stated x x x that in respect of
functions, the BSP is akin to a public corporation" but this was not synonymous to holding that the BSP is a government
corporation or entity subject to audit by the COA. 19

The BSP contends that Republic Act No. 7278 introduced crucial amendments to its charter; hence, the findings of the
Court in Boy Scouts of the Philippines v. National Labor Relations Commission are no longer valid as the government has
ceased to play a controlling influence in it. The BSP claims that the pronouncements of the Court therein must be taken
only within the context of that case; that the Court had categorically found that its assets were acquired from the Boy
Scouts of America and not from the Philippine government, and that its operations are financed chiefly from membership
dues of the Boy Scouts themselves as well as from property rentals; and that "the BSP may correctly be characterized as
non-governmental, and hence, beyond the audit jurisdiction of the COA." It further claims that the designation by the Court
of the BSP as a government agency or instrumentality is mere obiter dictum. 20

The BSP maintains that the provisions of Republic Act No. 7278 suggest that "governance of BSP has come to be
overwhelmingly a private affair or nature, with government participation restricted to the seat of the Secretary of
Education, Culture and Sports."21 It cites Philippine Airlines Inc. v. Commission on Audit 22 wherein the Court declared that,
"PAL, having ceased to be a government-owned or controlled corporation is no longer under the audit jurisdiction of the
COA."23 Claiming that the amendments introduced by Republic Act No. 7278 constituted a supervening event that
changed the BSP’s corporate identity in the same way that the government’s privatization program changed PAL’s, the
BSP makes the case that the government no longer has control over it; thus, the COA cannot use the Boy Scouts of the
Philippines v. National Labor Relations Commission as its basis for the exercise of its jurisdiction and the issuance of
COA Resolution No. 99-011.24 The BSP further claims as follows:

It is not far-fetched, in fact, to concede that BSP’s funds and assets are private in character. Unlike ordinary public
corporations, such as provinces, cities, and municipalities, or government-owned and controlled corporations, such as
Land Bank of the Philippines and the Development Bank of the Philippines, the assets and funds of BSP are not derived
from any government grant. For its operations, BSP is not dependent in any way on any government appropriation; as a
matter of fact, it has not even been included in any appropriations for the government. To be sure, COA has not alleged,
in its Resolution No. 99-011 or in the Memorandum of its General Counsel, that BSP received, receives or continues to
receive assets and funds from any agency of the government. The foregoing simply point to the private nature of the
funds and assets of petitioner BSP.

xxxx

As stated in petitioner’s third argument, BSP’s assets and funds were never acquired from the government. Its operations
are not in any way financed by the government, as BSP has never been included in any appropriations act for the
government. Neither has the government invested funds with BSP. BSP, has not been, at any time, a user of government
property or funds; nor have properties of the government been held in trust by BSP. This is precisely the reason why, until
this time, the COA has not attempted to subject BSP to its audit jurisdiction. x x x. 25

To summarize its other arguments, the BSP contends that it is not a government-owned or controlled corporation; neither
is it an instrumentality, agency, or subdivision of the government.
In its Comment,26 the COA argues as follows:

1. The BSP is a public corporation created under Commonwealth Act No. 111 dated October 31, 1936, and
whose functions relate to the fostering of public virtues of citizenship and patriotism and the general improvement
of the moral spirit and fiber of the youth. The manner of creation and the purpose for which the BSP was created
indubitably prove that it is a government agency.

2. Being a government agency, the funds and property owned or held in trust by the BSP are subject to the audit
authority of respondent Commission on Audit pursuant to Section 2 (1), Article IX-D of the 1987 Constitution.

3. Republic Act No. 7278 did not change the character of the BSP as a government-owned or controlled
corporation and government instrumentality.27

The COA maintains that the functions of the BSP that include, among others, the teaching to the youth of patriotism,
courage, self-reliance, and kindred virtues, are undeniably sovereign functions enshrined under the Constitution and
discussed by the Court in Boy Scouts of the Philippines v. National Labor Relations Commission. The COA contends that
any attempt to classify the BSP as a private corporation would be incomprehensible since no less than the law which
created it had designated it as a public corporation and its statutory mandate embraces performance of sovereign
functions.28

The COA claims that the only reason why the BSP employees fell within the scope of the Civil Service Commission even
before the 1987 Constitution was the fact that it was a government-owned or controlled corporation; that as an attached
agency of the Department of Education, Culture and Sports (DECS), the BSP is an agency of the government; and that
the BSP is a chartered institution under Section 1(12) of the Revised Administrative Code of 1987, embraced under the
term government instrumentality.29

The COA concludes that being a government agency, the funds and property owned or held by the BSP are subject to the
audit authority of the COA pursuant to Section 2(1), Article IX (D) of the 1987 Constitution.

In support of its arguments, the COA cites The Veterans Federation of the Philippines (VFP) v. Reyes, 30 wherein the Court
held that among the reasons why the VFP is a public corporation is that its charter, Republic Act No. 2640, designates it
as one. Furthermore, the COA quotes the Court as saying in that case:

In several cases, we have dealt with the issue of whether certain specific activities can be classified as sovereign
functions. These cases, which deal with activities not immediately apparent to be sovereign functions, upheld the public
sovereign nature of operations needed either to promote social justice or to stimulate patriotic sentiments and love of
country.

xxxx

Petitioner claims that its funds are not public funds because no budgetary appropriations or government funds have been
released to the VFP directly or indirectly from the DBM, and because VFP funds come from membership dues and lease
rentals earned from administering government lands reserved for the VFP.

The fact that no budgetary appropriations have been released to the VFP does not prove that it is a private corporation.
The DBM indeed did not see it fit to propose budgetary appropriations to the VFP, having itself believed that the VFP is a
private corporation. If the DBM, however, is mistaken as to its conclusion regarding the nature of VFP's incorporation, its
previous assertions will not prevent future budgetary appropriations to the VFP. The erroneous application of the law by
public officers does not bar a subsequent correct application of the law. 31 (Citations omitted.)

