Republic

SUPREME
Manila

of

the

Philippines
COURT

FIRST DIVISION
G.R. No. 90580

April 8, 1991

RUBEN SAW, DIONISIO SAW, LINA S. CHUA, LUCILA S. RUSTE AND

EVELYN
SAW, petitioners,
vs.
HON. COURT OF APPEALS, HON. BERNARDO P. PARDO, Presiding
Judge of Branch 43, (Regional Trial Court of Manila), FREEMAN
MANAGEMENT AND DEVELOPMENT CORPORATION, EQUITABLE
BANKING CORPORATION, FREEMAN INCORPORATED, SAW CHIAO
LIAN, THE REGISTER OF DEEDS OF CALOOCAN CITY, and DEPUTY
SHERIFF ROSALIO G. SIGUA, respondents.
Benito
O.
Ching,
Jr.
for
petitioners.
William
R.
Vetor
for
Equitable
Banking
Corp.
Pineda, Uy & Janolo for Freeman, Inc. and Saw Chiao.

CRUZ, J.:
A collection suit with preliminary attachment was filed by Equitable
Banking Corporation against Freeman, Inc. and Saw Chiao Lian, its
President and General Manager. The petitioners moved to intervene,
alleging that (1) the loan transactions between Saw Chiao Lian and
Equitable Banking Corp. were not approved by the stockholders
representing at least 2/3 of corporate capital; (2) Saw Chiao Lian had no
authority to contract such loans; and (3) there was collusion between the
officials of Freeman, Inc. and Equitable Banking Corp. in securing the
loans. The motion to intervene was denied, and the petitioners appealed
to the Court of Appeals.

Meanwhile, Equitable and Saw Chiao Lian entered into a compromise

agreement which they submitted to and was approved by the lower
court. But because it was not complied with, Equitable secured a writ of
execution, and two lots owned by Freeman, Inc. were levied upon and
sold at public auction to Freeman Management and Development Corp.
The Court of Appeals1 sustained the denial of the petitioners' motion for
intervention, holding that "the compromise agreement between
Freeman, Inc., through its President, and Equitable Banking Corp. will not
necessarily prejudice petitioners whose rights to corporate assets are at
most inchoate, prior to the dissolution of Freeman, Inc. . . . And
intervention under Sec. 2, Rule 12 of the Revised Rules of Court is proper
only when one's right is actual, material, direct and immediate and not
simply contingent or expectant."
It also ruled against the petitioners' argument that because they had
already filed a notice of appeal, the trial judge had lost jurisdiction over
the case and could no longer issue the writ of execution.
The petitioners are now before this Court, contending that:
1. The Honorable Court of Appeals erred in holding that the
petitioners cannot intervene in Civil Case No. 88-44404 because
their rights as stockholders of Freeman are merely inchoate and
not actual, material, direct and immediate prior to the
dissolution of the corporation;
2. The Honorable Court of Appeals erred in holding that the
appeal of the petitioners in said Civil Case No. 88-44404 was
confined only to the order denying their motion to intervene and
did not divest the trial court of its jurisdiction over the whole
case.
The petitioners base their right to intervene for the protection of their
interests as stockholders on Everett v. Asia Banking Corp.2 where it was
held:
The well-known rule that shareholders cannot ordinarily sue in
equity to redress wrongs done to the corporation, but that the

action must be brought by the Board of Directors, . . . has its

exceptions. (If the corporation [were] under the complete control
of the principal defendants, . . . it is obvious that a demand upon
the Board of Directors to institute action and prosecute the same
effectively would have been useless, and the law does not
require litigants to perform useless acts.
Equitable demurs, contending that the collection suit against Freeman,
Inc, and Saw Chiao Lian is essentially in personam and, as an action
against defendants in their personal capacities, will not prejudice the
petitioners as stockholders of the corporation. The Everett case is not
applicable because it involved an action filed by the minority
stockholders where the board of directors refused to bring an action in
behalf of the corporation. In the case at bar, it was Freeman, Inc. that
was being sued by the creditor bank.
Equitable also argues that the subject matter of the intervention falls
properly within the original and exclusive jurisdiction of the Securities
and Exchange Commission under P.D. No. 902-A. In fact, at the time the
motion for intervention was filed, there was pending between Freeman,
Inc. and the petitioners SEC Case No. 03577 entitled "Dissolution,
Accounting, Cancellation of Certificate of Registration with Restraining
Order or Preliminary Injunction and Appointment of Receiver." It also
avers in its Comment that the intervention of the petitioners could have
only caused delay and prejudice to the principal parties.
On the second assignment of error, Equitable maintains that the
petitioners' appeal could only apply to the denial of their motion for
intervention and not to the main case because their personality as party
litigants had not been recognized by the trial court.
After examining the issues and arguments of the parties, the Court finds
that the respondent court committed no reversible error in sustaining
the denial by the trial court of the petitioners' motion for intervention.
In the case of Magsaysay-Labrador v. Court of Appeals, we ruled as
follows:
3

Viewed in the light of Section 2, Rule 12 of the Revised Rules of

Court, this Court affirms the respondent court's holding that

petitioners herein have no legal interest in the subject matter in

litigation so as to entitle them to intervene in the proceedings
below. In the case of Batama Farmers' Cooperative Marketing
Association, Inc. v. Rosal, we held: "As clearly stated in Section 2
of Rule 12 of the Rules of Court, to be permitted to intervene in a
pending action, the party must have a legal interest in the
matter in litigation, or in the success of either of the parties or
an interest against both, or he must be so situated as to be
adversely affected by a distribution or other disposition of the
property in the custody of the court or an officer thereof."
To allow intervention, [a] it must be shown that the movant has
legal interest in the matter in litigation, or otherwise qualified;
and [b] consideration must be given as to whether the
adjudication of the rights of the original parties may be delayed
or prejudiced, or whether the intervenor's rights may be
protected in a separate proceeding or not. Both requirements
must concur as the first is not more important than the second.
The interest which entitles a person to intervene in a suit
between other parties must be in the matter in litigation and of
such direct and immediate character that the intervenor will
either gain or lose by the direct legal operation and effect of the
judgment. Otherwise, if persons not parties of the action could
be allowed to intervene, proceedings will become unnecessarily
complicated, expensive and interminable. And this is not the
policy of the law.
The words
the cause
intervenor
complaint,
recover.

"an interest in the subject" mean a direct interest in

of action as pleaded, and which would put the
in a legal position to litigate a fact alleged in the
without the establishment of which plaintiff could not

Here, the interest, if it exists at all, of petitioners-movants is

indirect, contingent, remote, conjectural, consequential and
collateral. At the very least, their interest is purely inchoate, or in
sheer expectancy of a right in the management of the
corporation and to share in the profits thereof and in the
properties and assets thereof on dissolution, after payment of
the corporate debts and obligations.

While a share of stock represents a proportionate or aliquot

interest in the property of the corporation, it does not vest the
owner thereof with any legal right or title to any of the property,
his interest in the corporate property being equitable or
beneficial in nature. Shareholders are in no legal sense the
owners of corporate property, which is owned by the corporation
as a distinct legal person.
On the second assignment of error, the respondent court correctly noted
that the notice of appeal was filed by the petitioners on October 24,
1988, upon the denial of their motion to intervene, and the writ of
execution was issued by the lower court on January 30, 1989. The
petitioners' appeal could not have concerned the "whole" case (referring
to the decision) because the petitioners "did not appeal the decision as
indeed they cannot because they are not parties to the case despite
their being stockholders of respondent Freeman, Inc." They could only
appeal the denial of their motion for intervention as they were never
recognized by the trial court as party litigants in the main case.
Intervention is "an act or proceeding by which a third person is
permitted to become a party to an action or proceeding between other
persons, and which results merely in the addition of a new party or
parties to an original action, for the purpose of hearing and determining
at the same time all conflicting claims which may be made to the subject
matter in litigation.4
It is not an independent proceeding, but an ancillary and supplemental
one which, in the nature of things, unless otherwise provided for by the
statute or Rules of Court, must be in subordination to the main
proceeding.5 It may be laid down as a general rule that an intervenor is
limited to the field of litigation open to the original parties. 6

An intervention has been regarded, as merely "collateral or

accessory or ancillary to the principal action and not an
independent
proceedings;
and
interlocutory
proceeding
dependent on and subsidiary to, the case between the original
parties." (Fransisco, Rules of Court, Vol. 1, p. 721). With the final
dismissal of the original action, the complaint in intervention can
no longer be acted upon. In the case of Clareza v. Resales, 2
SCRA 455, 457-458, it was stated that:
That right of the intervenor should merely be in aid of
the right of the original party, like the plaintiffs in this
case. As this right of the plaintiffs had ceased to exist,
there is nothing to aid or fight for. So the right of
intervention has ceased to exist.
Consequently, it will be illogical and of no useful purpose to
grant or even consider further herein petitioner's prayer for the
issuance of a writ of mandamus to compel the lower court to
allow and admit the petitioner's complaint in intervention. The
dismissal of the expropriation case has no less the inherent
effect of also dismissing the motion for intervention which is but
the unavoidable consequence.
The Court observes that even with the denial of the petitioners' motion
to intervene, nothing is really lost to them.1wphi1The denial did not
necessarily prejudice them as their rights are being litigated in the case
now before the Securities and Exchange Commission and may be fully
asserted and protected in that separate proceeding.
WHEREFORE, the petition is DENIED, with costs against the petitioners. It
is so ordered.

In the case at bar, there is no more principal action to be resolved as a

writ of execution had already been issued by the lower court and the
claim of Equitable had already been satisfied. The decision of the lower
court had already become final and in fact had already been enforced.
There is therefore no more principal proceeding in which the petitioners
may intervene.

Narvasa, Gancayco, Grio-Aquino and Medialdea, JJ., concur.

As we held in the case of Barangay Matictic v. Elbinias:7

SECOND DIVISION

Republic
SUPREME
Manila

of

the

Philippines
COURT

G.R. No. L-31061 August 17, 1976

SULO
NG
BAYAN
INC., plaintiff-appellant,
vs.
GREGORIO ARANETA, INC., PARADISE FARMS, INC., NATIONAL
WATERWORKS & SEWERAGE AUTHORITY, HACIENDA CARETAS,
INC, and REGISTER OF DEEDS OF BULACAN, defendants-appellees.
Hill & Associates Law Offices for appellant.
Araneta, Mendoza & Papa for appellee Gregorio Araneta, Inc.
Carlos, Madarang, Carballo & Valdez for Paradise Farms, Inc.
Leopoldo M. Abellera, Arsenio J. Magpale & Raul G. Bernardo, Office of
the Government Corporate Counsel for appellee National Waterworks &
Sewerage Authority.
Candido G. del Rosario for appellee Hacienda Caretas, Inc.

ANTONIO, J.:
The issue posed in this appeal is whether or not plaintiff corporation
(non- stock may institute an action in behalf of its individual members
for the recovery of certain parcels of land allegedly owned by said
members; for the nullification of the transfer certificates of title issued in
favor of defendants appellees covering the aforesaid parcels of land; for
a declaration of "plaintiff's members as absolute owners of the property"
and the issuance of the corresponding certificate of title; and for
damages.
On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion
de revindicacion with the Court of First Instance of Bulacan, Fifth Judicial

District, Valenzuela, Bulacan, against defendants-appellees to recover

the ownership and possession of a large tract of land in San Jose del
Monte, Bulacan, containing an area of 27,982,250 square meters, more
or less, registered under the Torrens System in the name of defendantsappellees' predecessors-in-interest. 1 The complaint, as amended on
June 13, 1966, specifically alleged that plaintiff is a corporation
organized and existing under the laws of the Philippines, with its
principal office and place of business at San Jose del Monte, Bulacan;
that its membership is composed of natural persons residing at San Jose
del Monte, Bulacan; that the members of the plaintiff corporation,
through themselves and their predecessors-in-interest, had pioneered in
the clearing of the fore-mentioned tract of land, cultivated the same
since the Spanish regime and continuously possessed the said property
openly and public under concept of ownership adverse against the whole
world; that defendant-appellee Gregorio Araneta, Inc., sometime in the
year 1958, through force and intimidation, ejected the members of the
plaintiff corporation fro their possession of the aforementioned vast tract
of land; that upon investigation conducted by the members and officers
of plaintiff corporation, they found out for the first time in the year 1961
that the land in question "had been either fraudelently or erroneously
included, by direct or constructive fraud, in Original Certificate of Title
No. 466 of the Land of Records of the province of Bulacan", issued on
May 11, 1916, which title is fictitious, non-existent and devoid of legal
efficacy due to the fact that "no original survey nor plan whatsoever"
appears to have been submitted as a basis thereof and that the Court of
First Instance of Bulacan which issued the decree of registration did not
acquire jurisdiction over the land registration case because no notice of
such proceeding was given to the members of the plaintiff corporation
who were then in actual possession of said properties; that as a
consequence of the nullity of the original title, all subsequent titles
derived therefrom, such as Transfer Certificate of Title No. 4903 issued in
favor of Gregorio Araneta and Carmen Zaragoza, which was
subsequently cancelled by Transfer Certificate of Title No. 7573 in the
name of Gregorio Araneta, Inc., Transfer Certificate of Title No. 4988
issued in the name of, the National Waterworks & Sewerage Authority
(NWSA), Transfer Certificate of Title No. 4986 issued in the name of
Hacienda Caretas, Inc., and another transfer certificate of title in the

name of Paradise Farms, Inc., are therefore void. Plaintiff-appellant

consequently prayed (1) that Original Certificate of Title No. 466, as well
as all transfer certificates of title issued and derived therefrom, be
nullified; (2) that "plaintiff's members" be declared as absolute owners in
common of said property and that the corresponding certificate of title
be issued to plaintiff; and (3) that defendant-appellee Gregorio Araneta,
Inc. be ordered to pay to plaintiff the damages therein specified.
On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a
motion to dismiss the amended complaint on the grounds that (1) the
complaint states no cause of action; and (2) the cause of action, if any,
is barred by prescription and laches. Paradise Farms, Inc. and Hacienda
Caretas, Inc. filed motions to dismiss based on the same grounds.
Appellee National Waterworks & Sewerage Authority did not file any
motion to dismiss. However, it pleaded in its answer as special and
affirmative defenses lack of cause of action by the plaintiff-appellant and
the barring of such action by prescription and laches.
During the pendency of the motion to dismiss, plaintiff-appellant filed a
motion, dated October 7, 1966, praying that the case be transferred to
another branch of the Court of First Instance sitting at Malolos, Bulacan,
According to defendants-appellees, they were not furnished a copy of
said motion, hence, on October 14, 1966, the lower court issued an
Order requiring plaintiff-appellant to furnish the appellees copy of said
motion, hence, on October 14, 1966, defendant-appellant's motion dated
October 7, 1966 and, consequently, prayed that the said motion be
denied for lack of notice and for failure of the plaintiff-appellant to
comply with the Order of October 14, 1966. Similarly, defendantappellee paradise Farms, Inc. filed, on December 2, 1966, a
manifestation information the court that it also did not receive a copy of
the afore-mentioned of appellant. On January 24, 1967, the trial court
issued an Order dismissing the amended complaint.
On February 14, 1967, appellant filed a motion to reconsider the Order of
dismissal on the grounds that the court had no jurisdiction to issue the
Order of dismissal, because its request for the transfer of the case from
the Valenzuela Branch of the Court of First Instance to the Malolos

Branch of the said court has been approved by the Department of

Justice; that the complaint states a sufficient cause of action because
the subject matter of the controversy in one of common interest to the
members of the corporation who are so numerous that the present
complaint should be treated as a class suit; and that the action is not
barred by the statute of limitations because (a) an action for the
reconveyance of property registered through fraud does not prescribe,
and (b) an action to impugn a void judgment may be brought any time.
This motion was denied by the trial court in its Order dated February 22,
1967. From the afore-mentioned Order of dismissal and the Order
denying its motion for reconsideration, plaintiff-appellant appealed to
the Court of Appeals.
On September 3, 1969, the Court of Appeals, upon finding that no
question of fact was involved in the appeal but only questions of law and
jurisdiction, certified this case to this Court for resolution of the legal
issues involved in the controversy.
I
Appellant contends, as a first assignment of error, that the trial court
acted without authority and jurisdiction in dismissing the amended
complaint when the Secretary of Justice had already approved the
transfer of the case to any one of the two branches of the Court of First
Instance of Malolos, Bulacan.
Appellant confuses the jurisdiction of a court and the venue of cases
with the assignment of cases in the different branches of the same Court
of First Instance. Jurisdiction implies the power of the court to decide a
case, while venue the place of action. There is no question that
respondent court has jurisdiction over the case. The venue of actions in
the Court of First Instance is prescribed in Section 2, Rule 4 of the
Revised Rules of Court. The laying of venue is not left to the caprice of
plaintiff, but must be in accordance with the aforesaid provision of the
rules. 2The mere fact that a request for the transfer of a case to another
branch of the same court has been approved by the Secretary of Justice

does not divest the court originally taking cognizance thereof of its
jurisdiction, much less does it change the venue of the action. As
correctly observed by the trial court, the indorsement of the
Undersecretary of Justice did not order the transfer of the case to the
Malolos Branch of the Bulacan Court of First Instance, but only
"authorized" it for the reason given by plaintiff's counsel that the
transfer would be convenient for the parties. The trial court is not
without power to either grant or deny the motion, especially in the light
of a strong opposition thereto filed by the defendant. We hold that the
court a quo acted within its authority in denying the motion for the
transfer the case to Malolos notwithstanding the authorization" of the
same by the Secretary of Justice.
II
Let us now consider the substantive aspect of the Order of dismissal.
In dismissing the amended complaint, the court a quo said:
The issue of lack of cause of action raised in the motions
to dismiss refer to the lack of personality of plaintiff to
file the instant action. Essentially, the term 'cause of
action' is composed of two elements: (1) the right of the
plaintiff and (2) the violation of such right by the
defendant. (Moran, Vol. 1, p. 111). For these reasons, the
rules require that every action must be prosecuted and
defended in the name of the real party in interest and
that all persons having an interest in the subject of the
action and in obtaining the relief demanded shall be
joined as plaintiffs (Sec. 2, Rule 3). In the amended
complaint, the people whose rights were alleged to have
been violated by being deprived and dispossessed of
their land are the members of the corporation and not
the corporation itself. The corporation has a separate.
and distinct personality from its members, and this is not
a mere technicality but a matter of substantive law.

