G.R. No.

L-23145
November 29, 1968
TESTATE ESTATE OF IDONAH SLADE PERKINS, deceased. RENATO D. TAYAG, ancillary
administrator-appellee,
vs.
BENGUET CONSOLIDATED, INC., oppositor-appellant.
Cirilo F. Asperillo, Jr., for ancillary administrator-appellee.
Ross, Salcedo, Del Rosario, Bito and Misa for oppositor-appellant.
FERNANDO, J.:
Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company
of New York, United States of America, of the estate of the deceased Idonah Slade Perkins, who died in New
York City on March 27, 1960, to surrender to the ancillary administrator in the Philippines the stock
certificates owned by her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy the legitimate
claims of local creditors, the lower court, then presided by the Honorable Arsenio Santos, now retired, issued
on May 18, 1964, an order of this tenor: "After considering the motion of the ancillary administrator, dated
February 11, 1964, as well as the opposition filed by the Benguet Consolidated, Inc., the Court hereby (1)
considers as lost for all purposes in connection with the administration and liquidation of the Philippine
estate of Idonah Slade Perkins the stock certificates covering the 33,002 shares of stock standing in her name
in the books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs said
corporation to issue new certificates in lieu thereof, the same to be delivered by said corporation to either the
incumbent ancillary administrator or to the Probate Division of this Court."1
From such an order, an appeal was taken to this Court not by the domiciliary administrator, the County Trust
Company of New York, but by the Philippine corporation, the Benguet Consolidated, Inc. The appeal cannot
possibly prosper. The challenged order represents a response and expresses a policy, to paraphrase
Frankfurter, arising out of a specific problem, addressed to the attainment of specific ends by the use of
specific remedies, with full and ample support from legal doctrines of weight and significance.
The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade
Perkins, who died on March 27, 1960 in New York City, left among others, two stock certificates covering
33,002 shares of appellant, the certificates being in the possession of the County Trust Company of New
York, which as noted, is the domiciliary administrator of the estate of the deceased.2 Then came this portion
of the appellant's brief: "On August 12, 1960, Prospero Sanidad instituted ancillary administration
proceedings in the Court of First Instance of Manila; Lazaro A. Marquez was appointed ancillary
administrator, and on January 22, 1963, he was substituted by the appellee Renato D. Tayag. A dispute arose
between the domiciary administrator in New York and the ancillary administrator in the Philippines as to
which of them was entitled to the possession of the stock certificates in question. On January 27, 1964, the
Court of First Instance of Manila ordered the domiciliary administrator, County Trust Company, to "produce
and deposit" them with the ancillary administrator or with the Clerk of Court. The domiciliary administrator
did not comply with the order, and on February 11, 1964, the ancillary administrator petitioned the court to
"issue an order declaring the certificate or certificates of stocks covering the 33,002 shares issued in the
name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost."3
It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it is
concerned as to "who is entitled to the possession of the stock certificates in question; appellant opposed the
petition of the ancillary administrator because the said stock certificates are in existence, they are today in
the possession of the domiciliary administrator, the County Trust Company, in New York, U.S.A...."4
It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered
as lost. Moreover, it would allege that there was a failure to observe certain requirements of its by-laws
before new stock certificates could be issued. Hence, its appeal.
As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes an
emphatic affirmation of judicial authority sought to be emasculated by the wilful conduct of the domiciliary
administrator in refusing to accord obedience to a court decree. How, then, can this order be stigmatized as
illegal?
As is true of many problems confronting the judiciary, such a response was called for by the realities of the
situation. What cannot be ignored is that conduct bordering on wilful defiance, if it had not actually reached
it, cannot without undue loss of judicial prestige, be condoned or tolerated. For the law is not so lacking in
flexibility and resourcefulness as to preclude such a solution, the more so as deeper reflection would make
clear its being buttressed by indisputable principles and supported by the strongest policy considerations.

It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less
than that of the country. Through this challenged order, there is thus dispelled the atmosphere of contingent
frustration brought about by the persistence of the domiciliary administrator to hold on to the stock
certificates after it had, as admitted, voluntarily submitted itself to the jurisdiction of the lower court by
entering its appearance through counsel on June 27, 1963, and filing a petition for relief from a previous
order of March 15, 1963.
Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed.
For without it, what it had been decided would be set at naught and nullified. Unless such a blatant disregard
by the domiciliary administrator, with residence abroad, of what was previously ordained by a court order
could be thus remedied, it would have entailed, insofar as this matter was concerned, not a partial but a wellnigh complete paralysis of judicial authority.
1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to
gain control and possession of all assets of the decedent within the jurisdiction of the Philippines. Nor could
it. Such a power is inherent in his duty to settle her estate and satisfy the claims of local creditors.5 As
Justice Tuason speaking for this Court made clear, it is a "general rule universally recognized" that
administration, whether principal or ancillary, certainly "extends to the assets of a decedent found within the
state or country where it was granted," the corollary being "that an administrator appointed in one state or
country has no power over property in another state or country."6
It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by
Justice Malcolm. Thus: "It is often necessary to have more than one administration of an estate. When a
person dies intestate owning property in the country of his domicile as well as in a foreign country,
administration is had in both countries. That which is granted in the jurisdiction of decedent's last domicile is
termed the principal administration, while any other administration is termed the ancillary administration.
The reason for the latter is because a grant of administration does not ex proprio vigore have any effect
beyond the limits of the country in which it is granted. Hence, an administrator appointed in a foreign state
has no authority in the [Philippines]. The ancillary administration is proper, whenever a person dies, leaving
in a country other than that of his last domicile, property to be administered in the nature of assets of the
deceased liable for his individual debts or to be distributed among his heirs."7
It would follow then that the authority of the probate court to require that ancillary administrator's right to
"the stock certificates covering the 33,002 shares ... standing in her name in the books of [appellant] Benguet
Consolidated, Inc...." be respected is equally beyond question. For appellant is a Philippine corporation
owing full allegiance and subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot
therefore be considered in any wise as immune from lawful court orders.
Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8 finds application. "In the
instant case, the actual situs of the shares of stock is in the Philippines, the corporation being domiciled
[here]." To the force of the above undeniable proposition, not even appellant is insensible. It does not dispute
it. Nor could it successfully do so even if it were so minded.
2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of
the challenged order, how does appellant, Benguet Consolidated, Inc. propose to carry the extremely heavy
burden of persuasion of precisely demonstrating the contrary? It would assign as the basic error allegedly
committed by the lower court its "considering as lost the stock certificates covering 33,002 shares of
Benguet belonging to the deceased Idonah Slade Perkins, ..."9 More specifically, appellant would stress that
the "lower court could not "consider as lost" the stock certificates in question when, as a matter of fact, his
Honor the trial Judge knew, and does know, and it is admitted by the appellee, that the said stock certificates
are in existence and are today in the possession of the domiciliary administrator in New York."10
There may be an element of fiction in the above view of the lower court. That certainly does not suffice to
call for the reversal of the appealed order. Since there is a refusal, persistently adhered to by the domiciliary
administrator in New York, to deliver the shares of stocks of appellant corporation owned by the decedent to
the ancillary administrator in the Philippines, there was nothing unreasonable or arbitrary in considering
them as lost and requiring the appellant to issue new certificates in lieu thereof. Thereby, the task incumbent
under the law on the ancillary administrator could be discharged and his responsibility fulfilled.
Any other view would result in the compliance to a valid judicial order being made to depend on the
uncontrolled discretion of the party or entity, in this case domiciled abroad, which thus far has shown the
utmost persistence in refusing to yield obedience. Certainly, appellant would not be heard to contend in all

seriousness that a judicial decree could be treated as a mere scrap of paper, the court issuing it being
powerless to remedy its flagrant disregard.
It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly
with the facts. To be more blunt, the quality of truth may be lacking in such a conclusion arrived at. It is to
be remembered however, again to borrow from Frankfurter, "that fictions which the law may rely upon in
the pursuit of legitimate ends have played an important part in its development."11
Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance the
ends of justice, [even if] clumsy and at times offensive."12 Some of them have persisted even to the present,
that eminent jurist, noting "the quasi contract, the adopted child, the constructive trust, all of flourishing
vitality, to attest the empire of "as if" today."13 He likewise noted "a class of fictions of another order, the
fiction which is a working tool of thought, but which at times hides itself from view till reflection and
analysis have brought it to the light."14
What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the law.
There should be then on the part of the appellant a further refinement in the catholicity of its condemnation
of such judicial technique. If ever an occasion did call for the employment of a legal fiction to put an end to
the anomalous situation of a valid judicial order being disregarded with apparent impunity, this is it. What is
thus most obvious is that this particular alleged error does not carry persuasion.
3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one of
the provisions of its by-laws which would set forth the procedure to be followed in case of a lost, stolen or
destroyed stock certificate; it would stress that in the event of a contest or the pendency of an action
regarding ownership of such certificate or certificates of stock allegedly lost, stolen or destroyed, the
issuance of a new certificate or certificates would await the "final decision by [a] court regarding the
ownership [thereof]."15
Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is admitted
that the foreign domiciliary administrator did not appeal from the order now in question. Moreover, there is
likewise the express admission of appellant that as far as it is concerned, "it is immaterial ... who is entitled
to the possession of the stock certificates ..." Even if such were not the case, it would be a legal absurdity to
impart to such a provision conclusiveness and finality. Assuming that a contrariety exists between the above
by-law and the command of a court decree, the latter is to be followed.
It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which, however, the
judiciary must yield deference, when appropriately invoked and deemed applicable. It would be most highly
unorthodox, however, if a corporate by-law would be accorded such a high estate in the jural order that a
court must not only take note of it but yield to its alleged controlling force.
The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be set
aside for its inconsistency with one of its by-laws does not impress us. Its obedience to a lawful court order
certainly constitutes a valid defense, assuming that such apprehension of a possible court action against it
could possibly materialize. Thus far, nothing in the circumstances as they have developed gives substance to
such a fear. Gossamer possibilities of a future prejudice to appellant do not suffice to nullify the lawful
exercise of judicial authority.
4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at
war with the basic postulates of corporate theory.
We start with the undeniable premise that, "a corporation is an artificial being created by operation of
law...."16 It owes its life to the state, its birth being purely dependent on its will. As Berle so aptly stated:
"Classically, a corporation was conceived as an artificial person, owing its existence through creation by a
sovereign power."17As a matter of fact, the statutory language employed owes much to Chief Justice
Marshall, who in the Dartmouth College decision defined a corporation precisely as "an artificial being,
invisible, intangible, and existing only in contemplation of law."18
The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in
reality a person, but the law treats it as though it were a person by process of fiction, or by regarding it as an
artificial person distinct and separate from its individual stockholders.... It owes its existence to law. It is an
artificial person created by law for certain specific purposes, the extent of whose existence, powers and
liberties is fixed by its charter."19 Dean Pound's terse summary, a juristic person, resulting from an
association of human beings granted legal personality by the state, puts the matter neatly.20
There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from
Friedmann, "is the reality of the group as a social and legal entity, independent of state recognition and

concession."21 A corporation as known to Philippine jurisprudence is a creature without any existence until it
has received the imprimatur of the state according to law. It is logically inconceivable therefore that it will
have rights and privileges of a higher priority than that of its creator. More than that, it cannot legitimately
refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary, whenever called
upon to do so.
As a matter of fact, a corporation once it comes into being, following American law still of persuasive
authority in our jurisdiction, comes more often within the ken of the judiciary than the other two coordinate
branches. It institutes the appropriate court action to enforce its right. Correlatively, it is not immune from
judicial control in those instances, where a duty under the law as ascertained in an appropriate legal
proceeding is cast upon it.
To assert that it can choose which court order to follow and which to disregard is to confer upon it not
autonomy which may be conceded but license which cannot be tolerated. It is to argue that it may, when so
minded, overrule the state, the source of its very existence; it is to contend that what any of its governmental
organs may lawfully require could be ignored at will. So extravagant a claim cannot possibly merit approval.
5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown that in a guardianship
proceedings then pending in a lower court, the United States Veterans Administration filed a motion for the
refund of a certain sum of money paid to the minor under guardianship, alleging that the lower court had
previously granted its petition to consider the deceased father as not entitled to guerilla benefits according to
a determination arrived at by its main office in the United States. The motion was denied. In seeking a
reconsideration of such order, the Administrator relied on an American federal statute making his decisions
"final and conclusive on all questions of law or fact" precluding any other American official to examine the
matter anew, "except a judge or judges of the United States court."23 Reconsideration was denied, and the
Administrator appealed.
In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that the
appeal should be rejected. The provisions of the U.S. Code, invoked by the appellant, make the decisions of
the U.S. Veterans' Administrator final and conclusive when made on claims property submitted to him for
resolution; but they are not applicable to the present case, where the Administrator is not acting as a judge
but as a litigant. There is a great difference between actions against the Administrator (which must be filed
strictly in accordance with the conditions that are imposed by the Veterans' Act, including the exclusive
review by United States courts), and those actions where the Veterans' Administrator seeks a remedy from
our courts and submits to their jurisdiction by filing actions therein. Our attention has not been called to any
law or treaty that would make the findings of the Veterans' Administrator, in actions where he is a party,
conclusive on our courts. That, in effect, would deprive our tribunals of judicial discretion and render them
mere subordinate instrumentalities of the Veterans' Administrator."
It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive,
determinations made by foreign governmental agencies. It is infinitely worse if through the absence of any
coercive power by our courts over juridical persons within our jurisdiction, the force and effectivity of their
orders could be made to depend on the whim or caprice of alien entities. It is difficult to imagine of a
situation more offensive to the dignity of the bench or the honor of the country.
Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet Consolidated
seems to be firmly committed as shown by its failure to accept the validity of the order complained of; it
seeks its reversal. Certainly we must at all pains see to it that it does not succeed. The deplorable
consequences attendant on appellant prevailing attest to the necessity of negative response from us. That is
what appellant will get.
That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to
conjure extreme and even oppressive possibilities. That is not decisive. It does not settle the issue. What
carries weight and conviction is the result arrived at, the just solution obtained, grounded in the soundest of
legal doctrines and distinguished by its correspondence with what a sense of realism requires. For through
the appealed order, the imperative requirement of justice according to law is satisfied and national dignity
and honor maintained.
WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First
Instance, dated May 18, 1964, is affirmed. With costs against oppositor-appelant Benguet Consolidated, Inc.
Makalintal, Zaldivar and Capistrano, JJ., concur.
Concepcion, C.J., Reyes, J.B.L., Dizon, Sanchez and Castro, JJ., concur in the result.

[G.R. No. 119002. October 19, 2000]

INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner, vs. HON. COURT OF
APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL FEDERATION, respondents.
DECISION
KAPUNAN, J.:
On June 30 1989, petitioner International Express Travel and Tour Services, Inc., through its managing
director, wrote a letter to the Philippine Football Federation (Federation), through its president private
respondent Henri Kahn, wherein the former offered its services as a travel agency to the latter.[1] The offer
was accepted.
Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the
South East Asian Games in Kuala Lumpur as well as various other trips to the People's Republic of China
and Brisbane. The total cost of the tickets amounted to P449,654.83. For the tickets received, the Federation
made two partial payments, both in September of 1989, in the total amount of P176,467.50.[2]
On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter
requesting for the amount of P265,894.33.[3] On 30 October 1989, the Federation, through the Project
Gintong Alay, paid the amount of P31,603.00.[4]
On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial
payment for the outstanding balance of the Federation.[5] Thereafter, no further payments were made despite
repeated demands.
This prompted petitioner to file a civil case before the Regional Trial Court of Manila. Petitioner sued
Henri Kahn in his personal capacity and as President of the Federation and impleaded the Federation as an
alternative defendant. Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets
purchased by the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation.[6]
Henri Kahn filed his answer with counterclaim. While not denying the allegation that the Federation
owed the amount P207,524.20, representing the unpaid balance for the plane tickets, he averred that the
petitioner has no cause of action against him either in his personal capacity or in his official capacity as
president of the Federation. He maintained that he did not guarantee payment but merely acted as an agent
of the Federation which has a separate and distinct juridical personality.[7]
On the other hand, the Federation failed to file its answer, hence, was declared in default by the trial
court.[8]
In due course, the trial court rendered judgment and ruled in favor of the petitioner and declared Henri
Kahn personally liable for the unpaid obligation of the Federation. In arriving at the said ruling, the trial
court rationalized:
Defendant Henri Kahn would have been correct in his contentions had it been duly established that
defendant Federation is a corporation. The trouble, however, is that neither the plaintiff nor the defendant
Henri Kahn has adduced any evidence proving the corporate existence of the defendant Federation. In
paragraph 2 of its complaint, plaintiff asserted that "Defendant Philippine Football Federation is a sports
association xxx." This has not been denied by defendant Henri Kahn in his Answer. Being the President of
defendant Federation, its corporate existence is within the personal knowledge of defendant Henri Kahn. He
could have easily denied specifically the assertion of the plaintiff that it is a mere sports association, if it
were a domestic corporation. But he did not.
xxx
A voluntary unincorporated association, like defendant Federation has no power to enter into, or to ratify, a
contract. The contract entered into by its officers or agents on behalf of such association is not binding on, or
enforceable against it. The officers or agents are themselves personally liable.
x x x[9]
The dispositive portion of the trial court's decision reads:
WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff the principal sum
of P207,524.20, plus the interest thereon at the legal rate computed from July 5, 1990, the date the complaint
was filed, until the principal obligation is fully liquidated; and another sum of P15,000.00 for attorney's fees.
The complaint of the plaintiff against the Philippine Football Federation and the counterclaims of the
defendant Henri Kahn are hereby dismissed.
With the costs against defendant Henri Kahn.[10]
Only Henri Kahn elevated the above decision to the Court of Appeals. On 21 December 1994, the
respondent court rendered a decision reversing the trial court, the decretal portion of said decision reads:

WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE
and another one is rendered dismissing the complaint against defendant Henri S. Kahn.[11]
In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the Federation. It
rationalized that since petitioner failed to prove that Henri Kahn guaranteed the obligation of the Federation,
he should not be held liable for the same as said entity has a separate and distinct personality from its
officers.
Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that the Federation be
held liable for the unpaid obligation. The same was denied by the appellate court in its resolution of 8
February 1995, where it stated that:
As to the alternative prayer for the Modification of the Decision by expressly declaring in the dispositive
portion thereof the Philippine Football Federation (PFF) as liable for the unpaid obligation, it should be
remembered that the trial court dismissed the complaint against the Philippine Football Federation, and the
plaintiff did not appeal from this decision. Hence, the Philippine Football Federation is not a party to this
appeal and consequently, no judgment may be pronounced by this Court against the PFF without violating
the due process clause, let alone the fact that the judgment dismissing the complaint against it, had already
become final by virtue of the plaintiff's failure to appeal therefrom. The alternative prayer is therefore
similarly DENIED.[12]
Petitioner now seeks recourse to this Court and alleges that the respondent court committed the
following assigned errors:[13]
A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER
HAD DEALT WITH THE PHILIPPINE FOOTBALL FEDERATION (PFF) AS A
CORPORATE ENTITY AND IN NOT HOLDING THAT PRIVATE RESPONDENT HENRI
KAHN WAS THE ONE WHO REPRESENTED THE PFF AS HAVING A CORPORATE
PERSONALITY.
B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE
RESPONDENT HENRI KAHN PERSONALLY LIABLE FOR THE OBLIGATION OF THE
UNINCORPORATED PFF, HAVING NEGOTIATED WITH PETITIONER AND
CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL
PAYMENT AND ASSURED PETITIONER OF FULLY SETTLING THE OBLIGATION.
C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY
LIABLE, THE HONORABLE COURT OF APPEALS ERRED IN NOT EXPRESSLY
DECLARING IN ITS DECISION THAT THE PFF IS SOLELY LIABLE FOR THE
OBLIGATION.
The resolution of the case at bar hinges on the determination of the existence of the Philippine Football
Federation as a juridical person. In the assailed decision, the appellate court recognized the existence of the
Federation. In support of this, the CA cited Republic Act 3135, otherwise known as the Revised Charter of
the Philippine Amateur Athletic Federation, and Presidential Decree No. 604 as the laws from which said
Federation derives its existence.
As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical
existence of national sports associations. This may be gleaned from the powers and functions granted to
these associations. Section 14 of R.A. 3135 provides:
SEC. 14. Functions, powers and duties of Associations. - The National Sports' Association shall have the
following functions, powers and duties:
1. To adopt a constitution and by-laws for their internal organization and government;
2. To raise funds by donations, benefits, and other means for their purposes.
3. To purchase, sell, lease or otherwise encumber property both real and personal, for the accomplishment of
their purpose;
4. To affiliate with international or regional sports' Associations after due consultation with the executive
committee;
xxx
13. To perform such other acts as may be necessary for the proper accomplishment of their purposes and not
inconsistent with this Act.
Section 8 of P.D. 604, grants similar functions to these sports associations:
SEC. 8. Functions, Powers, and Duties of National Sports Association. - The National sports associations
shall have the following functions, powers, and duties:

1. Adopt a Constitution and By-Laws for their internal organization and government which shall be
submitted to the Department and any amendment thereto shall take effect upon approval by the
Department:Provided, however, That no team, school, club, organization, or entity shall be admitted as a
voting member of an association unless 60 per cent of the athletes composing said team, school, club,
organization, or entity are Filipino citizens;
2. Raise funds by donations, benefits, and other means for their purpose subject to the approval of the
Department;
3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for the accomplishment of
their purpose;
4. Conduct local, interport, and international competitions, other than the Olympic and Asian Games, for the
promotion of their sport;
5. Affiliate with international or regional sports associations after due consultation with the Department;
xxx
13. Perform such other functions as may be provided by law.
The above powers and functions granted to national sports associations clearly indicate that these
entities may acquire a juridical personality. The power to purchase, sell, lease and encumber property are
acts which may only be done by persons, whether natural or artificial, with juridical capacity. However,
while we agree with the appellate court that national sports associations may be accorded corporate status,
such does not automatically take place by the mere passage of these laws.
It is a basic postulate that before a corporation may acquire juridical personality, the State must give its
consent either in the form of a special law or a general enabling act. We cannot agree with the view of the
appellate court and the private respondent that the Philippine Football Federation came into existence upon
the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the
Philippine Football Federation. These laws merely recognized the existence of national sports associations
and provided the manner by which these entities may acquire juridical personality. Section 11 of R.A. 3135
provides:
SEC. 11. National Sports' Association; organization and recognition. - A National Association shall be
organized for each individual sports in the Philippines in the manner hereinafter provided to constitute the
Philippine Amateur Athletic Federation. Applications for recognition as a National Sports' Association shall
be filed with the executive committee together with, among others, a copy of the constitution and by-laws
and a list of the members of the proposed association, and a filing fee of ten pesos.
The Executive Committee shall give the recognition applied for if it is satisfied that said association will
promote the purposes of this Act and particularly section three thereof. No application shall be held pending
for more than three months after the filing thereof without any action having been taken thereon by the
executive committee. Should the application be rejected, the reasons for such rejection shall be clearly stated
in a written communication to the applicant. Failure to specify the reasons for the rejection shall not affect
the application which shall be considered as unacted upon: Provided, however, That until the executive
committee herein provided shall have been formed, applications for recognition shall be passed upon by the
duly elected members of the present executive committee of the Philippine Amateur Athletic
Federation. The said executive committee shall be dissolved upon the organization of the executive
committee herein provided: Provided, further, That the functioning executive committee is charged with the
responsibility of seeing to it that the National Sports' Associations are formed and organized within six
months from and after the passage of this Act.
Section 7 of P.D. 604, similarly provides:
SEC. 7. National Sports Associations. - Application for accreditation or recognition as a national sports
association for each individual sport in the Philippines shall be filed with the Department together with,
among others, a copy of the Constitution and By-Laws and a list of the members of the proposed
association.
The Department shall give the recognition applied for if it is satisfied that the national sports association to
be organized will promote the objectives of this Decree and has substantially complied with the rules and
regulations of the Department: Provided, That the Department may withdraw accreditation or recognition
for violation of this Decree and such rules and regulations formulated by it.
The Department shall supervise the national sports association: Provided, That the latter shall have exclusive
technical control over the development and promotion of the particular sport for which they are organized.