The COA points out that the government is not precluded by law from extending financial support to the BSP and adding
to its funds, and that "as a government instrumentality which continues to perform a vital function imbued with public
interest and reflective of the government’s policy to stimulate patriotic sentiments and love of country, the BSP’s funds
from whatever source are public funds, and can be used solely for public purpose in pursuance of the provisions of
Republic Act No. [7278]."32

The COA claims that the fact that it has not yet audited the BSP’s funds may not bar the subsequent exercise of its audit
jurisdiction.
The BSP filed its Reply 33 on August 29, 2007 maintaining that its statutory designation as a "public corporation" and the
public character of its purpose and functions are not determinative of the COA’s audit jurisdiction; reiterating its stand that
Boy Scouts of the Philippines v. National Labor Relations Commission is not applicable anymore because the aspect of
government ownership and control has been removed by Republic Act No. 7278; and concluding that the funds and
property that it either owned or held in trust are not public funds and are not subject to the COA’s audit jurisdiction.

Thereafter, considering the BSP’s claim that it is a private corporation, this Court, in a Resolution 34 dated July 20, 2010,
required the parties to file, within a period of twenty (20) days from receipt of said Resolution, their respective comments
on the issue of whether Commonwealth Act No. 111, as amended by Republic Act No. 7278, is constitutional.

In compliance with the Court’s resolution, the parties filed their respective Comments.

In its Comment35 dated October 22, 2010, the COA argues that the constitutionality of Commonwealth Act No. 111, as
amended, is not determinative of the resolution of the present controversy on the COA’s audit jurisdiction over petitioner,
and in fact, the controversy may be resolved on other grounds; thus, the requisites before a judicial inquiry may be made,
as set forth in Commissioner of Internal Revenue v. Court of Tax Appeals, 36 have not been fully met. 37 Moreover, the COA
maintains that behind every law lies the presumption of constitutionality. 38 The COA likewise argues that contrary to the
BSP’s position, repeal of a law by implication is not favored. 39 Lastly, the COA claims that there was no violation of
Section 16, Article XII of the 1987 Constitution with the creation or declaration of the BSP as a government corporation.
Citing Philippine Society for the Prevention of Cruelty to Animals v. Commission on Audit, 40 the COA further alleges:

The true criterion, therefore, to determine whether a corporation is public or private is found in the totality of the relation of
the corporation to the State. If the corporation is created by the State as the latter’s own agency or instrumentality to help
it in carrying out its governmental functions, then that corporation is considered public; otherwise, it is private. x x x. 41

For its part, in its Comment 42 filed on December 3, 2010, the BSP submits that its charter, Commonwealth Act No. 111, as
amended by Republic Act No. 7278, is constitutional as it does not violate Section 16, Article XII of the Constitution. The
BSP alleges that "while [it] is not a public corporation within the purview of COA’s audit jurisdiction, neither is it a private
corporation created by special law falling within the ambit of the constitutional prohibition x x x." 43 The BSP further alleges:

Petitioner’s purpose is embodied in Section 3 of C.A. No. 111, as amended by Section 1 of R.A. No. 7278, thus:

xxxx

A reading of the foregoing provision shows that petitioner was created to advance the interest of the youth, specifically of
young boys, and to mold them into becoming good citizens. Ultimately, the creation of petitioner redounds to the benefit,
not only of those boys, but of the public good or welfare. Hence, it can be said that petitioner’s purpose and functions are
more of a public rather than a private character. Petitioner caters to all boys who wish to join the organization without any
distinction. It does not limit its membership to a particular class of boys. Petitioner’s members are trained in scoutcraft and
taught patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues, and moral
values, preparing them to become model citizens and outstanding leaders of the country. 44

The BSP reiterates its stand that the public character of its purpose and functions do not place it within the ambit of the
audit jurisdiction of the COA as it lacks the government ownership or control that the Constitution requires before an entity
may be subject of said jurisdiction. 45 It avers that it merely stated in its Reply that the withdrawal of government control is
akin to privatization, but it does not necessarily mean that petitioner is a private corporation. 46 The BSP claims that it has a
unique characteristic which "neither classifies it as a purely public nor a purely private corporation"; 47 that it is not a quasi-
public corporation; and that it may belong to a different class altogether. 48

The BSP claims that assuming arguendo that it is a private corporation, its creation is not contrary to the purpose of
Section 16, Article XII of the Constitution; and that the evil sought to be avoided by said provision is inexistent in the
enactment of the BSP’s charter, 49 as, (i) it was not created for any pecuniary purpose; (ii) those who will primarily benefit
from its creation are not its officers but its entire membership consisting of boys being trained in scoutcraft all over the
country; (iii) it caters to all boys who wish to join the organization without any distinction; and (iv) it does not limit its
membership to a particular class or group of boys. Thus, the enactment of its charter confers no special privilege to
particular individuals, families, or groups; nor does it bring about the danger of granting undue favors to certain groups to
the prejudice of others or of the interest of the country, which are the evils sought to be prevented by the constitutional
provision involved.50
Finally, the BSP states that the presumption of constitutionality of a legislative enactment prevails absent any clear
showing of its repugnancy to the Constitution.51

The Ruling of the Court

After looking at the legislative history of its amended charter and carefully studying the applicable laws and the arguments
of both parties, we find that the BSP is a public corporation and its funds are subject to the COA’s audit jurisdiction.