There is no allegation that the members have assigned

their rights to the corporation or any showing that the
corporation has in any way or manner succeeded to such
rights. The corporation evidently did not have any rights
violated by the defendants for which it could seek
redress. Even if the Court should find against the
defendants, therefore, the plaintiff corporation would not
be entitled to the reliefs prayed for, which are recoveries
of ownership and possession of the land, issuance of the
corresponding title in its name, and payment of
damages. Neither can such reliefs be awarded to the
members allegedly deprived of their land, since they are
not parties to the suit. It appearing clearly that the
action has not been filed in the names of the real parties
in interest, the complaint must be dismissed on the
ground of lack of cause of action. 3
Viewed in the light of existing law and jurisprudence, We find that the
trial court correctly dismissed the amended complaint.
It is a doctrine well-established and obtains both at law and in equity
that a corporation is a distinct legal entity to be considered as separate
and apart from the individual stockholders or members who compose it,
and is not affected by the personal rights, obligations and transactions of
its stockholders or members. 4 The property of the corporation is its
property and not that of the stockholders, as owners, although they have
equities in it. Properties registered in the name of the corporation are
owned by it as an entity separate and distinct from its
members. 5 Conversely, a corporation ordinarily has no interest in the
individual property of its stockholders unless transferred to the
corporation, "even in the case of a one-man corporation. 6 The mere fact
that one is president of a corporation does not render the property which
he owns or possesses the property of the corporation, since the
president, as individual, and the corporation are separate
similarities. 7 Similarly, stockholders in a corporation engaged in buying
and dealing in real estate whose certificates of stock entitled the holder
thereof to an allotment in the distribution of the land of the corporation

upon surrender of their stock certificates were considered not to have

such legal or equitable title or interest in the land, as would support a
suit for title, especially against parties other than the corporation. 8
It must be noted, however, that the juridical personality of the
corporation, as separate and distinct from the persons composing it, is
but a legal fiction introduced for the purpose of convenience and to
subserve the ends of justice. 9 This separate personality of the
corporation may be disregarded, or the veil of corporate fiction pierced,
in cases where it is used as a cloak or cover for fraud or illegality, or to
work -an injustice, or where necessary to achieve equity. 10
Thus, when "the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, ... the law will
regard the corporation as an association of persons, or in the case of two
corporations, merge them into one, the one being merely regarded as
part or instrumentality of the other. 11 The same is true where a
corporation is a dummy and serves no business purpose and is intended
only as a blind, or an alter ego or business conduit for the sole benefit of
the stockholders. 12 This doctrine of disregarding the distinct personality
of the corporation has been applied by the courts in those cases when
the corporate entity is used for the evasion of taxes 13 or when the veil of
corporate fiction is used to confuse legitimate issue of employeremployee relationship, 14 or when necessary for the protection of
creditors, in which case the veil of corporate fiction may be pierced and
the funds of the corporation may be garnished to satisfy the debts of a
principal stockholder. 15 The aforecited principle is resorted to by the
courts as a measure protection for third parties to prevent fraud,
illegality or injustice. 16
It has not been claimed that the members have assigned or transferred
whatever rights they may have on the land in question to the plaintiff
corporation. Absent any showing of interest, therefore, a corporation,
like plaintiff-appellant herein, has no personality to bring an action for
and in behalf of its stockholders or members for the purpose of
recovering property which belongs to said stockholders or members in
their personal capacities.

It is fundamental that there cannot be a cause of action 'without an

antecedent primary legal right conferred' by law upon a
person. 17 Evidently, there can be no wrong without a corresponding
right, and no breach of duty by one person without a corresponding right
belonging to some other person. 18 Thus, the essential elements of a
cause of action are legal right of the plaintiff, correlative obligation of the
defendant, an act or omission of the defendant in violation of the
aforesaid legal right. 19 Clearly, no right of action exists in favor of
plaintiff corporation, for as shown heretofore it does not have any
interest in the subject matter of the case which is material and, direct so
as to entitle it to file the suit as a real party in interest.
III
Appellant maintains, however, that the amended complaint may be
treated as a class suit, pursuant to Section 12 of Rule 3 of the Revised
Rules of Court.
In order that a class suit may prosper, the following requisites must be
present: (1) that the subject matter of the controversy is one of common
or general interest to many persons; and (2) that the parties are so
numerous that it is impracticable to bring them all before the court. 20
Under the first requisite, the person who sues must have an interest in
the controversy, common with those for whom he sues, and there must
be that unity of interest between him and all such other persons which
would entitle them to maintain the action if suit was brought by them
jointly. 21
As to what constitutes common interest in the subject matter of the
controversy, it has been explained in Scott v. Donald 22 thus:
The interest that will allow parties to join in a bill of
complaint, or that will enable the court to dispense with
the presence of all the parties, when numerous, except a
determinate number, is not only an interest in the

question, but one in common in the subject Matter of the

suit; ... a community of interest growing out of the
nature and condition of the right in dispute; for, although
there may not be any privity between the numerous
parties, there is a common title out of which the question
arises, and which lies at the foundation of the
proceedings ... [here] the only matter in common among
the plaintiffs, or between them and the defendants, is an
interest in the Question involved which alone cannot lay
a foundation for the joinder of parties. There is scarcely a
suit at law, or in equity which settles a Principle or
applies a principle to a given state of facts, or in which a
general statute is interpreted, that does not involved a
Question in which other parties are interested. ...
(Emphasis supplied )
Here, there is only one party plaintiff, and the plaintiff corporation does
not even have an interest in the subject matter of the controversy, and
cannot, therefore, represent its members or stockholders who claim to
own in their individual capacities ownership of the said property.
Moreover, as correctly stated by the appellees, a class suit does not lie
in actions for the recovery of property where several persons claim
Partnership of their respective portions of the property, as each one
could alleged and prove his respective right in a different way for each
portion of the land, so that they cannot all be held to have Identical title
through acquisition prescription. 23
Having shown that no cause of action in favor of the plaintiff exists and
that the action in the lower court cannot be considered as a class suit, it
would be unnecessary and an Idle exercise for this Court to resolve the
remaining issue of whether or not the plaintiffs action for reconveyance
of real property based upon constructive or implied trust had already
prescribed.
ACCORDINGLY, the instant appeal is hereby DISMISSED with costs
against the plaintiff-appellant.

Fernando, C.J., Barredo, Aquino and Concepcion, Jr., JJ., concur.

office, corrupt practices and serious irregularities" allegedly committed

as follows:
1. Respondent sheriff attached and/or levied the money belonging to
complainant Cruz when he was not himself the judgment debtor in the
final judgment of NLRC NCR Case No. 8-12389-91 sought to be enforced
but rather the company known as "Qualitrans Limousine Service, Inc.," a
duly registered corporation; and,
2. Respondent likewise caused the service of the alias writ of execution
upon complainant who is a resident of Pasay City, despite knowledge
that his territorial jurisdiction covers Manila only and does not extend to
Pasay City.

Republic
SUPREME
Manila

of

the

Philippines
COURT

THIRD DIVISION
Adm. Matter No. R-181-P

July 31, 1987

In his Comments, respondent Dalisay explained that when he garnished

complainant's cash deposit at the Philtrust bank, he was merely
performing a ministerial duty. While it is true that said writ was
addressed to Qualitrans Limousine Service, Inc., yet it is also a fact that
complainant had executed an affidavit before the Pasay City assistant
fiscal stating that he is the owner/president of said corporation and,
because of that declaration, the counsel for the plaintiff in the labor case
advised him to serve notice of garnishment on the Philtrust bank.

ADELIO
C.
CRUZ, complainant,
vs.
QUITERIO L. DALISAY, Deputy Sheriff, RTC, Manila, respondents.

On November 12, 1984, this case was referred to the Executive Judge of
the Regional Trial Court of Manila for investigation, report and
recommendation.

RESOLUTION

Prior to the termination of the proceedings, however, complainant

executed an affidavit of desistance stating that he is no longer
interested in prosecuting the case against respondent Dalisay and that it
was just a "misunderstanding" between them. Upon respondent's
motion, the Executive Judge issued an order dated May 29, 1986
recommending the dismissal of the case.

FERNAN, J.:
In a sworn complaint dated July 23, 1984, Adelio C. Cruz charged
Quiterio L. Dalisay, Senior Deputy Sheriff of Manila, with "malfeasance in

It has been held that the desistance of complainant does not preclude
the taking of disciplinary action against respondent. Neither does it

dissuade the Court from imposing the appropriate corrective sanction.

One who holds a public position, especially an office directly connected
with the administration of justice and the execution of judgments, must
at all times be free from the appearance of impropriety. 1
We hold that respondent's actuation in enforcing a judgment against
complainant who is not the judgment debtor in the case calls for
disciplinary action. Considering the ministerial nature of his duty in
enforcing writs of execution, what is incumbent upon him is to ensure
that only that portion of a decision ordained or decreed in the dispositive
part should be the subject of execution. 2 No more, no less. That the title
of the case specifically names complainant as one of the respondents is
of no moment as execution must conform to that directed in the
dispositive portion and not in the title of the case.
The tenor of the NLRC judgment and the implementing writ is clear
enough. It directed Qualitrans Limousine Service, Inc. to reinstate the
discharged employees and pay them full backwages. Respondent,
however, chose to "pierce the veil of corporate entity" usurping a power
belonging to the court and assumed improvidently that since the
complainant is the owner/president of Qualitrans Limousine Service, Inc.,
they are one and the same. It is a well-settled doctrine both in law and in
equity that as a legal entity, a corporation has a personality distinct and
separate from its individual stockholders or members. The mere fact that
one is president of a corporation does not render the property he owns
or possesses the property of the corporation, since the president, as
individual, and the corporation are separate entities. 3
Anent the charge that respondent exceeded his territorial jurisdiction,
suffice it to say that the writ of execution sought to be implemented was
dated July 9, 1984, or prior to the issuance of Administrative Circular No.
12 which restrains a sheriff from enforcing a court writ outside his
territorial jurisdiction without first notifying in writing and seeking the
assistance of the sheriff of the place where execution shall take place.

ACCORDINGLY, we find Respondent Deputy Sheriff Quiterio L. Dalisay

NEGLIGENT in the enforcement of the writ of execution in NLRC Case-No.
8-12389-91, and a fine equivalent to three [3] months salary is hereby
imposed with a stern warning that the commission of the same or similar
offense in the future will merit a heavier penalty. Let a copy of this
Resolution be filed in the personal record of the respondent.
SO ORDERED.

VITUG, J.:p
In a petition for certiorari under Rule 65 of the Rules of Court, petitioner
Benjamin A. Santos, former President of the Mana Mining and
Development Corporation ("MMDC"), questions the resolution of the
National Labor Relations Commission ("NLRC") affirming the decision of
Labor Arbiter Fructuoso T. Aurellano who, having held illegal the
termination of employment of private respondent Melvin D. Millena, has
ordered petitioner MMDC, as well as its president (herein petitioner) and
the executive vice-president in their personal capacities, to pay Millena
his monetary claims.

Republic
SUPREME
Manila

of

the

Philippines
COURT

Private respondent, on 01 October 1985, was hired to be the project

accountant for MMDC's mining operations in Gatbo, Bacon, Sorsogon. On
12 August 1986, private respondent sent to Mr. Gil Abao, the MMDC
corporate treasurer, a memorandum calling the latter's attention to the
failure of the company to comply with the withholding tax requirements
of, and to make the corresponding monthly remittances to, the Bureau of
Internal Revenue ("BIR") on account of delayed payments of accrued
salaries to the company's laborers and employees. 1
In a letter, dated 08 September 1986, Abao advised private respondent
thusly:

FIRST DIVISION

G.R. No. 101699 March 13, 1996

BENJAMIN
A.
SANTOS, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, HON. LABOR
ARBITER
FRUCTUOSO
T.
AURELLANO
and
MELVIN
D.
MILLENA, respondents.

Regarding Gatbo operations, as you also are aware, the

rainy season is now upon us and the peace and order
condition in Sorsogon has deteriorated. It is therefore,
the board's decision that it would be useless for us to
continue operations, especially if we will always be in the
"hole," so to speak. Our first funds receipts will be used
to pay all our debts. We will stop production until the
advent of the dry season, and until the insurgency
problem clears. We will undertake only necessary
maintenance and repair work and will keep our overhead
down to the minimum manageable level. Until we
resume full-scale operations, we will not need a project

accountant as there will be very little paper work at the

site, which can be easily handled at Makati.
We appreciate the work you have done for Mana and we
will not hesitate to take you back when we resume work
at Gatbo. However it would be unfair to you if we kept
you in the payroll and deprive you of the opportunity to
earn more, during this period of Mana's crisis. 2
Private respondent expressed "shock" over the termination of his
employment. He complained that he would not have resigned from the
Sycip, Gorres & Velayo accounting firm, where he was already a senior
staff auditor, had it not been for the assurance of a "continuous job" by
MMDC's Engr. Rodillano E. Velasquez. Private respondent requested that
he be reimbursed the "advances" he had made for the company and be
paid his "accrued salaries/claims. 3
The claim was not heeded; on 20 October 1986, private respondent filed
with the NLRC Regional Arbitration, Branch No. V, in Legazpi City, a
complaint for illegal dismissal, unpaid salaries, 13th month pay,
overtime pay, separation pay and incentive leave pay against MMDC and
its two top officials, namely, herein petitioner Benjamin A. Santos (the
President) and Rodillano A. Velasquez (the executive vice-president). in
his complaint-affidavit (position paper), submitted on 27 October 1986,
Millena alleged, among other things, that his dismissal was merely an
offshoot of his letter of 12 August 1986 to Abao about the company's
inability to pay its workers and to remit withholding taxes to the BIR. 4
A copy of the notice and summons was served on therein respondents
(MMDC, Santos and Velasquez) on 29 October 1986. 5 At the initial
hearing on 14 November 1986 before the Labor Arbiter, only the
complainant, Millena, appeared; however, Atty. Romeo Perez, in
representation of the respondents, requested by telegram that the
hearing be reset to 01 December 1986. Although the request was
granted by the Labor Arbiter, private respondent was allowed,
nevertheless, to present his evidence ex parte at that initial hearing.

The scheduled 01st December 1986 hearing was itself later reset to 19
December 1986. On 05 December 1986, the NLRC in Legazpi City again
received a telegram from Atty. Perez asking for fifteen (15) days within
which to submit the respondents' position paper. On 19 December 1986,
Atty. Perez sent yet another telegram seeking a further postponement of
the hearing and asking for a period until 15 January 1987 within which to
submit the position paper.
On 15 January 1987, Atty. Perez advised the NLRC in Legazpi City that
the position paper had finally been transmitted through the mail and
that he was submitting the case for resolution without further hearing.
The position paper was received by the Legazpi City NLRC office on 19
January 1987. Complainant Millena filed, on 26 February 1987, his
rejoinder to the position paper.
On 27 July 1988, Labor Arbiter Fructuoso T. Aurellano, finding no valid
cause for terminating complainant's employment, ruled, citing this
Court's pronouncement in Construction & Development Corporation of
the Philippines vs. Leogardo, Jr. 6 that a partial closure of an
establishment due to losses was a retrenchment measure that rendered
the employer liable for unpaid salaries and other monetary claims. The
Labor Arbiter adjudged
WHEREFORE, the respondents are hereby ordered to pay
the petitioner the amount of P37,132.25 corresponding
to the latter's unpaid salaries and advances; P5,400.00
for petitioner's 13th month pay; P3,340.95 as service
incentive leave pay; and P5,400.00 as separation pay.
The respondents are further ordered to pay the
petitioner 10% of the monetary awards as attorney's
fees.
All other claims are dismissed for lack of sufficient
evidence.
SO ORDERED. 7

Alleging abuse of discretion by the Labor Arbiter, the company and its
co-respondents filed a "motion for reconsideration and/or appeal. 8 The
motion/appeal was forthwith indorsed to the Executive Director of the
NLRC in Manila.
In a resolution, dated 04 September 1989, the NLRC 9 affirmed the
decision of the Labor Arbiter. It held that the reasons relied upon by
MMDC and its co-respondents in the dismissal of Millena, i.e., the rainy
season, deteriorating peace and order situation and little paperwork,
were "not causes mentioned under Article 282 of the Labor Code of the
Philippines" and that Millena, being a regular employee, was "shielded
by the tenurial clause mandated under the law. 10
A writ of execution correspondingly issued; however, it was returned
unsatisfied for the failure of the sheriff to locate the offices of the
corporation in the address indicated. Another writ of execution and an
order of garnishment was thereupon served on petitioner at his
residence.
Contending that he had been denied due process, petitioner filed a
motion for reconsideration of the NLRC's resolution along with a prayer
for the quashal of the writ of execution and order of garnishment. He
averred that he had never received any notice, summons or even a copy
of the complaint; hence, he said, the Labor Arbiter at no time had
acquired jurisdiction over him.
On 16 August 1991, the NLRC 11 dismissed the motion for
reconsideration. Citing Section 2, Rule 13, 12 and Section 13, Rule
14, 13 of the Rules of Court, it ruled that the Regional Arbitration office
had not, in fact, been remiss in the observance of the legal processes for
acquiring jurisdiction over the case and over the persons of the
respondents therein. The NLRC was also convinced that Atty. Perez had
been the authorized counsel of MMDC and its two most ranking officers.
In holding petitioner personally liable for private respondent's claim, the
NLRC cited Article 289 14 of the Labor Code and the ruling

in A.C. Ransom Labor Union-CCLU vs. NLRC 15 to the effect that "(t)he
responsible officer of an employer corporation (could) be held
personally, not to say even criminally, liable for non-payment of
backwages," and that of Gudezvs. NLRC 16 which amplified that "where
the employer corporation (was) no longer existing and unable to satisfy
the judgment in favor of the employee, the officer should be liable for
acting on behalf of the corporation.
In the instant petition for certiorari, petitioner Santos reiterates that he
should not have been adjudged personally liable by public respondents,
the latter not having validly acquired jurisdiction over his person
whether by personal service of summons or by substituted service under
Rule 19 of the Rules of Court.
Petitioner's contention is unacceptable. The fact that Atty. Romeo B.
Perez has been able to timely ask for a deferment of the initial hearing
on 14 November 1986, coupled with his subsequent active participation
in the proceedings, should disprove the supposed want of service of
legal process. Although as a rule, modes of service of summons are
strictly followed in order that the court may acquire jurisdiction over the
person of a defendant, 17such procedural modes, however, are liberally
construed in quasi-judicial proceedings, substantial compliance with the
same being considered adequate. 18 Moreover, jurisdiction over the
person of the defendant in civil cases is acquired not only by service of
summons but also by voluntary appearance in court and submission to
its authority. 19 "Appearance" by a legal advocate is such "voluntary
submission to a court's jurisdiction." 20 It may be made not only by
actual physical appearance but likewise by the submission of pleadings
in compliance with the order of the court or tribunal.
To say that petitioner did not authorize Atty. Perez to represent him in
the case 21 is to unduly tax credulity. Like the Solicitor General, the Court
likewise considers it unlikely that Atty. Perez would have been so
irresponsible as to represent petitioner if he were not, in fact,
authorized. 22 Atty. Perez is an officer of the court, and he must be
presumed to have acted with due propriety. The employment of a
counsel or the authority to employ an attorney, it might be pointed out,

need not be proved in writing; such fact could be inferred from

circumstantial evidence. 23 Petitioner was not just an ordinary official of
the MMDC; he was the President of the company.
Petitioner, in any event, argues that public respondents have gravely
abused their discretion "in finding petitioner solidarily liable with MMDC
even (in) the absence of bad faith and malice on his part." 24 There is
merit in this plea.
A corporation is a juridical entity with legal personality separate and
distinct from those acting for and in its behalf and, in general, from the
people comprising it. The rule is that obligations incurred by the
corporation, acting through its directors, officers and employees, are its
sole liabilities. Nevertheless, being a mere fiction of law, peculiar
situations or valid grounds can exist to warrant, albeit done sparingly,
the disregard of its independent being and the lifting of the corporate
veil. 25 As a rule, this situation might arise when a corporation is used to
evade a just and due obligation or to justify a wrong, 26 to shield or
perpetrate fraud, 27 to carry out similar other unjustifable aims or
intentions, or as a subterfuge to commit injustice and so circumvent the
law. 28 In Tramat Mercantile, Inc., vs. Court of Appeals, 29 the Court has
collated the settled instances when, without necessarily piercing the veil
of corporate fiction, personal civil liability can also be said to lawfully
attach to a corporate director, trustee or officer; to wit: When
(1) He assents (a) to a patently unlawful act of the
corporation, or (b) for bad faith or gross negligence in
directing its affairs, or (c) for conflict of interest, resulting
in damages to the corporation, its stockholders or other
persons;
(2) He consents to the issuance of watered stocks or
who, having knowledge thereof, does not forthwith file
with the corporate secretary his written objection
thereto;