Clearly the above cited provisions require that before an entity may be considered as a national sports
association, such entity must be recognized by the accrediting organization, the Philippine Amateur Athletic
Federation under R.A. 3135, and the Department of Youth and Sports Development under P.D. 604. This
fact of recognition, however, Henri Kahn failed to substantiate. In attempting to prove the juridical existence
of the Federation, Henri Kahn attached to his motion for reconsideration before the trial court a copy of the
constitution and by-laws of the Philippine Football Federation. Unfortunately, the same does not prove that
said Federation has indeed been recognized and accredited by either the Philippine Amateur Athletic
Federation or the Department of Youth and Sports Development. Accordingly, we rule that the Philippine
Football Federation is not a national sports association within the purview of the aforementioned laws and
does not have corporate existence of its own.
Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid
obligations of the unincorporated Philippine Football Federation. It is a settled principal in corporation law
that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes
such privileges and becomes personally liable for contract entered into or for other acts performed as such
agent.[14] As president of the Federation, Henri Kahn is presumed to have known about the corporate
existence or non-existence of the Federation. We cannot subscribe to the position taken by the appellate
court that even assuming that the Federation was defectively incorporated, the petitioner cannot deny the
corporate existence of the Federation because it had contracted and dealt with the Federation in such a
manner as to recognize and in effect admit its existence.[15] The doctrine of corporation by estoppel is
mistakenly applied by the respondent court to the petitioner. The application of the doctrine applies to a third
party only when he tries to escape liability on a contract from which he has benefited on the irrelevant
ground of defective incorporation.[16] In the case at bar, the petitioner is not trying to escape liability from the
contract but rather is the one claiming from the contract.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the
Regional Trial Court of Manila, Branch 35, in Civil Case No. 90-53595 is hereby REINSTATED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.

G.R. No. 182398

BENNY Y. HUNG,* Petitioner, - versus - BPI CARD FINANCE CORP., Respondent.

PEREZ, J.:

DECISION

For our resolution is the instant petition for review by certiorari assailing the Decision[1] dated 31
August 2007 and Resolution[2] dated 14 April 2008 of the Court of Appeals in CA-G.R. CV No. 84641. The
Court of Appeals Decision affirmed the Order[3] dated 30 November 2004 of the Regional Trial Court
(RTC) of Makati City in Civil Case No. 99-2040, entitled BPI Card Finance Corporation v. B & R
Sportswear Distributor, Inc., finding petitioner Benny Hung liable to respondent BPI Card Finance
Corporation (BPI for brevity) for the satisfaction of the RTCs 24 June 2002 Decision [4] against B & R
Sportswear Distributor, Inc. The pertinent portion of the Decision states:
xxx
The delivery by the plaintiff to the defendant of P3,480,427.43 pursuant to the
Merchant Agreements was sufficiently proven by the checks, Exhibits B to V-5. Plaintiffs
evidence that the amount due to the defendant was P139,484.38 only was not controverted
by the defendant, hence the preponderance of evidence is in favor of the plaintiff. The lack
of controversy on the amount due to the defendant when considered with the contents of
the letter of the defendant, Exhibit TT when it returned to plaintiff P963,604.03 as partial
settlement of overpayments made by BPI Card Corporation to B & R Sportswear, pending
final reconciliation of exact amount of overpayment amply support the finding of the Court
that plaintiff indeed has a right to be paid by the defendant of the amount of P2,516,826.68.
Plaintiff claims interest of 12%. The obligation of the defendant to return did not arose
out of a loan or forbearance of money, hence, applying Eastern Shipping Lines Inc. vs. Court
of Appeals, 234 SCRA 78 (1994) the rate due is only 6% computed from October 4, 1999 the
date the letter of demand was presumably received by the defendant.

The foregoing effectively dispose of the defenses raised by the defendant and furnish
the reason of the Court for not giving due course to them.
WHEREFORE, judgment is rendered directing defendant to pay plaintiff P2,516,826.68
with interest at the rate of 6% from October 4, 1999 until full payment.
The antecedent facts of the case are as follows:
Guess? Footwear and BPI Express Card Corporation entered into two merchant agreements,
dated 25 August 1994 and 16 November 1994, whereby Guess? Footwear agreed to honor validly
issued BPI Express Credit Cards presented by cardholders in the purchase of its goods and services. In
the first agreement, petitioner Benny Hung signed as owner and manager of Guess? Footwear. He
signed the second agreement as president of Guess? Footwear which he also referred to as B & R
Sportswear Enterprises.
From May 1997 to January 1999, respondent BPI mistakenly credited, through three hundred
fifty-two (352) checks, Three Million Four Hundred Eighty Thousand Four Hundred Twenty-Seven Pesos
and 23/100 (P3,480,427.23) to the account of Guess? Footwear. When informed of the overpayments,
[6]
petitioner Benny Hung transferred Nine Hundred Sixty-Three Thousand Six Hundred Four Pesos and
03/100 (P963,604.03) from the bank account of B & R Sportswear Enterprises to BPIs account as partial
payment.[7] The letter dated 31 May 1999 was worded as follows:
[5]

Dear Sir/Madame
This is to authorize BPI Ortigas Branch to transfer the amount of P963,604.03 from the
account of B & R Sportswear Enterprises to the account of BPI Card Corporation.
The aforementioned amount shall represent partial settlement of
overpayments made by BPI Card Corporation to B & R Sportswear, pending final
reconciliation of exact amount of overpayment. (Emphasis supplied.)
Thank you for your usual kind cooperation.
Very truly yours,
(Sgd.)
Benny Hung
In a letter dated 27 September 1999, BPI demanded the balance payment amounting to Two
Million Five Hundred Sixteen Thousand Eight Hundred Twenty-Six Pesos and 68/100 (P2,516,826.68),
but Guess? Footwear failed to pay.
BPI filed a collection suit before the RTC of Makati City naming as defendant B & R Sportswear
Distributor, Inc.[8] Although the case was against B & R Sportswear Distributor, Inc., it was B & R
Footwear Distributors, Inc., that filed an answer, appeared and participated in the trial. [9]
On 24 June 2002, the RTC rendered a decision ordering defendant B & R Sportswear Distributor,
Inc., to pay the plaintiff (BPI) P2,516,826.68 with 6% interest from 4 October 1999. The RTC ruled that
the overpayment of P3,480,427.43 was proven by checks credited to the account of Guess? Footwear
and the P963,604.03 partial payment proved that defendant ought to
pay P2,516,826.68[10] more. During the execution of judgment, it was discovered that B & R Sportswear
Distributor, Inc., is a non-existing entity.Thus, the trial court failed to execute the judgment.
Consequently, respondent filed a Motion[11] to pierce the corporate veil of B & R Footwear
Distributors, Inc. to hold its stockholders and officers, including petitioner Benny Hung, personally
liable. In its 30 November 2004 Order, the RTC ruled that petitioner is liable for the satisfaction of the
judgment, since he signed the merchant agreements in his personal capacity. [12]
The Court of Appeals affirmed the order and dismissed petitioners appeal. It ruled that since B &
R Sportswear Distributor, Inc. is not a corporation, it therefore has no personality separate from
petitioner Benny Hung who induced the respondent BPI and the RTC to believe that it is a corporation.
[13]

After his motion for reconsideration was denied, petitioner filed the instant petition anchored on
the following grounds:
I.

PIERCING THE VEIL OF CORPORATE FICTION CANNOT JUSTIFY EXECUTION AGAINST [HIM].
II.
FOR LACK OF SERVICE OF SUMMONS AND A COPY OF THE COMPLAINT UPON [HIM], THE
ASSAILED DECISION OF THE COURT OF APPEALS, AS WELL AS, ITS RESOLUTION DENYING
[HIS] MOTION FOR RECONSIDERATION SHOULD BE DECLARED NULL AND VOID FOR LACK
OF JURISDICTION.[14]
In essence, the basic issue is whether petitioner can be held liable for the satisfaction of the
RTCs Decision against B & R Sportswear Distributor, Inc.? As we answer this question, we shall pass
upon the grounds raised by petitioner.
Petitioner claims that he never represented B & R Sportswear Distributor, Inc., the non-existent
corporation sued by respondent; that it would be unfair to treat his single proprietorship B & R
Sportswear Enterprises as B & R Sportswear Distributor, Inc.; that the confusing similarity in the names
should not be taken against him because he established his single proprietorship long before
respondent sued; that he did not defraud respondent; that he even paid respondent in the course of
their mutual transactions; and that without fraud, he cannot be held liable for the obligations of B & R
Footwear Distributors, Inc. or B & R Sportswear Distributor, Inc. by piercing the veil of corporate fiction.
Petitioner also states that the real corporation B & R Footwear Distributors, Inc. or Guess?
Footwear acknowledged itself as the real defendant. It answered the complaint and participated in the
trial. According to petitioner, respondent should have executed the judgment against it as the real
contracting party in the merchant agreements. Execution against him was wrong since he was not
served with summons nor was he a party to the case. Thus, the lower courts did not acquire jurisdiction
over him, and their decisions are null and void for lack of due process.
Respondent counters that petitioners initial silence on the non-existence of B & R Sportswear
Distributor, Inc. was intended to mislead. Still, the evidence showed that petitioner treats B & R
Footwear Distributors, Inc. and his single proprietorship B & R Sportswear Enterprises as one and the
same entity. Petitioner ordered the partial payment using the letterhead of B & R Footwear Distributor,
Inc. and yet the fund transferred belongs to his single proprietorship B & R Sportswear Enterprises. This
fact, according to respondent, justifies piercing the corporate veil of B & R Footwear Distributor, Inc. to
hold petitioner personally liable.
Citing Sections 4 and 5, Rule 10 of the Rules of Court, respondent also prays that the name of
the inexistent defendant B & R Sportswear Distributor, Inc. be amended and changed to Benny Hung
and/or B & R Footwear Distributors, Inc.
Moreover, respondent avers that petitioner cannot claim that he was not served with summons
because it was served at his address and the building standing thereon is registered in his name per
the tax declaration.
At the outset, we note the cause of respondents predicament in failing to execute the 2002
judgment in its favor: its own failure to state the correct name of the defendant it sued and seek a
correction earlier. Instead of suing Guess? Footwear and B & R Sportswear Enterprises, the contracting
parties in the merchant agreements, BPI named B & R Sportswear Distributor, Inc. as defendant. BPI
likewise failed to sue petitioner Benny Hung who signed the agreements as owner/manager and
president of Guess? Footwear and B & R Sportswear Enterprises. Moreover, when B & R Footwear
Distributors, Inc. appeared as defendant, no corresponding correction was sought. Unfortunately, BPI
has buried its omission by silence and lamented instead petitioners alleged initial silence on the nonexistence of B & R Sportswear Distributor, Inc. Respondent even accused the defendant in its motion to
pierce the corporate veil of B & R Footwear Distributors, Inc. of having employed deceit, bad faith and
illegal scheme/maneuver,[15] an accusation no longer pursued before us.
Our impression that respondent BPI should have named petitioner as a defendant finds
validation from (1) petitioners own admission that B & R Sportswear Enterprises is his sole
proprietorship and (2) respondents belated prayer that defendants name be changed to Benny Hung
and/or B & R Footwear Distributors, Inc. on the ground that such relief is allowed under Sections
4[16] and 5,[17] Rule 10 of the Rules of Court.
Indeed, we can validly make the formal correction on the name of the defendant from B & R
Sportswear Distributor, Inc. to B & R Footwear Distributors, Inc. Such correction only confirms the
voluntary correction already made by B & R Footwear Distributors, Inc. which answered the complaint
and claimed that it is the defendant. Section 4, Rule 10 of the Rules of Court also allows a summary

correction of this formal defect. Such correction can be made even if the case is already before us as it
can be made at any stage of the action. [18] Respondents belated prayer for correction is also sufficient
since a court can even make the correction motu propio. More importantly, no prejudice is caused to B
& R Footwear Distributors, Inc. considering its participation in the trial. Hence, petitioner has basis for
saying that respondent should have tried to execute the judgment against B & R Footwear Distributors,
Inc.
But we cannot agree with petitioner that B & R Footwear Distributors, Inc. or Guess? Footwear is
the only real contracting party. The facts show that B & R Sportswear Enterprises is also a contracting
party. Petitioner conveniently ignores this fact although he himself signed the second agreement
indicating that Guess? Footwear is also referred to as B & R Sportswear Enterprises. Petitioner also tries
to soften the significance of his directive to the bank, under the letterhead of B & R Footwear
Distributors, Inc., to transfer the funds belonging to his sole proprietorship B & R Sportswear
Enterprises as partial payment to the overpayments made by respondent to Guess? Footwear. He now
claims the partial payment as his payment to respondent in the course of their mutual transactions.
Clearly, petitioner has represented in his dealings with respondent that Guess? Footwear or B &
R Footwear Distributors, Inc. is also B & R Sportswear Enterprises. For this reason, the more complete
correction on the name of defendant should be from B & R Sportswear Distributor, Inc. to B & R
Footwear Distributors, Inc. and Benny Hung.Petitioner is the proper defendant because his sole
proprietorship B & R Sportswear Enterprises has no juridical personality apart from him. [19] Again, the
correction only confirms the voluntary correction already made by B & R Footwear Distributors, Inc. or
Guess? Footwear which is also B & R Sportswear Enterprises. Correction of this formal defect is also
allowed by Section 4, Rule 10 of the Rules of Court.
Relatedly, petitioner cannot complain of non-service of summons upon his person. Suffice it to
say that B & R Footwear Distributors, Inc. or Guess? Footwear which is also B & R Sportswear
Enterprises had answered the summons and the complaint and participated in the trial.
Accordingly, we find petitioner liable to respondent and we affirm, with the foregoing
clarification, the finding of the RTC that he signed the second merchant agreement in his personal
capacity.
The correction on the name of the defendant has rendered moot any further discussion on the
doctrine of piercing the veil of corporate fiction. In any event, we have said that whether the separate
personality of a corporation should be pierced hinges on facts pleaded and proved. [20] In seeking to
pierce the corporate veil of B & R Footwear Distributors, Inc., respondent complained of deceit, bad
faith and illegal scheme/maneuver. As stated earlier, respondent has abandoned such accusation. And
respondents proof the SEC certification that B & R Sportswear Distributor, Inc. is not an existing
corporation would surely attest to no other fact but the inexistence of a corporation named B & R
Sportswear Distributor, Inc. as such name only surfaced because of its own error. Hence, we cannot
agree with the Court of Appeals that petitioner has represented a non-existing corporation and induced
the respondent and the RTC to believe in his representation.
On petitioners alleged intention to mislead for his initial silence on the non-existence of the
named defendant, we find more notable respondents own silence on the error it committed. Contrary to
the allegation, the real defendant has even corrected respondents error. While the evidence showed
that petitioner has treated B & R Footwear Distributors, Inc. or Guess? Footwear as B & R Sportswear
Enterprises, respondent did not rely on this ground in filing the motion to pierce the corporate veil of B
& R Footwear Distributors, Inc. Respondents main contention therein was petitioners alleged act to
represent a non-existent corporation amounting to deceit, bad faith and illegal scheme/maneuver.
With regard to the imposable rate of legal interest, we find application of the rule laid down by
this Court in Eastern Shipping Lines, Inc. vs. Court of Appeals,[21] to wit:
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit.
Since this case before us involves an obligation not arising from a loan or forbearance of money,
the applicable interest rate is 6% per annum. The legal interest rate of 6% shall be computed from 4
October 1999, the date the letter of demand was presumably received by the defendant. [22] And in
accordance with the aforesaid decision, the rate of 12% per annum shall be charged on the total
amount outstanding, from the time the judgment becomes final and executory until its satisfaction.
WHEREFORE, we DENY the petition for lack of merit, and ORDER B & R Footwear Distributors,
Inc. and petitioner Benny Hung TO PAY respondent BPI Card Finance Corporation: (a) P2,516,823.40,
representing the overpayments, with interest at the rate of 6% per annum from 4 October 1999 until
finality of judgment; and (b) additional interest of 12% per annum from finality of judgment until full
payment.
No pronouncement as to costs.

G.R. No. 100866 July 14, 1992

REBECCA BOYER-ROXAS and GUILLERMO ROXAS, petitioners,
vs.
HON. COURT OF APPEALS and HEIRS OF EUGENIA V. ROXAS, INC., respondents.
GUTIERREZ, JR., J.:
This is a petition to review the decision and resolution of the Court of Appeals in CA-G.R. No. 14530
affirming the earlier decision of the Regional Trial Court of Laguna, Branch 37, at Calamba, in the
consolidated RTC Civil Case Nos. 802-84-C and 803-84-C entitled "Heirs of Eugenia V. Roxas, Inc. v.
Rebecca Boyer-Roxas" and Heirs of Eugenia V. Roxas, Inc. v. Guillermo Roxas," the dispositive portion of
which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the
defendants, by ordering as it is hereby ordered that:
1) In RTC Civil Case No. 802-84-C: Rebecca Boyer-Roxas and all persons claiming under her to:
a) Immediately vacate the residential house near the Balugbugan pool located inside the premises of the
Hidden Valley Springs Resort at Limao, Calauan, Laguna;
b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for her occupancy of the
residential house until the same is vacated;
c) Remove the unfinished building erected on the land of the plaintiff within ninety (90) days from receipt of
this decision;
d) Pay the plaintiff the amount of P100.00 per month from September 10, 1983, until the said unfinished
building is removed from the land of the plaintiff; and
e) Pay the costs.
2) In RTC Civil Case No. 803-84-C: Guillermo Roxas and all persons claiming under him to:
a) Immediately vacate the residential house near the tennis court located within the premises of the Hidden
Valley Springs Resort at Limao, Calauan, Laguna;
b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for his occupancy of the
said residential house until the same is vacated; and
c) Pay the costs. (Rollo, p. 36)
In two (2) separate complaints for recovery of possession filed with the Regional Trial Court of Laguna
against petitioners Rebecca Boyer-Roxas and Guillermo Roxas respectively, respondent corporation, Heirs
of Eugenia V. Roxas, Inc., prayed for the ejectment of the petitioners from buildings inside the Hidden
Valley Springs Resort located at Limao, Calauan, Laguna allegedly owned by the respondent corporation.
In the case of petitioner Rebecca Boyer-Roxas (Civil Case No-802-84-C), the respondent corporation
alleged that Rebecca is in possession of two (2) houses, one of which is still under construction, built at the
expense of the respondent corporation; and that her occupancy on the two (2) houses was only upon the
tolerance of the respondent corporation.