The BSP Charter (Commonwealth Act No. 111, approved on October 31, 1936), entitled "An Act to Create a Public
Corporation to be Known as the Boy Scouts of the Philippines, and to Define its Powers and Purposes" created the BSP
as a "public corporation" to serve the following public interest or purpose:

Sec. 3. The purpose of this corporation shall be to promote through organization and cooperation with other agencies, the
ability of boys to do useful things for themselves and others, to train them in scoutcraft, and to inculcate in them
patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues, and moral values,
using the method which are in common use by boy scouts.

Presidential Decree No. 460, approved on May 17, 1974, amended Commonwealth Act No. 111 and provided substantial
changes in the BSP organizational structure. Pertinent provisions are quoted below:

Section II. Section 5 of the said Act is also amended to read as follows:

The governing body of the said corporation shall consist of a National Executive Board composed of (a) the President of
the Philippines or his representative; (b) the charter and life members of the Boy Scouts of the Philippines; (c) the
Chairman of the Board of Trustees of the Philippine Scouting Foundation; (d) the Regional Chairman of the Scout
Regions of the Philippines; (e) the Secretary of Education and Culture, the Secretary of Social Welfare, the Secretary of
National Defense, the Secretary of Labor, the Secretary of Finance, the Secretary of Youth and Sports, and the Secretary
of Local Government and Community Development; (f) an equal number of individuals from the private sector; (g) the
National President of the Girl Scouts of the Philippines; (h) one Scout of Senior age from each Scout Region to represent
the boy membership; and (i) three representatives of the cultural minorities. Except for the Regional Chairman who shall
be elected by the Regional Scout Councils during their annual meetings, and the Scouts of their respective regions, all
members of the National Executive Board shall be either by appointment or cooption, subject to ratification and
confirmation by the Chief Scout, who shall be the Head of State. Vacancies in the Executive Board shall be filled by a
majority vote of the remaining members, subject to ratification and confirmation by the Chief Scout. The by-laws may
prescribe the number of members of the National Executive Board necessary to constitute a quorum of the board, which
number may be less than a majority of the whole number of the board. The National Executive Board shall have power to
make and to amend the by-laws, and, by a two-thirds vote of the whole board at a meeting called for this purpose, may
authorize and cause to be executed mortgages and liens upon the property of the corporation.

Subsequently, on March 24, 1992, Republic Act No. 7278 further amended Commonwealth Act No. 111 "by strengthening
the volunteer and democratic character" of the BSP and reducing government representation in its governing body, as
follows:

Section 1. Sections 2 and 3 of Commonwealth Act. No. 111, as amended, is hereby amended to read as follows:

"Sec. 2. The said corporation shall have the powers of perpetual succession, to sue and be sued; to enter into contracts;
to acquire, own, lease, convey and dispose of such real and personal estate, land grants, rights and choses in action as
shall be necessary for corporate purposes, and to accept and receive funds, real and personal property by gift, devise,
bequest or other means, to conduct fund-raising activities; to adopt and use a seal, and the same to alter and destroy; to
have offices and conduct its business and affairs in Metropolitan Manila and in the regions, provinces, cities,
municipalities, and barangays of the Philippines, to make and adopt by-laws, rules and regulations not inconsistent with
this Act and the laws of the Philippines, and generally to do all such acts and things, including the establishment of
regulations for the election of associates and successors, as may be necessary to carry into effect the provisions of this
Act and promote the purposes of said corporation: Provided, That said corporation shall have no power to issue
certificates of stock or to declare or pay dividends, its objectives and purposes being solely of benevolent character and
not for pecuniary profit of its members.

"Sec. 3. The purpose of this corporation shall be to promote through organization and cooperation with other agencies,
the ability of boys to do useful things for themselves and others, to train them in scoutcraft, and to inculcate in them
patriotism, civic consciousness and responsibility, courage, self-reliance, discipline and kindred virtues, and moral values,
using the method which are in common use by boy scouts."

Sec. 2. Section 4 of Commonwealth Act No. 111, as amended, is hereby repealed and in lieu thereof, Section 4 shall read
as follows:

"Sec. 4. The President of the Philippines shall be the Chief Scout of the Boy Scouts of the Philippines."

Sec. 3. Sections 5, 6, 7 and 8 of Commonwealth Act No. 111, as amended, are hereby amended to read as follows:

"Sec. 5. The governing body of the said corporation shall consist of a National Executive Board, the members of which
shall be Filipino citizens of good moral character. The Board shall be composed of the following:

"(a) One (1) charter member of the Boy Scouts of the Philippines who shall be elected by the members of the
National Council at its meeting called for this purpose;

"(b) The regional chairmen of the scout regions who shall be elected by the representatives of all the local scout
councils of the region during its meeting called for this purpose: Provided, That a candidate for regional chairman
need not be the chairman of a local scout council;

"(c) The Secretary of Education, Culture and Sports;

"(d) The National President of the Girl Scouts of the Philippines;

"(e) One (1) senior scout, each from Luzon, Visayas and Mindanao areas, to be elected by the senior scout
delegates of the local scout councils to the scout youth forums in their respective areas, in its meeting called for
this purpose, to represent the boy scout membership;

"(f) Twelve (12) regular members to be elected by the members of the National Council in its meeting called for
this purpose;

"(g) At least ten (10) but not more than fifteen (15) additional members from the private sector who shall be
elected by the members of the National Executive Board referred to in the immediately preceding paragraphs (a),
(b), (c), (d), (e) and (f) at the organizational meeting of the newly reconstituted National Executive Board which
shall be held immediately after the meeting of the National Council wherein the twelve (12) regular members and
the one (1) charter member were elected.

xxxx

"Sec. 8. Any donation or contribution which from time to time may be made to the Boy Scouts of the Philippines by the
Government or any of its subdivisions, branches, offices, agencies or instrumentalities or by a foreign government or by
private, entities and individuals shall be expended by the National Executive Board in pursuance of this Act.