(3) He agrees to hold himself personally and solidarily

liable with the corporation; or
(4) He is made, by a specific provision of law, to
personally answer for his corporate action.
The case of petitioner is way off these exceptional instances. It is
not even shown that petitioner has had a direct hand in the
dismissal of private respondent enough to attribute to him
(petitioner) a patently unlawful act while acting for the
corporation. Neither can Article 289 30 of the Labor Code be
applied since this law specifically refers only to the imposition
of penalties under the Code. It is undisputed that the termination
of petitioner's employment has, instead, been due, collectively,
to the need for a further mitigation of losses, the onset of the
rainy season, the insurgency problem in Sorsogon and the lack
of funds to further support the mining operation in Gatbo.
It is true, there were various cases when corporate officers were
themselves held by the Court to be personally accountable for the
payment of wages and money claims to its employees. In A.C. Ransom
Labor Union-CCLU vs.NLRC, 31 for instance, the Court ruled that under
the Minimum Wage Law, the responsible officer of an employer
corporation could be held personally liable for nonpayment of
backwages for "(i)f the policy of the law were otherwise, the corporation
employer (would) have devious ways for evading payment of back
wages." In the absence of a clear identification of the officer directly
responsible for failure to pay the backwages, the Court considered the
President of the corporation as such officer. The case was cited in Chua
vs. NLRC 32 in holding personally liable the vice-president of the
company, being the highest and most ranking official of the corporation
next to the President who was dismissed, for the latter's claim for unpaid
wages.
A review of the above exceptional cases would readily disclose the
attendance of facts and circumstances that could rightly sanction

personal liability an the part of the company officer. In A.C. Ransom, the
corporate entity was a family corporation and execution against it could
not be implemented because of the disposition posthaste of its leviable
assets evidently in order to evade its just and due obligations. The
doctrine of "piercing the veil of corporate fiction" was thus clearly
appropriate. Chua likewise involved another family corporation, and this
time the conflict was between two brothers occupying the highest
ranking positions in the company. There were incontrovertible facts
which pointed to extreme personal animosity that resulted, evidently in
bad faith, in the easing out from the company of one of the brothers by
the other.
The basic rule is still that which can be deduced from the Court's
pronouncement
in Sunio
vs. National
Labor
Relations
Commission; 33 thus:
We come now to the personal liability of petitioner,
Sunio, who was made jointly and severally responsible
with petitioner company and CIPI for the payment of the
backwages of private respondents. This is reversible
error. The Assistant Regional Director's Decision failed to
disclose the reason why he was made personally liable.
Respondents, however, alleged as grounds thereof, his
the being owner of one-half (1/2) interest of said
corporation, and his alleged arbitrary dismissal of private
respondents.
Petitioner Sunio was impleaded in the Complaint in his
capacity as General Manager of petitioner corporation.
There appears to be no evidence on record that he acted
maliciously or in bad faith in terminating the services of
private respondents. His act, therefore, was within the
scope of his authority and was a corporate act.
It is basic that a corporation is invested by law with a
personality separate and distinct from those of the

persons composing it as well as from that of any other

legal entity to which it may be related. Mere ownership
by a single stockholder or by another corporation of all
or nearly all of the capital stock of a corporation is not of
itself sufficient ground for disregarding the separate
corporate personality. Petitioner Sunio, therefore, should
not have been made personally answerable for the
payment of private respondents' back salaries.
The Court, to be sure, did appear to have deviated somewhat in Gudez
vs. NLRC; 34 however, it should be clear from our recent pronouncement
in Mam Realty Development Corporation and Manuel Centeno
vs. NLRC 35 that the Sunio doctrine still prevails.
WHEREFORE, the instant petition for certiorari is given DUE COURSE and
the decision of the Labor Arbiter, affirmed by the NLRC, is hereby
MODIFIED insofar as it holds herein petitioner Benjamin Santos
personally liable with Mana Mining and Development Corporation, which
portion of the questioned judgment is now SET ASIDE. In all other
respects, the questioned decision remains unaffected. No costs.
SO ORDERED.
Padilla, Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. L-15121

August 31, 1962

GREGORIO PALACIO, in his own behalf and in behalf of his minor

child,
MARIO
PALACIO, plaintiffs-appellants,
vs.
FELY TRANSPORTATION COMPANY, defendant-appellee.
Antonio
A.
Saba
for
Mercado, Ver and Reyes for defendant-appellee.

plaintiffs-appellants.

REGALA, J.:
This is an appeal by the plaintiffs from the decision of the Court of First
Instance of Manila which dismissed their complaint.
Originally taken to the Court of Appeals, this appeal was certified to this
Court on the ground that it raises purely questions of law.
The parties in this case adopt the following findings of fact of the lower
court:
In their complaint filed with this Court on May 15, 1954, plaintiffs
allege, among other things, "that about December, 1952, the
defendant company hired Alfredo Carillo as driver of AC-787
(687) (a registration for 1952) owned and operated by the said
defendant company; that on December 24, 1952, at about 11:30

a.m., while the driver Alfonso (Alfredo) Carillo was driving AC687 at Halcon Street, Quezon City, wilfully, unlawfully and
feloniously and in a negligent, reckless and imprudent manner,
run over a child Mario Palacio of the herein plaintiff Gregorio
Palacio; that on account of the aforesaid injuries, Mario Palacio
suffered a simple fracture of the right tenor (sic), complete third,
thereby hospitalizing him at the Philippine Orthopedic Hospital
from December 24, 1952, up to January 8, 1953, and continued
to be treated for a period of five months thereafter; that the
plaintiff Gregorio Palacio herein is a welder by occupation and
owner of a small welding shop and because of the injuries of his
child he has abandoned his shop where he derives income of
P10.00 a day for the support of his big family; that during the
period that the plaintiff's (Gregorio Palacio's) child was in the
hospital and who said child was under treatment for five months
in order to meet the needs of his big family, he was forced to sell
one air compressor (heavy duty) and one heavy duty electric
drill, for a sacrifice sale of P150.00 which could easily sell at
P350.00; that as a consequence of the negligent and reckless
act of the driver Alfredo Carillo of the herein defendant
company, the herein plaintiffs were forced to litigate this case in
Court for an agreed amount of P300.00 for attorney's fee; that
the herein plaintiffs have now incurred the amount of P500.00
actual expenses for transportation, representation and similar
expenses for gathering evidence and witnesses; and that
because of the nature of the injuries of plaintiff Mario Palacio and
the fear that the child might become a useless invalid, the
herein plaintiff Gregorio Palacio has suffered moral damages
which could be conservatively estimated at P1,200.00.
On May 23, 1956, defendant Fely Transportation Co., filed a
Motion to Dismiss on the grounds (1) that there is no cause of
action against the defendant company, and (2) that the cause of
action is barred by prior judgment..

In its Order, dated June 8, 1956, this Court deferred the

determination of the grounds alleged in the Motion to Dismiss
until the trial of this case.
On June 20, 1956, defendant filed its answer. By way of
affirmative defenses, it alleges (1) that complaint states no
cause of action against defendant, and (2) that the sale and
transfer of the jeep AC-687 by Isabelo Calingasan to the Fely
Transportation was made on December 24, 1955, long after the
driver Alfredo Carillo of said jeep had been convicted and had
served his sentence in Criminal Case No. Q-1084 of the Court of
First Instance of Quezon City, in which both the civil and criminal
cases were simultaneously tried by agreement of the parties in
said case. In the Counterclaim of the Answer, defendant alleges
that in view of the filing of this complaint which is a clearly
unfounded civil action merely to harass the defendant, it was
compelled to engage the services of a lawyer for an agreed
amount of P500.00.
During the trial, plaintiffs presented the transcript of the
stenographic notes of the trial of the case of "People of the
Philippines vs. Alfredo Carillo, Criminal Case No. Q-1084," in the
Court of First Instance of Rizal, Quezon City (Branch IV), as
Exhibit "A".1wph1.t
It appears from Exhibit "A" that Gregorio Palacio, one of the
herein plaintiffs, testified that Mario Palacio, the other plaintiff, is
his son; that as a result of the reckless driving of accused Alfredo
Carillo, his child Mario was injured and hospitalized from
December 24, 1952, to January 8, 1953; that during all the time
that his child was in the hospital, he watched him during the
night and his wife during the day; that during that period of time
he could not work as he slept during the day; that before his
child was injured, he used to earn P10.00 a day on ordinary days
and on Sundays from P20 to P50 a Sunday; that to meet his
expenses he had to sell his compressor and electric drill for P150

only; and that they could have been sold for P300 at the lowest
price.
During the trial of the criminal case against the driver of the jeep
in the Court of First Instance of Quezon City (Criminal Case No.
Q-1084) an attempt was unsuccessfully made by the prosecution
to prove moral damages allegedly suffered by herein plaintiff
Gregorio Palacio. Likewise an attempt was made in vain by the
private prosecutor in that case to prove the agreed attorney's
fees between him and plaintiff Gregorio Palacio and the
expenses allegedly incurred by the herein plaintiffs in connection
with that case. During the trial of this case, plaintiff Gregorio
Palacio testified substantially to the same facts.
The Court of First Instance of Quezon City in its decision in
Criminal Case No. 1084 (Exhibit "2") determined and thoroughly
discussed the civil liability of the accused in that case. The
dispositive part thereof reads as follows:
IN VIEW OF THE FOREGOING, the Court finds the accused Alfredo
Carillo y Damaso guilty beyond reasonable doubt of the crime
charged in the information and he is hereby sentenced to suffer
imprisonment for a period of Two Months & One Day of Arresto
Mayor; to indemnify the offended party, by way of consequential
damages, in the sum of P500.00 which the Court deems
reasonable; with subsidiary imprisonment in case of insolvency
but not to exceed /3 of the principal penalty imposed; and to
pay the costs.
On the basis of these facts, the lower court held action is barred by the
judgment in the criminal case and, that under Article 103 of the Revised
Penal Code, the person subsidiarily liable to pay damages is Isabel
Calingasan, the employer, and not the defendant corporation.
Against that decision the plaintiffs appealed, contending that:

THE LOWER COURT ERRED IN NOT SUSTAINING THAT THE

DEFENDANT-APPELLEE IS SUBSIDIARILY LIABLE FOR DAMAGES AS
A RESULT OF CRIMINAL CASE NO. Q-1084 OF THE COURT OF
FIRST INSTANCE OF QUEZON CITY FOR THE REASON THAT THE
INCORPORATORS OF THE FELY TRANSPORTATION COMPANY, THE
DEFENDANT-APPELLEE HEREIN, ARE ISABELO CALINGASAN
HIMSELF, HIS SON AND DAUGHTERS;
THE LOWER COURT ERRED IN NOT CONSIDERING THAT THE
INTENTION OF ISABELO CALINGASAN IN INCORPORATING THE
FELY TRANSPORTATION COMPANY, THE DEFENDANT-APPELLEE
HEREIN, WAS TO EVADE HIS CIVIL LIABILITY AS A RESULT OF THE
CONVICTION OF HIS DRIVER OF VEHICLE AC-687 THEN OWNED
BY HIM:
THE LOWER COURT ERRED IN HOLDING THAT THE CAUSE OF
ACTION OF THE PLAINTIFFS-APPELLANTS IS BARRED BY PRIOR
JUDGMENT.
With respect to the first and second assignments of errors, plaintiffs
contend that the defendant corporate should be made subsidiarily liable
for damages in the criminal case because the sale to it of the jeep in
question, after the conviction of Alfred Carillo in Criminal Case No. Q1084 of the Court of First Instance of Quezon City was merely an attempt
on the part of Isabelo Calingasan its president and general manager, to
evade his subsidiary civil liability.
The Court agrees with this contention of the plaintiffs. Isabelo Calingasan
and defendant Fely Transportation may be regarded as one and the
same person. It is evident that Isabelo Calingasan's main purpose in
forming the corporation was to evade his subsidiary civil
liability1 resulting from the conviction of his driver, Alfredo Carillo. This
conclusion is borne out by the fact that the incorporators of the Fely
Transportation are Isabelo Calingasan, his wife, his son, Dr. Calingasan,
and his two daughters. We believe that this is one case where the
defendant corporation should not be heard to say that it has a

personality separate and distinct from its members when to allow it to

do so would be to sanction the use of the fiction of corporate entity as a
shield to further an end subversive of justice. (La Campana Coffee
Factory, et al. v. Kaisahan ng mga Manggagawa, etc., et al., G.R. No. L5677, May 25, 1953) Furthermore, the failure of the defendant
corporation to prove that it has other property than the jeep (AC-687)
strengthens the conviction that its formation was for the purpose above
indicated.

WHEREFORE, the decision of the lower court is hereby reversed and

defendants Fely Transportation and Isabelo Calingasan are ordered to
pay, jointly and severally, the plaintiffs the amount of P500.00 and the
costs.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Barrera,
Paredes,
Dizon
and
Makalintal, concur.
Reyes, J.B.L., J., took no part.

And while it is true that Isabelo Calingasan is not a party in this case,
yet, is held in the case of Alonso v. Villamor, 16 Phil. 315, this Court can
substitute him in place of the defendant corporation as to the real party
in interest. This is so in order to avoid multiplicity of suits and thereby
save the parties unnecessary expenses and delay. (Sec. 2, Rule 17, Rules
of Court; Cuyugan v. Dizon. 79 Phil. 80; Quison v. Salud, 12 Phil. 109.)
Accordingly, defendants Fely Transportation and Isabelo Calingasan
should be held subsidiarily liable for P500.00 which Alfredo Carillo was
ordered to pay in the criminal case and which amount he could not pay
on account of insolvency.
We also sustain plaintiffs' third assignment of error and hold that the
present action is not barred by the judgment of the Court of First
Instance of Quezon City in the criminal case. While there seems to be
some confusion on part of the plaintiffs as to the theory on which the is
based whether ex-delito or quasi ex-delito (culpa aquiliana) We are
convinced, from the discussion prayer in the brief on appeal, that they
are insisting the subsidiary civil liability of the defendant. As a matter of
fact, the record shows that plaintiffs merely presented the transcript of
the stenographic notes (Exhibit "A") taken at the hearing of the criminal
case, which Gregorio Palacio corroborated, in support of their claim for
damages. This rules out the defense of res judicata, because such
liability proceeds precisely from the judgment in the criminal action,
where the accused was found guilty and ordered to pay an indemnity in
the sum P500.00.

Republic
SUPREME
Manila

of

the

Philippines
COURT

FIRST DIVISION
G.R. No. 98185 December 11, 1992
SIBAGAT
TIMBER
CORPORATION, petitioner,
vs.
ADOLFO B. GARCIA, USIPHIL, INC. and STRONGHOLD INSURANCE
CO., INC., respondents.

One (1) TD-25B w/ Hyster D988,

Triple Drum Model BY B14 SN9PI55E

GRIO-AQUINO, J.:
This is a petition for review on certiorari of the decision of the Court of
Appeals dated February 15, 1991 in CA-G.R. No. 20799 entitled, "Sibagat
Timber Corp. vs. Adolfo B. Garcia, et al.," affirming the decision of the
Regional Trail Court which dismissed the petitioner's petition
for certiorari, prohibition and injunction with restraining order and writ of
preliminary injunction and damages (Spl. Case No. 548, RTC, Branch I,
Butuan City).
On August 30, 1988, respondent Sheriff Adolfo B. Garcia, who was
entrusted with the implementation of the writ of execution issued by the
Regional Trial Court, Branch 147, Makati, Metro Manila in Civil Case No.
7180 entitled, "USIPHIL, INC. vs. Del Rosario and Sons Logging
Enterprises, Inc.," levied on the following personal properties of Del
Rosario & Sons, Inc.:
One (1) Unit CAT Grader with SN
99E-5016.
One (1) Unit Generating Set with
Cummins Engine No. 1074304
Model V-855QC and Generator
125 KVA No. HA-90071 1720-1
and Panel Switch Board.
One (1) Generating Set with CAT
D-311 Series H No. 51B4241 w/
Generator No. 30TH 211 1800
RPM, 60 Cycles, 30KVA
One (1) pc. Engine Block CAT D4600.

One (1) TD-25A w/ No. Engine

Number, w/ Radiator and X-2
Triple Drum Model 142 Yarder
and blade.
which he scheduled for sale at public auction on September 7, 1988 at
10:00 o'clock in the morning. He also levied on:
One (1) Unit Reo Logging Truck
(5) tonner not in running
condition; and
One (1) Unit White Logging (5)
tonner not in running condition.
which he scheduled for sale at public auction on September 8, 1988.
On the same date (August 30, 1988) that levy was made by the sheriff,
the petitioner herein, through Mariano Rana, filed a third-party claim
alleging that it is the lawful owner of the levied machinery and
equipment, by virtue of deeds of sale executed in its favor by Del
Rosario & Sons Logging Enterprises, Inc.
Pursuant to Section 17, Rule 39 of the Rules of Court, an indemnity bond
was posted by the judgment creditor, USIPHIL, Inc., to indemnify the
respondent sheriff against the claim of the third-party claimant.
On September 6, 1988, at 2:00 P.M., petitioner filed in the Regional Trial
Court of Butuan City, a petition for "Certiorari, Prohibition and Injunction
with Restraining Order & Writ of Preliminary Injunction and Damages" in
Special Civil Case No. 548. A temporary restraining order was issued on
September 6, 1988 by the Executive Judge of that court.

On September 7, 1988, at 11:10 A.M., the court employees who were

deputized to serve the restraining order arrived at the place where the
auction sale was to be held. However, they were told by sheriff Garcia
that the auction sale was finished at 10:30 A.M. yet, and that a
certificate of sale for each of the personal properties to be auctioned on
that day had already been issued to USIPHIL, INC., the judgment
creditor, as the only bidder and purchaser.
After the hearing on the application for preliminary injunction was held
on September 15, 1988, the parties were directed to submit
simultaneous memoranda. Thereafter the case was deemed submitted
for resolution. In the meantime, respondent USIPHIL, INC., filed a formal
motion to dismiss the petition which the trial court granted on February
28, 1990.
On March 9, 1990, the petitioner appealed the order of dismissal to the
Court of Appeals (CA G.R. No. 20799). On February 15, 1991, the Court
of Appeals dismissed the appeal.
Petitioner's motion for reconsideration was denied by the Court of
Appeals. Hence, this petition for review under Rule 45 of the Rules of
Court.
The main issue raised by the petitioner is the supposed error of the
Court of Appeals in piercing the veil of corporate entity and in holding
that the third-party claimant, herein petitioner Sibagat Corporation, is
not a separate and distinct entity from the judgment debtor, Del Rosario
& Sons Logging Enterprises, Inc.
As pointed out by the Court of Appeals in its decision:
Gleaned from the records of this case, Mariano Rana, the
third-party claimant for and in behalf of petitioner
testified, among others, that he is the office manager of
Sibagat Timber Corporation (p. 58, Record); that he is
the administrative manager of Del Rosario and Sons

Logging Enterprises, Inc. in a concurrent capacity (p.