In the case of petitioner Guillermo Roxas (Civil Case No. 803-84-C), the respondent corporation alleged that
Guillermo occupies a house which was built at the expense of the former during the time when Guillermo's
father, Eriberto Roxas, was still living and was the general manager of the respondent corporation; that the
house was originally intended as a recreation hall but was converted for the residential use of Guillermo; and
that Guillermo's possession over the house and lot was only upon the tolerance of the respondent
corporation.
In both cases, the respondent corporation alleged that the petitioners never paid rentals for the use of the
buildings and the lots and that they ignored the demand letters for them to vacate the buildings.
In their separate answers, the petitioners traversed the allegations in the complaint by stating that they are
heirs of Eugenia V. Roxas and therefore, co-owners of the Hidden Valley Springs Resort; and as co-owners
of the property, they have the right to stay within its premises.
The cases were consolidated and tried jointly.
At the pre-trial, the parties limited the issues as follows:
1) whether plaintiff is entitled to recover the questioned premises;
2) whether plaintiff is entitled to reasonable rental for occupancy of the premises in question;
3) whether the defendant is legally authorized to pierce the veil of corporate fiction and interpose the same
as a defense in an accion publiciana;
4) whether the defendants are truly builders in good faith, entitled to occupy the questioned premises;
5) whether plaintiff is entitled to damages and reasonable compensation for the use of the questioned
premises;
6) whether the defendants are entitled to their counterclaim to recover moral and exemplary damages as well
as attorney's fees in the two cases;
7) whether the presence and occupancy by the defendants on the premises in questioned (sic) hampers,
deters or impairs plaintiff's operation of Hidden Valley Springs Resort; and
8) whether or not a unilateral and sudden withdrawal of plaintiffs tolerance allowing defendants' occupancy
of the premises in questioned (sic) is unjust enrichment. (Original Records, 486)
Upon motion of the plaintiff respondent corporation, Presiding Judge Francisco Ma. Guerrero of Branch 34
issued an Order dated April 25, 1986 inhibiting himself from further trying the case. The cases were reraffled to Branch 37 presided by Judge Odilon Bautista. Judge Bautista continued the hearing of the cases.
For failure of the petitioners (defendants below) and their counsel to attend the October 22, 1986 hearing
despite notice, and upon motion of the respondent corporation, the court issued on the same day, October 22,
1986, an Order considering the cases submitted for decision. At this stage of the proceedings, the petitioners
had not yet presented their evidence while the respondent corporation had completed the presentation of its
evidence.
The evidence of the respondent corporation upon which the lower court based its decision is as follows:
To support the complaints, the plaintiff offered the testimonies of Maria Milagros Roxas and that of Victoria
Roxas Villarta as well as Exhibits "A" to "M-3".
The evidence of the plaintiff established the following: that the plaintiff, Heirs of Eugenia V Roxas,
Incorporated, was incorporated on December 4, 1962 (Exh. "C") with the primary purpose of engaging in
agriculture to develop the properties inherited from Eugenia V. Roxas and that of y Eufrocino Roxas; that
the Articles of Incorporation of the plaintiff, in 1971, was amended to allow it to engage in the resort
business (Exh.
"C-1"); that the incorporators as original members of the board of directors of the plaintiff were all members
of the same family, with Eufrocino Roxas having the biggest share; that accordingly, the plaintiff put up a
resort known as Hidden Valley Springs Resort on a portion of its land located at Bo. Limao, Calauan,
Laguna, and covered by TCT No. 32639 (Exhs. "A" and "A-l"); that improvements were introduced in the
resort by the plaintiff and among them were cottages, houses or buildings, swimming pools, tennis court,
restaurant and open pavilions; that the house near the Balugbugan Pool (Exh. "B-l") being occupied by
Rebecca B. Roxas was originally intended as staff house but later used as the residence of Eriberto Roxas,
deceased husband of the defendant Rebecca Boyer-Roxas and father of Guillermo Roxas; that this house
presently being occupied by Rebecca B. Roxas was built from corporate funds; that the construction of the
unfinished house (Exh. "B-2") was started by the defendant Rebecca Boyer-Roxas and her husband Eriberto
Roxas; that the third building (Exh. "B-3") presently being occupied by Guillermo Roxas was originally
intended as a recreation hall but later converted as a residential house; that this house was built also from
corporate funds; that the said house occupied by Guillermo Roxas when it was being built had nipa roofing

but was later changed to galvanized iron sheets; that at the beginning, it had no partition downstairs and the
second floor was an open space; that the conversion from a recreation hall to a residential house was with
the knowledge of Eufrocino Roxas and was not objected to by any of the Board of Directors of the plaintiff;
that most of the materials used in converting the building into a residential house came from the materials
left by Coppola, a film producer, who filmed the movie "Apocalypse Now"; that Coppola left the materials
as part of his payment for rents of the rooms that he occupied in the resort; that after the said recreation hall
was converted into a residential house, defendant Guillermo Roxas moved in and occupied the same
together with his family sometime in 1977 or 1978; that during the time Eufrocino Roxas was still alive,
Eriberto Roxas was the general manager of the corporation and there was seldom any board meeting; that
Eufrocino Roxas together with Eriberto Roxas were (sic) the ones who were running the corporation; that
during this time, Eriberto Roxas was the restaurant and wine concessionaire of the resort; that after the death
of Eufrocino Roxas, Eriberto Roxas continued as the general manager until his death in 1980; that after the
death of Eriberto Roxas in 1980, the defendants Rebecca B. Roxas and Guillermo Roxas, committed acts
that impeded the plaintiff's expansion and normal operation of the resort; that the plaintiff could not even use
its own pavilions, kitchen and other facilities because of the acts of the defendants which led to the filing of
criminal cases in court; that cases were even filed before the Ministry of Tourism, Bureau of Domestic Trade
and the Office of the President by the parties herein; that the defendants violated the resolution and orders of
the Ministry of Tourism dated July 28, 1983, August 3, 1983 and November 26, 1984 (Exhs. "G", "H" and
"H-l") which ordered them or the corporation they represent to desist from and to turn over immediately to
the plaintiff the management and operation of the restaurant and wine outlets of the said resort (Exh. "G-l");
that the defendants also violated the decision of the Bureau of Domestic Trade dated October 23, 1983 (Exh.
"C"); that on August 27, 1983, because of the acts of the defendants, the Board of Directors of the plaintiff
adopted Resolution No. 83-12 series of 1983 (Exh. "F") authorizing the ejectment of the defendants from the
premises occupied by them; that on September 1, 1983, demand letters were sent to Rebecca Boyer-Roxas
and Guillermo Roxas (Exhs. "D" and "D-1") demanding that they vacate the respective premises they
occupy; and that the dispute between the plaintiff and the defendants was brought before the barangay level
and the same was not settled (Exhs. "E" and "E-l"). (Original Records, pp. 454-456)
The petitioners appealed the decision to the Court of Appeals. However, as stated earlier, the appellate court
affirmed the lower court's decision. The Petitioners' motion for reconsideration was likewise denied.
Hence, this petition.
In a resolution dated February 5, 1992, we gave due course to the petition.
The petitioners now contend:
I Respondent Court erred when it refused to pierce the veil of corporate fiction over private respondent and
maintain the petitioners in their possession and/or occupancy of the subject premises considering that
petitioners are owners of aliquot part of the properties of private respondent. Besides, private respondent
itself discarded the mantle of corporate fiction by acts and/or omissions of its board of directors and/or
stockholders.
II The respondent Court erred in not holding that petitioners were in fact denied due process or their day in
court brought about by the gross negligence of their former counsel.
III The respondent Court misapplied the law when it ordered petitioner Rebecca Boyer-Roxas to remove the
unfinished building in RTC Case No. 802-84-C, when the trial court opined that she spent her own funds for
the construction thereof. (CA Rollo, pp. 17-18)
Were the petitioners denied due process of law in the lower court?
After the cases were re-raffled to the sala of Presiding Judge Odilon Bautista of Branch 37 the following
events transpired:
On July 3, 1986, the lower court issued an Order setting the hearing of the cases on July 21, 1986. Petitioner
Rebecca V. Roxas received a copy of the Order on July 15, 1986, while petitioner Guillermo Roxas received
his copy on July 18, 1986. Atty. Conrado Manicad, the petitioners' counsel received another copy of the
Order on July 11, 1986. (Original Records, p. 260)
On motion of the respondent corporation's counsel, the lower court issued an Order dated July 15, 1986
cancelling the July 21, 1986 hearing and resetting the hearing to August 11, 1986. (Original records, 262263) Three separate copies of the order were sent and received by the petitioners and their counsel. (Original
Records, pp. 268, 269, 271)

A motion to cancel and re-schedule the August 11, 1986 hearing filed by the respondent corporation's
counsel was denied in an Order dated August 8, 1986. Again separate copies of the Order were sent and
received by the petitioners and their counsel. (Original Records, pp. 276-279)
At the hearing held on August 11, 1986, only Atty. Benito P. Fabie, counsel for the respondent corporation
appeared. Neither the petitioners nor their counsel appeared despite notice of hearing. The lower court then
issued an Order on the same date, to wit:
ORDER
When these cases were called for continuation of trial, Atty. Benito P. Fabie appeared before this Court,
however, the defendants and their lawyer despite receipt of the Order setting the case for hearing today
failed to appear. On Motion of Atty. Fabie, further cross examination of witness Victoria Vallarta is hereby
considered as having been waived.
The plaintiff is hereby given twenty (20) days from today within which to submit formal offer of evidence
and defendants are also given ten (10) days from receipt of such formal offer of evidence to file their
objection thereto.
In the meantime, hearing in these cases is set to September 29, 1986 at 10:00 o'clock in the morning.
(Original Records, p. 286)
Copies of the Order were sent and received by the petitioners and their counsel on the following dates
Rebecca Boyer-Roxas on August 20, 1986, Guillermo Roxas on August 26, 1986, and Atty. Conrado
Manicad on September 19, 1986. (Original Records, pp. 288-290)
On September 1, 1986, the respondent corporation filed its "Formal Offer of Evidence." In an Order dated
September 29, 1986, the lower court issued an Order admitting exhibits "A" to "M-3" submitted by the
respondent corporation in its "Formal Offer of Evidence . . . there being no objection . . ." (Original Records,
p. 418) Copies of this Order were sent and received by the petitioners and their counsel on the following
dates: Rebecca Boyer-Roxas on October 9, 1986; Guillermo Roxas on October 9, 1986 and Atty. Conrado
Manicad on October 4, 1986 (Original Records, pp. 420, 421, 428).
The scheduled hearing on September 29, 1986 did not push through as the petitioners and their counsel were
not present prompting Atty. Benito Fabie, the respondent corporation's counsel to move that the cases be
submitted for decision. The lower court denied the motion and set the cases for hearing on October 22, 1986.
However, in its Order dated September 29, 1986, the court warned that in the event the petitioners and their
counsel failed to appear on the next scheduled hearing, the court shall consider the cases submitted for
decision based on the evidence on record. (Original Records, p. 429, 430 and 431)
Separate copies of this Order were sent and received by the petitioners and their counsel on the following
dates: Rebecca Boyer-Roxas on October 9, 1986, Guillermo Roxas on October 9, 1986; and Atty. Conrado
Manicad on October 1, 1986. (Original Records, pp. 429-430)
Despite notice, the petitioners and their counsel again failed to attend the scheduled October 22, 1986
hearing. Atty. Fabie representing the respondent corporation was present. Hence, in its Order dated October
22, 1986, on motion of Atty. Fabie and pursuant to the order dated September 29, 1986, the Court considered
the cases submitted for decision. (Original Records, p. 436)
On November 14, 1986, the respondent corporation, filed a "Manifestation", stating that ". . . it is submitting
without further argument its "Opposition to the Motion for Reconsideration" for the consideration of the
Honorable Court in resolving subject incident." (Original Records, p. 442)
On December 16, 1986, the lower court issued an Order, to wit:
ORDER
Considering that the Court up to this date has not received any Motion for Reconsideration filed by the
defendants in the above-entitled cases, the Court cannot act on the Opposition to Motion for Reconsideration
filed by the plaintiff and received by the Court on November 14, 1986. (Original Records, p. 446)
On January 15, 1987, the lower court rendered the questioned decision in the two (2) cases. (Original
Records, pp. 453-459)
On January 20, 1987, Atty. Conrado Manicad, the petitioners' counsel filed an Ex-Parte Manifestation and
attached thereto, a motion for reconsideration of the October 22, 1986 Order submitting the cases for
decision. He prayed that the Order be set aside and the cases be re-opened for reception of evidence for the
petitioners. He averred that: 1) within the reglementary period he prepared the motion for reconsideration
and among other documents, the draft was sent to his law office thru his messenger; after signing the final
copies, he caused the service of a copy to the respondent corporation's counsel with the instruction that the
copy of the Court be filed; however, there was a miscommunication between his secretary and messenger in

that the secretary mailed the copy for the respondent corporation's counsel and placed the rest in an envelope
for the messenger to file the same in court but the messenger thought that it was the secretary who would file
it; it was only later on when it was discovered that the copy for the Court has not yet been filed and that such
failure to file the motion for reconsideration was due to excusable neglect and/or accident. The motion for
reconsideration contained the following allegations: that on the date set for hearing (October 22, 1986), he
was on his way to Calamba to attend the hearing but his car suffered transmission breakdown; and that
despite efforts to repair said transmission, the car remained inoperative resulting in his absence at the said
hearing. (Original Records, pp. 460-469)
On February 3, 1987, Atty. Manicad filed a motion for reconsideration of the January 15, 1987 decision. He
explained that he had to file the motion because the receiving clerk refused to admit the motion for
reconsideration attached to the ex-partemanifestation because there was no proof of service to the other
party. Included in the motion for reconsideration was a notice of hearing of the motion on February 3, 1987.
(Original Records, p. 476-A)
On February 4, 1987, the respondent corporation through its counsel filed a Manifestation and Motion
manifesting that they received the copy of the motion for reconsideration only today (February 4, 1987),
hence they prayed for the postponement of the hearing. (Original Records, pp. 478-479)
On the same day, February 4, 1987, the lower court issued an Order setting the hearing on February 13, 1987
on the ground that it received the motion for reconsideration late. Copies of this Order were sent separately
to the petitioners and their counsel. The records show that Atty. Manicad received his copy on February 11,
1987. As regards the petitioners, the records reveal that Rebecca Boyer-Roxas did not receive her copy while
as regards Guillermo Roxas, somebody signed for him but did not indicate when the copy was received.
(Original Records, pp. 481-483)
At the scheduled February 13, 1987 hearing, the counsels for the parties were present. However, the hearing
was reset for March 6, 1987 in order to allow the respondent corporation to file its opposition to the motion
for reconsideration. (Order dated February 13, 1987, Original Records, p. 486) Copies of the Order were
sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on
February 23, 1987; Guillermo Roxas on February 23, 1987 and Atty. Manicad on February 19, 1987.
(Original Records, pp. 487, 489-490)
The records are not clear as to whether or not the scheduled hearing on March 6, 1987 was held.
Nevertheless, the records reveal that on March 13, 1987, the lower court issued an Order denying the motion
for reconsideration.
The well-settled doctrine is that the client is bound by the mistakes of his lawyer. (Aguila v. Court of First
Instance of Batangas, Branch I, 160 SCRA 352 [1988]; See also Vivero v. Santos, et al., 98 Phil. 500 [1956];
Isaac v. Mendoza, 89 Phil. 279 [1951]; Montes v. Court of First Instance of Tayabas, 48 Phil. 640 [1926];
People v. Manzanilla, 43 Phil. 167 [1922]; United States v. Dungca, 27 Phil. 274 [1914]; and United States
v. Umali, 15 Phil. 33 [1910]) This rule, however, has its exceptions. Thus, in several cases, we ruled that the
party is not bound by the actions of his counsel in case the gross negligence of the counsel resulted in the
client's deprivation of his property without due process of law. In the case of Legarda v. Court of
Appeals (195 SCRA 418 [1991]), we said:
In People's Homesite & Housing Corp. v. Tiongco and Escasa (12 SCRA 471 [1964]), this Court ruled as
follows:
Procedural technicality should not be made a bar to the vindication of a legitimate grievance. When such
technicality deserts from being an aid to Justice, the courts are justified in excepting from its operation a
particular case. Where there was something fishy and suspicious about the actuations of the former counsel
of petitioners in the case at bar, in that he did not give any significance at all to the processes of the court,
which has proven prejudicial to the rights of said clients, under a lame and flimsy explanation that the court's
processes just escaped his attention, it is held that said lawyer deprived his clients of their day in court, thus
entitling said clients to petition for relief from judgment despite the lapse of the reglementary period for
filing said period for filing said petition.
In Escudero v. Judge Dulay (158 SCRA 69 [1988]), this Court, in holding that the counsel's blunder in
procedure is an exception to the rule that the client is bound by the mistakes of counsel, made the following
disquisition:
Petitioners contend, through their new counsel, that the judgment rendered against them by the respondent
court was null and void, because they were therein deprived of their day in court and divested of their
property without due process of law, through the gross ignorance, mistake and negligence of their previous

counsel. They acknowledge that, while as a rule, clients are bound by the mistake of their counsel, the rule
should not be applied automatically to their case, as their trial counsel's blunder in procedure and gross
ignorance of existing jurisprudence changed their cause of action and violated their substantial rights.
We are impressed with petitioner's contentions.
xxx xxx xxx
While this Court is cognizant of the rule that, generally, a client will suffer consequences of the negligence,
mistake or lack of competence of his counsel, in the interest of Justice and equity, exceptions may be made
to such rule, in accordance with the facts and circumstances of each case. Adherence to the general rule
would, in the instant case, result in the outright deprivation of their property through a technicality.
In its questioned decision dated November 19, 1989 the Court of Appeals found, in no uncertain terms, the
negligence of the then counsel for petitioners when he failed to file the proper motion to dismiss or to draw a
compromise agreement if it was true that they agreed on a settlement of the case; or in simply filing an
answer; and that after having been furnished a copy of the decision by the court he failed to appeal
therefrom or to file a petition for relief from the order declaring petitioners in default. In all these instances
the appellate court found said counsel negligent but his acts were held to bind his client, petitioners herein,
nevertheless.
The Court disagrees and finds that the negligence of counsel in this case appears to be so gross and
inexcusable. This was compounded by the fact, that after petitioner gave said counsel another chance to
make up for his omissions by asking him to file a petition for annulment of the judgment in the appellate
court, again counsel abandoned the case of petitioner in that after he received a copy of the adverse
judgment of the appellate court, he did not do anything to save the situation or inform his client of the
judgment. He allowed the judgment to lapse and become final. Such reckless and gross negligence should
not be allowed to bind the petitioner. Petitioner was thereby effectively deprived of her day in court. (at pp.
426-427)
The herein petitioners, however, are not similarly situated as the parties mentioned in the abovecited cases.
We cannot rule that they, too, were victims of the gross negligence of their counsel.
The petitioners are to be blamed for the October 22, 1986 order issued by the lower court submitting the
cases for decision. They received notices of the scheduled hearings and yet they did not do anything. More
specifically, the parties received notice of the Order dated September 29, 1986 with the warning that if they
fail to attend the October 22, 1986 hearing, the cases would be submitted for decision based on the evidence
on record. Earlier, at the scheduled hearing on September 29, 1986, the counsel for the respondent
corporation moved that the cases be submitted for decision for failure of the petitioners and their counsel to
attend despite notice. The lower court denied the motion and gave the petitioners and their counsel another
chance by rescheduling the October 22, 1986 hearing.
Indeed, the petitioners knew all along that their counsel was not attending the scheduled hearings. They did
not take steps to change their counsel or make him attend to their cases until it was too late. On the contrary,
they continued to retain the services of Atty. Manicad knowing fully well his lapses vis-a-vis their cases.
They, therefore, cannot raise the alleged gross negligence of their counsel resulting in their denial of due
process to warrant the reversal of the lower court's decision. In a similar case, Aguila v. Court of First
Instance of Batangas, Branch 1 (supra), we ruled:
In the instant case, the petitioner should have noticed the succession of errors committed by his counsel and
taken appropriate steps for his replacement before it was altogether too late. He did not. On the contrary, he
continued to retain his counsel through the series of proceedings that all resulted in the rejection of his
cause, obviously through such counsel's "ineptitude" and, let it be added, the clients' forbearance. The
petitioner's reverses should have cautioned him that his lawyer was mishandling his case and moved him to
seek the help of other counsel, which he did in the end but rather tardily.
Now petitioner wants us to nullify all of the antecedent proceedings and recognize his earlier claims to the
disputed property on the justification that his counsel was grossly inept. Such a reason is hardly plausible as
the petitioner's new counsel should know. Otherwise, all a defeated party would have to do to salvage his
case is claim neglect or mistake on the part of his counsel as a ground for reversing the adverse judgment.
There would be no end to litigation if these were allowed as every shortcoming of counsel could be the
subject of challenge by his client through another counsel who, if he is also found wanting, would likewise
be disowned by the same client through another counsel, and so on ad infinitum. This would render court
proceedings indefinite, tentative and subject to reopening at any time by the mere subterfuge of replacing
counsel. (at pp. 357-358)

We now discuss the merits of the cases.