The BSP as a Public Corporation under Par. 2, Art. 2 of the Civil Code

There are three classes of juridical persons under Article 44 of the Civil Code and the BSP, as presently constituted under
Republic Act No. 7278, falls under the second classification. Article 44 reads:

Art. 44. The following are juridical persons:

(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for public interest or purpose created by law; their
personality begins as soon as they have been constituted according to law;

(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical
personality, separate and distinct from that of each shareholder, partner or member. (Emphases supplied.)
The BSP, which is a corporation created for a public interest or purpose, is subject to the law creating it under Article 45 of
the Civil Code, which provides:

Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by the laws creating or
recognizing them.

Private corporations are regulated by laws of general application on the subject.

Partnerships and associations for private interest or purpose are governed by the provisions of this Code concerning
partnerships. (Emphasis and underscoring supplied.)

The purpose of the BSP as stated in its amended charter shows that it was created in order to implement a State policy
declared in Article II, Section 13 of the Constitution, which reads:

ARTICLE II - DECLARATION OF PRINCIPLES AND STATE POLICIES

Section 13. The State recognizes the vital role of the youth in nation-building and shall promote and protect their physical,
moral, spiritual, intellectual, and social well-being. It shall inculcate in the youth patriotism and nationalism, and encourage
their involvement in public and civic affairs.

Evidently, the BSP, which was created by a special law to serve a public purpose in pursuit of a constitutional mandate,
comes within the class of "public corporations" defined by paragraph 2, Article 44 of the Civil Code and governed by the
law which creates it, pursuant to Article 45 of the same Code.

The BSP’s Classification Under the Administrative Code of 1987

The public, rather than private, character of the BSP is recognized by the fact that, along with the Girl Scouts of the
Philippines, it is classified as an attached agency of the DECS under Executive Order No. 292, or the Administrative Code
of 1987, which states:

TITLE VI – EDUCATION, CULTURE AND SPORTS

Chapter 8 – Attached Agencies

SEC. 20. Attached Agencies. – The following agencies are hereby attached to the Department:

xxxx

(12) Boy Scouts of the Philippines;

(13) Girl Scouts of the Philippines.

The administrative relationship of an attached agency to the department is defined in the Administrative Code of 1987 as
follows:

BOOK IV
THE EXECUTIVE BRANCH

Chapter 7 – ADMINISTRATIVE RELATIONSHIP

SEC. 38. Definition of Administrative Relationship. – Unless otherwise expressly stated in the Code or in other laws
defining the special relationships of particular agencies, administrative relationships shall be categorized and defined as
follows:

xxxx

(3) Attachment. – (a) This refers to the lateral relationship between the department or its equivalent and the attached
agency or corporation for purposes of policy and program coordination. The coordination may be accomplished by having
the department represented in the governing board of the attached agency or corporation, either as chairman or as a
member, with or without voting rights, if this is permitted by the charter; having the attached corporation or agency comply
with a system of periodic reporting which shall reflect the progress of programs and projects; and having the department
or its equivalent provide general policies through its representative in the board, which shall serve as the framework for
the internal policies of the attached corporation or agency. (Emphasis ours.)

As an attached agency, the BSP enjoys operational autonomy, as long as policy and program coordination is achieved by
having at least one representative of government in its governing board, which in the case of the BSP is the DECS
Secretary. In this sense, the BSP is not under government control or "supervision and control." Still this characteristic
does not make the attached chartered agency a private corporation covered by the constitutional proscription in question.

Art. XII, Sec. 16 of the Constitution refers to "private corporations" created by government for proprietary or
economic/business purposes

At the outset, it should be noted that the provision of Section 16 in issue is found in Article XII of the Constitution, entitled
"National Economy and Patrimony." Section 1 of Article XII is quoted as follows:

SECTION 1. The goals of the national economy are a more equitable distribution of opportunities, income, and wealth; a
sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an
expanding productivity as the key to raising the quality of life for all, especially the underprivileged.

The State shall promote industrialization and full employment based on sound agricultural development and agrarian
reform, through industries that make full and efficient use of human and natural resources, and which are competitive in
both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair foreign competition
and trade practices.

In the pursuit of these goals, all sectors of the economy and all regions of the country shall be given optimum opportunity
to develop. Private enterprises, including corporations, cooperatives, and similar collective organizations, shall be
encouraged to broaden the base of their ownership.

The scope and coverage of Section 16, Article XII of the Constitution can be seen from the aforementioned declaration of
state policies and goals which pertains to national economy and patrimony and the interests of the people in economic
development.

Section 16, Article XII deals with "the formation, organization, or regulation of private corporations," 52 which should be
done through a general law enacted by Congress, provides for an exception, that is: if the corporation is government
owned or controlled; its creation is in the interest of the common good; and it meets the test of economic viability. The
rationale behind Article XII, Section 16 of the 1987 Constitution was explained in Feliciano v. Commission on Audit, 53 in
the following manner:

The Constitution emphatically prohibits the creation of private corporations except by a general law applicable to all
citizens. The purpose of this constitutional provision is to ban private corporations created by special charters, which
historically gave certain individuals, families or groups special privileges denied to other citizens. 54 (Emphasis added.)

It may be gleaned from the above discussion that Article XII, Section 16 bans the creation of "private corporations" by
special law. The said constitutional provision should not be construed so as to prohibit the creation of  public
corporations or a corporate agency or instrumentality of the government intended to serve a public interest or purpose,
which should not be measured on the basis of economic viability, but according to the public interest or purpose it serves
as envisioned by paragraph (2), of Article 44 of the Civil Code and the pertinent provisions of the Administrative Code of
1987.