50, id. ); that the officers of the Sibagat Timber
Corporation are: Mr. Policarpio C. Del Rosario, President
and General Manager; Miss Conchita C. Del Rosario,
Vice-President and General Manager (p. 60, Id.); and the
Directors are: Policarpio Del Rosario, Jr., Cristina Del
Rosario, Mrs. Jasmin Del Rosario, and Vicente C. Cel
Rosario (pp. 61-63, id.). On the part of Del Rosario and
Sons Logging Enterprises, Inc., the officers of the
company are: Mr. Policarpio C. Cel Rosario, President;
Miss Conchita Del Rosario, Vice-President/General
Manager/Director and Treasurer; Mrs. Jasmin A. Del
Rosario, Querubin Del Rosario, and Cristeta Del Rosario,
respectively. (p. 29, Rollo.)
The circumstances that: (1) petitioner and Del Rosario & Sons Logging
Enterprises, Inc. hold office in the same building; (2) the officers and
directors of both corporations are practically the same; and (3) the Del
Rosarios assumed management and control of Sibagat and have been
acting for and managing its business (p. 30, Rollo), bolster the
conclusion that petitioner is an alter ego of the Del Rosario & Sons
Logging Enterprises, Inc.
The rule is that the veil of corporate fiction may be pierced when made
as a shield to perpetrate fraud and/or confuse legitimate issues (Jacinto
vs. CA, 198 SCRA 211). The theory of corporate entity was not meant to
promote unfair objectives or otherwise, to shield them (Villanueva vs.
Adre, 172 SCRA 876). Likewise, where it appears that two business
enterprises are owned, conducted, and controlled by the same parties,
both law and equity will, when necessary to protect the rights of third
persons, disregard the legal fiction that two corporations are distinct
entities, and treat them as identical (Phil. Veterans Investment
Development Corp. vs. CA, 181 SCRA 669).
The petitioner further contends that the Court of Appeals erroneously
disregarded the decision of this Court in G.R. No. 84497 entitled,
"Alfonso Escovilla, Jr., Cecilio M. Meris and Cuison Engineering and

Machinery Co., Inc., Petitioner vs. The Hon. Court of Appeals, Sibagat
Timber Corporation and Conchita del Rosario, Respondents," wherein
this Court held that private respondents (herein petitioner) are the
actual owners of the properties subject of execution by virtue of a sale in
their favor by Del Rosario & Sons Logging Enterprises, Inc.
That allegation has no merit. The issue raised in that case was "whether
or not an action for prohibition will prosper as a remedy for acts already
accomplished." It was a procedural question, not the ownership of the
properties subject of the execution.
The issue of ownership being raised now by the petitioner involves a
factual question requiring an assessment of the evidence. This may not
be in a petition for review under Rule 45 for it is not the function of this
Court to examine and weigh evidence already considered in the
proceedings below. Our jurisdiction is limited to reviewing only errors of
law that may have been committed by the lower courts (Navarra vs. CA,
204 SCRA 850).
Assuming arguendo that this Court in G.R. No. 84497 held that petitioner
is the owner of the properties levied under execution, that circumstance
will not be a legal obstacle to the piercing of the corporate fiction. As
found by both the trial and appellate courts, petitioner is just a conduit,
if not an adjunct of Del Rosario & Sons Logging Enterprises, Inc. In such
a case, the real ownership becomes unimportant and may be disregard
for the two entities may/can be treated as only one agency or
instrumentality.
The corporate entity is disregarded where a corporation
is the mere alter ego, or business conduit of a person or
where the corporation is so organized and controlled and
its affairs are so conducted, as to make it merely an
instrumentality, agency, conduit or adjunct of another
corporation. (Aguedo F. Agbayani Commercial Laws of
the Philippines, Vol. 3, 1984 Ed., p. 30, citing decided
cases.)

WHEREFORE, the petition for review is DENIED and the decision of the
Court of Appeals is AFFIRMED.
SO ORDERED

Republic
SUPREME
Manila

of

the

Philippines
COURT

THIRD DIVISION

G.R. No. 97212 June 30, 1993

BENJAMIN
YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN
PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL,
LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU, respondents.
Jose C. Guico for petitioner.
Wilfredo Cortez for private respondents.

FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of
the marble quarrying and export business operated by a registered
partnership with the firm name of "Jade Mountain Products Company
Limited" ("Jade Mountain"). The partnership was originally organized on
28 June 1984 with Lea Bendal and Rhodora Bendal as general partners
and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the
Republic of China (Taiwan), as limited partners. The partnership business
consisted of exploiting a marble deposit found on land owned by the
Sps. Ricardo and Guillerma Cruz, situated in Bulacan Province, under a
Memorandum Agreement dated 26 June 1984 with the Cruz
spouses. 1 The partnership had its main office in Makati, Metropolitan
Manila.

Benjamin Yu was hired by virtue of a Partnership Resolution dated 14

March 1985, as Assistant General Manager with a monthly salary of
P4,000.00. According to petitioner Yu, however, he actually received only
half of his stipulated monthly salary, since he had accepted the promise
of the partners that the balance would be paid when the firm shall have
secured additional operating funds from abroad. Benjamin Yu actually
managed the operations and finances of the business; he had overall
supervision of the workers at the marble quarry in Bulacan and took
charge of the preparation of papers relating to the exportation of the
firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general
partners Lea Bendal and Rhodora Bendal sold and transferred their
interests in the partnership to private respondent Willy Co and to one
Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and
transferred his interest in the partnership to Willy Co. Between Mr.
Emmanuel Zapanta and himself, private respondent Willy Co acquired
the great bulk of the partnership interest. The partnership now
constituted solely by Willy Co and Emmanuel Zapanta continued to use
the old firm name of Jade Mountain, though theyMOVED the firm's
main office from Makati to Mandaluyong, Metropolitan Manila. A
Supplement to the Memorandum Agreement relating to the operation of
the marble quarry was entered into with the Cruz spouses in February of
1988. 2 The actual operations of the business enterprise continued as
before. All the employees of the partnership continued working in the
business, all, save petitioner Benjamin Yu as it turned out.
On 16 November 1987, having learned of the transfer of the firm's main
office from Makati to Mandaluyong, petitioner Benjamin Yu reported to
the Mandaluyong office for work and there met private respondent Willy
Co for the first time. Petitioner was informed by Willy Co that the latter
had bought the business from the original partners and that it was for
him to decide whether or not he was responsible for the obligations of
the old partnership, including petitioner's unpaid salaries. Petitioner was
in fact not allowed to work anymore in the Jade Mountain business
enterprise. His unpaid salaries remained unpaid. 3

On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal

and recovery of unpaid salaries accruing from November 1984 to
October 1988, moral and exemplary damages and attorney's fees,
against Jade Mountain, Mr. Willy Co and the other private respondents.
The partnership and Willy Co denied petitioner's charges, contending in
the main that Benjamin Yu was never hired as an employee by the
present or new partnership. 4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision
holding that petitioner had been illegally dismissed. The Labor Arbiter
decreed his reinstatement and awarded him his claim for unpaid
salaries, backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed
the decision of the Labor Arbiter and dismissed petitioner's complaint in
a Resolution dated 29 November 1990. The NLRC held that a new
partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had
bought the Jade Mountain business, that the new partnership had not
retained petitioner Yu in his original position as Assistant General
Manager, and that there was no law requiring the new partnership to
absorb the employees of the old partnership. Benjamin Yu, therefore,
had not been illegally dismissed by the new partnership which had
simply declined to retain him in his former managerial position or any
other position. Finally, the NLRC held that Benjamin Yu's claim for unpaid
wages should be asserted against the original members of the preceding
partnership, but these though impleaded had, apparently, not been
served with summons in the proceedings before the Labor Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition
for Certiorari, asking us to set aside and annul the Resolution of the
NLRC as a product of grave abuse of discretion amounting to lack or
excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the
principle that a partnership has a juridical personality separate and
distinct from that of each of its members. Such independent legal

personality subsists, petitioner claims, notwithstanding changes in the

identities of the partners. Consequently, the employment contract
between Benjamin Yu and the partnership Jade Mountain could not have
been affected by changes in the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case at
bar: (1) whether the partnership which had hired petitioner Yu as
Assistant General Manager had been extinguished and replaced by a
new partnerships composed of Willy Co and Emmanuel Zapanta; and (2)
if indeed a new partnership had come into existence, whether petitioner
Yu could nonetheless assert his rights under his employment contract as
against the new partnership.
In respect of the first issue, we agree with the result reached by the
NLRC, that is, that the legal effect of the changes in the membership of
the partnership was the dissolution of the old partnership which had
hired petitioner in 1984 and the emergence of a new firm composed of
Willy Co and Emmanuel Zapanta in 1987.
The applicable law in this connection of which the NLRC seemed quite
unaware is found in the Civil Code provisions relating to partnerships.
Article 1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change
in the relation of the partners caused by any partner
ceasing to be associated in the carrying on as
distinguished from the winding up of the business.
(Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the
partners;

xxx xxx xxx

(b) by the express will of
any partner, who must
act in good faith, when
no definite term or
particular undertaking is
specified;
xxx xxx xxx
(2) in contravention of
the agreement between
the partners, where the
circumstances do not
permit
a
dissolution
under
any
other
provision
of
this
article, by the express
will of any partner at any
time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their
partnership interests (amounting to 82% of the total partnership
interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not
show what happened to the remaining 18% of the original partnership
interest. The acquisition of 82% of the partnership interest by new
partners, coupled with the retirement or withdrawal of the partners who
had originally owned such 82% interest, was enough to constitute a new
partnership.

The occurrence of events which precipitate the legal consequence of

dissolution of a partnership do not, however, automatically result in the
termination of the legal personality of the old partnership. Article 1829
of the Civil Code states that:
[o]n dissolution the partnership is not terminated, but
continues until the winding up of partnership affairs is
completed.
In the ordinary course of events, the legal personality of the expiring
partnership persists for the limited purpose of winding up and closing of
the affairs of the partnership. In the case at bar, it is important to
underscore the fact that the business of the old partnership was simply
continued by the new partners, without the old partnership undergoing
the procedures relating to dissolution and winding up of its business
affairs. In other words, the new partnership simply took over the
business enterprise owned by the preceeding partnership, and continued
using the old name of Jade Mountain Products Company Limited, without
winding up the business affairs of the old partnership, paying off its
debts, liquidating and distributing its net assets, and then re-assembling
the said assets or most of them and opening a new business enterprise.
There were, no doubt, powerful tax considerations which underlay such
an informal approach to business on the part of the retiring and the
incoming partners. It is not, however, necessary to inquire into such
matters.
What is important for present purposes is that, under the above
described situation, not only the retiring partners (Rhodora Bendal, et
al.) but also the new partnership itself which continued the business of
the old, dissolved, one, are liable for the debts of the preceding
partnership. In Singson, et al. v. Isabela Saw Mill, et al, 8 the Court held
that under facts very similar to those in the case at bar, a withdrawing
partner remains liable to a third party creditor of the old
partnership. 9 The liability of the new partnership, upon the other hand,
in the set of circumstances obtaining in the case at bar, is established in
Article 1840 of the Civil Code which reads as follows:

Art. 1840. In the following cases creditors of the

dissolved partnership are also creditors of the person or
partnership continuing the business:

(6) When a partner is expelled and the remaining

partners continue the business either alone or with
others without liquidation of the partnership affairs;

(1) When any new partner is admitted into an existing

partnership, or when any partner retires and assigns (or
the representative of the deceased partner assigns) his
rights in partnership property to two or more of the
partners, or to one or more of the partners and one or
more third persons, if the business is continued without
liquidation of the partnership affairs;

The liability of a third person becoming a partner in the

partnership continuing the business, under this article,
to the creditors of the dissolved partnership shall be
satisfied out of the partnership property only, unless
there is a stipulation to the contrary.

(2) When all but one partner retire and assign (or the
representative of a deceased partner assigns) their
rights in partnership property to the remaining partner,
who continues the business without liquidation of
partnership affairs, either alone or with others;
(3) When any Partner retires or dies and the business of
the dissolved partnership is continued as set forth in
Nos. 1 and 2 of this Article, with the consent of the
retired partners or the representative of the deceased
partner, but without any assignment of his right in
partnership property;
(4) When all the partners or their representatives assign
their rights in partnership property to one or more third
persons who promise to pay the debts and who continue
the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution
and remaining partners continue the businessunder the
provisions of article 1837, second paragraph, No.
2, either alone or with others, and without liquidation of
the partnership affairs;

When the business of a partnership after dissolution is

continued under any conditions set forth in this article
the creditors of the retiring or deceased partner or the
representative of the deceased partner, have a prior
right to any claim of the retired partner or the
representative of the deceased partner against the
person or partnership continuing the business on
account of the retired or deceased partner's interest in
the dissolved partnership or on account of any
consideration promised for such interest or for his right
in partnership property.
Nothing in this article shall be held to modify any right of
creditors to set assignment on the ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also
creditors of the new Jade Mountain which continued the business of the
old one without liquidation of the partnership affairs. Indeed, a creditor
of the old Jade Mountain, like petitioner Benjamin Yu in respect of his
claim for unpaid wages, is entitled to priority vis-a-visany claim of any
retired or previous partner insofar as such retired partner's interest in
the dissolved partnership is concerned. It is not necessary for the Court

to determine under which one or mare of the above six (6) paragraphs,
the case at bar would fall, if only because the facts on record are not
detailed with sufficient precision to permit such determination. It is,
however, clear to the Court that under Article 1840 above, Benjamin Yu
is entitled to enforce his claim for unpaid salaries, as well as other claims
relating to his employment with the previous partnership, against the
new Jade Mountain.
It is at the same time also evident to the Court that the new partnership
was entitled to appoint and hire a new general or assistant general
manager to run the affairs of the business enterprise take over. An
assistant general manager belongs to the most senior ranks of
management and a new partnership is entitled to appoint a top manager
of its own choice and confidence. The non-retention of Benjamin Yu as
Assistant General Manager did not therefore constitute unlawful
termination, or termination without just or authorized cause. We think
that the precise authorized cause for termination in the case at bar
was redundancy. 10 The new partnership had its own new General
Manager, apparently Mr. Willy Co, the principal new owner himself, who
personally ran the business of Jade Mountain. Benjamin Yu's old position
as Assistant General Manager thus became superfluous or
redundant. 11 It follows that petitioner Benjamin Yu is entitled to
separation pay at the rate of one month's pay for each year of service
that he had rendered to the old partnership, a fraction of at least six (6)
months being considered as a whole year.
While the new Jade Mountain was entitled to decline to retain petitioner
Benjamin Yu in its employ, we consider that Benjamin Yu was very
shabbily treated by the new partnership. The old partnership certainly
benefitted from the services of Benjamin Yu who, as noted, previously
ran the whole marble quarrying, processing and exporting enterprise.
His work constituted value-added to the business itself and therefore,
the new partnership similarly benefitted from the labors of Benjamin Yu.
It is worthy of note that the new partnership did not try to suggest that
there was any cause consisting of some blameworthy act or omission on
the part of Mr. Yu which compelled the new partnership to terminate his
services. Nonetheless, the new Jade Mountain did not notify him of the

change in ownership of the business, the relocation of the main office of

Jade Mountain from Makati to Mandaluyong and the assumption by Mr.
Willy Co of control of operations. The treatment (including the refusal to
honor his claim for unpaid wages) accorded to Assistant General
Manager Benjamin Yu was so summary and cavalier as to amount to
arbitrary, bad faith treatment, for which the new Jade Mountain may
legitimately be required to respond by paying moral damages. This
Court, exercising its discretion and in view of all the circumstances of
this case, believes that an indemnity for moral damages in the amount
of P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest
at the legal rate of six percent (6%) per annum on the amount of unpaid
wages, and of his separation pay, computed from the date of
promulgation of the award of the Labor Arbiter. Finally, because the new
Jade Mountain compelled Benjamin Yu to resort to litigation to protect his
rights in the premises, he is entitled to attorney's fees in the amount of
ten percent (10%) of the total amount due from private respondent Jade
Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED
DUE COURSE, the Comment filed by private respondents is treated as
their Answer to the Petition for Certiorari, and the Decision of the NLRC
dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new
Decision is hereby ENTERED requiring private respondent Jade Mountain
Products Company Limited to pay to petitioner Benjamin Yu the following
amounts:
(a) for unpaid wages which, as found by
the Labor Arbiter, shall be computed at
the rate of P2,000.00 per month
multiplied by thirty-six (36) months
(November 1984 to December 1987) in
the total amount of P72,000.00;

(b) separation pay computed at the rate

of P4,000.00 monthly pay multiplied by
three (3) years of service or a total of
P12,000.00;
(c) indemnity for moral damages in the
amount of P20,000.00;
(d) six percent (6%) per annum legal
interest computed on items (a) and (b)
above, commencing on 26 December
1989 and until fully paid; and
(e) ten percent (10%) attorney's fees on
the total amount due from private
respondent Jade Mountain.
Costs against private respondents.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.

FIRST DIVISION
[G.R. No. 108734. May 29, 1996]
CONCEPT BUILDERS, INC., petitioner, vs. THE NATIONAL LABOR
RELATIONS COMMISSION, (First Division); and Norberto
Marabe, Rodolfo Raquel, Cristobal Riego, Manuel Gillego,
Palcronio Giducos, Pedro Aboigar, Norberto Comendador,

Rogello Salut, Emilio Garcia, Jr., Mariano Rio, Paulina

Basea, Aifredo Albera, Paquito Salut, Domingo Guarino,
Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino
Sualibio, Moreno Escares, Ferdinand Torres, Felipe
Basilan, and Ruben Robalos, respondents.
DECISION
HERMOSISIMA, JR., J.:
The corporate mask may be lifted and the corporate veil may be
pierced when a corporation is just but the alter ego of a person or of
another corporation. Where badges of fraud exist; where public
convenience is defeated; where a wrong is sought to be justified
thereby, the corporate fiction or the notion of legal entity should come to
naught. The law in these instances will regard the corporation as a mere
association of persons and, in case of two corporations, merge them into
one.
Thus, where a sister corporation is used as a shield to evade a
corporations subsidiary liability for damages, the corporation may not be
heard to say that it has a personality separate and distinct from the
other corporation. The piercing of the corporate veil comes into play.
This special civil action ostensibly raises the question of whether
the National Labor Relations Commission committed grave abuse of
discretion when it issued a break-open order to the sheriff to be enforced
against personal property found in the premises of petitioners sister
company.
Petitioner Concept Builders, Inc., a domestic corporation, with
principal office at 355 Maysan Road, Valenzuela, Metro Manila, is
engaged in the construction business. Private respondents were
employed by said company as laborers, carpenters and riggers.