In the first assignment of error, the petitioners maintain that their possession of the questioned properties
must be respected in view of their ownership of an aliquot portion of all the properties of the respondent
corporation being stockholders thereof. They propose that the veil of corporate fiction be pierced,
considering the circumstances under which the respondent corporation was formed.
Originally, the questioned properties belonged to Eugenia V. Roxas. After her death, the heirs of Eugenia V.
Roxas, among them the petitioners herein, decided to form a corporation Heirs of Eugenia V. Roxas,
Incorporated (private respondent herein) with the inherited properties as capital of the corporation. The
corporation was incorporated on December 4, 1962 with the primary purpose of engaging in agriculture to
develop the inherited properties. The Articles of Incorporation of the respondent corporation were amended
in 1971 to allow it to engage in the resort business. Accordingly, the corporation put up a resort known as
Hidden Valley Springs Resort where the questioned properties are located.
These facts, however, do not justify the position taken by the petitioners.
The respondent is a bona fide corporation. As such, it has a juridical personality of its own separate from the
members composing it. (Western Agro Industrial Corporation v. Court of Appeals, 188 SCRA 709 [1990];
Tan Boon Bee & Co., Inc. v. Jarencio, 163 SCRA 205 [1988]; Yutivo Sons Hardware Company v. Court of
Tax Appeals, 1 SCRA 160 [1961]; Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA
290 [1965]) There is no dispute that title over the questioned land where the Hidden Valley Springs Resort is
located is registered in the name of the corporation. The records also show that the staff house being
occupied by petitioner Rebecca Boyer-Roxas and the recreation hall which was later on converted into a
residential house occupied by petitioner Guillermo Roxas are owned by the respondent corporation.
Regarding properties owned by a corporation, we stated in the case of Stockholders of F. Guanzon and Sons,
Inc. v. Register of Deeds of Manila, (6 SCRA 373 [1962]):
xxx xxx xxx
. . . Properties registered in the name of the corporation are owned by it as an entity separate and distinct
from its members. While shares of stock constitute personal property, they do not represent property of the
corporation. The corporation has property of its own which consists chiefly of real estate (Nelson v. Owen,
113 Ala., 372, 21 So. 75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an
aliquot part of the corporation's property, or the right to share in its proceeds to that extent when distributed
according to law and equity (Hall & Faley v. Alabama Terminal, 173 Ala., 398, 56 So. 235), but its holder is
not the owner of any part of the capital of the corporation (Bradley v. Bauder, 36 Ohio St., 28). Nor is he
entitled to the possession of any definite portion of its property or assets (Gottfried V. Miller, 104 U.S., 521;
Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or tenant in common of the corporate
property (Harton v. Johnston, 166 Ala., 317, 51 So. 992). (at pp. 375-376)
The petitioners point out that their occupancy of the staff house which was later used as the residence of
Eriberto Roxas, husband of petitioner Rebecca Boyer-Roxas and the recreation hall which was converted
into a residential house were with the blessings of Eufrocino Roxas, the deceased husband of Eugenia V.
Roxas, who was the majority and controlling stockholder of the corporation. In his lifetime, Eufrocino
Roxas together with Eriberto Roxas, the husband of petitioner Rebecca Boyer-Roxas, and the father of
petitioner Guillermo Roxas managed the corporation. The Board of Directors did not object to such an
arrangement. The petitioners argue that . . . the authority thus given by Eufrocino Roxas for the conversion
of the recreation hall into a residential house can no longer be questioned by the stockholders of the private
respondent and/or its board of directors for they impliedly but no leas explicitly delegated such authority to
said Eufrocino Roxas. (Rollo, p. 12)
Again, we must emphasize that the respondent corporation has a distinct personality separate from its
members. The corporation transacts its business only through its officers or agents. (Western Agro Industrial
Corporation v. Court of Appeals, supra). Whatever authority these officers or agents may have is derived
from the board of directors or other governing body unless conferred by the charter of the corporation. An
officer's power as an agent of the corporation must be sought from the statute, charter, the by-laws or in a
delegation of authority to such officer, from the acts of the board of directors, formally expressed or implied
from a habit or custom of doing business. (Vicente v. Geraldez, 52 SCRA 210 [1973])
In the present case, the record shows that Eufrocino V. Roxas who then controlled the management of the
corporation, being the majority stockholder, consented to the petitioners' stay within the questioned
properties. Specifically, Eufrocino Roxas gave his consent to the conversion of the recreation hall to a
residential house, now occupied by petitioner Guillermo Roxas. The Board of Directors did not object to the

actions of Eufrocino Roxas. The petitioners were allowed to stay within the questioned properties until
August 27, 1983, when the Board of Directors approved a Resolution ejecting the petitioners, to wit:
R E S O L U T I O N No. 83-12
RESOLVED, That Rebecca B. Roxas and Guillermo Roxas, and all persons claiming under them, be ejected
from their occupancy of the Hidden Valley Springs compound on which their houses have been constructed
and/or are being constructed only on tolerance of the Corporation and without any contract therefor, in order
to give way to the Corporation's expansion and improvement program and obviate prejudice to the operation
of the Hidden Valley Springs Resort by their continued interference.
RESOLVED, Further that the services of Atty. Benito P. Fabie be engaged and that he be authorized as he is
hereby authorized to effect the ejectment, including the filing of the corresponding suits, if necessary to do
so. (Original Records, p. 327)
We find nothing irregular in the adoption of the Resolution by the Board of Directors. The petitioners' stay
within the questioned properties was merely by tolerance of the respondent corporation in deference to the
wishes of Eufrocino Roxas, who during his lifetime, controlled and managed the corporation. Eufrocino
Roxas' actions could not have bound the corporation forever. The petitioners have not cited any provision of
the corporation by-laws or any resolution or act of the Board of Directors which authorized Eufrocino Roxas
to allow them to stay within the company premises forever. We rule that in the absence of any existing
contract between the petitioners and the respondent corporation, the corporation may elect to eject the
petitioners at any time it wishes for the benefit and interest of the respondent corporation.
The petitioners' suggestion that the veil of the corporate fiction should be pierced is untenable. The separate
personality of the corporation may be disregarded only when the corporation is used "as a cloak or cover for
fraud or illegality, or to work injustice, or where necessary to achieve equity or when necessary for the
protection of the creditors." (Sulong Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976] cited in Tan Boon
Bee & Co., Inc., v. Jarencio, supra and Western Agro Industrial Corporation v. Court of Appeals, supra) The
circumstances in the present cases do not fall under any of the enumerated categories.
In the third assignment of error, the petitioners insist that as regards the unfinished building, Rebecca BoyerRoxas is a builder in good faith.
The construction of the unfinished building started when Eriberto Roxas, husband of Rebecca Boyer-Roxas,
was still alive and was the general manager of the respondent corporation. The couple used their own funds
to finance the construction of the building. The Board of Directors of the corporation, however, did not
object to the construction. They allowed the construction to continue despite the fact that it was within the
property of the corporation. Under these circumstances, we agree with the petitioners that the provision of
Article 453 of the Civil Code should have been applied by the lower courts.
Article 453 of the Civil Code provides:
If there was bad faith, not only on the part of the person who built, planted or sown on the land of another
but also on the part of the owner of such land, the rights of one and the other shall be the same as though
both had acted in good faith.
In such a case, the provisions of Article 448 of the Civil Code govern the relationship between petitioner
Rebecca-Boyer-Roxas and the respondent corporation, to wit:
Art. 448 The owner of the land on which anything has been built, sown or planted in good faith, shall
have the right to appropriate as his own the works, sowing or planting after payment of the indemnity
provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the land if
its value is considerably more than that of the building or trees. In such case, he shall pay reasonable rent, if
the owner of the land does not choose to appropriate the buildings or trees after proper indemnity. The
parties shall agree upon the terms of the lease and in case of disagreement, the court shall fix the terms
thereof.
WHEREFORE, the present petition is partly GRANTED. The questioned decision of the Court of Appeals
affirming the decision of the Regional Trial Court of Laguna, Branch 37, in RTC Civil Case No. 802-84-C is
MODIFIED in that subparagraphs (c) and (d) of Paragraph 1 of the dispositive portion of the decision are
deleted. In their stead, the petitioner Rebecca Boyer-Roxas and the respondent corporation are ordered to
follow the provisions of Article 448 of the Civil Code as regards the questioned unfinished building in RTC
Civil Case No. 802-84-C. The questioned decision is affirmed in all other respects.
SO ORDERED.
Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur.

[G.R. No. 125469. October 27, 1997]

PHILIPPINE STOCK EXCHANGE, INC., petitioner, vs. THE HONORABLE COURT OF
APPEALS, SECURITIES AND EXCHANGE COMMISSION and PUERTO AZUL LAND,
INC., respondents.
DECISION
TORRES, JR., J.:
The Securities and Exchange Commission is the government agency, under the direct general
supervision of the Office of the President,[1] with the immense task of enforcing the Revised Securities Act,
and all other duties assigned to it by pertinent laws. Among its inumerable functions, and one of the most
important, is the supervision of all corporations, partnerships or associations, who are grantees or primary
franchise and/or a license or permit issued by the government to operate in the Philippines.[2] Just how far
this regulatory authority extends, particularly, with regard to the Petitioner Philippine Stock Exchange, Inc.
is the issue in the case at bar.
In this Petition for Review of Certiorari, petitioner assails the resolution of the respondent Court of
Appeals, dated June 27, 1996, which affirmed the decision of the Securities and Exchange Commission
ordering the petitioner Philippine Stock Exchange, Inc. to allow the private respondent Puerto Azul Land,
Inc. to be listed in its stock market, thus paving the way for the public offering of PALIs shares.
The facts of the case are undisputed, and are hereby restated in sum.
The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to
the public in order to raise funds allegedly to develop its properties and pay its loans with several banking
institutions. In January, 1995, PALI was issued a Permit to Sell its shares to the public by the Securities and
Exchange Commission (SEC). To facilitate the trading of its shares among investors, PALI sought to course
the trading of its shares through the Philippine Stock Exchange, Inc. (PSE), for which purpose it filed with
the said stock exchange an application to list its shares, with supporting documents attached.
On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALIs application,
recommended to the PSEs Board of Governors the approval of PALIs listing application.
On February 14, 1996, before it could act upon PALIs application, the Board of Governors of PSE
received a letter from the heirs of Ferdinand E. Marcos, claiming that the late President Marcos was the legal
and beneficial owner of certain properties forming part of the Puerto Azul Beach Hotel and Resort Complex
which PALI claims to be among its assets and that the Ternate Development Corporation, which is among
the stockholders of PALI, likewise appears to have been held and continue to be held in trust by one
Rebecco Panlilio for then President Marcos and now, effectively for his estate, and requested PALIs
application to be deferred. PALI was requested to comment upon the said letter.
PALIs answer stated that the properties forming part of Puerto Azul Beach Hotel and Resort Complex
were not claimed by PALI as its assets. On the contrary, the resort is actually owned by Fantasia Filipina
Resort, Inc. and the Puerto Azul Country Club, entities distinct from PALI. Furthermore, the Ternate
Development Corporation owns only 1.20% of PALI. The Marcoses responded that their claim is not
confined to the facilities forming part of the Puerto Azul Hotel and Resort Complex, thereby implying that
they are also asserting legal and beneficial ownership of other properties titled under the name of PALI.
On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of the Presidential
Commission on Good Government (PCGG) requesting for comments on the letter of the PALI and the
Marcoses. On March 4, 1996, the PSE was informed that the Marcoses received a Temporary Restraining
Order on the same date, enjoining the Marcoses from, among others, further impeding, obstructing, delaying
or interfering in any manner by or any means with the consideration, processing and approval by the PSE of
the initial public offering of PALI. The TRO was issued by Judge Martin S. Villarama, Executive Judge of
the RTC of Pasig City in Civil Case No. 65561, pending in Branch 69 thereof.
In its regular meeting held on March 27, 1996, the Board of Governors of the PSE reached its decision
to reject PALIs application, citing the existence of serious claims, issues and circumstances surrounding
PALIs ownership over its assets that adversely affect the suitability of listing PALIs shares in the stock
exchange.
On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting Chairman, Perfecto R.
Yasay, Jr., bringing to the SECs attention the action taken by the PSE in the application of PALI for the
listing of its shares with the PSE, and requesting that the SEC, in the exercise of its supervisory and

regulatory powers over stock exchanges under Section 6(j) of P.D. No. 902-A, review the PSEs action on
PALIs listing application and institute such measures as are just and proper and under the circumstances.
On the same date, or on April 11, 1996, the SEC wrote to the PSE, attaching thereto the letter of PALI
and directing the PSE to file its comments thereto within five days from its receipt and for its authorized
representative to appear for an inquiry on the matter. On April 22, 1996, the PSE submitted a letter to the
SEC containing its comments to the April 11, 1996 letter of PALI.
On April 24, 1996, the SEC rendered its Order, reversing the PSEs decision. The dispositive portion of
the said order reads:
WHEREFORE, premises considered, and invoking the Commissioners authority and jurisdiction under
Section 3 of the Revised Securities Act, in conjunction with Section 3, 6(j) and 6(m) of the Presidential
Decree No. 902-A, the decision of the Board of Governors of the Philippine Stock Exchange denying the
listing of shares of Puerto Azul Land, Inc., is hereby set aside, and the PSE is hereby ordered to immediately
cause the listing of the PALI shares in the Exchange, without prejudice to its authority to require PALI to
disclose such other material information it deems necessary for the protection of the investing public.
This Order shall take effect immediately.
SO ORDERED.
PSE filed a motion for reconsideration of the said order on April 29, 1996, which was, however denied
by the Commission in its May 9, 1996 Order which states:
WHEREFORE, premises considered, the Commission finds no compelling reason to consider its order dated
April 24, 1996, and in the light of recent developments on the adverse claim against the PALI properties,
PSE should require PALI to submit full disclosure of material facts and information to protect the investing
public. In this regard, PALI is hereby ordered to amend its registration statements filed with the Commission
to incorporate the full disclosure of these material facts and information.
Dissatisfied with this ruling, the PSE filed with the Court of Appeals on May 17, 1996 a Petition for
Review (with application for Writ of Preliminary Injunction and Temporary Restraining Order), assailing the
above mentioned orders of the SEC, submitting the following as errors of the SEC:
I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN ISSUING
THE ASSAILED ORDERS WITHOUT POWER, JURISDICTION, OR AUTHORITY; SEC
HAS NO POWER TO ORDER THE LISTING AND SALE OF SHARES OF PALI WHOSE
ASSETS ARE SEQUESTERED AND TO REVIEW AND SUBSTITUTE DECISIONS OF PSE
ON LISTING APPLICATIONS;
II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN
FINDING THAT PSE ACTED IN AN ARBITRARY AND ABUSIVE MANNER IN
DISAPPROVING PALIS LISTING APPLICATION;
III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING
FURTHER DISPOSITION OF PROPERTIES IN CUSTODIA LEGIS AND WHICH FORM
PART OF NAVAL/MILITARY RESERVATION; AND
IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED AND ITS
IMPLEMENTATION AND APPLICATION IN THIS CASE VIOLATES THE DUE
PROCESS CLAUSE OF THE CONSTITUTION.
On June 4, 1996, PALI filed its Comment to the Petition for Review and subsequently, a Comment and
Motion to Dismiss. On June 10, 1996, PSE filed its Reply to Comment and Opposition to Motion to
Dismiss.
On June 27, 1996, the Court of Appeals promulgated its Resolution dismissing the PSEs Petition for
Review. Hence, this Petition by the PSE.
The appellate court had ruled that the SEC had both jurisdiction and authority to look into the decision
of the petitioner PSE, pursuant to Section 3[3] of the Revised Securities Act in relation to Section 6(j) and
6(m)[4] of P.D. No. 902-A, and Section 38(b)[5] of the Revised Securities Act, and for the purpose of ensuring
fair administration of the exchange. Both as a corporation and as a stock exchange, the petitioner is subject
to public respondents jurisdiction, regulation and control. Accepting the argument that the public respondent
has the authority merely to supervise or regulate, would amount to serious consequences, considering that
the petitioner is a stock exchange whose business is impressed with public interest. Abuse is not remote if
the public respondent is left without any system of control. If the securities act vested the public respondent
with jurisdiction and control over all corporations; the power to authorize the establishment of stock
exchanges; the right to supervise and regulate the same; and the power to alter and supplement rules of the

exchange in the listing or delisting of securities, then the law certainly granted to the public respondent the
plenary authority over the petitioner; and the power of review necessarily comes within its authority.
All in all, the court held that PALI complied with all the requirements for public listing, affirming the
SECs ruling to the effect that:
x x x the Philippine Stock Exchange has acted in an arbitrary and abusive manner in disapproving the
application of PALI for listing of its shares in the face of the following considerations:
1. PALI has clearly and admittedly complied with the Listing Rules and full disclosure requirements of the
Exchange;
2. In applying its clear and reasonable standards on the suitability for listing of shares, PSE has failed to
justify why it acted differently on the application of PALI, as compared to the IPOs of other companies
similarly that were allowed listing in the Exchange;
3. It appears that the claims and issues on the title to PALIs properties were even less serious than the claims
against the assets of the other companies in that, the assertions of the Marcoses that they are owners of the
disputed properties were not substantiated enough to overcome the strength of a title to properties issued
under the Torrens System as evidence of ownership thereof;
4. No action has been filed in any court of competent jurisdiction seeking to nullify PALIs ownership over
the disputed properties, neither has the government instituted recovery proceedings against these properties.
Yet the import of PSEs decision in denying PALIs application is that it would be PALI, not the Marcoses,
that must go to court to prove the legality of its ownership on these properties before its shares can be listed.
In addition, the argument that the PALI properties belong to the Military/Naval Reservation does not
inspire belief. The point is, the PALI properties are now titled. A property losses its public character the
moment it is covered by a title. As a matter of fact, the titles have long been settled by a final judgment; and
the final decree having been registered, they can no longer be re-opened considering that the one year period
has already passed. Lastly, the determination of what standard to apply in allowing PALIs application for
listing, whether the discretion method or the system of public disclosure adhered to by the SEC, should be
addressed to the Securities Commission, it being the government agency that exercises both supervisory and
regulatory authority over all corporations.
On August 15, 1996, the PSE, after it was granted an extension, filed an instant Petition for Review
on Certiorari, taking exception to the rulings of the SEC and the Court of Appeals. Respondent PALI filed
its Comment to the petition on October 17, 1996. On the same date, the PCGG filed a Motion for Leave to
file a Petition for Intervention. This was followed up by the PCGGs Petition for Intervention on October 21,
1996. A supplemental Comment was filed by PALI on October 25, 1997. The Office of the Solicitor
General, representing the SEC and the Court of Appeals, likewise filed its Comment on December 26, 1996.
In answer to the PCGGs motion for leave to file petition for intervention, PALI filed its Comment thereto on
January 17, 1997, whereas the PSE filed its own Comment on January 20, 1997.
On February 25, 1996, the PSE filed its Consolidated Reply to the comments of respondent PALI
(October 17, 1996) and the Solicitor General (December 26, 1996). On may 16, 1997, PALI filed its
Rejoinder to the said consolidated reply of PSE.
PSE submits that the Court of Appeals erred in ruling that the SEC had authority to order the PSE to list
the shares of PALI in the stock exchange. Under presidential decree No. 902-A, the powers of the SEC over
stock exchanges are more limited as compared to its authority over ordinary corporations. In connection
with this, the powers of the SEC over stock exchanges under the Revised Securities Act are specifically
enumerated, and these do not include the power to reverse the decisions of the stock exchange. Authorities
are in abundance even in the United States, from which the countrys security policies are patterned, to the
effect of giving the Securities Commission less control over stock exchanges, which in turn are given more
lee-way in making the decision whether or not to allow corporations to offer their stock to the public through
the stock exchange. This is in accord with the business judgment rule whereby the SEC and the courts are
barred from intruding into business judgments of corporations, when the same are made in good faith. The
said rule precludes the reversal of the decision of the PSE to deny PALIs listing application, absent a
showing a bad faith on the part of the PSE. Under the listing rule of the PSE, to which PALI had previously
agreed to comply, the PSE retains the discretion to accept or reject applications for listing. Thus, even if an
issuer has complied with the PSE listing rules and requirements, PSE retains the discretion to accept or
reject the issuers listing application if the PSE determines that the listing shall not serve the interests of the
investing public.

Moreover, PSE argues that the SEC has no jurisdiction over sequestered corporations, nor with
corporations whose properties are under sequestration. A reading of Republic of the Philippines vs.
Sandiganbayan, G.R. No. 105205, 240 SCRA 376, would reveal that the properties of PALI, which were
derived from the Ternate Development Corporation (TDC) and the Monte del Sol Development Corporation
(MSDC), are under sequestration by the PCGG, and the subject of forfeiture proceedings in the
Sandiganbayan. This ruling of the Court is the law of the case between the Republic and the TDC and
MSDC. It categorically declares that the assets of these corporations were sequestered by the PCGG on
March 10, 1986 and April 4, 1988.
It is, likewise, intimidated that the Court of Appeals sanction that PALIs ownership over its properties
can no longer be questioned, since certificates of title have been issued to PALI and more than one year has
since lapsed, is erroneous and ignores well settled jurisprudence on land titles. That a certificate of title
issued under the Torrens System is a conclusive evidence of ownership is not an absolute rule and admits
certain exceptions. It is fundamental that forest lands or military reservations are non-alienable. Thus, when
a title covers a forest reserve or a government reservation, such title is void.
PSE, likewise, assails the SECs and the Court of Appeals reliance on the alleged policy of full
disclosure to uphold the listing of the PALIs shares with the PSE, in the absence of a clear mandate for the
effectivity of such policy. As it is, the case records reveal the truth that PALI did not comply with the listing
rules and disclosure requirements. In fact, PALIs documents supporting its application contained
misrepresentations and misleading statements, and concealed material information. The matter of
sequestration of PALIs properties and the fact that the same form part of military/naval/forest reservations
were not reflected in PALIs application.
It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with
the marking of a corporate entity, its functions as the primary channel through which the vessels of capital
trade ply. The PSEs relevance to the continued operation and filtration of the securities transactions in the
country gives it a distinct color of importance such that government intervention in its affairs becomes
justified, if not necessary. Indeed, as the only operational stock exchange in the country today, the PSE
enjoys a monopoly of securities transactions, and as such, it yields an immense influence upon the countrys
economy.
Due to this special nature of stock exchanges, the countrys lawmakers has seen it wise to give special
treatment to the administration and regulation of stock exchanges.[6]
These provisions, read together with the general grant of jurisdiction, and right of supervision and
control over all corporations under Sec. 3 of P.D. 902-A, give the SEC the special mandate to be vigilant in
the supervision of the affairs of stock exchanges so that the interests of the investing public may be fully
safeguarded.
Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the SECs
challenged control authority over the petitioner PSE even as it provides that the Commission shall have
absolute jurisdiction, supervision, and control over all corporations, partnerships or associations, who are the
grantees of primary franchises and/or a license or permit issued by the government to operate in the
Philippines The SECs regulatory authority over private corporations encompasses a wide margin of areas,
touching nearly all of a corporations concerns. This authority springs from the fact that a corporation owes
its existence to the concession of its corporate franchise from the state.
The SECs power to look into the subject ruling of the PSE, therefore, may be implied from or be
considered as necessary or incidental to the carrying out of the SECs express power to insure fair dealing in
securities traded upon a stock exchange or to ensure the fair administration of such exchange.[7] It is,
likewise, observed that the principal function of the SEC is the supervision and control over corporations,
partnerships and associations with the end in view that investment in these entities may be encouraged and
protected, and their activities pursued for the promotion of economic development.[8]
Thus, it was in the alleged exercise of this authority that the SEC reversed the decision of the PSE to
deny the application for listing in the stock exchange of the private respondent PALI. The SECs action was
affirmed by the Court of Appeals.
We affirm that the SEC is the entity with the primary say as to whether or not securities, including
shares of stock of a corporation, may be traded or not in the stock exchange. This is in line with the SECs
mission to ensure proper compliance with the laws, such as the Revised Securities Act and to regulate the
sale and disposition of securities in the country.[9] As the appellate court explains:

Paramount policy also supports the authority of the public respondent to review petitioners denial of the
listing. Being a stock exchange, the petitioner performs a function that is vital to the national economy, as
the business is affected with public interest. As a matter of fact, it has often been said that the economy
moves on the basis of the rise and fall of stocks being traded. By its economic power, the petitioner certainly
can dictate which and how many users are allowed to sell securities thru the facilities of a stock exchange, if
allowed to interpret its own rules liberally as it may please. Petitioner can either allow or deny the entry to
the market of securities. To repeat, the monopoly, unless accompanied by control, becomes subject to abuse;
hence, considering public interest, then it should be subject to government regulation.
The role of the SEC in our national economy cannot be minimized. The legislature, through the Revised
Securities Act, Presidential Decree No. 902-A, and other pertinent laws, has entrusted to it the serious
responsibility of enforcing all laws affecting corporations and other forms of associations not otherwise
vested in some other government office.[10]
This is not to say, however, that the PSEs management prerogatives are under the absolute control of the
SEC. The PSE is, after all, a corporation authorized by its corporate franchise to engage in its proposed and
duly approved business. One of the PSEs main concerns, as such, is still the generation of profit for its
stockholders. Moreover, the PSE has all the rights pertaining to corporations, including the right to sue and
be sued, to hold property in its own name, to enter (or not to enter) into contracts with third persons, and to
perform all other legal acts within its allocated express or implied powers.
A corporation is but an association of individuals, allowed to transact under an assumed corporate name,
and with a distinct legal personality. In organizing itself as a collective body, it waives no constitutional
immunities and perquisites appropriate to such body.[11] As to its corporate and management decisions,
therefore, the state will generally not interfere with the same. Questions of policy and of management are
left to the honest decision of the officers and directors of a corporation, and the courts are without authority
to substitute their judgment for the judgment of the board of directors. The board is the business manager of
the corporation, and so long as it acts in good faith, its orders are not reviewable by the courts.[12]
Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to
reverse the PSEs decision in matters of application for listing in the market, the SEC may exercise such
power only if the PSEs judgment is attended by bad faith. In board of Liquidators vs. Kalaw,[13] it was held
that bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some
moral obliquity and conscious doing of wrong. It means a breach of a known duty through some motive or
interest of ill will, partaking of the nature of fraud.
In reaching its decision to deny the application for listing of PALI, the PSE considered important facts,
which in the general scheme, brings to serious question the qualification of PALI to sell its shares to the
public through the stock exchange. During the time for receiving objections to the application, the PSE
heard from the representative of the late President Ferdinand E. Marcos and his family who claim the
properties of the private respondent to be part of the Marcos estate. In time, the PCGG confirmed this
claim. In fact, an order of sequestration has been issued covering the properties of PALI, and suit for
reconveyance to the state has been filed in the Sandiganbayan Court. How the properties were effectively
transferred, despite the sequestration order, from the TDC and MSDC to Rebecco Panlilio, and to the private
respondent PALI, in only a short span of time, are not yet explained to the Court, but it is clear that such
circumstances give rise to serious doubt as to the integrity of PALI as a stock issuer. The petitioner was in
the right when it refused application of PALI, for a contrary ruling was not to the best interest of the general
public. The purpose of the Revised Securities Act, after all, is to give adequate and effective protection to the
investing public against fraudulent representations, or false promises, and the imposition of worthless
ventures.[14]
It is to be observed that the U.S. Securities Act emphasized its avowed protection to acts detrimental to
legitimate business, thus:
The Securities Act, often referred to as the truth in securities Act, was designed not only to provide investors
with adequate information upon which to base their decisions to buy and sell securities, but also to protect
legitimate business seeking to obtain capital through honest presentation against competition form crooked
promoters and to prevent fraud in the sale of securities. (Tenth Annual Report, U.S. Securities and Exchange
Commission, p. 14).
As has been pointed out, the effects of such an act are chiefly (1) prevention of excesses and fraudulent
transactions, merely by requirement of that details be revealed; (2) placing the market during the early stages
of the offering of a security a body of information, which operating indirectly through investment services

and expert investors, will tend to produce a more accurate appraisal of a security. x x x. Thus, the
Commission may refuse to permit a registration statement to become effective if it appears on its face to be
incomplete or inaccurate in any material respect, and empower the Commission to issue a stop order
suspending the effectiveness of any registration statement which is found to include any untrue statement of
a material fact or to omit to state any material fact required to be stated therein or necessary to make the
statements therein not misleading. (Idem).
Also, as the primary market for securities, the PSE has established its name and goodwill, and it has the
right to protect such goodwill by maintaining a reasonable standard of propriety in the entities who choose
to transact through its facilities. It was reasonable for PSE, therefore, to exercise its judgment in the manner
it deems appropriate for its business identity, as long as no rights are trampled upon, and public welfare is
safeguarded.
In this connection, it is proper to observe that the concept of government absolutism in a thing of the
past, and should remain so.
The observation that the title of PALI over its properties is absolute and can no longer be assailed is of
no moment. At this juncture, there is the claim that the properties were owned by the TDC and MSDC and
were transferred in violation of sequestration orders, to Rebecco Panlilio and later on to PALI, besides the
claim of the Marcoses that such properties belong to Marcos estate, and were held only in trust by Rebecco
Panlilio. It is also alleged by the petitioner that these properties belong to naval and forest reserves, and
therefore beyond private dominion. If any of these claims is established to be true, the certificates of title
over the subject properties now held by PALI may be disregarded, as it is an established rule that a
registration of a certificate of title does not confer ownership over the properties described therein to the
person named as owner. The inscription in the registry, to be effective, must be made in good faith. The
defense of indefeasibility of a Torrens Title does not extend to a transferee who takes the certificate of title
with notice of a flaw.
In any case, for the purpose of determining whether PSE acted correctly in refusing the application of
PALI, the true ownership of the properties of PALI need not be determined as an absolute fact. What is
material is that the uncertainty of the properties ownership and alienability exists, and this puts to question
the qualification of PALIs public offering. In sum, the Court finds that the SEC had acted arbitrarily in
arrogating unto itself the discretion of approving the application for listing in the PSE of the private
respondent PALI, since this is a matter addressed to the sound discretion of the PSE, a corporate entity,
whose business judgments are respected in the absence of bad faith.
The question as to what policy is, or should be relied upon in approving the registration and sale of
securities in the SEC is not for the Court to determine, but is left to the sound discretion of the Securities and
Exchange Commission. In mandating the SEC to administer the Revised Securities Act, and in performing
its other functions under pertinent laws, the Revised Securities Act, under Section 3 thereof, gives the SEC
the power to promulgate such rules and regulations as it may consider appropriate in the public interest for
the enforcement of the said laws. The second paragraph of Section 4 of the said law, on the other hand,
provides that no security, unless exempt by law, shall be issued, endorsed, sold, transferred or in any other
manner conveyed to the public, unless registered in accordance with the rules and regulations that shall be
promulgated in the public interest and for the protection of investors by the Commission. Presidential
Decree No. 902-A, on the other hand, provides that the SEC, as regulatory agency, has supervision and
control over all corporations and over the securities market as a whole, and as such, is given ample authority
in determining appropriate policies. Pursuant to this regulatory authority, the SEC has manifested that it has
adopted the policy of full material disclosure where all companies, listed or applying for listing, are required
to divulge truthfully and accurately, all material information about themselves and the securities they sell,
for the protection of the investing public, and under pain of administrative, criminal and civil sanctions. In
connection with this, a fact is deemed material if it tends to induce or otherwise effect the sale or purchase of
its securities.[15] While the employment of this policy is recognized and sanctioned by laws, nonetheless, the
Revised Securities Act sets substantial and procedural standards which a proposed issuer of securities must
satisfy.[16] Pertinently, Section 9 of the Revised Securities Act sets forth the possible Grounds for the
Rejection of the registration of a security:
- - The Commission may reject a registration statement and refuse to issue a permit to sell the securities
included in such registration statement if it finds that - -

(1) The registration statement is on its face incomplete or inaccurate in any material respect or includes any
untrue statement of a material fact or omits to state a material facts required to be stated therein or necessary
to make the statements therein not misleading; or
(2) The issuer or registrant - (i) is not solvent or not is sound financial condition;
(ii) has violated or has not complied with the provisions of this Act, or the rules promulgated pursuant
thereto, or any order of the Commission;
(iii) has failed to comply with any of the applicable requirements and conditions that the Commission may,
in the public interest and for the protection of investors, impose before the security can be registered;
(iv) had been engaged or is engaged or is about to engaged in fraudulent transactions;
(v) is in any was dishonest of is not of good repute; or
(vi) does not conduct its business in accordance with law or is engaged in a business that is illegal or
contrary or government rules and regulations.
(3) The enterprise or the business of the issuer is not shown to be sound or to be based on sound business
principles;
(4) An officer, member of the board of directors, or principal stockholder of the issuer is disqualified to such
officer, director or principal stockholder; or
(5) The issuer or registrant has not shown to the satisfaction of the Commission that the sale of its security
would not work to the prejudice to the public interest or as a fraud upon the purchaser or investors.
(Emphasis Ours)
A reading of the foregoing grounds reveals the intention of the lawmakers to make the registration and
issuance of securities dependent, to a certain extent, on the merits of the securities themselves, and of the
issuer, to be determined by the Securities and Exchange Commission. This measure was meant to protect the
interest of the investing public against fraudulent and worthless securities, and the SEC is mandated by law
to safeguard these interests, following the policies and rules therefore provided. The absolute reliance on the
full disclosure method in the registration of securities is, therefore, untenable. At it is, the Court finds that
the private respondent PALI, on at least two points (nos. 1 and 5) has failed to support the propriety of the
issue of its shares with unfailing clarity, thereby lending support to the conclusion that the PSE acted
correctly in refusing the listing of PALI in its stock exchange. This does not discount the effectivity of
whatever method the SEC, in the exercise of its vested authority, chooses in setting the standard for public
offerings of corporations wishing to do so.However, the SEC must recognize and implement the mandate of
the law, particularly the Revised Securities Act, the provisions of which cannot be amended or supplanted
my mere administrative issuance.
In resum, the Court finds that the PSE has acted with justified circumspection, discounting, therefore,
any imputation of arbitrariness and whimsical animation on its part. Its action in refusing to allow the listing
of PALI in the stock exchange is justified by the law and by the circumstances attendant to this case.
ACCORDINGLY, in view of the foregoing considerations, the Court hereby GRANTS the Petition for
Review on Certiorari. The decisions of the Court of Appeals and the Securities and Exchage Commission
dated July 27, 1996 and April 24, 1996, respectively, are hereby REVERSED and SET ASIDE, and a new
Judgment is hereby ENTERED, affirming the decision of the Philippine Stock Exchange to deny the
application for listing of the private respondent Puerto Azul Land, Inc.
SO ORDERED.
Regalado (Chairman) and Puno, JJ., concur.
Mendoza, J., in the result.
G.R. No. 116123 March 13, 1997
SERGIO F. NAGUIAT, doing business under the name and style SERGIO F. NAGUIAT ENT., INC.,
& CLARK FIELD TAXI, INC., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION), NATIONAL
ORGANIZATION OF WORKINGMEN and its members, LEONARDO T. GALANG, et
al., respondents.
PANGANIBAN, J.:
Are private respondent-employees of petitioner Clark Field Taxi, Inc., who were separated from service due
the closure of Clark Air Base, entitled to separation pay and, if so, in what amount? Are officers of

corporations ipso facto liable jointly and severally with the companies they represent for the payment of
separation pay?
These questions are answered by the Court in resolving this petition for certiorari under Rule 65 of the
Rules of Court assailing the Resolutions of the National Labor Relations Commission (Third
Division) 1 promulgated on February 28, 1994, 2 and May 31, 1994. 3 The February 28, 1994 Resolution
affirmed with modifications the decision 4 of Labor Arbiter Ariel C. Santos in NLRC Case No. RAB-III-122477-91. The second Resolution denied the motion for reconsideration of herein petitioners.
The NLRC modified the decision of the labor arbiter by granting separation pay to herein individual
respondents in the increased amount of US$120.00 for every year of service or its peso equivalent, and
holding Sergio F. Naguiat Enterprises, Inc., Sergio F. Naguiat and Antolin T. Naguiat, jointly and severally
liable with Clark Field Taxi, Inc. ("CFTI").
The Facts
The following facts are derived from the records of the case:
Petitioner CFTI held a concessionaire's contract with the Army Air Force Exchange Services ("AAFES") for
the operation of taxi services within Clark Air Base. Sergio F. Naguiat was CFTI's president, while Antolin
T. Naguiat was its vice-president. Like Sergio F. Naguiat Enterprises, Incorporated ("Naguiat Enterprises"),
a trading firm, it was a family-owned corporation.
Individual respondents were previously employed by CFTI as taxicab drivers. During their employment,
they were required to pay a daily "boundary fee" in the amount of US$26.50 for those working from 1:00
a.m. to 12:00 noon, and US$27.00 for those working from 12:00 noon to 12:00 midnight. All incidental
expenses for the maintenance of the vehicles they were driving were accounted against them, including
gasoline expenses.
The drivers worked at least three to four times a week, depending on the availability of taxicabs. They
earned not less than US$15.00 daily.
In excess of that amount, however, they were required to make cash deposits to the company, which they
could later withdraw every fifteen days.
Due to the phase-out of the US military bases in the Philippines, from which Clark Air Base was not spared,
the AAFES was dissolved, and the services of individual respondents were officially terminated on
November 26, 1991.
The AAFES Taxi Drivers Association ("drivers' union"), through its local president, Eduardo Castillo, and
CFTI held negotiations as regards separation benefits that should be awarded in favor of the drivers. They
arrived at an agreement that the separated drivers will be given P500.00 for every year of service as
severance pay. Most of the drivers accepted said amount in December 1991 and January 1992. However,
individual respondents herein refused to accept theirs.
Instead, after disaffiliating themselves from the drivers' union, individual respondents, through the National
Organization of Workingmen ("NOWM"), a labor organization which they subsequently joined, filed a
complaint 5against "Sergio F. Naguiat doing business under the name and style Sergio F. Naguiat Enterprises,
Inc., Army-Air Force Exchange Services (AAFES) with Mark Hooper as Area Service Manager, Pacific
Region, and AAFES Taxi Drivers Association with Eduardo Castillo as President," for payment of
separation pay due to termination/phase-out. Said complaint was later amended 6 to include additional taxi
drivers who were similarly situated as complainants, and CFTI with Antolin T. Naguiat as vice president and
general manager, as party respondent.
In their complaint, herein private respondents alleged that they were regular employees of Naguiat
Enterprises, although their individual applications for employment were approved by CFTI. They claimed to
have been assigned to Naguiat Enterprises after having been hired by CFTI, and that the former thence
managed, controlled and supervised their employment. They averred further that they were entitled to
separation pay based on their latest daily earnings of US$15.00 for working sixteen (16) days a month.
In their position paper submitted to the labor arbiter, herein petitioners claimed that the cessation of business
of CFTI on November 26, 1991, was due to "great financial losses and lost business opportunity" resulting
from the phase-out of Clark Air Base brought about by the Mt. Pinatubo eruption and the expiration of the
RP-US military bases agreement. They admitted that CFTI had agreed with the drivers' union, through its
President Eduardo Castillo who claimed to have had blanket authority to negotiate with CFTI in behalf of
union members, to grant its taxi driver-employees separation pay equivalent to P500.00 for every year of
service.

The labor arbiter, finding the individual complainants to be regular workers of CFTI, ordered the latter to
pay them P1,200.00 for every year of service "for humanitarian consideration," setting aside the earlier
agreement between CFTI and the drivers' union of P500.00 for every year of service. The labor arbiter
rejected the allegation of CFTI that it was forced to close business due to "great financial losses and lost
business opportunity" since, at the time it ceased operations, CFTI was profitably earning and the cessation
of its business was due to the untimely closure of Clark Air Base. In not awarding separation pay in
accordance with the Labor Code, the labor arbiter explained:
To allow respondents exemption from its (sic) obligation to pay separation pay would be inhuman to
complainants but to impose a monetary obligation to an employer whose profitable business was abruptly
shot (sic) down by force majeure would be unfair and unjust to say the least. 7
and thus, simply awarded an amount for "humanitarian consideration."
Herein individual private respondents appealed to the NLRC. In its Resolution, the NLRC modified the
decision of the labor arbiter by granting separation pay to the private respondents. The concluding
paragraphs of the NLRC Resolution read:
The contention of complainant is partly correct. One-half month salary should be US$120.00 but this
amount can not be paid to the complainant in U.S. Dollar which is not the legal tender in the Philippines.
Paras, in commenting on Art. 1249 of the New Civil Code, defines legal tender as "that which a debtor may
compel a creditor to accept in payment of the debt. The complainants who are the creditors in this instance
can be compelled to accept the Philippine peso which is the legal tender, in which case, the table of
conversion (exchange rate) at the time of payment or satisfaction of the judgment should be used. However,
since the choice is left to the debtor, (respondents) they may choose to pay in US dollar." (Phoenix
Assurance Co. vs. Macondray & Co. Inc., L-25048, May 13, 1975)
In discharging the above obligations, Sergio F. Naguiat Enterprises, which is headed by Sergio F. Naguiat
and Antolin Naguiat, father and son at the same time the President and Vice-President and General Manager,
respectively, should be joined as indispensable party whose liability is joint and several. (Sec. 7, Rule 3,
Rules of Court) 8
As mentioned earlier, the motion for reconsideration of herein petitioners was denied by the NLRC. Hence,
this petition with prayer for issuance of a temporary restraining order. Upon posting by the petitioners of a
surety bond, a temporary restraining order 9 was issued by this Court enjoining execution of the assailed
Resolutions.
Issues
The petitioners raise the following issues before this Court for resolution:
I. Whether or not public respondent NLRC (3rd Div.) committed grave abuse of discretion amounting to
lack of jurisdiction in issuing the appealed resolution;
II. Whether or not Messrs. Teofilo Rafols and Romeo N. Lopez could validly represent herein private
respondents; and,
III. Whether or not the resolution issued by public respondent is contrary to law. 10
Petitioners also submit two additional issues by way of a supplement 11 to their petition, to wit: that
Petitioners Sergio F. Naguiat and Antolin Naguiat were denied due process; and that petitioners were not
furnished copies of private respondents' appeal to the NLRC. As to the procedural lapse of insufficient
copies of the appeal, the proper forum before which petitioners should have raised it is the NLRC. They,
however, failed to question this in their motion for reconsideration. As a consequence, they are deemed to
have waived the same and voluntarily submitted themselves to the jurisdiction of the appellate body.
Anent the first issue raised in their original petition, petitioners contend that NLRC committed grave abuse
of discretion amounting to lack or excess of jurisdiction in unilaterally increasing the amount of severance
pay granted by the labor arbiter. They claim that this was not supported by substantial evidence since it was
based simply on the self-serving allegation of respondents that their monthly take-home pay was not lower
than $240.00.
On the second issue, petitioners aver that NOWM cannot make legal representations in behalf of individual
respondents who should, instead, be bound by the decision of the union (AAFES Taxi Drivers Association)
of which they were members.
As to the third issue, petitioners incessantly insist that Sergio F. Naguiat Enterprises, Inc. is a separate and
distinct juridical entity which cannot be held jointly and severally liable for the obligations of CFTI. And
similarly, Sergio F. Naguiat and Antolin Naguiat were merely officers and stockholders of CFTI and, thus,
could not be held personally accountable for corporate debts.