The BSP is a Public Corporation Not Subject to the Test of Government Ownership or Control and Economic Viability

The BSP is a public corporation or a government agency or instrumentality with juridical personality, which does not fall
within the constitutional prohibition in Article XII, Section 16, notwithstanding the amendments to its charter. Not all
corporations, which are not government owned or controlled, are ipso facto to be considered private corporations as there
exists another distinct class of corporations or chartered institutions which are otherwise known as "public corporations."
These corporations are treated by law as agencies or instrumentalities of the government which are not subject to the
tests of ownership or control and economic viability but to different criteria relating to their public purposes/interests or
constitutional policies and objectives and their administrative relationship to the government or any of its Departments or
Offices.

Classification of Corporations Under Section 16, Article XII of the Constitution on National Economy and Patrimony

The dissenting opinion of Associate Justice Antonio T. Carpio, citing a line of cases, insists that the Constitution
recognizes only two classes of corporations: private corporations under a general law, and government-owned or
controlled corporations created by special charters.

We strongly disagree. Section 16, Article XII should not be construed so as to prohibit Congress from creating public
corporations. In fact, Congress has enacted numerous laws creating public corporations or government agencies or
instrumentalities vested with corporate powers. Moreover, Section 16, Article XII, which relates to National Economy and
Patrimony, could not have tied the hands of Congress in creating public corporations to serve any of the constitutional
policies or objectives.

In his dissent, Justice Carpio contends that this ponente introduces "a totally different species of corporation, which is
neither a private corporation nor a government owned or controlled corporation" and, in so doing, is missing the fact that
the BSP, "which was created as a non-stock, non-profit corporation, can only be either a private corporation or a
government owned or controlled corporation."

Note that in Boy Scouts of the Philippines v. National Labor Relations Commission, the BSP, under its former charter, was
regarded as both a government owned or controlled corporation with original charter and a "public corporation." The said
case pertinently stated:

While the BSP may be seen to be a mixed type of entity, combining aspects of both public and private entities, we believe
that considering the character of its purposes and its functions, the statutory designation of the BSP as "a public
corporation" and the substantial participation of the Government in the selection of members of the National Executive
Board of the BSP, the BSP, as presently constituted under its charter, is a government-controlled corporation within the
meaning of Article IX (B) (2) (1) of the Constitution.

We are fortified in this conclusion when we note that the Administrative Code of 1987 designates the BSP as one of the
attached agencies of the Department of Education, Culture and Sports ("DECS"). An "agency of the Government" is
defined as referring to any of the various units of the Government including a department, bureau, office, instrumentality,
government-owned or -controlled corporation, or local government or distinct unit therein. "Government instrumentality" is
in turn defined in the 1987 Administrative Code in the following manner:

Instrumentality - refers to any agency of the National Government, not integrated within the department framework, vested
with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds,
and enjoying operational autonomy usually through a charter. This term includes regulatory agencies, chartered
institutions and government-owned or controlled corporations.

The same Code describes a "chartered institution" in the following terms:

Chartered institution - refers to any agency organized or operating under a special charter, and vested by law with
functions relating to specific constitutional policies or objectives. This term includes the state universities and colleges,
and the monetary authority of the State.

We believe that the BSP is appropriately regarded as "a government instrumentality" under the 1987 Administrative Code.

It thus appears that the BSP may be regarded as both a "government controlled corporation with an original
charter" and as an "instrumentality" of the Government within the meaning of Article IX (B) (2) (1) of the Constitution. x x
x.55 (Emphases supplied.)

The existence of public or government corporate or juridical entities or chartered institutions by legislative fiat distinct from
private corporations and government owned or controlled corporation is best exemplified by the 1987 Administrative Code
cited above, which we quote in part:

Sec. 2. General Terms Defined. – Unless the specific words of the text, or the context as a whole, or a particular statute,
shall require a different meaning:
xxxx

(10) "Instrumentality" refers to any agency of the National Government, not integrated within the department framework,
vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special
funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered
institutions and government-owned or controlled corporations.

xxxx

(12) "Chartered institution" refers to any agency organized or operating under a special charter, and vested by law with
functions relating to specific constitutional policies or objectives. This term includes the state universities and colleges and
the monetary authority of the State.

(13) "Government-owned or controlled corporation" refers to any agency organized as a stock or non-stock corporation,
vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the
Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) per cent of its capital stock: Provided, That government-owned or
controlled corporations may be further categorized by the Department of the Budget, the Civil Service Commission, and
the Commission on Audit for purposes of the exercise and discharge of their respective powers, functions and
responsibilities with respect to such corporations.

Assuming for the sake of argument that the BSP ceases to be owned or controlled by the government because of
reduction of the number of representatives of the government in the BSP Board, it does not follow that it also ceases to be
a government instrumentality as it still retains all the characteristics of the latter as an attached agency of the DECS under
the Administrative Code. Vesting corporate powers to an attached agency or instrumentality of the government is not
constitutionally prohibited and is allowed by the above-mentioned provisions of the Civil Code and the 1987 Administrative
Code.

Economic Viability and Ownership and Control Tests Inapplicable to Public Corporations

As presently constituted, the BSP still remains an instrumentality of the national government. It is a public corporation
created by law for a public purpose, attached to the DECS pursuant to its Charter and the Administrative Code of 1987. It
is not a private corporation which is required to be owned or controlled by the government and be economically viable to
justify its existence under a special law.

The dissent of Justice Carpio also submits that by recognizing "a new class of public corporation(s)" created by special
charter that will not be subject to the test of economic viability, the constitutional provision will be circumvented.

However, a review of the Record of the 1986 Constitutional Convention reveals the intent of the framers of the highest law
of our land to distinguish between government corporations performing governmental functions and corporations involved
in business or proprietary functions:

THE PRESIDENT. Commissioner Foz is recognized.

MR. FOZ. Madam President, I support the proposal to insert "ECONOMIC VIABILITY" as one of the grounds for
organizing government corporations. x x x.