On November, 1981, private respondents were served individual

written notices of termination of employment by petitioner, effective
on November 30, 1981. It was stated in the individual notices that their
contracts of employment had expired and the project in which they were
hired had been completed.
Public respondent found it to be, the fact, however, that at the time
of the termination of private respondents employment, the project in
which they were hired had not yet been finished and
completed. Petitioner had to engage the services of sub-contractors
whose workers performed the functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal
dismissal, unfair labor practice and non-payment of their legal holiday
pay, overtime pay and thirteenth-month pay against petitioner.
On December
19,
1984,
the
Labor
Arbiter
rendered
judgment1 ordering petitioner to reinstate private respondents and to
pay them back wages equivalent to one year or three hundred working
days.
On November 27, 1985, the National Labor Relations Commission
(NLRC) dismissed the motion for reconsideration filed by petitioner on
the ground that the said decision had already become final and
executory.2
On October 16, 1986, the NLRC Research and Information
Department made the finding that private respondents backwages
amounted to P199,800.00.3
On October 29, 1986, the Labor Arbiter issued a writ of execution
directing the sheriff to execute the Decision, dated December 19,
1984. The writ was partially satisfied through garnishment of sums from
petitioners debtor, the Metropolitan Waterworks and Sewerage
Authority, in the amount of P81,385.34. Said amount was turned over to
the cashier of the NLRC.

On February 1, 1989, an Alias Writ of Execution was issued by the

Labor Arbiter directing the sheriff to collect from herein petitioner the
sum of P117,414.76, representing the balance of the judgment award,
and to reinstate private respondents to their former positions.
On July 13, 1989, the sheriff issued a report stating that he tried to
serve the alias writ of execution on petitioner through the security guard
on duty but the service was refused on the ground that petitioner no
longer occupied the premises.
On September 26, 1986, upon motion of private respondents, the
Labor Arbiter issued a second alias writ of execution.
The said writ had not been enforced by the special sheriff because,
as stated in his progress report, dated November 2, 1989:
1. All the employees inside petitioners premises at 355 Maysan Road,
Valenzuela, Metro Manila, claimed that they were employees of Hydro
Pipes Philippines, Inc. (HPPI) and not by respondent;
2. Levy was made upon personal properties he found in the premises;
3. Security guards with high-powered guns prevented him from
removing the properties he had levied upon.4
The said special sheriff recommended that a break-open order be
issued to enable him to enter petitioners premises so that he could
proceed with the public auction sale of the aforesaid personal properties
on November 7, 1989.
On November 6, 1989, a certain Dennis Cuyegkeng filed a thirdparty claim with the Labor Arbiter alleging that the properties sought to
be levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of
which he is the Vice-President.

On November 23, 1989, private respondents filed a Motion for

Issuance of a Break-Open Order, alleging that HPPI and petitioner
corporation were owned by the same incorporator! stockholders. They
also alleged that petitioner temporarily suspended its business
operations in order to evade its legal obligations to them and that
private respondents were willing to post an indemnity bond to answer
for any damages which petitioner and HPPI may suffer because of the
issuance of the break-open order.
In support of their claim against HPPI, private respondents
presented duly certified copies of the General Informations Sheet,
dated May 15, 1987, submitted by petitioner to the Securities and
Exchange Commission (SEC) and the General Information Sheet,
dated May 15, 1987, submitted by HPPI to the Securities and Exchange
Commission.

2. Board of Directors
Antonio W. Lim Chairman
Dennis S. Cuyegkeng Member
Elisa C. Lim Member
Teodulo R. Dino Member
Virgilio O. Casino Member
3. Corporate Officers
Antonio W. Lim President

The General Information Sheet submitted by the petitioner1

revealed the following:

Dennis S. Cuyegkeng Assistant to the President

1. Breakdown of Subscribed Capital

Elisa 0. Lim Treasurer

Name of Stockholder Amount Subscribed

Virgilio O. Casino Corporate Secretary

HPPI P6,999,500.00

4. Principal Office

Antonio W. Lim 2,900,000.00

355 Maysan Road

Dennis S. Cuyegkeng 300.00

Valenzuela, Metro Manila.5

Elisa C. Lim 100,000.00

On the other hand, the General Information Sheet of HPPI revealed

the following:

Teodulo R. Dino 100.00

1. Breakdown of Subscribed Capital
Virgilio O. Casino 100.00
Name of Stockholder Amount Subscribed

Antonio W. Lim P400,000.00

4. Principal Office

Elisa C. Lim 57,700.00

355 Maysan Road, Valenzuela, Metro Manila.6

AWL Trading 455,000.00

On February 1, 1990, HPPI filed an Opposition to private

respondents motion for issuance of a break-open order, contending that
HPPI is a corporation which is separate and distinct from petitioner. HPPI
also alleged that the two corporations are engaged in two different kinds
of businesses, i.e., HPPI is a manufacturing firm while petitioner was
then engaged in construction.

Dennis S. Cuyegkeng 40,100.00

Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Elisa C. Lim Member
Dennis S. Cuyegkeng Member
Virgilio O. Casino Member
Teodulo R. Dino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary

On March 2, 1990, the Labor Arbiter issued an Order which denied

private respondents motion for break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992,
the NLRC set aside the order of the Labor Arbiter, issued a break-open
order and directed private respondents to file a bond. Thereafter, it
directed the sheriff to proceed with the auction sale of the properties
already levied upon. It dismissed the third-party claim for lack of merit.
Petitioner moved for reconsideration but the motion was denied by
the NLRC in a Resolution, dated December 3, 1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of
discretion when it ordered the execution of its decision despite a thirdparty claim on the levied property. Petitioner further contends, that the
doctrine of piercing the corporate veil should not have been applied, in
this case, in the absence of any showing that it created HPPI in order to
evade its liability to private respondents. It also contends that HPPI is
engaged in the manufacture and sale of steel, concrete and iron pipes, a
business which is distinct and separate from petitioners construction
business. Hence, it is of no consequence that petitioner and HPPI shared
the same premises, the same President and the same set of officers and
subscribers.7

We find petitioners contention to be unmeritorious.

It is a fundamental principle of corporation law that a corporation is
an entity separate and distinct from its stockholders and from other
corporations to which it may be connected. 8 But, this separate and
distinct personality of a corporation is merely a fiction created by law for
convenience and to promote justice. 9 So, when the notion of separate
juridical personality is used to defeat public convenience, justify wrong,
protect fraud or defend crime, or is used as a device to defeat the labor
laws,10 this separate personality of the corporation may be disregarded
or the veil of corporate fiction pierced.11 This is true likewise when the
corporation is merely an adjunct, a business conduit or an alter ego of
another corporation.12
The conditions under which the juridical entity may be disregarded
vary according to the peculiar facts and circumstances of each case. No
hard and fast rule can be accurately laid down, but certainly, there are
some probative factors of identity that will justify the application of the
doctrine of piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.

even complete stock control but such domination of finances, policies

and practices that the controlled corporation has, so to speak, no
separate mind, will or existence of its own, and is but a conduit for its
principal. It must be kept in mind that the control must be shown to
have been exercised at the time the acts complained of took
place. Moreover, the control and breach of duty must proximately cause
the injury or unjust loss for which the complaint is made.
The test in determining the applicability of the doctrine of piercing
the veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to
this transaction had at the time no separate mind, will or existence of its
own;
2. Such control must have been used by the defendant to commit fraud
or wrong, to perpetuate the violation of a statutory or other positive
legal duty, or dishonest and unjust act in contravention of plaintiffs legal
rights; and
3. The aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of.

3. The manner of keeping corporate books and records.

4. Methods of conducting the business.

13

The SEC en banc explained the instrumentality rule which the

courts have applied in disregarding the separate juridical personality of
corporations as follows:
Where one corporation is so organized and controlled and its affairs are
conducted so that it is, in fact, a mere instrumentality or adjunct of the
other, the fiction of the corporate entity of the instrumentality may be
disregarded. The control necessary to invoke the rule is not majority or

The absence of any one of these elements prevents piercing the

corporate veil. in applying the instrumentality or alter ego doctrine, the
courts are concerned with reality and not form, with how the corporation
operated and the individual defendants relationship to that operation. 14
Thus, the question of whether a corporation is a mere alter ego, a
mere sheet or paper corporation, a sham or a subterfuge is purely one of
fact.15
In this case, the NLRC noted that, while petitioner claimed that it
ceased its business operations on April 29, 1986, it filed an Information

Sheet with the Securities and Exchange Commission on May 15, 1987,
stating that its office address is at 355 Maysan Road, Valenzuela, Metro
Manila. On the other hand, HPPI, the third-party claimant, submitted on
the same day, a similar information sheet stating that its office address
is at 355 Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casino as the
corporate secretary of both corporations. It would also not be amiss to
note that both corporations had the same president, the same board of
directors,
the same corporate
officers,
and
substantially
the same subscribers.

Claparols and there was no break in the succession and continuity of the
same business. This avoiding-the-liability scheme is very patent,
considering that 90% of the subscribed shares of stock of the Claparols
Steel Corporation (the second corporation) was owned by respondent x
x x Claparols himself, and all the assets of the dissolved Claparols Steel
and Nail Plant were turned over to the emerging Claparols Steel
Corporation.
It is very obvious that the second corporation seeks the protective
shield of a corporate fiction whose veil in the present case could, and
should, be pierced as it was deliberately and maliciously designed to
evade its financial obligation to its employees.

From the foregoing, it appears that, among other things, the respondent
(herein petitioner) and the third-party claimant shared the same address
and/or premises. Under this circumstances, (sic) it cannot be said that
the property levied upon by the sheriff were not of respondents. 16

In view of the failure of the sheriff, in the case at bar, to effect a

levy upon the property subject of the execution, private respondents had
no other recourse but to apply for a break-open order after the thirdparty claim of HPPI was dismissed for lack of merit by the NLRC. This is
in consonance with Section 3, Rule VII of the NLRC Manual of Execution
of Judgment which provides that:

Clearly, petitioner ceased its business operations in order to evade

the payment to private respondents of backwages and to bar their
reinstatement to their former positions. HPPI is obviously a business
conduit of petitioner corporation and its emergence was skillfully
orchestrated to avoid the financial liability that already attached to
petitioner corporation.

Should the losing party, his agent or representative, refuse or prohibit

the Sheriff or his representative entry to the place where the property
subject of execution is located or kept, the judgment creditor may apply
to the Commission or Labor Arbiter concerned for a break-open order.

The facts in this case are analogous to Claparols v. Court of

Industrial Relations17 where we had the occasion to rule:

Furthermore, our perusal of the records shows that the twin

requirements of due notice and hearing were complied with. Petitioner
and the third-party claimant were given the opportunity to submit
evidence in support of their claim.

Respondent courts findings that indeed the Claparols Steel and Nail
Plant, which ceased operation of June 30, 1957, was SUCCEEDED by the
Claparols Steel Corporation effective the next day, July 1, 1957, up to
December 7, 1962, when the latter finally ceased to operate, were not
disputed by petitioner. it is very clear that the latter corporation was a
continuation and successor of the first entity x x x. Both predecessors
and successor were owned and controlled by petitioner Eduardo

Hence, the NLRC did not commit any grave abuse of discretion
when it affirmed the break-open order issued by the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual
findings of quasi-judicial agencies supported by substantial evidence are

binding on this Court and are entitled to great respect, in the absence of
showing of grave abuse of a discretion.18
WHEREFORE, the petition is DISMISSED and the assailed
resolutions of the NLRC, dated April 23, 1992 and December 3, 1992, are
AFFIRMED.
SO ORDERED.
Padilla (Chairman), Bellosillo, Vitug, and Kapunan, JJ., concur.

Republic
SUPREME
Manila

of

the

Philippines
COURT

EN BANC
G.R. No. L-35262

March 15, 1930

THE PEOPLE OF THE PHILIPPINE

vs.
TAN BOON KONG, defendant-appellee.

ISLANDS, plaintiff-appellant,

Attorney-General
Jaranilla
Alejandro de Aboitiz Pinaga for appellee.

for

appellant.

OSTRAND, J.:
This is an appeal from an order of the Judge of the Twenty-third Judicial
District sustaining to demurrer to an information charging the defendant
Tan Boon Kong with the violation of section 1458 of Act No. 2711 as
amended. The information reads as follows:
That on and during the four quarters of the year 1924, in the
municipality of Iloilo, Province of Iloilo, Philippine Islands, the
said accused, as corporation organized under the laws of the
Philippine Islands and engaged in the purchase and the sale of
sugar, "bayon," coprax, and other native products and as such
object to the payment of internal-revenue taxes upon its sales,
did then and there voluntarily, illegally, and criminally declare in
1924 for the purpose of taxation only the sum of P2,352,761.94,
when in truth and in fact, and the accused well knew that the
total gross sales of said corporation during that year amounted
to P2543,303.44, thereby failing to declare for the purpose of
taxation the amount of P190,541.50, and voluntarily and illegally
not paying the Government as internal-revenue percentage
taxes the sum of P2,960.12, corresponding to 1 per cent of
said undeclared sales.
The question to be decided is whether the information sets forth facts
rendering the defendant, as manager of the corporation liable criminally
under section 2723 of Act No. 2711 for violation of section 1458 of the
same act for the benefit of said corporation. Section 1458 and 2723 read
as follows:
SEC. 1458. Payment of percentage taxes Quarterly reports of
earnings. The percentage taxes on business shall be payable
at the end of each calendar quarter in the amount lawfully due
on the business transacted during each quarter; and it shall be

on the duty of every person conducting a business subject to

such tax, within the same period as is allowed for the payment
of the quarterly installments of the fixed taxes without penalty,
to make a true and complete return of the amount of the
receipts or earnings of his business during the preceeding
quarter and pay the tax due thereon. . . . (Act No. 2711.)
SEC. 2723. Failure to make true return of receipts and sales.
Any person who, being required by law to make a return of the
amount of his receipts, sales, or business, shall fail or neglect to
make such return within the time required, shall be punished by
a fine not exceeding two thousand pesos or by imprisonment for
a term not exceeding one year, or both.
And any such person who shall make a false or fraudulent return
shall be punished by a fine not exceeding ten thousand pesos or
by imprisonment for a term not exceeding two years, or both.
(Act No. 2711.)
Apparently, the court below based the appealed ruling on the ground
that the offense charged must be regarded as committed by the
corporation and not by its officials or agents. This view is in direct
conflict with the great weight of authority. a corporation can act only
through its officers and agent s, and where the business itself involves a
violation of the law, the correct rule is that all who participate in it are
liable (Grall and Ostrand's Case, 103 Va., 855, and authorities there
cited.)
In case of State vs. Burnam (17 Wash., 199), the court went so far as to
hold that the manager of a diary corporation was criminally liable for the
violation of a statute by the corporation through he was not present
when the offense was committed.
In the present case the information or complaint alleges that he
defendant was the manager of a corporation which was engaged in
business as a merchant, and as such manager, he made a false return,

for purposes of taxation, of the total amount of sale made by said false
return constitutes a violation of law, the defendant, as the author of the
illegal act, must necessarily answer for its consequences, provided that
the allegation are proven.
The ruling of the court below sustaining the demurrer to the complaint is
therefore reversed, and the case will be returned to said court for further
proceedings not inconsistent with our view as hereinafter stated.
Without costs. So ordered.
Johnson, Malcolm, Villamor, Johns, Romualdez and Villa-Real, JJ., concur.

Republic
SUPREME
Manila

of

the

Philippines
COURT

SECOND DIVISION
G.R. No. L-27155 May 18, 1978
PHILIPPINE
NATIONAL
BANK, petitioner,
vs.
THE COURT OF APPEALS, RITA GUECO TAPNIO, CECILIO GUECO

and THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,

INC., respondents.
Medina, Locsin, Corua, & Sumbillo for petitioner.
Manuel Lim & Associates for private respondents.

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

guarantee the payment of defendant Rita Gueco Tapnio's

account with said Bank. In turn, to guarantee the
payment of whatever amount the bonding company
would pay to the Philippine National Bank, both
defendants executed the indemnity agreement, Exh. B.
Under the terms and conditions of this indemnity
agreement, whatever amount the plaintiff would pay
would earn interest at the rate of 12% per annum, plus
attorney's fees in the amount of 15 % of the whole
amount due in case of court litigation.
The original amount of the bond was for P4,000.00; but
the amount was later reduced to P2,000.00.
It is not disputed that defendant Rita Gueco Tapnio was
indebted to the bank in the sum of P2,000.00, plus
accumulated interests unpaid, which she failed to pay
despite demands. The Bank wrote a letter of demand to
plaintiff, as per Exh. C; whereupon, plaintiff paid the
bank on September 18, 1957, the full amount due and
owing in the sum of P2,379.91, for and on account of
defendant Rita Gueco's obligation (Exhs. D and D-1).
Plaintiff, in turn, made several demands, both verbal and
written, upon defendants (Exhs. E and F), but to no avail.
Defendant Rita Gueco Tapnio admitted all the foregoing
facts. She claims, however, when demand was made
upon her by plaintiff for her to pay her debt to the Bank,
that she told the Plaintiff that she did not consider
herself to be indebted to the Bank at all because she had
an agreement with one Jacobo-Nazon whereby she had
leased to the latter her unused export sugar quota for
the 1956-1957 agricultural year, consisting of 1,000
piculs at the rate of P2.80 per picul, or for a total of
P2,800.00, which was already in excess of her obligation

guaranteed by plaintiff's bond, Exh. A. This lease

agreement, according to her, was with the knowledge of
the bank. But the Bank has placed obstacles to the
consummation of the lease, and the delay caused by
said obstacles forced 'Nazon to rescind the lease
contract. Thus, Rita Gueco Tapnio filed her third-party
complaint against the Bank to recover from the latter
any and all sums of money which may be adjudged
against her and in favor of the plaitiff plus moral
damages, attorney's fees and costs.

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).

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:

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.

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

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 1Bank), 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. 10Bank 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 VicePresident 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.
Fernando, Aquino, Concepcion, Jr., and Santos, JJ., concur.

SECOND DIVISION
HERMAN C. CRYSTAL, LAMBERTO G.R. No. 172428
C. CRYSTAL, ANN GEORGIA C.
SOLANTE, and DORIS C. Present:
MAGLASANG, as Heirs of
Deceased SPOUSES RAYMUNDO QUISUMBING, J.,
I. CRYSTAL and DESAMPARADOS Chairperson,
C. CRYSTAL, CARPIO MORALES,
Petitioners, TINGA,
VELASCO, JR., and
BRION, JJ.
- versus Promulgated:
November 28, 2008
BANK OF THE PHILIPPINE ISLANDS,
Respondent.
x----------------------------------------------------------------------------x
DECISION
TINGA, J.:

Before us is a Petition for Review [1] of the Decision[2] and Resolution[3] 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 IslandsButuan 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 note[6] for

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 BPIs 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-

the amount of P300,000.00, also in favor of BPI-Butuan.