Lastly, Sergio and Antolin Naguiat assail the Resolution of NLRC holding them solidarily liable despite not
having been impleaded as parties to the complaint.
Individual respondents filed a comment separate from that of NOWM. In sum, both aver that petitioners had
the opportunity but failed to refute, the taxi drivers' claim of having an average monthly earning of $240.00;
that individual respondents became members of NOWM after disaffiliating themselves from the AAFES
Taxi Drivers Association which, through the manipulations of its President Eduardo Castillo,
unconscionably compromised their separation pay; and that Naguiat Enterprises, being their indirect
employer, is solidarily liable under the law for violation of the Labor Code, in this case, for nonpayment of
their separation pay.
The Solicitor General unqualifiedly supports the allegations of private respondents. In addition, he submits
that the separate personalities of respondent corporations and their officers should be disregarded and
considered one and the same as these were used to perpetrate injustice to their employees.
The Court's Ruling
As will be discussed below, the petition is partially meritorious.
First Issue: Amount of Separation Pay
Firmly, we reiterate the rule that in a petition for certiorari filed pursuant to Rule 65 of the Rules of Court,
which is the only way a labor case may reach the Supreme Court, the petitioner/s must clearly show that the
NLRC acted without or in excess of jurisdiction or with grave abuse of discretion. 12
Long-standing and well-settled in Philippine jurisprudence is the judicial dictum that findings of fact of
administrative agencies and quasi-judicial bodies, which have acquired expertise because their jurisdiction is
confined to specific matters, are generally accorded not only great respect but even finality; and are binding
upon this Court unless there is a showing of grave abuse of discretion, or where it is clearly shown that they
were arrived at arbitrarily or in disregard of the evidence on record. 13
Nevertheless, this Court carefully perused the records of the instant case if only to determine whether public
respondent committed grave abuse of discretion, amounting to lack of jurisdiction, in granting the clamor of
private respondents that their separation pay should be based on the amount of $240.00, allegedly their
minimum monthly earnings as taxi drivers of petitioners.
In their amended complaint before the Regional Arbitration Branch in San Fernando, Pampanga, herein
private respondents set forth in detail the work schedule and financial arrangement they had with their
employer. Therefrom they inferred that their monthly take-home pay amounted to not less than $240.00.
Herein petitioners did not bother to refute nor offer any evidence to controvert said allegations. Remaining
undisputed, the labor arbiter adopted such facts in his decision. Petitioners did not even appeal from the
decision of the labor arbiter nor manifest any error in his findings and conclusions. Thus, petitioners are in
estoppel for not having questioned such facts when they had all opportunity to do so. Private respondents,
like petitioners, are bound by the factual findings of Respondent Commission.
Petitioners also claim that the closure of their taxi business was due to great financial losses brought about
by the eruption of Mt. Pinatubo which made the roads practically impassable to their taxicabs. Likewise
well-settled is the rule that business losses or financial reverses, in order to sustain retrenchment of
personnel or closure of business and warrant exemption from payment of separation pay, must be proved
with clear and satisfactory evidence. 14 The records, however, are devoid of such evidence.
The labor arbiter, as affirmed by NLRC, correctly found that petitioners stopped their taxi business within
Clark Air Base because of the phase-out of U.S. military presence thereat. It was not due to any great
financial loss because petitioners' taxi business was earning profitably at the time of its closure.
With respect to the amount of separation pay that should be granted, Article 283 of the Labor Code provides:
. . . In case of retrenchment to prevent losses and in cases of closures or cessation of operations of
establishment or undertaking not due to serious business losses or financial reverses, the separation pay shall
be equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of service, whichever
is higher. A fraction of at least six (6) months shall be considered one (1) whole year.
Considering the above, we find that NLRC did not commit grave abuse of discretion in ruling that individual
respondents were entitled to separation pay 15 in the amount $120.00 (one-half of $240.00 monthly pay) or
its peso equivalent for every year of service.
Second Issue: NOWM's Personality to
Represent Individual Respondents-Employees
On the question of NOWM's authority to represent private respondents, we hold petitioners in estoppel for
not having seasonably raised this issue before the labor arbiter or the NLRC. NOWM was already a party-

litigant as the organization representing the taxi driver-complainants before the labor arbiter. But petitioners
who were party-respondents in said complaint did not assail the juridical personality of NOWM and the
validity of its representations in behalf of the complaining taxi drivers before the quasi-judicial bodies.
Therefore, they are now estopped from raising such question before this Court. In any event, petitioners
acknowledged before this Court that the taxi drivers allegedly represented by NOWM, are themselves
parties in this case. 16
Third Issue: Liability of PetitionerCorporations and Their Respective Officers
The resolution of this issue involves another factual finding that Naguiat Enterprises actually managed,
supervised and controlled employment terms of the taxi drivers, making it their indirect employer. As
adverted to earlier, factual findings of quasi-judicial bodies are binding upon the court in the absence of a
showing of grave abuse of discretion.
Unfortunately, the NLRC did not discuss or give any explanation for holding Naguiat Enterprises and its
officers jointly and severally liable in discharging CFTI's liability for payment of separation pay. We again
remind those concerned that decisions, however concisely written, must distinctly and clearly set forth the
facts and law upon which they are based. 17 This rule applies as well to dispositions by quasi-judicial and
administrative bodies.
Naguiat Enterprise Not Liable
In impleading Naguiat Enterprises as solidarily liable for the obligations of CFTI, respondents rely on
Articles 106, 18 107 19 and 109 20 of the Labor Code.
Based on factual submissions of the parties, the labor arbiter, however, found that individual respondents
were regular employees of CFTI who received wages on a boundary or commission basis.
We find no reason to make a contrary finding. Labor-only contracting exists where: (1) the person supplying
workers to an employer does not have substantial capital or investment in the form of tools, equipment,
machinery, and work premises, among others; and (2) the workers recruited and placed by such person are
performing activities which are directly related to the principal business of the employer. 21 Independent
contractors, meanwhile, are those who exercise independent employment, contracting to do a piece of work
according to their own methods without being subject to control of their employer except as to the result of
their Work. 22
From the evidence proffered by both parties, there is no substantial basis to hold that Naguiat Enterprises is
an indirect employer of individual respondents much less a labor only contractor. On the contrary,
petitioners submitted documents such as the drivers' applications for employment with CFTI, 23 and social
security remittances 24 and payroll 25 of Naguiat Enterprises showing that none of the individual respondents
were its employees. Moreover, in the contract 26 between CFTI and AAFES, the former, as concessionaire,
agreed to purchase from AAFES for a certain amount within a specified period a fleet of vehicles to be
"ke(pt) on the road" by CFTI, pursuant to their concessionaire's contract. This indicates that CFTI became
the owner of the taxicabs which became the principal investment and asset of the company.
Private respondents failed to substantiate their claim that Naguiat Enterprises managed, supervised and
controlled their employment. It appears that they were confused on the personalities of Sergio F. Naguiat as
an individual who was the president of CFTI, and Sergio F. Naguiat Enterprises, Inc., as a separate corporate
entity with a separate business. They presumed that Sergio F. Naguiat, who was at the same time a
stockholder and director 27 of Sergio F. Naguiat Enterprises, Inc., was managing and controlling the taxi
business on behalf of the latter. A closer scrutiny and analysis of the records, however, evince the truth of the
matter: that Sergio F. Naguiat, in supervising the taxi drivers and determining their employment terms, was
rather carrying out his responsibilities as president of CFTI. Hence, Naguiat Enterprises as a separate
corporation does not appear to be involved at all in the taxi business.
To illustrate further, we refer to the testimony of a driver-claimant on cross examination.
Atty. Suarez
Is it not true that you applied not with Sergio F. Naguiat but with Clark Field Taxi?
Witness
I applied for (sic) Sergio F. Naguiat.
Atty. Suarez
Sergio F. Naguiat as an individual or the corporation?
Witness
Sergio F. Naguiat na tao.

Atty. Suarez
Who is Sergio F. Naguiat?
Witness
He is the one managing the Sergio F. Naguiat Enterprises and he is the one whom we believe as our
employer
Atty. Suarez
What is exactly the position of Sergio F. Naguiat with the Sergio F. Naguiat Enterprises?
Witness
He is the owner, sir.
Atty. Suarez
How about with Clark Field Taxi Incorporated what is the position of Mr. Naguiat?
Witness
What I know is that he is a concessionaire.
xxx xxx xxx
Atty. Suarez
But do you also know that Sergio F. Naguiat is the President of Clark Field Taxi, Incorporated?
Witness
Yes, sir.
Atty. Suarez
How about Mr. Antolin Naguiat what is his role in the taxi services, the operation of the Clark Field Taxi,
Incorporated?
Witness
He is the vice president. 28
And, although the witness insisted that Naguiat Enterprises was his employer, he could not deny that he
received his salary from the office of CFTI inside the base. 29
Another driver-claimant admitted, upon the prodding of counsel for the corporations, that Naguiat
Enterprises was in the trading business while CFTI was in taxi services. 30
In addition, the Constitution 31 of CFTI-AAFES Taxi Drivers Association which, admittedly, was the union
of individual respondents while still working at Clark Air Base, states that members thereof are the
employees of CFTI and "(f)or collective bargaining purposes, the definite employer is the Clark Field Taxi
Inc."
From the foregoing, the ineludible conclusion is that CFTI was the actual and direct employer of individual
respondents, and that Naguiat Enterprises was neither their indirect employer nor labor-only contractor. It
was not involved at all in the taxi business.
CFTI president
solidarily liable
Petitioner-corporations would likewise want to avoid the solidary liability of their officers. To bolster their
position, Sergio F. Naguiat and Antolin T. Naguiat specifically aver that they were denied due process since
they were not parties to the complaint below. 32 In the broader interest of justice, we, however, hold that
Sergio F. Naguiat, in his capacity as president of CFTI, cannot be exonerated from joint and several liability
in the payment of separation pay to individual respondents.
A.C. Ransom Labor Union-CCLU vs. NLRC 33 is the case in point. A.C. Ransom Corporation was a family
corporation, the stockholders of which were members of the Hernandez family. In 1973, it filed an
application for clearance to close or cease operations, which was duly granted by the Ministry of Labor and
Employment, without prejudice to the right of employees to seek redress of grievance, if any. Backwages of
22 employees, who engaged in a strike prior to the closure, were subsequently computed at P164,984.00. Up
to September 1976, the union filed about ten (10) motions for execution against the corporation, but none
could be implemented, presumably for failure to find leviable assets of said corporation. In its last motion
for execution, the union asked that officers and agents of the company be held personally liable for payment
of the backwages. This was granted by the labor arbiter. In the corporation's appeal to the NLRC, one of the
issues raised was: "Is the judgment against a corporation to reinstate its dismissed employees with
backwages, enforceable against its officer and agents, in their individual, private and personal capacities,
who were not parties in the case where the judgment was rendered!" The NLRC answered in the negative,
on the ground that officers of a corporation are not liable personally for official acts unless they exceeded
the scope of their authority.

On certiorari, this Court reversed the NLRC and upheld the labor arbiter. In imposing joint and several
liability upon the company president, the Court, speaking through Mme. Justice Ameurfina MelencioHerrera, ratiocinated this wise:
(b) How can the foregoing (Articles 265 and 273 of the Labor Code) provisions be implemented when the
employer is a corporation? The answer is found in Article 212(c) of the Labor Code which provides:
(c) "Employer" includes any person acting in the interest of an employer, directly or indirectly. The term
shall not include any labor organization or any of its officers or agents except when acting as employer.
The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an
artificial person, it must have an officer who can be presumed to be the employer, being the "person acting in
the interest of (the) employer" RANSOM. The corporation, only in the technical sense, is the employer.
The responsible officer of an employer corporation can be held personally, not to say even criminally, liable
for nonpayment of back wages. That is the policy of the law. . . .
(c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading
payment of back wages. . . .
(d) The record does not clearly identify "the officer or officers" of RANSOM directly responsible for failure
to pay the back wages of the 22 strikers. In the absence of definite Proof in that regard, we believe it should
be presumed that the responsible officer is the President of the corporation who can be deemed the chief
operation officer thereof. Thus, in RA 602, criminal responsibility is with the "Manager or in his default, the
person acting as such." In RANSOM. the President appears to be the Manager. (Emphasis supplied.)
Sergio F. Naguiat, admittedly, was the president of CFTI who actively managed the business. Thus, applying
the ruling in A.C. Ransom, he falls within the meaning of an "employer" as contemplated by the Labor Code,
who may be held jointly and severally liable for the obligations of the corporation to its dismissed
employees.
Moreover, petitioners also conceded that both CFTI and Naguiat Enterprises were "close family
corporations" 34owned by the Naguiat family. Section 100, paragraph 5, (under Title XII on Close
Corporations) of the Corporation Code, states:
(5) To the extent that the stockholders are actively engage(d) in the management or operation of the business
and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to each other and
among themselves. Said stockholders shall be personally liable for corporate tortsunless the corporation has
obtained reasonably adequate liability insurance. (emphasis supplied)
Nothing in the records show whether CFTI obtained "reasonably adequate liability insurance;" thus, what
remains is to determine whether there was corporate tort.
Our jurisprudence is wanting as to the definite scope of "corporate tort." Essentially, "tort" consists in the
violation of a right given or the omission of a duty imposed by law. 35 Simply stated, tort is a breach of a
legal duty. 36 Article 283 of the Labor Code mandates the employer to grant separation pay to employees in
case of closure or cessation of operations of establishment or undertaking not due to serious business losses
or financial reverses, which is the condition obtaining at bar. CFTI failed to comply with this law-imposed
duty or obligation. Consequently, its stockholder who was actively engaged in the management or operation
of the business should be held personally liable.
Furthermore, in MAM Realty Development vs. NLRC, 37 the Court recognized that a director or officer may
still be held solidarily liable with a corporation by specific provision of law. Thus:
. . . A corporation, being a juridical entity, may act only through its directors, officers and employees.
Obligations incurred by them, acting as such corporate agents, are not theirs but the direct accountabilities of
the corporation they represent. True, solidary liabilities may at times be incurred but only when exceptional
circumstances warrant such as, generally, in the following cases:
xxx xxx xxx
4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate
action. (footnotes omitted)
As pointed out earlier, the fifth paragraph of Section 100 of the Corporation Code specifically imposes
personal liability upon the stockholder actively managing or operating the business and affairs of the close
corporation.
In fact, in posting the surety bond required by this Court for the issuance of a temporary restraining order
enjoining the execution of the assailed NLRC Resolutions, only Sergio F. Naguiat, in his individual and
personal capacity, principally bound himself to comply with the obligation thereunder, i.e., "to guarantee the
payment to private respondents of any damages which they may incur by reason of the issuance of a

temporary restraining order sought, if it should be finally adjudged that said principals were not entitled
thereto. 38
The Court here finds no application to the rule that a corporate officer cannot be held solidarily liable with a
corporation in the absence of evidence that he had acted in bad faith or with malice. 39 In the present case,
Sergio Naguiat is held solidarily liable for corporate tort because he had actively engaged in the
management and operation of CFTI, a close corporation.
Antolin Naguiat not personally liable
Antolin T. Naguiat was the vice president of the CFTI. Although he carried the title of "general manager" as
well, it had not been shown that he had acted in such capacity. Furthermore, no evidence on the extent of his
participation in the management or operation of the business was preferred. In this light, he cannot be held
solidarily liable for the obligations of CFTI and Sergio Naguiat to the private respondents.
Fourth Issue: No Denial of Due Process
Lastly, in petitioners' Supplement to their original petition, they assail the NLRC Resolution holding Sergio
F. Naguiat and Antolin T. Naguiat jointly and severally liable with petitioner-corporations in the payment of
separation pay, averring denial of due process since the individual Naguiats were not impleaded as parties to
the complaint.
We advert to the case of A.C. Ransom once more. The officers of the corporation were not parties to the case
when the judgment in favor of the employees was rendered. The corporate officers raised this issue when the
labor arbiter granted the motion of the employees to enforce the judgment against them. In spite of this, the
Court held the corporation president solidarily liable with the corporation.
Furthermore, Sergio and Antolin Naguiat voluntarily submitted themselves to the jurisdiction of the labor
arbiter when they, in their individual capacities, filed a position paper 40 together with CFTI, before the
arbiter. They cannot now claim to have been denied due process since they availed of the opportunity to
present their positions.
WHEREFORE, the foregoing premises considered, the petition is PARTLY GRANTED. The assailed
February 28, 1994 Resolution of the NLRC is hereby MODIFIED as follows:
(1) Petitioner Clark Field Taxi, Incorporated, and Sergio F. Naguiat, president and co-owner thereof, are
ORDERED to pay, jointly and severally, the individual respondents their separation pay computed at
US$120.00 for every year of service, or its peso equivalent at the time of payment or satisfaction of the
judgment;
(2) Petitioner Sergio F. Naguiat Enterprises, Incorporated, and Antolin T. Naguiat are ABSOLVED from
liability in the payment of separation pay to individual respondents.
SO ORDERED.
Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.
G.R. No. 121413
January 29, 2001
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (formerly INSULAR BANK OF ASIA
AND AMERICA),petitioner,
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC. and CITIBANK, N.A., respondents.
G.R. No. 121479
January 29, 2001
FORD PHILIPPINES, INC., petitioner-plaintiff,
vs.
COURT OF APPEALS and CITIBANK, N.A. and PHILIPPINE COMMERCIAL
INTERNATIONAL BANK,respondents.
G.R. No. 128604
January 29, 2001
FORD PHILIPPINES, INC., petitioner,
vs.
CITIBANK, N.A., PHILIPPINE COMMERCIAL INTERNATIONAL BANK and COURT OF
APPEALS, respondents.
QUISUMBING, J.:
These consolidated petitions involve several fraudulently negotiated checks.
The original actions a quo were instituted by Ford Philippines to recover from the drawee bank, CITIBANK,
N.A. (Citibank) and collecting bank, Philippine Commercial International Bank (PCIBank) [formerly Insular

Bank of Asia and America], the value of several checks payable to the Commissioner of Internal Revenue,
which were embezzled allegedly by an organized syndicate.1wphi1.nt
G.R. Nos. 121413 and 121479 are twin petitions for review of the March 27, 1995 Decision1 of the Court of
Appeals in CA-G.R. CV No. 25017, entitled "Ford Philippines, Inc. vs. Citibank, N.A. and Insular Bank of
Asia and America (now Philipppine Commercial International Bank), and the August 8, 1995
Resolution,2 ordering the collecting bank, Philippine Commercial International Bank, to pay the amount of
Citibank Check No. SN-04867.
In G.R. No. 128604, petitioner Ford Philippines assails the October 15, 1996 Decision3 of the Court of
Appeals and its March 5, 1997 Resolution4 in CA-G.R. No. 28430 entitled "Ford Philippines, Inc. vs.
Citibank, N.A. and Philippine Commercial International Bank," affirming in toto the judgment of the trial
court holding the defendant drawee bank, Citibank, N.A., solely liable to pay the amount of P12,163,298.10
as damages for the misapplied proceeds of the plaintiff's Citibanl Check Numbers SN-10597 and 16508.
I. G.R. Nos. 121413 and 121479
The stipulated facts submitted by the parties as accepted by the Court of Appeals are as follows:
"On October 19, 1977, the plaintiff Ford drew and issued its Citibank Check No. SN-04867 in the amount of
P4,746,114.41, in favor of the Commissioner of Internal Revenue as payment of plaintiff;s percentage or
manufacturer's sales taxes for the third quarter of 1977.
The aforesaid check was deposited with the degendant IBAA (now PCIBank) and was subsequently cleared
at the Central Bank. Upon presentment with the defendant Citibank, the proceeds of the check was paid to
IBAA as collecting or depository bank.
The proceeds of the same Citibank check of the plaintiff was never paid to or received by the payee thereof,
the Commissioner of Internal Revenue.
As a consequence, upon demand of the Bureau and/or Commissioner of Internal Revenue, the plaintiff was
compelled to make a second payment to the Bureau of Internal Revenue of its percentage/manufacturers'
sales taxes for the third quarter of 1977 and that said second payment of plaintiff in the amount of
P4,746,114.41 was duly received by the Bureau of Internal Revenue.
It is further admitted by defendant Citibank that during the time of the transactions in question, plaintiff had
been maintaining a checking account with defendant Citibank; that Citibank Check No. SN-04867 which
was drawn and issued by the plaintiff in favor of the Commissioner of Internal Revenue was a crossed check
in that, on its face were two parallel lines and written in between said lines was the phrase "Payee's Account
Only"; and that defendant Citibank paid the full face value of the check in the amount of P4,746,114.41 to
the defendant IBAA.
It has been duly established that for the payment of plaintiff's percentage tax for the last quarter of 1977, the
Bureau of Internal Revenue issued Revenue Tax Receipt No. 18747002, dated October 20, 1977, designating
therein in Muntinlupa, Metro Manila, as the authorized agent bank of Metrobanl, Alabang branch to receive
the tax payment of the plaintiff.
On December 19, 1977, plaintiff's Citibank Check No. SN-04867, together with the Revenue Tax Receipt
No. 18747002, was deposited with defendant IBAA, through its Ermita Branch. The latter accepted the
check and sent it to the Central Clearing House for clearing on the samd day, with the indorsement at the
back "all prior indorsements and/or lack of indorsements guaranteed." Thereafter, defendant IBAA presented
the check for payment to defendant Citibank on same date, December 19, 1977, and the latter paid the face
value of the check in the amount of P4,746,114.41. Consequently, the amount of P4,746,114.41 was debited
in plaintiff's account with the defendant Citibank and the check was returned to the plaintiff.
Upon verification, plaintiff discovered that its Citibank Check No. SN-04867 in the amount of
P4,746,114.41 was not paid to the Commissioner of Internal Revenue. Hence, in separate letters dated
October 26, 1979, addressed to the defendants, the plaintiff notified the latter that in case it will be reassessed by the BIR for the payment of the taxes covered by the said checks, then plaintiff shall hold the
defendants liable for reimbursement of the face value of the same. Both defendants denied liability and
refused to pay.
In a letter dated February 28, 1980 by the Acting Commissioner of Internal Revenue addressed to the
plaintiff - supposed to be Exhibit "D", the latter was officially informed, among others, that its check in the
amount of P4, 746,114.41 was not paid to the government or its authorized agent and instead encashed by
unauthorized persons, hence, plaintiff has to pay the said amount within fifteen days from receipt of the
letter. Upon advice of the plaintiff's lawyers, plaintiff on March 11, 1982, paid to the Bureau of Internal

Revenue, the amount of P4,746,114.41, representing payment of plaintiff's percentage tax for the third
quarter of 1977.
As a consequence of defendant's refusal to reimburse plaintiff of the payment it had made for the second
time to the BIR of its percentage taxes, plaintiff filed on January 20, 1983 its original complaint before this
Court.
On December 24, 1985, defendant IBAA was merged with the Philippine Commercial International Bank
(PCI Bank) with the latter as the surviving entity.
Defendant Citibank maintains that; the payment it made of plaintiff's Citibank Check No. SN-04867 in the
amount of P4,746,114.41 "was in due course"; it merely relied on the clearing stamp of the
depository/collecting bank, the defendant IBAA that "all prior indorsements and/or lack of indorsements
guaranteed"; and the proximate cause of plaintiff's injury is the gross negligence of defendant IBAA in
indorsing the plaintiff's Citibank check in question.
It is admitted that on December 19, 1977 when the proceeds of plaintiff's Citibank Check No. SN-048867
was paid to defendant IBAA as collecting bank, plaintiff was maintaining a checking account with defendant
Citibank."5
Although it was not among the stipulated facts, an investigation by the National Bureau of Investigation
(NBI) revealed that Citibank Check No. SN-04867 was recalled by Godofredo Rivera, the General Ledger
Accountant of Ford. He purportedly needed to hold back the check because there was an error in the
computation of the tax due to the Bureau of Internal Revenue (BIR). With Rivera's instruction, PCIBank
replaced the check with two of its own Manager's Checks (MCs). Alleged members of a syndicate later
deposited the two MCs with the Pacific Banking Corporation.
Ford, with leave of court, filed a third-party complaint before the trial court impleading Pacific Banking
Corporation (PBC) and Godofredo Rivera, as third party defendants. But the court dismissed the complaint
against PBC for lack of cause of action. The course likewise dismissed the third-party complaint against
Godofredo Rivera because he could not be served with summons as the NBI declared him as a "fugitive
from justice".
On June 15, 1989, the trial court rendered its decision, as follows:
"Premises considered, judgment is hereby rendered as follows:
"1. Ordering the defendants Citibank and IBAA (now PCI Bank), jointly and severally, to pay the plaintiff
the amount of P4,746,114.41 representing the face value of plaintiff's Citibank Check No. SN-04867, with
interest thereon at the legal rate starting January 20, 1983, the date when the original complaint was filed
until the amount is fully paid, plus costs;
"2. On defendant Citibank's cross-claim: ordering the cross-defendant IBAA (now PCI Bank) to reimburse
defendant Citibank for whatever amount the latter has paid or may pay to the plaintiff in accordance with
next preceding paragraph;
"3. The counterclaims asserted by the defendants against the plaintiff, as well as that asserted by the crossdefendant against the cross-claimant are dismissed, for lack of merits; and
"4. With costs against the defendants.
SO ORDERED."6
Not satisfied with the said decision, both defendants, Citibank and PCIBank, elevated their respective
petitions for review on certiorari to the Courts of Appeals. On March 27, 1995, the appellate court issued its
judgment as follows:
"WHEREFORE, in view of the foregoing, the court AFFIRMS the appealed decision with modifications.
The court hereby renderes judgment:
1. Dismissing the complaint in Civil Case No. 49287 insofar as defendant Citibank N.A. is concerned;
2. Ordering the defendant IBAA now PCI Bank to pay the plaintiff the amount of P4,746,114.41
representing the face value of plaintiff's Citibank Check No. SN-04867, with interest thereon at the legal rate
starting January 20, 1983, the date when the original complaint was filed until the amount is fully paid;
3. Dismissing the counterclaims asserted by the defendants against the plaintiff as well as that asserted by
the cross-defendant against the cross-claimant, for lack of merits.
Costs against the defendant IBAA (now PCI Bank).
IT IS SO ORDERED."7
PCI Bank moved to reconsider the above-quoted decision of the Court of Appeals, while Ford filed a
"Motion for Partial Reconsideration." Both motions were denied for lack of merit.
Separately, PCIBank and Ford filed before this Court, petitions for review by certiorari under Rule 45.