MR. OPLE. Madam President, the reason for this concern is really that when the government creates a corporation, there
is a sense in which this corporation becomes exempt from the test of economic performance. We know what happened in
the past. If a government corporation loses, then it makes its claim upon the taxpayers’ money through new equity
infusions from the government and what is always invoked is the common good. x x x

Therefore, when we insert the phrase "ECONOMIC VIABILITY" together with the "common good," this becomes a
restraint on future enthusiasts for state capitalism to excuse themselves from the responsibility of meeting the market test
so that they become viable. x x x.

xxxx

THE PRESIDENT. Commissioner Quesada is recognized.

MS. QUESADA. Madam President, may we be clarified by the committee on what is meant by economic viability?

THE PRESIDENT. Please proceed.

MR. MONSOD. Economic viability normally is determined by cost-benefit ratio that takes into consideration all benefits,
including economic external as well as internal benefits. These are what they call externalities in economics, so that these
are not strictly financial criteria. Economic viability involves what we call economic returns or benefits of the country that
are not quantifiable in financial terms. x x x.

xxxx

MS. QUESADA. So, would this particular formulation now really limit the entry of government corporations into activities
engaged in by corporations?

MR. MONSOD. Yes, because it is also consistent with the economic philosophy that this Commission approved – that
there should be minimum government participation and intervention in the economy.

MS. QUESDA. Sometimes this Commission would just refer to Congress to provide the particular requirements when the
government would get into corporations. But this time around, we specifically mentioned economic viability. x x x.

MR. VILLEGAS. Commissioner Ople will restate the reason for his introducing that amendment.

MR. OPLE. I am obliged to repeat what I said earlier in moving for this particular amendment jointly with Commissioner
Foz. During the past three decades, there had been a proliferation of government corporations, very few of which have
succeeded, and many of which are now earmarked by the Presidential Reorganization Commission for liquidation
because they failed the economic test. x x x.

xxxx

MS. QUESADA. But would not the Commissioner say that the reason why many of the government-owned or controlled
corporations failed to come up with the economic test is due to the management of these corporations, and not the idea
itself of government corporations? It is a problem of efficiency and effectiveness of management of these corporations
which could be remedied, not by eliminating government corporations or the idea of getting into state-owned corporations,
but improving management which our technocrats should be able to do, given the training and the experience.

MR. OPLE. That is part of the economic viability, Madam President.

MS. QUESADA. So, is the Commissioner saying then that the Filipinos will benefit more if these government-controlled
corporations were given to private hands, and that there will be more goods and services that will be affordable and within
the reach of the ordinary citizens?

MR. OPLE. Yes. There is nothing here, Madam President, that will prevent the formation of a government corporation in
accordance with a special charter given by Congress. However, we are raising the standard a little bit so that, in the
future, corporations established by the government will meet the test of the common good but within that framework we
should also build a certain standard of economic viability.

xxxx

THE PRESIDENT. Commissioner Padilla is recognized.

MR. PADILLA. This is an inquiry to the committee. With regard to corporations created by a special charter for
government-owned or controlled corporations, will these be in the pioneer fields or in places where the private enterprise
does not or cannot enter? Or is this so general that these government corporations can compete with private corporations
organized under a general law?

MR. MONSOD. Madam President, x x x. There are two types of government corporations – those that are involved in
performing governmental functions, like garbage disposal, Manila waterworks, and so on; and those government
corporations that are involved in business functions. As we said earlier, there are two criteria that should be followed for
corporations that want to go into business. First is for government corporations to first prove that they can be efficient in
the areas of their proper functions. This is one of the problems now because they go into all kinds of activities but are not
even efficient in their proper functions. Secondly, they should not go into activities that the private sector can do better.

MR. PADILLA. There is no question about corporations performing governmental functions or functions that are
impressed with public interest. But the question is with regard to matters that are covered, perhaps not exhaustively, by
private enterprise. It seems that under this provision the only qualification is economic viability and common good, but
shall government, through government-controlled corporations, compete with private enterprise?

MR. MONSOD. No, Madam President. As we said, the government should not engage in activities that private enterprise
is engaged in and can do better. x x x.56 (Emphases supplied.)

Thus, the test of economic viability clearly does not apply to public corporations dealing with governmental functions, to
which category the BSP belongs. The discussion above conveys the constitutional intent not to apply this constitutional
ban on the creation of public corporations where the economic viability test would be irrelevant. The said test would only
apply if the corporation is engaged in some economic activity or business function for the government.

It is undisputed that the BSP performs functions that are impressed with public interest. In fact, during the consideration of
the Senate Bill that eventually became Republic Act No. 7278, which amended the BSP Charter, one of the bill’s
sponsors, Senator Joey Lina, described the BSP as follows:

Senator Lina. Yes, I can only think of two organizations involving the masses of our youth, Mr. President, that should be
given this kind of a privilege – the Boy Scouts of the Philippines and the Girl Scouts of the Philippines. Outside of these
two groups, I do not think there are other groups similarly situated.

The Boy Scouts of the Philippines has a long history of providing value formation to our young, and considering how huge
the population of the young people is, at this point in time, and also considering the importance of having an organization
such as this that will inculcate moral uprightness among the young people, and further considering that the development
of these young people at that tender age of seven to sixteen is vital in the development of the country producing good
citizens, I believe that we can make an exception of the Boy Scouting movement of the Philippines from this general
prohibition against providing tax exemption and privileges. 57

Furthermore, this Court cannot agree with the dissenting opinion which equates the changes introduced by Republic Act
No. 7278 to the BSP Charter as clear manifestation of the intent of Congress "to return the BSP to the private sector." It
was not the intent of Congress in enacting Republic Act No. 7278 to give up all interests in this basic youth organization,
which has been its partner in forming responsible citizens for decades.