Butuan which had then reached P707,393.90.[12] Meanwhile, on 7 July

Sometime in August 1979, CCCC renewed a previous loan, this time from

1981, Insular Bank of Asia and America (IBAA), through its Vice-President

BPI, Cebu City branch (BPI-Cebu City). The renewal was evidenced by a

for Legal and Corporate Affairs, offered to buy the lot subject of the two

promissory note

(2) real

[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 mortgage [8] 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 BPICebu City, to secure an additional loan of P20,000.00 of CCCC.[10]

were unable to withdraw from the said account to pay for their other
estate mortgages and to pay directly the spouses indebtedness in

obligations to BPI.

exchange for the release of the mortgages. BPI rejected IBAAs offer to

The trial court dismissed the spouses complaint and ordered them to pay

pay.[13]

moral and exemplary damages and attorneys fees to BPI. [17] It ruled that
since the spouses agreed to bind themselves jointly and severally, they

BPI filed a complaint for sum of money against CCCC and the spouses

are solidarily liable for the loans; hence, BPI can validly foreclose the two

before the Regional Trial Court of Butuan City (RTC Butuan), seeking to

real estate mortgages. Moreover, being guarantors-mortgagors, the

recover the deficiency of the loan of CCCC and the spouses with BPI-

spouses are not entitled to the benefit of exhaustion. Anent the FCSA,

Butuan. The trial court ruled in favor of BPI. Pursuant to the decision, BPI

the trial court found that CCCC originally had FCDU SA No. 197 with BPI,

instituted extrajudicial foreclosure of the spouses mortgaged property. [14]

Dewey Boulevard branch, which was transferred to BPI-Makati as FCDU

SA 76/0035, at the request of Desamparados Crystal. FCDU SA 76/0035

On 10 April 1985, the spouses filed an action for Injunction With

was thus closed, but DesamparadosCrystal failed to surrender the

Damages, With A Prayer For A Restraining Order and/ or Writ of

passbook because it was lost. The transferred FCSA in BPI-Makati was

Preliminary Injunction.[15] The spouses claimed that the foreclosure of the

the one used as security for CCCCs P450,000.00 loan from BPI-Makati.

real

have

CCCC was no longer allowed to withdraw from FCDU SA No. 197 because

mere

it was already closed.

estate

mortgages

is

exhausted CCCCs properties

illegal
first,

because

stressing

BPI

that

should

they

are

guarantors of the renewed loans. They also prayed that they be

awarded moral and exemplary damages, attorneys fees, litigation
expenses and cost of suit. Subsequently, the spouses filed an amended
complaint,[16] additionally
maintained

foreign

alleging
currency

that
savings

CCCC

had

account

opened

and

The spouses appealed the decision of the trial court to the Court of

(FCSA-197)

with

Appeals, but their appeal was dismissed. [18] The spousesMOVED

for the

bpi, Makati branch (BPI-Makati), and that said FCSA was used as security

reconsideration of the decision, but the Court of Appeals also denied

for a P450,000.00 loan also extended by BPI-Makati. The P450,000.00

their motion for reconsideration.[19] Hence, the present petition.

loan was allegedly paid, and thereafter the spouses demanded the
return of the FCSA passbook. BPI rejected the demand; thus, the spouses

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 BPIs 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 BPIs 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 IBAAs offer to purchase

the mortgaged lot from them and to directly pay BPI out of the proceeds
thereof to settle the loan.[20]BPIs 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

so states, when the law so provides or when the nature of the

expressly

the unjust refusal of BPI to accept the payment scheme proposed by

obligation so requires.[24] Thus, when the obligor undertakes to be jointly

IBAA and the allegedly unjust and illegal foreclosure of the real estate

and severally liable, it means that the obligation is solidary, [25] such as in

mortgages on their property.[28] Conversely, they argue that the Court of

this case. By stating I/we promise to pay, jointly and severally, to the

Appeals erred in awarding moral damages to BPI, which is a corporation,

BANK OF THE PHILIPPINE ISLANDS, the spouses agreed to be sought out

as well as exemplary damages, attorneys fees and expenses of litigation.

and be demanded payment from, by BPI. BPI did demand payment from

[29]

them,

but

they

failed

to

comply

with

their

obligation,

prompting BPIs valid resort to the foreclosure of the chattel mortgage

We do not agree. Moral damages are meant to compensate the claimant

and the real estate mortgages.

for any physical suffering, mental anguish, fright, serious anxiety,

besmirched

reputation,

wounded

feelings, moral

shock,

social

More importantly, the promissory note, wherein the spouses undertook

humiliation and similar injuries unjustly caused. [30] Such damages, to be

to be solidarily liable for the principal loan, partakes the nature

recoverable, must be the proximate result of a wrongful act or omission

of a suretyship and therefore is an additional security for the loan. Thus

the factual basis for which is satisfactorily established by the aggrieved

we held in one case that if solidary liability was instituted to guarantee a

party.[31] There being no wrongful or unjust act on the part of BPI in

principal obligation, the law deems the contract to be one of suretyship.

demanding payment from them and in seeking the foreclosure of the

And while a contract of a surety is in essence secondary only to a

chattel and real estate mortgages, there is no lawful basis for award of

[26]

valid principal obligation, the suretys liability to the creditor or promisee

damages in favor of the spouses.

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]

Neither is BPI entitled to moral damages. A juridical person is generally

not entitled to moral damages because, unlike a natural person, it

Petitioners contend that the Court of Appeals erred in not granting their

cannotEXPERIENCE

physical suffering or such sentiments as wounded

counterclaims, considering that they suffered moral damages in view of

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
cannotEXPERIENCE 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 (AMECBCCM),[38] the

Court held

statements in Manero and Mambulao were

that

the

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 defendants 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

WHEREFORE, the petition is DENIED. The Decision and Resolution of the

justification for an award of attorney's fees, such filing, however, has

Court of Appeals dated 24 October 2005 and 31 March 2006,

almost invariably been held not to be a ground for an award of moral

respectively, are hereby AFFIRMED, with the MODIFICATION that the

damages. The rationale for the rule is that the law could not have meant

award of moral damages to Bank of the Philippine Islands is DELETED.

to impose a penalty on the right to litigate. Otherwise, moral damages

must every time be awarded in favor of the prevailing defendant against

Costs against the petitioners.

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 attorneys 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
attorneys 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 attorneys fees.

SO ORDERED.

the prosecutors, their agents and representatives from using the effect
Stonehill vs. Diokno

seized or any copies thereof, in the deportation case and that thereafter,

20 SCRA 383 (GR No. L-19550)

a decision be rendered quashing the contested search warrants and

June 19, 1967

declaring the same null and void. For being violative of the constitution
and the Rules of court by: (1) not describing with particularity the

CJ Concepcion

documents, books and things to be seized; (2) money not mentioned in

the warrants were seized; (3) the warrants were issued to fish evidence

Facts:

for deportation cases filed against the petitioner; (4) the searches and
seizures were made in an illegal manner; and (5) the documents paper

Upon application of the prosecutors (respondent) several judges

and cash money were not delivered to the issuing courts for disposal in

(respondent) issued on different dates a total of 42 search warrants

accordance with law.

against petitioners (Stonehill et. al.) and/or corporations of which they

were officers to search the persons of the petitioner and/or premises of

In their answer, the prosecutors (respondent) alleged; (1) search

their officers warehouses and/or residences and to seize and take

warrants are valid and issued in accordance with law; (2) defects of said

possession of the personal property which is the subject of the offense,

warrants, were cured by petitioners consent; and (3) in any event the

stolen, or embezzled and proceeds of fruits of the offense, or used or

effects are admissible regardless of the irregularity.

intended to be used or the means of committing the offense, which is

described in the application as violation of Central Bank Laws, Tariff and

The Court granted the petition and issued the writ of preliminary

Customs Laws, Internal Revenue Code and the Revised Penal Code.

injunction. However by a resolution, the writ was partially lifted

dissolving insofar as paper and things seized from the offices of the
corporations.

Petitioners filed with the Supreme Court this original action for certiorari,
prohibition and mandamus and injunction and prayed that, pending final
disposition of the case, a writ of preliminary injunction be issued against

Issues:

1.) Whether or not the petitioners have the legal standing to assail the

search and seizure is purely personal and cannot be availed of by third

legality of search warrants issued against the corporation of which they

parties.

were officers.
Officers of certain corporations can not validly object to the use in
2.) Whether or not the search warrants issued partakes the nature of a

evidence against them of the documents, papers and things seized from

general search warrants.

the offices and premises of the corporations adverted to above, since

the right to object to the admission of said papers in evidence

3.) Whether or not the seized articles were admissible as evidence

belongsexclusively to the corporations, to whom the seized effects

regardless of the illegality of its seizure.

belong, and may not be invoked by the corporate officers in proceedings

against them in their individual capacity.

Held:
II
I
The Constitution provides:
Officers of certain corporations, from which the documents, papers,
things were seized by means of search warrants, have no cause of action

The right of the people to be secure in their persons, houses, papers,

to assail the legality of the contested warrants and of the seizures made

and effects against unreasonable searches and seizures shall not be

in pursuance thereof, for the simple reason that said corporations have

violated, and no warrants shall issue but upon probable cause, to be

their respective personalities, separate and distinct from the personality

determined by the judge after examination under oath or affirmation of

of herein petitioners, regardless of the amount of shares of stock or of

the complainant and the witnesses he may produce, and particularly

the interest of each of them in said corporations, and whatever the

describing the place to be searched, and the persons or things to be

offices they hold therein may be. Indeed, it is well settled that the

seized.

legality of a seizure can be contested only by the party whose rights

have been impaired thereby, and that the objection to an unlawful

Two points must be stressed in connection with this constitutional

mandate, namely: (1) that no warrant shall issue but upon

probablecause, to be determined by the judge in the manner set forth in

said provision; and (2) that the warrant shall particularly describe the
things to be seized.

Search warrants issued upon applications stating that the natural and
juridical person therein named had committed a "violation of Central Ban
Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised
Penal Code." In other words, no specific offense had been alleged in said
applications. The averments thereof with respect to the offense

paragraph, directing that "no search warrant shall issue for more than
one specific offense."

Seizure of books and records showing all business transaction of

petitioners persons, regardless of whether the transactions were legal or
illegal contravened 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.

committed were abstract. As a consequence, it was impossiblefor the

judges who issued the warrants to have found the existence of probable

III

cause, for the same presupposes the introduction of competent proof

that the party against whom it is sought has performed particularacts, or
committed specific omissions, violating a given provision of our criminal
laws.

Most common law jurisdiction have already given up the Moncado ruling
and eventually adopted the exclusionary rule, realizing that this isthe
only practical means of enforcing the constitutional injunctionagainst
unreasonable searches and seizures. In the language of Judge Learned

General search warrants

are outlawed because the sanctity of the

Hand:

domicile and the privacy of communication and correspondence at the

mercy of the whims caprice or passion of peace officers.

As we understand it, the reason for the exclusion of evidence competent

as such, which has been unlawfully acquired, is that exclusion is the only

To prevent the issuance of general warrants this Court deemed it fit to

amend Section 3 of Rule 122 of the former Rules of Court by providing in
its counterpart, under the Revised 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

practical way of enforcing the constitutional privilege. In earlier times

the action of trespass against the offending official may have been
protection enough; but that is true no longer. Only in case the
prosecution which itself controls the seizing officials, knows that it
cannot profit by their wrong will that wrong be repressed.

the aforementioned motion for Reconsideration and Amendment should

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

be, as it is hereby, denied; and that the petition herein is dismissed and
the writs prayed for denied, as regards the documents, papers and other
effects seized in the twenty-nine (29) places, offices and other premises
enumerated in the same Resolution, without special pronouncement as
to costs.
Stonehill vs. Diokno
20 SCRA 383 (GR No. L-19550)
June 19, 1967

that there is probable cause, and, hence, no justification for the issuance
of the warrant. The only possible explanation (not justification) for its

CJ Concepcion

issuance is the necessity of fishing evidence of the commission of a

crime. But, then, this fishing expedition is indicative of the absence of

Facts:

evidence to establish a probable cause.

Upon application of the prosecutors (respondent) several judges
The Court held that the doctrine adopted in the Moncado case must be,
as it is hereby, abandoned; that the warrants for the search of three (3)
residences of herein petitioners, as specified in the Resolution of June
29, 1962, are null and void; that the searches and seizures therein made
are illegal; that the writ of preliminary injunction heretofore issued, in
connection with the documents, papers and other effects thus seized in
said residences of herein petitioners is hereby made permanent; that the
writs prayed for are granted, insofar as the documents, papers and other
effects so seized in the aforementioned residences are concerned; that

(respondent) issued on different dates a total of 42 search warrants

against petitioners (Stonehill et. al.) and/or corporations of which they
were officers to search the persons of the petitioner and/or premises of
their officers warehouses and/or residences and to seize and take
possession of the personal property which is the subject of the offense,
stolen, or embezzled and proceeds of fruits of the offense, or used or
intended to be used or the means of committing the offense, which is
described in the application as violation of Central Bank Laws, Tariff and
Customs Laws, Internal Revenue Code and the Revised Penal Code.

dissolving insofar as paper and things seized from the offices of the
corporations.
Petitioners filed with the Supreme Court this original action for certiorari,
prohibition and mandamus and injunction and prayed that, pending final

Issues:

disposition of the case, a writ of preliminary injunction be issued against

the prosecutors, their agents and representatives from using the effect
seized or any copies thereof, in the deportation case and that thereafter,
a decision be rendered quashing the contested search warrants and

1.) Whether or not the petitioners have the legal standing to assail the
legality of search warrants issued against the corporation of which they
were officers.

declaring the same null and void. For being violative of the constitution
and the Rules of court by: (1) not describing with particularity the
documents, books and things to be seized; (2) money not mentioned in

2.) Whether or not the search warrants issued partakes the nature of a
general search warrants.

the warrants were seized; (3) the warrants were issued to fish evidence
for deportation cases filed against the petitioner; (4) the searches and
seizures were made in an illegal manner; and (5) the documents paper

3.) Whether or not the seized articles were admissible as evidence

regardless of the illegality of its seizure.

and cash money were not delivered to the issuing courts for disposal in
accordance with law.

In their answer, the prosecutors (respondent) alleged; (1) search

Held:

warrants are valid and issued in accordance with law; (2) defects of said
warrants, were cured by petitioners consent; and (3) in any event the
effects are admissible regardless of the irregularity.

Officers of certain corporations, from which the documents, papers,

things were seized by means of search warrants, have no cause of action
to assail the legality of the contested warrants and of the seizures made

The Court granted the petition and issued the writ of preliminary
injunction. However by a resolution, the writ was partially lifted

in pursuance thereof, for the simple reason that said corporations have
their respective personalities, separate and distinct from the personality

of herein petitioners, regardless of the amount of shares of stock or of

the complainant and the witnesses he may produce, and particularly

the interest of each of them in said corporations, and whatever the

describing the place to be searched, and the persons or things to be

offices they hold therein may be. Indeed, it is well settled that the

seized.

legality of a seizure can be contested only by the party whose rights

parties.

Two points must be stressed in connection with this constitutional

mandate, namely: (1) that no warrant shall issue but upon
probablecause, to be determined by the judge in the manner set forth in
said provision; and (2) that the warrant shall particularly describe the
things to be seized.

Officers of certain corporations can not validly object to the use in

Search warrants issued upon applications stating that the natural and

evidence against them of the documents, papers and things seized from

juridical person therein named had committed a "violation of Central Ban

the offices and premises of the corporations adverted to above, since

Laws, Tariff and Customs Laws, Internal Revenue (Code) and Revised

the right to object to the admission of said papers in evidence

Penal Code." In other words, no specific offense had been alleged in said

belongsexclusively to the corporations, to whom the seized effects

applications. The averments thereof with respect to the offense

belong, and may not be invoked by the corporate officers in proceedings

committed were abstract. As a consequence, it was impossiblefor the

against them in their individual capacity.

judges who issued the warrants to have found the existence of probable

have been impaired thereby, and that the objection to an unlawful

search and seizure is purely personal and cannot be availed of by third

cause, for the same presupposes the introduction of competent proof

II

that the party against whom it is sought has performed particularacts, or

committed specific omissions, violating a given provision of our criminal

The Constitution provides:

laws.

The right of the people to be secure in their persons, houses, papers,

General search warrants

and effects against unreasonable searches and seizures shall not be

domicile and the privacy of communication and correspondence at the

violated, and no warrants shall issue but upon probable cause, to be

mercy of the whims caprice or passion of peace officers.

determined by the judge after examination under oath or affirmation of

are outlawed because the sanctity of the

To prevent the issuance of general warrants this Court deemed it fit to

practical way of enforcing the constitutional privilege. In earlier times

amend Section 3 of Rule 122 of the former Rules of Court by providing in

the action of trespass against the offending official may have been

its counterpart, under the Revised Rules of Court that "a search warrant

protection enough; but that is true no longer. Only in case the

shall not issue but upon probable cause in connection with one specific

prosecution which itself controls the seizing officials, knows that it

offense." Not satisfied with this qualification, the Court added thereto a

cannot profit by their wrong will that wrong be repressed.

paragraph, directing that "no search warrant shall issue for more than
one specific offense."

The non-exclusionary rule is contrary, not only to the letter, but also, to
the spirit of the constitutional injunction against unreasonable searches

Seizure of books and records showing all business transaction of

petitioners persons, regardless of whether the transactions were legal or
illegal contravened 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.

and seizures. To be sure, if the applicant for a search warrant has

competent evidence to establish probable cause of the commission of a
given crime by the party against whom the warrant is intended, then
there is no reason why the applicant should not comply with the
requirements of the fundamental law. Upon the other hand, if he has no
such competent evidence, then it is not possible for the Judge to find

III

that there is probable cause, and, hence, no justification for the issuance
of the warrant. The only possible explanation (not justification) for its

Most common law jurisdiction have already given up the Moncado ruling
and eventually adopted the exclusionary rule, realizing that this isthe
only practical means of enforcing the constitutional injunctionagainst

issuance is the necessity of fishing evidence of the commission of a

crime. But, then, this fishing expedition is indicative of the absence of
evidence to establish a probable cause.

unreasonable searches and seizures. In the language of Judge Learned

Hand:

The Court held that the doctrine adopted in the Moncado case must be,
as it is hereby, abandoned; that the warrants for the search of three (3)

As we understand it, the reason for the exclusion of evidence competent

as such, which has been unlawfully acquired, is that exclusion is the only

residences of herein petitioners, as specified in the Resolution of June

29, 1962, are null and void; that the searches and seizures therein made

are illegal; that the writ of preliminary injunction heretofore issued, in

connection with the documents, papers and other effects thus seized in
said residences of herein petitioners is hereby made permanent; that the
writs prayed for are granted, insofar as the documents, papers and other

EN

effects so seized in the aforementioned residences are concerned; that

[G.R.

the aforementioned motion for Reconsideration and Amendment should

effects seized in the twenty-nine (29) places, offices and other premises

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.

enumerated in the same Resolution, without special pronouncement as

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

be, as it is hereby, denied; and that the petition herein is dismissed and
the writs prayed for denied, as regards the documents, papers and other

to costs.

BANC
No.

L-32409.

February

27,

1971.]