In G.R. No. 121413, PCIBank seeks the reversal of the decision and resolution of the Twelfth Division of
the Court of Appeals contending that it merely acted on the instruction of Ford and such casue of action had
already prescribed.
PCIBank sets forth the following issues for consideration:
I. Did the respondent court err when, after finding that the petitioner acted on the check drawn by respondent
Ford on the said respondent's instructions, it nevertheless found the petitioner liable to the said respondent
for the full amount of the said check.
II. Did the respondent court err when it did not find prescription in favor of the petitioner.8
In a counter move, Ford filed its petition docketed as G.R. No. 121479, questioning the same decision and
resolution of the Court of Appeals, and praying for the reinstatement in toto of the decision of the trial court
which found both PCIBank and Citibank jointly and severally liable for the loss.
In G.R. No. 121479, appellant Ford presents the following propositions for consideration:
I. Respondent Citibank is liable to petitioner Ford considering that:
1. As drawee bank, respondent Citibank owes to petitioner Ford, as the drawer of the subject check and a
depositor of respondent Citibank, an absolute and contractual duty to pay the proceeds of the subject check
only to the payee thereof, the Commissioner of Internal Revenue.
2. Respondent Citibank failed to observe its duty as banker with respect to the subject check, which was
crossed and payable to "Payee's Account Only."
3. Respondent Citibank raises an issue for the first time on appeal; thus the same should not be considered
by the Honorable Court.
4. As correctly held by the trial court, there is no evidence of gross negligence on the part of petitioner Ford.9
II. PCI Bank is liable to petitioner Ford considering that:
1. There were no instructions from petitioner Ford to deliver the proceeds of the subject check to a person
other than the payee named therein, the Commissioner of the Bureau of Internal Revenue; thus, PCIBank's
only obligation is to deliver the proceeds to the Commissioner of the Bureau of Internal Revenue.10
2. PCIBank which affixed its indorsement on the subject check ("All prior indorsement and/or lack of
indorsement guaranteed"), is liable as collecting bank.11
3. PCIBank is barred from raising issues of fact in the instant proceedings.12
4. Petitioner Ford's cause of action had not prescribed.13
II. G.R. No. 128604
The same sysndicate apparently embezzled the proceeds of checks intended, this time, to settle Ford's
percentage taxes appertaining to the second quarter of 1978 and the first quarter of 1979.
The facts as narrated by the Court of Appeals are as follows:
Ford drew Citibank Check No. SN-10597 on July 19, 1978 in the amount of P5,851,706.37 representing the
percentage tax due for the second quarter of 1978 payable to the Commissioner of Internal Revenue. A BIR
Revenue Tax Receipt No. 28645385 was issued for the said purpose.
On April 20, 1979, Ford drew another Citibank Check No. SN-16508 in the amount of P6,311,591.73,
representing the payment of percentage tax for the first quarter of 1979 and payable to the Commissioner of
Internal Revenue. Again a BIR Revenue Tax Receipt No. A-1697160 was issued for the said purpose.
Both checks were "crossed checks" and contain two diagonal lines on its upper corner between, which were
written the words "payable to the payee's account only."
The checks never reached the payee, CIR. Thus, in a letter dated February 28, 1980, the BIR, Region 4-B,
demanded for the said tax payments the corresponding periods above-mentioned.
As far as the BIR is concernced, the said two BIR Revenue Tax Receipts were considered "fake and
spurious". This anomaly was confirmed by the NBI upon the initiative of the BIR. The findings forced Ford
to pay the BIR a new, while an action was filed against Citibank and PCIBank for the recovery of the
amount of Citibank Check Numbers SN-10597 and 16508.
The Regional Trial Court of Makati, Branch 57, which tried the case, made its findings on the modus
operandi of the syndicate, as follows:
"A certain Mr. Godofredo Rivera was employed by the plaintiff FORD as its General Ledger Accountant. As
such, he prepared the plaintiff's check marked Ex. 'A' [Citibank Check No. Sn-10597] for payment to the
BIR. Instead, however, fo delivering the same of the payee, he passed on the check to a co-conspirator
named Remberto Castro who was a pro-manager of the San Andres Branch of PCIB.* In connivance with
one Winston Dulay, Castro himself subsequently opened a Checking Account in the name of a fictitious

person denominated as 'Reynaldo reyes' in the Meralco Branch of PCIBank where Dulay works as Assistant
Manager.
After an initial deposit of P100.00 to validate the account, Castro deposited a worthless Bank of America
Check in exactly the same amount as the first FORD check (Exh. "A", P5,851,706.37) while this worthless
check was coursed through PCIB's main office enroute to the Central Bank for clearing, replaced this
worthless check with FORD's Exhibit 'A' and accordingly tampered the accompanying documents to cover
the replacement. As a result, Exhibit 'A' was cleared by defendant CITIBANK, and the fictitious deposit
account of 'Reynaldo Reyes' was credited at the PCIB Meralco Branch with the total amount of the FORD
check Exhibit 'A'. The same method was again utilized by the syndicate in profiting from Exh. 'B' [Citibank
Check No. SN-16508] which was subsequently pilfered by Alexis Marindo, Rivera's Assistant at FORD.
From this 'Reynaldo Reyes' account, Castro drew various checks distributing the sahres of the other
participating conspirators namely (1) CRISANTO BERNABE, the mastermind who formulated the method
for the embezzlement; (2) RODOLFO R. DE LEON a customs broker who negotiated the initial contact
between Bernabe, FORD's Godofredo Rivera and PCIB's Remberto Castro; (3) JUAN VASTILLO who
assisted de Leon in the initial arrangements; (4) GODOFREDO RIVERA, FORD's accountant who passed
on the first check (Exhibit "A") to Castro; (5) REMERTO CASTRO, PCIB's pro-manager at San Andres
who performed the switching of checks in the clearing process and opened the fictitious Reynaldo Reyes
account at the PCIB Meralco Branch; (6) WINSTON DULAY, PCIB's Assistant Manager at its Meralco
Branch, who assisted Castro in switching the checks in the clearing process and facilitated the opening of the
fictitious Reynaldo Reyes' bank account; (7) ALEXIS MARINDO, Rivera's Assistant at FORD, who gave
the second check (Exh. "B") to Castro; (8) ELEUTERIO JIMENEZ, BIR Collection Agent who provided the
fake and spurious revenue tax receipts to make it appear that the BIR had received FORD's tax payments.
Several other persons and entities were utilized by the syndicate as conduits in the disbursements of the
proceeds of the two checks, but like the aforementioned participants in the conspiracy, have not been
impleaded in the present case. The manner by which the said funds were distributed among them are
traceable from the record of checks drawn against the original "Reynaldo Reyes" account and indubitably
identify the parties who illegally benefited therefrom and readily indicate in what amounts they did so."14
On December 9, 1988, Regional Trial Court of Makati, Branch 57, held drawee-bank, Citibank, liable for the
value of the two checks while adsolving PCIBank from any liability, disposing as follows:
"WHEREFORE, judgment is hereby rendered sentencing defendant CITIBANK to reimburse plaintiff
FORD the total amount of P12,163,298.10 prayed for in its complaint, with 6% interest thereon from date of
first written demand until full payment, plus P300,000.00 attorney's fees and expenses litigation, and to pay
the defendant, PCIB (on its counterclaim to crossclaim) the sum of P300,000.00 as attorney's fees and costs
of litigation, and pay the costs.
SO ORDERED."15
Both Ford and Citibank appealed to the Court of Appeals which affirmed, in toto, the decision of the trial
court. Hence, this petition.
Petitioner Ford prays that judgment be rendered setting aside the portion of the Court of Appeals decision
and its resolution dated March 5, 1997, with respect to the dismissal of the complaint against PCIBank and
holding Citibank solely responsible for the proceeds of Citibank Check Numbers SN-10597 and 16508 for
P5,851,706.73 and P6,311,591.73 respectively.
Ford avers that the Court of Appeals erred in dismissing the complaint against defendant PCIBank
considering that:
I. Defendant PCIBank was clearly negligent when it failed to exercise the diligence required to be exercised
by it as a banking insitution.
II. Defendant PCIBank clearly failed to observe the diligence required in the selection and supervision of its
officers and employees.
III. Defendant PCIBank was, due to its negligence, clearly liable for the loss or damage resulting to the
plaintiff Ford as a consequence of the substitution of the check consistent with Section 5 of Central Bank
Circular No. 580 series of 1977.
IV. Assuming arguedo that defedant PCIBank did not accept, endorse or negotiate in due course the subject
checks, it is liable, under Article 2154 of the Civil Code, to return the money which it admits having
received, and which was credited to it its Central bank account.16
The main issue presented for our consideration by these petitions could be simplified as follows: Has
petitioner Ford the right to recover from the collecting bank (PCIBank) and the drawee bank (Citibank) the

value of the checks intended as payment to the Commissioner of Internal Revenue? Or has Ford's cause of
action already prescribed?
Note that in these cases, the checks were drawn against the drawee bank, but the title of the person
negotiating the same was allegedly defective because the instrument was obtained by fraud and unlawful
means, and the proceeds of the checks were not remitted to the payee. It was established that instead of
paying the checks to the CIR, for the settlement of the approprite quarterly percentage taxes of Ford, the
checks were diverted and encashed for the eventual distribution among the mmbers of the syndicate. As to
the unlawful negotiation of the check the applicable law is Section 55 of the Negotiable Instruments Law
(NIL), which provides:
"When title defective -- The title of a person who negotiates an instrument is defective within the meaning of
this Act when he obtained the instrument, or any signature thereto, by fraud, duress, or fore and fear, or other
unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith or under such
circumstances as amount to a fraud."
Pursuant to this provision, it is vital to show that the negotiation is made by the perpetator in breach of faith
amounting to fraud. The person negotiating the checks must have gone beyond the authority given by his
principal. If the principal could prove that there was no negligence in the performance of his duties, he may
set up the personal defense to escape liability and recover from other parties who. Though their own
negligence, alowed the commission of the crime.
In this case, we note that the direct perpetrators of the offense, namely the embezzlers belonging to a
syndicate, are now fugitives from justice. They have, even if temporarily, escaped liability for the
embezzlement of millions of pesos. We are thus left only with the task of determining who of the present
parties before us must bear the burden of loss of these millions. It all boils down to thequestion of liability
based on the degree of negligence among the parties concerned.
Foremost, we must resolve whether the injured party, Ford, is guilty of the "imputed contributory
negligence" that would defeat its claim for reimbursement, bearing ing mind that its employees, Godofredo
Rivera and Alexis Marindo, were among the members of the syndicate.
Citibank points out that Ford allowed its very own employee, Godofredo Rivera, to negotiate the checks to
his co-conspirators, instead of delivering them to the designated authorized collecting bank (MetrobankAlabang) of the payee, CIR. Citibank bewails the fact that Ford was remiss in the supervision and control of
its own employees, inasmuch as it only discovered the syndicate's activities through the information given
by the payee of the checks after an unreasonable period of time.
PCIBank also blames Ford of negligence when it allegedly authorized Godofredo Rivera to divert the
proceeds of Citibank Check No. SN-04867, instead of using it to pay the BIR. As to the subsequent runaround of unds of Citibank Check Nos. SN-10597 and 16508, PCIBank claims that the proximate cause of
the damge to Ford lies in its own officers and employees who carried out the fradulent schemes and the
transactions. These circumstances were not checked by other officers of the company including its
comptroller or internal auditor. PCIBank contends that the inaction of Ford despite the enormity of the
amount involved was a sheer negligence and stated that, as between two innocent persons, one of whom
must suffer the consequences of a breach of trust, the one who made it possible, by his act of negligence,
must bear the loss.
For its part, Ford denies any negligence in the performance of its duties. It avers that there was no evidence
presented before the trial court showing lack of diligence on the part of Ford. And, citing the case
of Gempesaw vs. Court of Appeals,17 Ford argues that even if there was a finding therein that the drawer was
negligent, the drawee bank was still ordered to pay damages.
Furthermore, Ford contends the Godofredo rivera was not authorized to make any representation in its
behalf, specifically, to divert the proceeds of the checks. It adds that Citibank raised the issue of imputed
negligence against Ford for the first time on appeal. Thus, it should not be considered by this Court.
On this point, jurisprudence regarding the imputed negligence of employer in a master-servant relationship
is instructive. Since a master may be held for his servant's wrongful act, the law imputes to the master the
act of the servant, and if that act is negligent or wrongful and proximately results in injury to a third person,
the negligence or wrongful conduct is the negligence or wrongful conduct of the master, for which he is
liable.18 The general rule is that if the master is injured by the negligence of a third person and by the
concuring contributory negligence of his own servant or agent, the latter's negligence is imputed to his
superior and will defeat the superior's action against the third person, asuming, of course that the
contributory negligence was the proximate cause of the injury of which complaint is made.19

Accordingly, we need to determine whether or not the action of Godofredo Rivera, Ford's General Ledger
Accountant, and/or Alexis Marindo, his assistant, was the proximate cause of the loss or damage. AS
defined, proximate cause is that which, in the natural and continuous sequence, unbroken by any efficient,
intervening cause produces the injury and without the result would not have occurred.20
It appears that although the employees of Ford initiated the transactions attributable to an organized
syndicate, in our view, their actions were not the proximate cause of encashing the checks payable to the
CIR. The degree of Ford's negligence, if any, could not be characterized as the proximate cause of the injury
to the parties.
The Board of Directors of Ford, we note, did not confirm the request of Godofredo Rivera to recall Citibank
Check No. SN-04867. Rivera's instruction to replace the said check with PCIBank's Manager's Check was
not in theordinary course of business which could have prompted PCIBank to validate the same.
As to the preparation of Citibank Checks Nos. SN-10597 and 16508, it was established that these checks
were made payable to the CIR. Both were crossed checks. These checks were apparently turned around by
Ford's emploees, who were acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery was committed by a drawer-payor's confidential
employee or agent, who by virtue of his position had unusual facilities for perpertrating the fraud and
imposing the forged paper upon the bank, does notentitle the bank toshift the loss to the drawer-payor, in the
absence of some circumstance raising estoppel against the drawer.21 This rule likewise applies to the checks
fraudulently negotiated or diverted by the confidential employees who hold them in their possession.
With respect to the negligence of PCIBank in the payment of the three checks involved, separately, the trial
courts found variations between the negotiation of Citibank Check No. SN-04867 and the misapplication of
total proceeds of Checks SN-10597 and 16508. Therefore, we have to scrutinize, separately, PCIBank's
share of negligence when the syndicate achieved its ultimate agenda of stealing the proceeds of these
checks.
G.R. Nos. 121413 and 121479
Citibank Check No. SN-04867 was deposited at PCIBank through its Ermita Branch. It was coursed through
the ordinary banking transaction, sent to Central Clearing with the indorsement at the back "all prior
indorsements and/or lack of indorsements guaranteed," and was presented to Citibank for payment.
Thereafter PCIBank, instead of remitting the proceeds to the CIR, prepared two of its Manager's checks and
enabled the syndicate to encash the same.
On record, PCIBank failed to verify the authority of Mr. Rivera to negotiate the checks. The neglect of
PCIBank employees to verify whether his letter requesting for the replacement of the Citibank Check No.
SN-04867 was duly authorized, showed lack of care and prudence required in the circumstances.
Furthermore, it was admitted that PCIBank is authorized to collect the payment of taxpayers in behalf of the
BIR. As an agent of BIR, PCIBank is duty bound to consult its principal regarding the unwarranted
instructions given by the payor or its agent. As aptly stated by the trial court, to wit:
"xxx. Since the questioned crossed check was deposited with IBAA [now PCIBank], which claimed to be a
depository/collecting bank of BIR, it has the responsibility to make sure that the check in question is
deposited in Payee's account only.
xxx xxx
xxx
As agent of the BIR (the payee of the check), defendant IBAA should receive instructions only from its
principal BIR and not from any other person especially so when that person is not known to the defendant. It
is very imprudent on the part of the defendant IBAA to just rely on the alleged telephone call of the one
Godofredo Rivera and in his signature considering that the plaintiff is not a client of the defendant IBAA."
It is a well-settled rule that the relationship between the payee or holder of commercial paper and the bank to
which it is sent for collection is, in the absence of an argreement to the contrary, that of principal and
agent.22 A bank which receives such paper for collection is the agent of the payee or holder.23
Even considering arguendo, that the diversion of the amount of a check payable to the collecting bank in
behalf of the designated payee may be allowed, still such diversion must be properly authorized by the
payor. Otherwise stated, the diversion can be justified only by proof of authority from the drawer, or that the
drawer has clothed his agent with apparent authority to receive the proceeds of such check.
Citibank further argues that PCI Bank's clearing stamp appearing at the back of the questioned checks
stating that ALL PRIOR INDORSEMENTS AND/OR LACK OF INDORSEMENTS GURANTEED should
render PCIBank liable because it made it pass through the clearing house and therefore Citibank had no
other option but to pay it. Thus, Citibank had no other option but to pay it. Thus, Citibank assets that the

proximate cause of Ford's injury is the gross negligence of PCIBank. Since the questione dcrossed check
was deposited with PCIBank, which claimed to be a depository/collecting bank of the BIR, it had the
responsibility to make sure that the check in questions is deposited in Payee's account only.
Indeed, the crossing of the check with the phrase "Payee's Account Only," is a warning that the check should
be deposited only in the account of the CIR. Thus, it is the duty of the collecting bank PCIBank to ascertain
that the check be deposited in payee's account only. Therefore, it is the collecting bank (PCIBank) which is
bound to scruninize the check and to know its depositors before it could make the clearing indorsement "all
prior indorsements and/or lack of indorsement guaranteed".
In Banco de Oro Savings and Mortgage Bank vs. Equitable Banking Corporation,24 we ruled:
"Anent petitioner's liability on said instruments, this court is in full accord with the ruling of the PCHC's
Board of Directors that:
'In presenting the checks for clearing and for payment, the defendant made an express guarantee on the
validity of "all prior endorsements." Thus, stamped at the back of the checks are the defedant's clear
warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED.
Without such warranty, plaintiff would not have paid on the checks.'
No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty has
proven to be false and inaccurate, the defendant is liable for any damage arising out of the falsity of its
representation."25
Lastly, banking business requires that the one who first cashes and negotiates the check must take some
percautions to learn whether or not it is genuine. And if the one cashing the check through indifference or
othe circumstance assists the forger in committing the fraud, he should not be permitted to retain the
proceeds of the check from the drawee whose sole fault was that it did not discover the forgery or the defect
in the title of the person negotiating the instrument before paying the check. For this reason, a bank which
cashes a check drawn upon another bank, without requiring proof as to the identity of persons presenting it,
or making inquiries with regard to them, cannot hold the proceeds against the drawee when the proceeds of
the checks were afterwards diverted to the hands of a third party. In such cases the drawee bank has a right
to believe that the cashing bank (or the collecting bank) had, by the usual proper investigation, satisfied
itself of the authenticity of the negotiation of the checks. Thus, one who encashed a check which had been
forged or diverted and in turn received payment thereon from the drawee, is guilty of negligence which
proximately contributed to the success of the fraud practiced on the drawee bank. The latter may recover
from the holder the money paid on the check.26
Having established that the collecting bank's negligence is the proximate cause of the loss, we conclude that
PCIBank is liable in the amount corresponding to the proceeds of Citibank Check No. SN-04867.
G.R. No. 128604
The trial court and the Court of Appeals found that PCIBank had no official act in the ordinary course of
business that would attribute to it the case of the embezzlement of Citibank Check Numbers SN-10597 and
16508, because PCIBank did not actually receive nor hold the two Ford checks at all. The trial court held,
thus:
"Neither is there any proof that defendant PCIBank contributed any official or conscious participation in the
process of the embezzlement. This Court is convinced that the switching operation (involving the checks
while in transit for "clearing") were the clandestine or hidden actuations performed by the members of the
syndicate in their own personl, covert and private capacity and done without the knowledge of the defendant
PCIBank"27
In this case, there was no evidence presented confirming the conscious particiapation of PCIBank in the
embezzlement. As a general rule, however, a banking corporation is liable for the wrongful or tortuous acts
and declarations of its officers or agents within the course and scope of their employment.28 A bank will be
held liable for the negligence of its officers or agents when acting within the course and scope of their
employment. It may be liable for the tortuous acts of its officers even as regards that species of tort of which
malice is an essential element. In this case, we find a situation where the PCIBank appears also to be the
victim of the scheme hatched by a syndicate in which its own management employees had particiapted.
The pro-manager of San Andres Branch of PCIBank, Remberto Castro, received Citibank Check Numbers
SN-10597 and 16508. He passed the checks to a co-conspirator, an Assistant Manager of PCIBank's Meralco
Branch, who helped Castro open a Checking account of a fictitious person named "Reynaldo Reyes." Castro
deposited a worthless Bank of America Check in exactly the same amount of Ford checks. The syndicate
tampered with the checks and succeeded in replacing the worthless checks and the eventual encashment of