In fact, as may be seen in the deliberation of the House Bills that eventually resulted to Republic Act No. 7278, Congress
worked closely with the BSP to rejuvenate the organization, to bring it back to its former glory reached under its original
charter, Commonwealth Act No. 111, and to correct the perceived ills introduced by the amendments to its Charter under
Presidential Decree No. 460. The BSP suffered from low morale and decrease in number because the Secretaries of the
different departments in government who were too busy to attend the meetings of the BSP’s National Executive Board
("the Board") sent representatives who, as it turned out, changed from meeting to meeting. Thus, the Scouting Councils
established in the provinces and cities were not in touch with what was happening on the national level, but they were left
to implement what was decided by the Board.58

A portion of the legislators’ discussion is quoted below to clearly show their intent:

HON. DEL MAR. x x x I need not mention to you the value and the tremendous good that the Boy Scout Movement has
done not only for the youth in particular but for the country in general. And that is why, if we look around, our past and
present national leaders, prominent men in the various fields of endeavor, public servants in government offices, and civic
leaders in the communities all over the land, and not only in our country but all over the world many if not most of them
have at one time or another been beneficiaries of the Scouting Movement. And so, it is along this line, Mr. Chairman, that
we would like to have the early approval of this measure if only to pay back what we owe much to the Scouting
Movement. Now, going to the meat of the matter, Mr. Chairman, if I may just – the Scouting Movement was enacted into
law in October 31, 1936 under Commonwealth Act No. 111. x x x [W]e were acknowledged as the third biggest scouting
organization in the world x x x. And to our mind, Mr. Chairman, this erratic growth and this decrease in membership
[number] is because of the bad policy measures that were enunciated with the enactment or promulgation by the
President before of Presidential Decree No. 460 which we feel is the culprit of the ills that is flagging the Boy Scout
Movement today. And so, this is specifically what we are attacking, Mr. Chairman, the disenfranchisement of the National
Council in the election of the national board. x x x. And so, this is what we would like to be appraised of by the officers of
the Boy [Scouts] of the Philippines whom we are also confident, have the best interest of the Boy Scout Movement at
heart and it is in this spirit, Mr. Chairman, that we see no impediment towards working together, the Boy Scout of the
Philippines officers working together with the House of Representatives in coming out with a measure that will put back
the vigor and enthusiasm of the Boy Scout Movement. x x x. 59 (Emphasis ours.)

The following is another excerpt from the discussion on the House version of the bill, in the Committee on Government
Enterprises:

HON. AQUINO: x x x Well, obviously, the two bills as well as the previous laws that have created the Boy Scouts of the
Philippines did not provide for any direct government support by way of appropriation from the national budget to support
the activities of this organization. The point here is, and at the same time they have been subjected to a governmental
intervention, which to their mind has been inimical to the objectives and to the institution per se, that is why they are
seeking legislative fiat to restore back the original mandate that they had under Commonwealth Act 111. Such having
been the experience in the hands of government, meaning, there has been negative interference on their part and
inasmuch as their mandate is coming from a legislative fiat, then shouldn’t it be, this rhetorical question, shouldn’t it be
better for this organization to seek a mandate from, let’s say, the government the Corporation Code of the Philippines and
register with the SEC as non-profit non-stock corporation so that government intervention could be very very minimal.
Maybe that’s a rhetorical question, they may or they may not answer, ano. I don’t know what would be the benefit of a
charter or a mandate being provided for by way of legislation versus a registration with the SEC under the Corporation
Code of the Philippines inasmuch as they don’t get anything from the government anyway insofar as direct funding. In
fact, the only thing that they got from government was intervention in their affairs. Maybe we can solicit some commentary
comments from the resource persons. Incidentally, don’t take that as an objection, I’m not objecting. I’m all for the
objectives of these two bills. It just occurred to me that since you have had very bad experience in the hands of
government and you will always be open to such possible intervention even in the future as long as you have a legislative
mandate or your mandate or your charter coming from legislative action.

xxxx

MR. ESCUDERO: Mr. Chairman, there may be a disadvantage if the Boy Scouts of the Philippines will be required to
register with the SEC. If we are registered with the SEC, there could be a danger of proliferation of scout organization.
Anybody can organize and then register with the SEC. If there will be a proliferation of this, then the organization will lose
control of the entire organization. Another disadvantage, Mr. Chairman, anybody can file a complaint in the SEC against
the Boy Scouts of the Philippines and the SEC may suspend the operation or freeze the assets of the organization and
hamper the operation of the organization. I don’t know, Mr. Chairman, how you look at it but there could be a danger for
anybody filing a complaint against the organization in the SEC and the SEC might suspend the registration permit of the
organization and we will not be able to operate.

HON. AQUINO: Well, that I think would be a problem that will not be exclusive to corporations registered with the SEC
because even if you are government corporation, court action may be taken against you in other judicial bodies because
the SEC is simply another quasi-judicial body. But, I think, the first point would be very interesting, the first point that you
raised. In effect, what you are saying is that with the legislative mandate creating your charter, in effect, you have been
given some sort of a franchise with this movement.

MR. ESCUDERO: Yes.

HON. AQUINO: Exclusive franchise of that movement?

MR. ESCUDERO: Yes.

HON. AQUINO: Well, that’s very well taken so I will proceed with other issues, Mr. Chairman. x x x. 60 (Emphases added.)

Therefore, even though the amended BSP charter did away with most of the governmental presence in the BSP Board,
this was done to more strongly promote the BSP’s objectives, which were not supported under Presidential Decree No.
460. The BSP objectives, as pointed out earlier, are consistent with the public purpose of the promotion of the well-being
of the youth, the future leaders of the country. The amendments were not done with the view of changing the character of
the BSP into a privatized corporation. The BSP remains an agency attached to a department of the government, the
DECS, and it was not at all stripped of its public character.
The ownership and control test is likewise irrelevant for a public corporation like the BSP. To reiterate, the relationship of
the BSP, an attached agency, to the government, through the DECS, is defined in the Revised Administrative Code of
1987. The BSP meets the minimum statutory requirement of an attached government agency as the DECS Secretary sits
at the BSP Board ex officio, thus facilitating the policy and program coordination between the BSP and the DECS.