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 Veras aforesaid letter-request; an application for search
warrant already filled up but still unsigned by respondent De Leon; an
affidavit of respondent Logronio subscribed before respondent De Leon;
a deposition in printed form of respondent Logronio already
accomplished and signed by him but not yet subscribed; and a search
warrant already accomplished but still unsigned by respondent Judge.
At that time respondent Judge was hearing a certain case; so, by means
of a note, he instructed his Deputy Clerk of Court to take the depositions
of respondents De Leon and Logronio. After the session had adjourned,
respondent Judge was informed that the depositions had already been
taken. The stenographer, upon request of respondent Judge, read to him
her stenographic notes; and thereafter, respondent Judge asked
respondent Logronio to take the oath and warned him that if his
deposition was found to be false and without legal basis, he could be
charged for perjury. Respondent Judge signed respondent de Leons
application for search warrant and respondent Logronios deposition,
Search Warrant No. 2-M-70 was then sign by respondent Judge and
accordingly
issued.
Three days later, or on February 28, 1970, which was a Saturday, the BIR
agents served the search warrant petitioners at the offices of petitioner
corporation on Ayala Avenue, Makati, Rizal. Petitioners lawyers
protested the search on the ground that no formal complaint or
transcript of testimony was attached to the warrant. The agents

nevertheless proceeded with their search which yielded six boxes of

documents.
On March 3, 1970, petitioners filed a petition with the Court of First
Instance of Rizal praying that the search warrant be quashed, dissolved
or recalled, that preliminary prohibitory and mandatory writs of
injunction be issued, that the search warrant be declared null and void,
and that the respondents be ordered to pay petitioners, jointly and
severally, damages and attorneys fees. On March 18, 1970, the
respondents, thru the Solicitor General, filed an answer to the petition.
After hearing, the court, presided over by respondent Judge, issued on
July 29, 1970, an order dismissing the petition for dissolution of the
search warrant. In the meantime, or on April 16, 1970, the Bureau of
Internal Revenue made tax assessments on petitioner corporation in the
total sum of P2,594,729.97, partly, if not entirely, based on the
documents
thus
seized.
Petitioners
came
to
this
Court.
The petition should be granted for the following reasons:chanrob1es
virtual
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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. 755757)
is
enlightening:jgc:chanrobles.com.ph
"SR. ORENSE. Vamos a dejar compaero los piropos y vamos al grano.
En los casos de una necesidad de actuar inmediatamente para que no se
frusten los fines de la justicia mediante el registro inmediato y la
incautacion del cuerpo del delito, no cree Su Seoria que causaria cierta
demora el procedimiento apuntado en su enmienda en tal forma que
podria frustrar los fines de la justicia o si Su Seoria encuentra un
remedio para esto casos con el fin de compaginar los fines de la justicia
con los derechos del individuo en su persona, bienes etcetera, etcetera.
"SR. FRANCISCO. No puedo ver en la practica el caso hipottico que Su
Seoria pregunta por la siguiente razon: el que solicita un mandamiento
de registro tiene que hacerlo por escrito y ese escrito no aparecer en la
Mesa del Juez sin que alguien vaya el juez a presentar ese escrito o
peticion de sucuestro. Esa persona que presenta el registro puede ser el
mismo denunciante o alguna persona que solicita dicho mandamiento
de registro. Ahora toda la enmienda en esos casos consiste en que haya
peticion de registro y el juez no se atendra solamente a sea peticion sino
que el juez examiner a ese denunciante y si tiene testigos tambin
examiner
a
los
testigos.
"SR. ORENSE. No cree Su Seoria que el tomar le declaracion de ese
denunciante
por
escrito
siempre
requeriria
algun
tiempo?.

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

"MR. LAUREL. . . . The reason why we are in favor of this amendment is

because we are incorporating in our constitution something of a
fundamental character. Now, before a judge could issue a search
warrant, he must be under the obligation to examine personally under
oath the complainant and if he has any witness, the witnesses that he
may
produce
.
.
."cralaw
virtua1aw
library
The implementing rule in the Revised Rules of Court, Sec. 4, Rule 126, is
more emphatic and candid, for it requires the judge, before issuing a
search warrant, to "personally examine on oath or affirmation the
complainant and any witnesses he may produce . . ."cralaw virtua1aw
library
Personal examination by the judge of the complainant and his witnesses
is necessary to enable him to determine the existence or non-existence
of a probable cause, pursuant to Art. III, Sec. 1, par. 3, of the
Constitution, and Sec. 3, Rule 126 of the Revised Rules of Court, both of
which prohibit the issuance of warrants except "upon probable cause."
The determination of whether or not a probable cause exists calls for the
exercise of judgment after a judicial appraisal of facts and should not be
allowed to be delegated in the absence of any rule to the contrary.
In the case at bar, no personal examination at all was conducted by
respondent Judge of the complainant (respondent De Leon) and his
witness (respondent Logronio). While it is true that the complainants
application for search warrant and the witness printed-form deposition
were subscribed and sworn to before respondent Judge, the latter did not
ask either of the two any question the answer to which could possibly be
the basis for determining whether or not there was probable cause
against herein petitioners. Indeed, the participants seem to have
attached so little significance to the matter that notes of the
proceedings before respondent Judge were not even taken. At this
juncture it may be well to recall the salient facts. The transcript of

stenographic notes (pp. 61-76, April 1, 1970, Annex J-2 of the Petition)
taken at the hearing of this case in the court below shows that per
instruction of respondent Judge, Mr. Eleodoro V. Gonzales, Special
Deputy Clerk of Court, took the depositions of the complainant and his
witness, and that stenographic notes thereof were taken by Mrs. Gaspar.
At that time respondent Judge was at the sala hearing a case. After
respondent Judge was through with the hearing, Deputy Clerk Gonzales,
stenographer Gaspar, complainant De Leon and witness Logronio went
to respondent Judges chamber and informed the Judge that they had
finished the depositions. Respondent Judge then requested the
stenographer to read to him her stenographic notes. Special Deputy
Clerk
Gonzales
testified
as
follows:jgc:chanrobles.com.ph
"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
"A

And
And

thereafter,

"Q

he

signed

Who

"A

thereafter?
the

deposition

is

The

of

Mr.

this
Honorable

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?

Logronio.
he?

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

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

"Q

The

deposition

or

the

affidavit?
Sec.

"A

The

Thereafter,

affidavit,
respondent

Your
Judge

Honor."cralaw

virtua1aw

signed

search

the

53

requires

the

withholding

of

income

taxes

at

source.

library
warrant.

The participation of respondent Judge in the proceedings which led to

the issuance of Search Warrant No. 2-M-70 was thus limited to listening
to the stenographers readings of her notes, to a few words of warning
against the commission of perjury, and to administering the oath to the
complainant and his witness. This cannot be consider a personal
examination. If there was an examination at all of the complainant and
his witness, it was the one conducted by the Deputy Clerk of Court. But,
as stated, the Constitution and the rules require a personal examination

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.

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

seized.

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 documents, papers and effects sought to be seized are described in

Search Warrant No. 2-M-70 in this manner:jgc:chanrobles.com.ph

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."

"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
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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:chanrobles.com.ph
". . . Both the Jones Law (sec. 3) and General Orders No. 58 (sec. 97)
specifically require that a search warrant should particularly describe the
place to be searched and the things to be seized. The evident purpose
and intent of this requirement is to limit the things to be seized to those,
and only those, particularly described in the search warrant to leave
the officers of the law with no discretion regarding what articles they
shall seize, to the end that unreasonable searches and seizures may
not be made, that abuses may not be committed. That this is the
correct interpretation of this constitutional provision is borne out by
American
authorities."cralaw
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library
The purpose as thus explained could, surely and effectively, be defeated
under
the
search
warrant
issued
in
this
case.
A search warrant may be said to particularly describe the things to be
seized when the description therein is as specific as the circumstances
will ordinarily allow (People v. Rubio; 57 Phil. 384); or when the
description expresses a conclusion of fact not of law by which the
warrant officer may be guided in making the search and seizure (idem.,
dissent of Abad Santos, J.,); or when the things described are limited to
those which bear direct relation to the offense for which the warrant is
being issued (Sec. 2, Rule 126, Revised Rules of Court). The herein
search warrant does not conform to any of the foregoing tests. If the
articles desired to be seized have any direct relation to an offense
committed, the applicant must necessarily have some evidence, other
than those articles, to prove the said offense; and the articles subject of
search and seizure should come in handy merely to strengthen such
evidence. In this event, the description contained in the herein disputed
warrant should have mentioned, at least, the dates, amounts, persons,
and other pertinent data regarding the receipts of payments, certificates

of stocks and securities, contracts, promissory notes, deeds of sale,

messages and communications, checks, bank deposits and withdrawals,
records of foreign remittances, among others, enumerated in the
warrant.
Respondents contend that certiorari does not lie because petitioners
failed to file a motion for reconsideration of respondent Judges order of
July 29, 1970. The contention is without merit. In the first place, when
the questions raised before this Court are the same as those which were
squarely raised in and passed upon by the court below, the filing of a
motion for reconsideration in said court before certiorari can be
instituted in this Court is no longer a prerequisite. (Pajo, etc., Et. Al. v.
Ago, Et Al., 108 Phil., 905). In the second place, the rule requiring the
filing of a motion for reconsideration before an application for a writ
of certiorari can be entertained was never intended to be applied
without considering the circumstances. (Matutina v. Buslon, Et Al., 109
Phil., 140.) In the case at bar time is of the essence in view of the tax
assessments sought to be enforced by respondent officers of the Bureau
of Internal Revenue against petitioner corporation, On account of which
immediate and more direct action becomes necessary. (Matute v. Court
of Appeals, Et Al., 26 SCRA 768.) Lastly, the rule does not apply where,
as in this case, the deprivation of petitioners fundamental right to due
process taints the proceeding against them in the court below not only
with irregularity but also with nullity. (Matute v. Court of Appeals, Et Al.,
supra.)
It is next contended by respondents that a corporation is not entitled to
protection against unreasonable search and seizures. Again, we find no
merit
in
the
contention.
"Although, for the reasons above stated, we are of the opinion that an
officer of a corporation which is charged with a violation of a statute of
the state of its creation, or of an act of Congress passed in the exercise
of its constitutional powers, cannot refuse to produce the books and
papers of such corporation, we do not wish to be understood as holding
that a corporation is not entitled to immunity, under the 4th
Amendment, against unreasonable searches and seizures. A corporation
is, after all, but an association of individuals under an assumed name
and with a distinct legal entity. In organizing itself as a collective body it
waives no constitutional immunities appropriate to such body. Its
property cannot be taken without compensation. It can only be
proceeded against by due process of law, and is protected, under the

14th Amendment, against unlawful discrimination . . ." (Hale v. Henkel,

201
U.S.
43,
50
L.
ed.
652.)
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it was
thought that a different rule applied to a corporation, the ground that it
was not privileged from producing its books and papers. But the rights of
a corporation against unlawful search and seizure are to be protected
even if the same result might have been achieved in a lawful way."
(Silverthorne Lumber Company, Et. Al. v. United States of America, 251
U.S.
385,
64
L.
ed.
319.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly
recognized the right of a corporation to object against unreasonable
searches
and
seizures,
thus:jgc:chanrobles.com.ph
"As regards the first group, we hold that petitioners herein have no
cause of action to assail the legality of the contested warrants and of the
seizures made in pursuance thereof, for the simple reason that said
corporations have their respective personalities, separate and distinct
from the personality of herein petitioners, regardless of the amount of
shares of stock or the interest of each of them in said corporations,
whatever, the offices they hold therein may be. Indeed, it is well settled
that the legality of a seizure can be contested only by the party whose
rights have been impaired thereby, and that the objection to an unlawful
search and seizure is purely personal and cannot be availed of by third
parties. Consequently, petitioners herein may not validly object to the
use in evidence against them of the documents, papers and things
seized from the offices and premises of the corporations adverted to
above, since the right to object to the admission of said papers in
evidence belongs exclusively to the corporations, to whom the seized
effects belong, and may not be invoked by the corporate officers in
proceedings against them in their individual capacity . . ."cralaw
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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.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee and
Makasiar, JJ.,
concur.
Reyes,

J.B.L., J.,

concurs

Castro, J., concurs in the result.

with

Mr.

Justice

Barredo.

Republic
SUPREME
Manila

of

the

Philippines
COURT

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

EN BANC
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.

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

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

4. Fidelity Management Co., Inc.
Vicente G. Sison for intervenor A.T. Abesamis.
5. Romson Realty, Inc.
6. Trident Management Co.
NARVASA, J.:
7. New Trident Management
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

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:

2.6.
Existing
contracts
suppliers/contractors/others.

with

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
Accounts Payable.

of

Accounts

Receivable

and

9. Complete list of depository banks for all funds with the

authorized signatories for withdrawals thereof.

2.1. Articles of Incorporation

10. Schedule of company investments and placements.

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

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
Engineer Island

for

Improvement

of

Wharf

e. Order for Operation

Mariveles, Bataan

of

Sesiman

Rock

Quarry,

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

at

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

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 Court1) declare unconstitutional and void Executive Orders Numbered 1 and
2;

2) annul the sequestration order dated April- 14, 1986, and all other
orders subsequently issued and acts done on the basis thereof, inclusive
of the takeover order of July 14, 1986 and the termination of the services
of the BASECO executives. 11
a. Re Executive Orders No. 1
Sequestration and Takeover Orders

and

2,

and

the

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

3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover

Orders

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

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.

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

4. The Governing Law

a. Proclamation No. 3

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

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 President1) froze "all assets and properties in the Philippines in
which former President Marcos and/or his wife, Mrs.
Imelda Romualdez Marcos, their close relatives,
subordinates, business associates, dummies, agents, or
nominees have any interest or participation;
2) prohibited former President Ferdinand Marcos and/or
his wife * *, their close relatives, subordinates, business
associates,
duties,
agents,
or
nominees

from transferring, conveying, encumbering, concealing

or dissipating said assets or properties in the Philippines
and abroad, pending the outcome of appropriate
proceedings in the Philippines to determine whether any
such assets or properties were acquired by them through
or as a result of improper or illegal use of or the
conversion of funds belonging to the Government of the
Philippines or any of its branches, instrumentalities,
enterprises, banks or financial institutions, or by taking
undue advantage of their official position, authority,
relationship, connection or influence to unjustly enrich
themselves at the expense and to the grave damage
and prejudice of the Filipino people and the Republic of
the Philippines;
3) prohibited "any person from transferring, conveying,
encumbering or otherwise depleting or concealing such
assets and properties or from assisting or taking part in
their transfer, encumbrance, concealment or dissipation
under pain of such penalties as are prescribed by law;"
and
4) required "all persons in the Philippines holding such
assets or properties, whether located in the Philippines
or abroad, in their names as nominees, agents or
trustees, to make full disclosure of the same to the
Commission on Good Government within thirty (30) days
from publication of * (the) Executive Order, * *. 32
d. Executive Order No. 14
A third executive order is relevant: Executive Order No. 14, 33 by which
the PCGG is empowered, "with the assistance of the Office of the
Solicitor General and other government agencies, * * to file and
prosecute all cases investigated by it * * as may be warranted by its
findings." 34 All such cases, whether civil or criminal, are to be filed "with
the Sandiganbayanwhich shall have exclusive and original jurisdiction
thereof." 35 Executive Order No. 14 also pertinently provides that civil
suits for restitution, reparation of damages, or indemnification for
consequential damages, forfeiture proceedings provided for under
Republic Act No. 1379, or any other civil actions under the Civil Code or

other existing laws, in connection with * * (said Executive Orders

Numbered 1 and 2) may be filed separately from and proceed
independently of any criminal proceedings and may be proved by a
preponderance of evidence;" and that, moreover, the "technical rules of
procedure and evidence shall not be strictly applied to* * (said)civil
cases." 36
5. Contemplated Situations
The situations envisaged and sought to be governed are self-evident,
these being:
1) that "(i)ll-gotten properties (were) amassed by the
leaders and supporters of the previous regime";37
a) more particularly, that ill-gotten wealth (was)
accumulated by former President Ferdinand E. Marcos,
his immediate family, relatives, subordinates and close
associates, * * located in the Philippines or abroad, * *
(and) business enterprises and entities (came to be)
owned or controlled by them, during * * (the Marcos)
administration, directly or through nominees, by taking
undue advantage of their public office and/or using their
powers,
authority,
influence,
Connections
or
relationship; 38
b) otherwise stated, that "there are assets and
properties purportedly pertaining to former President
Ferdinand E. Marcos, and/or his wife Mrs. Imelda
Romualdez Marcos, their close relatives, subordinates,
business associates, dummies, agents or nominees
which had been or were acquired by them directly or
indirectly, through or as a result of the improper or
illegal use of funds or properties owned by the
Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of their office,
authority, influence, connections or relationship,
resulting in their unjust enrichment and causing grave
damage and prejudice to the Filipino people and the
Republic of the Philippines"; 39

c) that "said assets and properties are in the form of

bank accounts. deposits, trust. accounts, shares of
stocks, buildings, shopping centers, condominiums,
mansions, residences, estates, and other kinds of real
and personal properties in the Philippines and in various
countries of the world;" 40 and
2) that certain "business enterprises and properties
(were) taken over by the government of the Marcos
Administration or by entities or persons close to former
President Marcos. 41
6. Government's Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of the
Government's plan "to recover all ill-gotten wealth."
Neither can there be any debate about the proposition that assuming
the above described factual premises of the Executive Orders and
Proclamation No. 3 to be true, to be demonstrable by competent
evidence, the recovery from Marcos, his family and his dominions of the
assets and properties involved, is not only a right but a duty on the part
of Government.
But however plain and valid that right and duty may be, still a balance
must be sought with the equally compelling necessity that a proper
respect be accorded and adequate protection assured, the fundamental
rights of private property and free enterprise which are deemed pillars of
a free society such as ours, and to which all members of that society
may without exception lay claim.
* * Democracy, as a way of life enshrined in the
Constitution, embraces as its necessary components
freedom of conscience, freedom of expression, and
freedom in the pursuit of happiness. Along with these
freedoms are included economic freedom and freedom
of enterprise within reasonable bounds and under proper
control. * * Evincing much concern for the protection of
property, the Constitution distinctly recognizes the
preferred position which real estate has occupied in law

for ages. Property is bound up with every aspect of

social life in a democracy as democracy is conceived in
the
Constitution. The
Constitution
realizes
the
indispensable role which property, owned in reasonable
quantities and used legitimately, plays in the stimulation
to economic effort and the formation and growth of a
solid social middle class that is said to be the bulwark of
democracy and the backbone of every progressive and
happy country. 42
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive Orders cannot
simply be assumed. They will have to be duly established by adequate
proof in each case, in a proper judicial proceeding, so that the recovery
of the ill-gotten wealth may be validly and properly adjudged and
consummated; although there are some who maintain that the fact-that
an immense fortune, and "vast resources of the government have been
amassed by former President Ferdinand E. Marcos, his immediate family,
relatives, and close associates both here and abroad," and they have
resorted to all sorts of clever schemes and manipulations to disguise and
hide their illicit acquisitions-is within the realm of judicial notice, being of
so extensive notoriety as to dispense with proof thereof, Be this as it
may, the requirement of evidentiary substantiation has been expressly
acknowledged, and the procedure to be followed explicitly laid down, in
Executive Order No. 14.
b. Need of Provisional Measures to Collect and Conserve
Assets Pending Suits
Nor may it be gainsaid that pending the institution of the suits for the
recovery of such "ill-gotten wealth" as the evidence at hand may reveal,
there is an obvious and imperative need for preliminary, provisional
measures to prevent the concealment, disappearance, destruction,
dissipation, or loss of the assets and properties subject of the suits, or to
restrain or foil acts that may render moot and academic, or effectively
hamper, delay, or negate efforts to recover the same.
7. Provisional Remedies Prescribed by Law

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

effects or credits in his possession or control, and thus becomes in a

sense an involuntary depositary thereof. 47
c. 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 willgotten," 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

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 thaneighteen months after the
ratification of this Constitution. However, in the national
interest, as certified by the President, the Congress may
extend said period.

A sequestration or freeze order shall be issued only upon

showing of a prima facie case. The order and the list of
the sequestered or frozen properties shall forthwith be
registered with the proper court. For orders issued before
the ratification of this Constitution, the corresponding
judicial action or proceeding shall be filed within six
months from its ratification. For those issued after such
ratification, the judicial action or proceeding shall be
commenced within six months from the issuance thereof.
The sequestration or freeze order is deemed
automatically lifted if no judicial action or proceeding is
commenced as herein provided. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and provisional takeover are
akin to the provisional remedy of preliminary attachment, or
receivership. 53 By attachment, a sheriff seizes property of a defendant
in a civil suit so that it may stand as security for the satisfaction of any
judgment that may be obtained, and not disposed of, or dissipated, or
lost intentionally or otherwise, pending the action. 54 By receivership,
property, real or personal, which is subject of litigation, is placed in the
possession and control of a receiver appointed by the Court, who shall
conserve it pending final determination of the title or right of possession
over it. 55 All these remedies sequestration, freezing, provisional,
takeover, attachment and receivership are provisional, temporary,
designed for-particular exigencies, attended by no character of
permanency or finality, and always subject to the control of the issuing
court or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover orders
are not issued by a court is of no moment. The Solicitor General draws
attention to the writ of distraint and levy which since 1936 the
Commissioner of Internal Revenue has been by law authorized to issue
against property of a delinquent taxpayer. 56 BASECO itself declares that
it has not manifested "a rigid insistence on sequestration as a purely
judicial remedy * * (as it feels) that the law should not be ossified to a
point that makes it insensitive to change." What it insists on, what it

pronounces to be its "unyielding position, is that any change in

procedure, or the institution of a new one, should conform to due
process and the other prescriptions of the Bill of Rights of the
Constitution." 57 It is, to be sure, a proposition on which there can be no
disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well as
delivery of personal property in replevinsuits, sequestration and
provisional takeover writs may issue ex parte. 58 And as in preliminary
attachment, receivership, and delivery of personality, no objection of
any significance may be raised to the ex parte issuance of an order of
sequestration, freezing or takeover, given its fundamental character of
temporariness or conditionality; and taking account specially of the
constitutionally expressed "mandate of the people to recover ill-gotten
properties amassed by the leaders and supporters of the previous
regime and protect the interest of the people;" 59 as well as the obvious
need to avoid alerting suspected possessors of "ill-gotten wealth" and
thereby cause that disappearance or loss of property precisely sought to
be prevented, and the fact, just as self-evident, that "any transfer,
disposition, concealment or disappearance of said assets and properties
would frustrate, obstruct or hamper the efforts of the Government" at
the just recovery thereof. 60

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.

8. Requisites for Validity

What is indispensable is that, again as in the case of attachment and
receivership, there exist a prima facie factual foundation, at least, for the
sequestration, freeze or takeover order, and adequate and fair
opportunity to contest it and endeavor to cause its negation or
nullification. 61
Both are assured under the executive orders in question and the rules
and regulations promulgated by the PCGG.
a. Prima Facie Evidence as Basis for Orders
Executive Order No. 14 enjoins that there be "due regard to the
requirements of fairness and due process." 62Executive Order No. 2

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 "illgotten wealth" were not expressly imposed by some rule or regulation as
a condition to warrant the sequestration or freezing of property
contemplated in the executive orders in question, it would nevertheless
be exigible in this jurisdiction in which the Rule of Law prevails and

official acts which are devoid of rational basis in fact or law, or are
whimsical and capricious, are condemned and struck down. 66
9. Constitutional Sanction of Remedies
If any doubt should still persist in the face of the foregoing
considerations as to the validity and propriety of sequestration, freeze
and takeover orders, it should be dispelled by the fact that these
particular remedies and the authority of the PCGG to issue them have
received constitutional approbation and sanction. As already mentioned,
the Provisional or "Freedom" Constitution recognizes the power and duty
of the President to enact "measures to achieve the mandate of the
people to * * * (recover ill- gotten properties amassed by the leaders and
supporters of the previous regime and protect the interest of the people
through orders of sequestration or freezing of assets or accounts." And
as also already adverted to, Section 26, Article XVIII of the 1987
Constitution67 treats of, and ratifies the "authority to issue sequestration
or freeze orders under Proclamation No. 3 dated March 25, 1986."
The institution of these provisional remedies is also premised upon the
State's inherent police power, regarded, as t lie power of promoting the
public welfare by restraining and regulating the use of liberty and
property," 68 and as "the most essential, insistent and illimitable of
powers * * in the promotion of general welfare and the public
interest," 69 and said to be 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
evidenceestablishing
instances
of
"ill-gotten
wealth;" issue
sequestration, and such orders as may be warranted by the evidence
thus collected and as may be necessary to preserve and conserve the
assets of which it takes custody and control and prevent their
disappearance, loss or dissipation; and eventually file and prosecute in
the proper court of competent jurisdiction all cases investigated by it as
may be warranted by its findings. It does not try and decide, or hear and
determine, or adjudicate with any character of finality or compulsion,
cases involving the essential issue of whether or not property should be

forfeited and transferred to the State because "ill-gotten" within the

meaning of the Constitution and the executive orders. This function is
reserved
to
the
designated
court,
in
this
case,
the
Sandiganbayan. 71 There can therefore be no serious regard accorded to
the accusation, leveled by BASECO, 72 that the PCGG plays the perfidious
role of prosecutor and judge at the same time.
11. Facts Preclude Grant of Relief to Petitioner
Upon these premises and reasoned conclusions, and upon the facts
disclosed by the record, hereafter to be discussed, the petition cannot
succeed. The writs of certiorari and prohibition prayed for will not be
issued.
The facts show that the corporation known as BASECO was owned or
controlled by President Marcos "during his administration, through
nominees, by taking undue advantage of his public office and/or using
his powers, authority, or influence, " and that it was by and through the
same means, that BASECO had taken over the business and/or assets of
the National Shipyard and Engineering Co., Inc., and other governmentowned 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:

8. Hilario M. Ruiz

9. Constante
Farias
1. Jose A. Rojas

L.

8 shares

1,248 shares

2. Severino G. de
la Cruz

1,248 shares

3. Emilio T. Yap

2,508 shares

4. Jose Fernandez

1,248 shares

5. Jose Francisco

128 shares

6.
Manuel
Mendoza

32 shares

S.

7. Anthony P. Lee

10.
Fidelity
Management, Inc.

65,882
shares

11.
Trident
Management

7,412 shares

12. United
Lines

1,240 shares

13.
Renato
Tanseco

Phil.

M.

8 shares

96 shares
14. Fidel Ventura

1,248 shares

8 shares

15.
Metro
Drydock

Bay

136,370
shares

16. Manuel Jacela

1 share

17. Jonathan G. Lu

1 share

18.
Jose
Tanchanco

1 share

J.

19. Dioscoro Papa

128 shares

20.
Edward
Marcelo

4 shares

T.

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 semiannual installments over a term of nine (9) years, payment to
commence after a grace period of two (2) years from date of turnover of
the shipyard to BASECO. 76
14. Subsequent Reduction of Price; Intervention of Marcos
Unaccountably, the price of P52,000,000.00 was reduced by more than
one-half, to P24,311,550.00, about eight (8) months later. A document to
this effect was executed on October 9, 1973, entitled "Memorandum
Agreement," and was signed for NASSCO by Arturo Pacificador, as
Presiding Officer of the Board of Directors, and David R. Ines, as General
Manager. 77 This agreement bore, at the top right corner of the first
page, the word "APPROVED" in the handwriting of President
Marcos, followed by his usual full signature. The document recited that a
down payment of P5,862,310.00 had been made by BASECO, and the
balance of P19,449,240.00 was payable in equal semi-annual
installments over nine (9) years after a grace period of two (2) years,
with interest at 7% per annum.
15. Acquisition of 300 Hectares from Export Processing Zone Authority
On October 1, 1974, BASECO acquired three hundred (300) hectares of
land in Mariveles from the Export Processing Zone Authority for the price
of P10,047,940.00 of which, as set out in the document of sale,
P2,000.000.00 was paid upon its execution, and the balance stipulated
to be payable in installments. 78
16. Acquisition of Other Assets of NASSCO; Intervention of Marcos

Some nine months afterwards, or on July 15, 1975, to be precise,

BASECO, again with the intervention of President Marcos, acquired
ownership of the rest of the assets of NASSCO which had not been
included in the first two (2) purchase documents. This was accomplished
by a deed entitled "Contract of Purchase and Sale," 79which, like the
Memorandum of Agreement dated October 9, 1973 supra also bore at
the upper right-hand corner of its first page, the handwritten notation
of President Marcos reading, "APPROVED, July 29, 1973," and
underneath it, his usual full signature. Transferred to BASECO were
NASSCO's "ownership and all its titles, rights and interests over all
equipment and facilities including structures, buildings, shops, quarters,
houses, plants and expendable or semi-expendable assets, located at
the Engineer Island, known as the Engineer Island Shops, including all
the equipment of the Bataan National Shipyards (BNS) which were
excluded from the sale of NBS to BASECO but retained by BASECO and
all other selected equipment and machineries of NASSCO at J.
Panganiban Smelting Plant." In the same deed, NASSCO committed itself
to cooperate with BASECO for the acquisition from the National
Government or other appropriate Government entity of Engineer Island.
Consideration for the sale was set at P5,000,000.00; a down payment of
P1,000,000.00 appears to have been made, and the balance was
stipulated to be paid at 7% interest per annum in equal semi annual
installments over a term of nine (9) years, to commence after a grace
period of two (2) years. Mr. Arturo Pacificador again signed for NASSCO,
together with the general manager, Mr. David R. Ines.
17. Loans Obtained
It further appears that on May 27, 1975 BASECO obtained a loan from
the NDC, taken from "the last available Japanese war damage fund of
$19,000,000.00," to pay for "Japanese made heavy equipment (brand
new)." 80 On September 3, 1975, it got another loan also from the NDC in
the amount of P30,000,000.00 (id.). And on January 28, 1976, it got still
another loan, this time from the GSIS, in the sum of
P12,400,000.00. 81 The claim has been made that not a single centavo
has been paid on these loans. 82
18. Reports to President Marcos
In September, 1977, two (2) reports were submitted to President Marcos
regarding BASECO. The first was contained in a letter dated September

5, 1977 of Hilario M. Ruiz, BASECO president. 83 The second was

embodied in a confidential memorandum dated September 16, 1977 of
Capt. A.T. Romualdez. 84 They further disclose the fine hand of Marcos in
the affairs of BASECO, and that of a Romualdez, a relative by affinity.
a. BASECO President's Report
In his letter of September 5, 1977, BASECO President Ruiz reported to
Marcos that there had been "no orders or demands for ship construction"
for some time and expressed the fear that if that state of affairs
persisted, BASECO would not be able to pay its debts to the
Government, which at the time stood at the not inconsiderable amount
of P165,854,000.00. 85 He suggested that, to "save the situation," there
be a "spin-off (of their) shipbuilding activities which shall be handled
exclusively by an entirely new corporation to be created;" and towards
this end, he informed Marcos that BASECO was
* * inviting NDC and LUSTEVECO to participate by
converting the NDC shipbuilding loan to BASECO
amounting to P341.165M and assuming and converting a
portion of BASECO's shipbuilding loans from REPACOM
amounting to P52.2M or a total of P83.365M as NDC's
equity contribution in the new corporation. LUSTEVECO
will participate by absorbing and converting a portion of
the REPACOM loan of Bay Shipyard and Drydock, Inc.,
amounting to P32.538M. 86
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was submitted eleven (11)
days later. It opened with the following caption:
MEMORANDUM:
FOR : The President
SUBJECT: An Evaluation
Performance of a Mission

and

Re-assessment

of

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:

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;

* * (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;

9. Loan Agreement dated September 3, 1975, BASECO's

loan from NDC of P30,000,000.00;

2. By getting their replacements, the families cannot

question us later on; and

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

3. We will owe no further favors from them.

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

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";

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 tomake it justifiable
for you, Sir. 91
It is noteworthy that Capt. A.T. Romualdez does not appear to be a
stockholder or officer of BASECO, yet he has presented a report on
BASECO to President Marcos, and his report demonstrates intimate
familiarity with the firm's affairs and problems.
19. Marcos' Response to Reports

President Marcos lost no time in acting on his subordinates'

recommendations, particularly as regards the "spin-off" and the "linkage
scheme" relative to "BASECO's amortization payments."
a. Instructions re "Spin-Off"
Under date of September 28, 1977, he addressed a Memorandum to
Secretary Geronimo Velasco of the Philippine National Oil Company and
Chairman Constante Farias of the National Development Company,
directing them "to participate in the formation of a new corporation
resulting from the spin-off of the shipbuilding component of BASECO
along the following guidelines:

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:

b. Equity participation of government shall be in the

form of non- voting shares.

* * 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.

For immediate compliance.

xxx xxx xxx

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)

92

Mr. Marcos' guidelines were promptly complied with by his subordinates.

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

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.

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

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.

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

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;

While the petitioner's counsel was quick to dispute this asserted fact,
assuring this Court that the BASECO stockholders were still in possession
of their respective stock certificates and had "never endorsed * * them
in blank or to anyone else," 100 that denial is exposed by his own prior
and subsequent recorded statements as a mere gesture of defiance
rather than a verifiable factual declaration.
By resolution dated September 25, 1986, this Court granted BASECO's
counsel a period of 10 days "to SUBMIT,as undertaken by him, * * the
certificates of stock issued to the stockholders of * * BASECO as of April
23, 1986, as listed in Annex 'P' of the petition.' 101 Counsel thereafter
moved for extension; and in his motion dated October 2, 1986, he
declared inter alia that "said certificates of stock are in the possession of
third parties, among whom being the respondents themselves * *
and petitioner is still endeavoring to secure copies thereof from
them." 102 On the same day he filed another motion praying that he be
allowed "to secure copies of the Certificates of Stock in the name of
Metro Bay Drydock, Inc., and of all other Certificates, of Stock of
petitioner's stockholders in possession of respondents."103
In a Manifestation dated October 10, 1986,, 104 the Solicitor General
not unreasonably argued that counsel's aforestated motion to secure
copies of the stock certificates "confirms the fact that stockholders of
petitioner corporation are not in possession of * * (their) certificates of
stock," and the reason, according to him, was "that 95% of said shares *
* have been endorsed in blank and found in Malacaang after the former
President and his family fled the country." To this manifestation
BASECO's counsel replied on November 5, 1986, as already mentioned,
Stubbornly insisting that the firm's stockholders had not really assigned
their stock. 105
In view of the parties' conflicting declarations, this Court resolved on
November 27, 1986 among other things "to require * * the petitioner * *

to deposit upon proper receipt with Clerk of Court Juanito Ranjo the
originals of the stock certificates alleged to be in its possession or
accessible to it, mentioned and described in Annex 'P' of its petition,
(and other pleadings) * * within ten (10) days from notice." 106 In a
motion filed on December 5, 1986, 107 BASECO's counsel made the
statement, quite surprising in the premises, that "it will negotiate with
the owners (of the BASECO stock in question) to allow petitioner to
borrow from them, if available, the certificates referred to" but that "it
needs a more sufficient time therefor" (sic). BASECO's counsel however
eventually had to confess inability to produce the originals of the stock
certificates, putting up the feeble excuse that while he had "requested
the stockholders to allow * * (him) to borrow said certificates, * * some of
* * (them) claimed that they had delivered the certificates to third
parties by way of pledge and/or to secure performance of obligations,
while others allegedly have entrusted them to third parties in view of
last national emergency." 108He 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 "illgotten wealth" is to be handed down by a judicial tribunal, in this case,
the Sandiganbayan, upon complaint filed and prosecuted by the PCGG.
In the second place, no punishment is inflicted by the executive orders,
as the merest glance at their provisions will immediately make apparent.
In no sense, therefore, may the executive orders be regarded as a bill of
attainder.

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

Searches and Seizures
BASECO also contends that its right against self incrimination and
unreasonable searches and seizures had been transgressed by the Order
of April 18, 1986 which required it "to produce corporate records from
1973 to 1986 under pain of contempt of the Commission if it fails to do
so." The order was issued upon the authority of Section 3 (e) of
Executive Order No. 1, treating of the PCGG's power to "issue subpoenas
requiring * * the production of such books, papers, contracts, records,
statements of accounts and other documents as may be material to the
investigation conducted by the Commission, " and paragraph (3),
Executive Order No. 2 dealing with its power to "require all persons in
the Philippines holding * * (alleged "ill-gotten") assets or properties,
whether located in the Philippines or abroad, in their names as
nominees, agents or trustees, to make full disclosure of the same * *."
The contention lacks merit.
It is elementary that the right against self-incrimination has no
application to juridical persons.
While an individual may lawfully refuse to answer
incriminating questions unless protected by an immunity
statute, it does not follow that a corporation, vested with
special privileges and franchises, may refuse to show its
hand when charged with an abuse ofsuchprivileges *
* 113
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the
constitutional protections which private individuals have.
* * They are not at all within the privilege against selfincrimination, although this court more than once has
said that the privilege runs very closely with the 4th
Amendment's Search and Seizure provisions.It is also
settled that an officer of the company cannot refuse to
produce its records in its possession upon the plea that
they will either incriminate him or may incriminate
it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S.
186; emphasis, the Solicitor General's).

* * The corporation is a creature of the state. It is

presumed to be incorporated for the benefit of the
public. It received certain special privileges and
franchises, and holds them subject to the laws of the
state and the limitations of its charter. Its powers are
limited by law. It can make no contract not authorized by
its charter. Its rights to act as a corporation are only
preserved to it so long as it obeys the laws of its
creation. There is a reserve right in the legislature to
investigate its contracts and find out whether it has
exceeded its powers. It would be a strange anomaly to
hold that a state, having chartered a corporation to
make use of certain franchises, could not, in the exercise
of sovereignty, inquire how these franchises had been
employed, and whether they had been abused, and
demand the production of the corporate books and
papers for that purpose. The defense amounts to this,
that an officer of the corporation which is charged with a
criminal violation of the statute may plead the
criminality of such corporation as a refusal to produce its
books. To state this proposition is to answer it. While an
individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it
does not follow that a corporation, vested with special
privileges and franchises may refuse to show its hand
when charged with an abuse of such privileges. (Wilson
v. United States, 55 Law Ed., 771, 780 [emphasis, the
Solicitor General's])
At any rate, Executive Order No. 14-A, amending Section 4 of Executive
Order No. 14 assures protection to individuals required to produce
evidence before the PCGG against any possible violation of his right
against self-incrimination. It gives them immunity from prosecution on
the basis of testimony or information he is compelled to present. As
amended, said Section 4 now provides that
xxx xxx xxx
The witness may not refuse to comply with the order on
the basis of his privilege against 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.
Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.