Requisites for Declaration of Unconstitutionality Not Met in this Case

The dissenting opinion of Justice Carpio improperly raised the issue of unconstitutionality of certain provisions of the BSP
Charter. Even if the parties were asked to Comment on the validity of the BSP charter by the Court, this alone does not
comply with the requisites for judicial review, which were clearly set forth in a recent case:

When questions of constitutional significance are raised, the Court can exercise its power of judicial review only if the
following requisites are present: (1) the existence of an actual and appropriate case; (2) the existence of personal and
substantial interest on the part of the party raising the constitutional question; (3) recourse to judicial review is made at the
earliest opportunity; and (4) the constitutional question is the lis mota of the case.61 (Emphasis added.)

Thus, when it comes to the exercise of the power of judicial review, the constitutional issue should be the very lis mota, or
threshold issue, of the case, and that it should be raised by either of the parties. These requirements would be ignored
under the dissent’s rather overreaching view of how this case should have been decided. True, it was the Court that
asked the parties to comment, but the Court cannot be the one to raise a constitutional issue. Thus, the Court chooses to
once more exhibit restraint in the exercise of its power to pass upon the validity of a law.

Re: the COA’s Jurisdiction

Regarding the COA’s jurisdiction over the BSP, Section 8 of its amended charter allows the BSP to receive contributions
or donations from the government. Section 8 reads:

Section 8. Any donation or contribution which from time to time may be made to the Boy Scouts of the Philippines by the
Government or any of its subdivisions, branches, offices, agencies or instrumentalities shall be expended by the
Executive Board in pursuance of this Act.lawph!1

The sources of funds to maintain the BSP were identified before the House Committee on Government Enterprises while
the bill was being deliberated, and the pertinent portion of the discussion is quoted below:

MR. ESCUDERO. Yes, Mr. Chairman. The question is the sources of funds of the organization. First, Mr. Chairman, the
Boy Scouts of the Philippines do not receive annual allotment from the government. The organization has to raise its own
funds through fund drives and fund campaigns or fund raising activities. Aside from this, we have some revenue
producing projects in the organization that gives us funds to support the operation. x x x From time to time, Mr. Chairman,
when we have special activities we request for assistance or financial assistance from government agencies, from private
business and corporations, but this is only during special activities that the Boy Scouts of the Philippines would conduct
during the year. Otherwise, we have to raise our own funds to support the organization. 62

The nature of the funds of the BSP and the COA’s audit jurisdiction were likewise brought up in said congressional
deliberations, to wit:

HON. AQUINO: x x x Insofar as this organization being a government created organization, in fact, a government
corporation classified as such, are your funds or your finances subjected to the COA audit?

MR. ESCUDERO: Mr. Chairman, we are not. Our funds is not subjected. We don’t fall under the jurisdiction of the COA.

HON. AQUINO: All right, but before were you?

MR. ESCUDERO: No, Mr. Chairman.

MR. JESUS: May I? As historical backgrounder, Commonwealth Act 111 was written by then Secretary Jorge Vargas and
before and up to the middle of the Martial Law years, the BSP was receiving a subsidy in the form of an annual… a one
draw from the Sweepstakes. And, this was the case also with the Girl Scouts at the Anti-TB, but then this was… and the
Boy Scouts then because of this funding partly from government was being subjected to audit in the contributions being
made in the part of the Sweepstakes. But this was removed later during the Martial Law years with the creation of the
Human Settlements Commission. So the situation right now is that the Boy Scouts does not receive any funding from
government, but then in the case of the local councils and this legislative charter, so to speak, enables the local councils
even the national headquarters in view of the provisions in the existing law to receive donations from the government or
any of its instrumentalities, which would be difficult if the Boy Scouts is registered as a private corporation with the
Securities and Exchange Commission. Government bodies would be estopped from making donations to the Boy Scouts,
which at present is not the case because there is the Boy Scouts charter, this Commonwealth Act 111 as amended by PD
463.

xxxx

HON. AMATONG: Mr. Chairman, in connection with that.

THE CHAIRMAN: Yeah, Gentleman from Zamboanga.

HON. AMATONG: There is no auditing being made because there’s no money put in the organization, but how about
donated funds to this organization? What are the remedies of the donors of how will they know how their money are being
spent?

MR. ESCUDERO: May I answer, Mr. Chairman?

THE CHAIRMAN: Yes, gentleman.

MR. ESCUDERO: The Boy Scouts of the Philippines has an external auditor and by the charter we are required to submit
a financial report at the end of each year to the National Executive Board. So all the funds donated or otherwise is
accounted for at the end of the year by our external auditor. In this case the SGV. 63

Historically, therefore, the BSP had been subjected to government audit in so far as public funds had been infused
thereto. However, this practice should not preclude the exercise of the audit jurisdiction of COA, clearly set forth under the
Constitution, which pertinently provides:

Section 2. (1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all
accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust
by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-
owned and controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions
and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and
universities; (c) other government-owned or controlled corporations with original charters and their subsidiaries; and (d)
such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the Government, which
are required by law of the granting institution to submit to such audit as a condition of subsidy or equity. x x x. 64

Since the BSP, under its amended charter, continues to be a public corporation or a government instrumentality, we come
to the inevitable conclusion that it is subject to the exercise by the COA of its audit jurisdiction in the manner consistent
with the provisions of the BSP Charter.

WHEREFORE, premises considered, the instant petition for prohibition is DISMISSED.

SO ORDERED.