Citibank Check Nos. SN 10597 and 16508. The PCIBank Ptro-manager, Castro, and his co-conspirator
Assistant Manager apparently performed their activities using facilities in their official capacity or authority
but for their personal and private gain or benefit.
A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the
frauds these officers or agents were enabled to perpetrate in the apparent course of their employment; nor
will t be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank
therefrom. For the general rule is that a bank is liable for the fraudulent acts or representations of an officer
or agent acting within the course and apparent scope of his employment or authority.29 And if an officer or
employee of a bank, in his official capacity, receives money to satisfy an evidence of indebetedness lodged
with his bank for collection, the bank is liable for his misappropriation of such sum.30
Moreover, as correctly pointed out by Ford, Section 531 of Central Bank Circular No. 580, Series of 1977
provides that any theft affecting items in transit for clearing, shall be for the account of sending bank, which
in this case is PCIBank.
But in this case, responsibility for negligence does not lie on PCIBank's shoulders alone.
The evidence on record shows that Citibank as drawee bank was likewise negligent in the performance of its
duties. Citibank failed to establish that its payment of Ford's checjs were made in due course and legally in
order. In its defense, Citibank claims the genuineness and due execution of said checks, considering that
Citibank (1) has no knowledge of any informity in the issuance of the checks in question (2) coupled by the
fact that said checks were sufficiently funded and (3) the endorsement of the Payee or lack thereof was
guaranteed by PCI Bank (formerly IBAA), thus, it has the obligation to honor and pay the same.
For its part, Ford contends that Citibank as the drawee bank owes to Ford an absolute and contractual duty to
pay the proceeds of the subject check only to the payee thereof, the CIR. Citing Section 6232 of the
Negotiable Instruments Law, Ford argues that by accepting the instrument, the acceptro which is Citibank
engages that it will pay according to the tenor of its acceptance, and that it will pay only to the payee, (the
CIR), considering the fact that here the check was crossed with annotation "Payees Account Only."
As ruled by the Court of Appeals, Citibank must likewise answer for the damages incurred by Ford on
Citibank Checks Numbers SN 10597 and 16508, because of the contractual relationship existing between
the two. Citibank, as the drawee bank breached its contractual obligation with Ford and such degree of
culpability contributed to the damage caused to the latter. On this score, we agree with the respondent court's
ruling.
Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the amount
of the proceeds thereof to the collecting bank of the BIR. One thing is clear from the record: the clearing
stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear any initials. Citibank failed to
notice and verify the absence of the clearing stamps. Had this been duly examined, the switching of the
worthless checks to Citibank Check Nos. 10597 and 16508 would have been discovered in time. For this
reason, Citibank had indeed failed to perform what was incumbent upon it, which is to ensure that the
amount of the checks should be paid only to its designated payee. The fact that the drawee bank did not
discover the irregularity seasonably, in our view, consitutes negligence in carrying out the bank's duty to its
depositors. The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship.33
Thus, invoking the doctrine of comparative negligence, we are of the view that both PCIBank and Citibank
failed in their respective obligations and both were negligent in the selection and supervision of their
employees resulting in the encashment of Citibank Check Nos. SN 10597 AND 16508. Thus, we are
constrained to hold them equally liable for the loss of the proceeds of said checks issued by Ford in favor of
the CIR.
Time and again, we have stressed that banking business is so impressed with public interest where the trust
and confidence of the public in general is of paramount umportance such that the appropriate standard of
diligence must be very high, if not the highest, degree of diligence.34 A bank's liability as obligor is not
merely vicarious but primary, wherein the defense of exercise of due diligence in the selection and
supervision of its employees is of no moment.35
Banks handle daily transactions involving millions of pesos.36 By the very nature of their work the degree of
responsibility, care and trustworthiness expected of their employees and officials is far greater than those of
ordinary clerks and employees.37 Banks are expected to exercise the highest degree of diligence in the
selection and supervision of their employees.38

On the issue of prescription, PCIBank claims that the action of Ford had prescribed because of its inability
to seek judicial relief seasonably, considering that the alleged negligent act took place prior to December 19,
1977 but the relief was sought only in 1983, or seven years thereafter.
The statute of limitations begins to run when the bank gives the depositor notice of the payment, which is
ordinarily when the check is returned to the alleged drawer as a voucher with a statement of his
account,39 and an action upon a check is ordinarily governed by the statutory period applicable to
instruments in writing.40
Our laws on the matter provide that the action upon a written contract must be brought within ten year from
the time the right of action accrues.41 hence, the reckoning time for the prescriptive period begins when the
instrument was issued and the corresponding check was returned by the bank to its depositor (normally a
month thereafter). Applying the same rule, the cause of action for the recovery of the proceeds of Citibank
Check No. SN 04867 would normally be a month after December 19, 1977, when Citibank paid the face
value of the check in the amount of P4,746,114.41. Since the original complaint for the cause of action was
filed on January 20, 1984, barely six years had lapsed. Thus, we conclude that Ford's cause of action to
recover the amount of Citibank Check No. SN 04867 was seasonably filed within the period provided by
law.
Finally, we also find thet Ford is not completely blameless in its failure to detect the fraud. Failure on the
part of the depositor to examine its passbook, statements of account, and cancelled checks and to give notice
within a reasonable time (or as required by statute) of any discrepancy which it may in the exercise of due
care and diligence find therein, serves to mitigate the banks' liability by reducing the award of interest from
twelve percent (12%) to six percent (6%) per annum. As provided in Article 1172 of the Civil Code of the
Philippines, respondibility arising from negligence in the performance of every kind of obligation is also
demandable, but such liability may be regulated by the courts, according to the circumstances. In quasidelicts, the contributory negligence of the plaintiff shall reduce the damages that he may recover.42
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 25017
are AFFIRMED. PCIBank, know formerly as Insular Bank of Asia and America, id declared solely
responsible for the loss of the proceeds of Citibank Check No SN 04867 in the amount P4,746,114.41,
which shall be paid together with six percent (6%) interest thereon to Ford Philippines Inc. from the date
when the original complaint was filed until said amount is fully paid.
However, the Decision and Resolution of the Court of Appeals in CA-G.R. No. 28430 are MODIFIED as
follows: PCIBank and Citibank are adjudged liable for and must share the loss, (concerning the proceeds of
Citibank Check Numbers SN 10597 and 16508 totalling P12,163,298.10) on a fifty-fifty ratio, and each
bank is ORDEREDto pay Ford Philippines Inc. P6,081,649.05, with six percent (6%) interest thereon, from
the date the complaint was filed until full payment of said amount.1wphi1.nt
Costs against Philippine Commercial International Bank and Citibank N.A.
SO ORDERED.
Bellosillo, Mendoza, Buena, De Leon, Jr., JJ, concur.
G. R. No. 164317
February 6, 2006
ALFREDO CHING, Petitioner,
vs.
THE SECRETARY OF JUSTICE, ASST. CITY PROSECUTOR ECILYN BURGOS-VILLAVERT,
JUDGE EDGARDO SUDIAM of the Regional Trial Court, Manila, Branch 52; RIZAL
COMMERCIAL BANKING CORP. and THE PEOPLE OF THE PHILIPPINES, Respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CAG.R. SP No. 57169 dismissing the petition for certiorari, prohibition and mandamus filed by petitioner
Alfredo Ching, and its Resolution2 dated June 28, 2004 denying the motion for reconsideration thereof.
Petitioner was the Senior Vice-President of Philippine Blooming Mills, Inc. (PBMI). Sometime in
September to October 1980, PBMI, through petitioner, applied with the Rizal Commercial Banking
Corporation (respondent bank) for the issuance of commercial letters of credit to finance its importation of
assorted goods.3

Respondent bank approved the application, and irrevocable letters of credit were issued in favor of
petitioner. The goods were purchased and delivered in trust to PBMI. Petitioner signed 13 trust receipts4 as
surety, acknowledging delivery of the following goods:
T/R
Nos.

Date Granted Maturity

Date

Principal

Description of Goods

1845

12-05-80

03-05-81

P1,596,470.05

79.9425 M/T "SDK"

Brand Synthetic
Graphite Electrode

1853

12-08-80

03-06-81

P198,150.67

3,000 pcs. (15 bundles)

Calorized Lance Pipes

1824

11-28-80

02-26-81

P707,879.71

One Lot High Fired

Refractory Tundish
Bricks

1798

11-21-80

02-19-81

P835,526.25

5 cases spare parts for

CCM

1808

11-21-80

02-19-81

P370,332.52

200 pcs. ingot moulds

2042

01-30-81

04-30-81

P469,669.29

High Fired Refractory

Nozzle Bricks

1801

11-21-80

02-19-81

P2,001,715.17

Synthetic Graphite
Electrode [with] tapered
pitch filed nipples

1857

12-09-80

03-09-81

P197,843.61

3,000 pcs. (15 bundles

calorized lance pipes [)]

1895

12-17-80

03-17-81

P67,652.04

Spare parts for

Spectrophotometer

1911

12-22-80

03-20-81

P91,497.85

50 pcs. Ingot moulds

2041

01-30-81

04-30-81

P91,456.97

50 pcs. Ingot moulds

2099

02-10-81

05-11-81

P66,162.26

8 pcs. Kubota Rolls for

rolling mills

2100

02-10-81

05-12-81

P210,748.00

Spare parts for

Lacolaboratory
Equipment5

Under the receipts, petitioner agreed to hold the goods in trust for the said bank, with authority to sell but not
by way of conditional sale, pledge or otherwise; and in case such goods were sold, to turn over the proceeds
thereof as soon as received, to apply against the relative acceptances and payment of other indebtedness to
respondent bank. In case the goods remained unsold within the specified period, the goods were to be
returned to respondent bank without any need of demand. Thus, said "goods, manufactured products or
proceeds thereof, whether in the form of money or bills, receivables, or accounts separate and capable of
identification" were respondent banks property.
When the trust receipts matured, petitioner failed to return the goods to respondent bank, or to return their
value amounting to P6,940,280.66 despite demands. Thus, the bank filed a criminal complaint for
estafa6 against petitioner in the Office of the City Prosecutor of Manila.
After the requisite preliminary investigation, the City Prosecutor found probable cause estafa under Article
315, paragraph 1(b) of the Revised Penal Code, in relation to Presidential Decree (P.D.) No. 115, otherwise
known as the Trust Receipts Law. Thirteen (13) Informations were filed against the petitioner before the

Regional Trial Court (RTC) of Manila. The cases were docketed as Criminal Cases No. 86-42169 to 8642181, raffled to Branch 31 of said court.
Petitioner appealed the resolution of the City Prosecutor to the then Minister of Justice. The appeal was
dismissed in a Resolution7 dated March 17, 1987, and petitioner moved for its reconsideration. On
December 23, 1987, the Minister of Justice granted the motion, thus reversing the previous resolution
finding probable cause against petitioner.8 The City Prosecutor was ordered to move for the withdrawal of
the Informations.
This time, respondent bank filed a motion for reconsideration, which, however, was denied on February 24,
1988.9 The RTC, for its part, granted the Motion to Quash the Informations filed by petitioner on the ground
that the material allegations therein did not amount to estafa.10
In the meantime, the Court rendered judgment in Allied Banking Corporation v. Ordoez,11 holding that the
penal provision of P.D. No. 115 encompasses any act violative of an obligation covered by the trust receipt;
it is not limited to transactions involving goods which are to be sold (retailed), reshipped, stored or
processed as a component of a product ultimately sold. The Court also ruled that "the non-payment of the
amount covered by a trust receipt is an act violative of the obligation of the entrustee to pay."12
On February 27, 1995, respondent bank re-filed the criminal complaint for estafa against petitioner before
the Office of the City Prosecutor of Manila. The case was docketed as I.S. No. 95B-07614.
Preliminary investigation ensued. On December 8, 1995, the City Prosecutor ruled that there was no
probable cause to charge petitioner with violating P.D. No. 115, as petitioners liability was only civil, not
criminal, having signed the trust receipts as surety.13 Respondent bank appealed the resolution to the
Department of Justice (DOJ) via petition for review, alleging that the City Prosecutor erred in ruling:
1. That there is no evidence to show that respondent participated in the misappropriation of the goods
subject of the trust receipts;
2. That the respondent is a mere surety of the trust receipts; and
3. That the liability of the respondent is only civil in nature.14
On July 13, 1999, the Secretary of Justice issued Resolution No. 25015 granting the petition and reversing the
assailed resolution of the City Prosecutor. According to the Justice Secretary, the petitioner, as Senior VicePresident of PBMI, executed the 13 trust receipts and as such, was the one responsible for the offense. Thus,
the execution of said receipts is enough to indict the petitioner as the official responsible for violation of P.D.
No. 115. The Justice Secretary also declared that petitioner could not contend that P.D. No. 115 covers only
goods ultimately destined for sale, as this issue had already been settled in Allied Banking Corporation v.
Ordoez,16where the Court ruled that P.D. No. 115 is "not limited to transactions in goods which are to be
sold (retailed), reshipped, stored or processed as a component of a product ultimately sold but covers failure
to turn over the proceeds of the sale of entrusted goods, or to return said goods if unsold or not otherwise
disposed of in accordance with the terms of the trust receipts."
The Justice Secretary further stated that the respondent bound himself under the terms of the trust receipts
not only as a corporate official of PBMI but also as its surety; hence, he could be proceeded against in two
(2) ways: first, as surety as determined by the Supreme Court in its decision in Rizal Commercial Banking
Corporation v. Court of Appeals;17 and second, as the corporate official responsible for the offense under
P.D. No. 115, via criminal prosecution. Moreover, P.D. No. 115 explicitly allows the prosecution of
corporate officers "without prejudice to the civil liabilities arising from the criminal offense." Thus,
according to the Justice Secretary, following Rizal Commercial Banking Corporation, the civil liability
imposed is clearly separate and distinct from the criminal liability of the accused under P.D. No. 115.
Conformably with the Resolution of the Secretary of Justice, the City Prosecutor filed 13 Informations
against petitioner for violation of P.D. No. 115 before the RTC of Manila. The cases were docketed as
Criminal Cases No. 99-178596 to 99-178608 and consolidated for trial before Branch 52 of said court.
Petitioner filed a motion for reconsideration, which the Secretary of Justice denied in a Resolution18 dated
January 17, 2000.
Petitioner then filed a petition for certiorari, prohibition and mandamus with the CA, assailing the
resolutions of the Secretary of Justice on the following grounds:
1. THE RESPONDENTS ARE ACTING WITH AN UNEVEN HAND AND IN FACT, ARE ACTING
OPPRESSIVELY AGAINST ALFREDO CHING WHEN THEY ALLOWED HIS PROSECUTION
DESPITE THE FACT THAT NO EVIDENCE HAD BEEN PRESENTED TO PROVE HIS
PARTICIPATION IN THE ALLEGED TRANSACTIONS.

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

DISCRETION AND IN EXCESS OF HIS JURISDICTION WHEN THEY CONTINUED PROSECUTION
OF THE PETITIONER DESPITE THE LENGTH OF TIME INCURRED IN THE TERMINATION OF
THE PRELIMINARY INVESTIGATION THAT SHOULD JUSTIFY THE DISMISSAL OF THE
INSTANT CASE.
3. THE RESPONDENT SECRETARY OF JUSTICE AND ASSISTANT CITY PROSECUTOR ACTED IN
GRAVE ABUSE OF DISCRETION AMOUNTING TO AN EXCESS OF JURISDICTION WHEN THEY
CONTINUED THE PROSECUTION OF THE PETITIONER DESPITE LACK OF SUFFICIENT BASIS. 19
In his petition, petitioner incorporated a certification stating that "as far as this Petition is concerned, no
action or proceeding in the Supreme Court, the Court of Appeals or different divisions thereof, or any
tribunal or agency. It is finally certified that if the affiant should learn that a similar action or proceeding has
been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, of
any other tribunal or agency, it hereby undertakes to notify this Honorable Court within five (5) days from
such notice."20
In its Comment on the petition, the Office of the Solicitor General alleged that A.
THE HONORABLE SECRETARY OF JUSTICE CORRECTLY RULED THAT PETITIONER ALFREDO
CHING IS THE OFFICER RESPONSIBLE FOR THE OFFENSE CHARGED AND THAT THE ACTS OF
PETITIONER FALL WITHIN THE AMBIT OF VIOLATION OF P.D. [No.] 115 IN RELATION TO
ARTICLE 315, PAR. 1(B) OF THE REVISED PENAL CODE.
B.
THERE IS NO MERIT IN PETITIONERS CONTENTION THAT EXCESSIVE DELAY HAS
MARRED THE CONDUCT OF THE PRELIMINARY INVESTIGATION OF THE CASE, JUSTIFYING
ITS DISMISSAL.
C.
THE PRESENT SPECIAL CIVIL ACTION FOR CERTIORARI, PROHIBITION AND MANDAMUS IS
NOT THE PROPER MODE OF REVIEW FROM THE RESOLUTION OF THE DEPARTMENT OF
JUSTICE. THE PRESENT PETITION MUST THEREFORE BE DISMISSED. 21
On April 22, 2004, the CA rendered judgment dismissing the petition for lack of merit, and on procedural
grounds. On the procedural issue, it ruled that (a) the certification of non-forum shopping executed by
petitioner and incorporated in the petition was defective for failure to comply with the first two of the threefold undertakings prescribed in Rule 7, Section 5 of the Revised Rules of Civil Procedure; and (b) the
petition for certiorari, prohibition and mandamus was not the proper remedy of the petitioner.
On the merits of the petition, the CA ruled that the assailed resolutions of the Secretary of Justice were
correctly issued for the following reasons: (a) petitioner, being the Senior Vice-President of PBMI and the
signatory to the trust receipts, is criminally liable for violation of P.D. No. 115; (b) the issue raised by the
petitioner, on whether he violated P.D. No. 115 by his actuations, had already been resolved and laid to rest
in Allied Bank Corporation v. Ordoez;22 and (c) petitioner was estopped from raising the
City Prosecutors delay in the final disposition of the preliminary investigation because he failed to do so
in the DOJ.
Thus, petitioner filed the instant petition, alleging that:
I
THE COURT OF APPEALS ERRED WHEN IT DISMISSED THE PETITION ON THE GROUND THAT
THE CERTIFICATION OF NON-FORUM SHOPPING INCORPORATED THEREIN WAS DEFECTIVE.
II
THE COURT OF APPEALS ERRED WHEN IT RULED THAT NO GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WAS COMMITTED BY THE SECRETARY
OF JUSTICE IN COMING OUT WITH THE ASSAILED RESOLUTIONS.23
The Court will delve into and resolve the issues seriatim.
The petitioner avers that the CA erred in dismissing his petition on a mere technicality. He claims that the
rules of procedure should be used to promote, not frustrate, substantial justice. He insists that the Rules of
Court should be construed liberally especially when, as in this case, his substantial rights are adversely
affected; hence, the deficiency in his certification of non-forum shopping should not result in the dismissal
of his petition.

The Office of the Solicitor General (OSG) takes the opposite view, and asserts that indubitably, the
certificate of non-forum shopping incorporated in the petition before the CA is defective because it failed to
disclose essential facts about pending actions concerning similar issues and parties. It asserts that
petitioners failure to comply with the Rules of Court is fatal to his petition. The OSG cited Section 2, Rule
42, as well as the ruling of this Court in Melo v. Court of Appeals.24
We agree with the ruling of the CA that the certification of non-forum shopping petitioner incorporated in
his petition before the appellate court is defective. The certification reads:
It is further certified that as far as this Petition is concerned, no action or proceeding in the Supreme Court,
the Court of Appeals or different divisions thereof, or any tribunal or agency.
It is finally certified that if the affiant should learn that a similar action or proceeding has been filed or is
pending before the Supreme Court, the Court of Appeals, or different divisions thereof, of any other tribunal
or agency, it hereby undertakes to notify this Honorable Court within five (5) days from such notice.25
Under Section 1, second paragraph of Rule 65 of the Revised Rules of Court, the petition should be
accompanied by a sworn certification of non-forum shopping, as provided in the third paragraph of Section
3, Rule 46 of said Rules. The latter provision reads in part:
SEC. 3. Contents and filing of petition; effect of non-compliance with requirements. The petition shall
contain the full names and actual addresses of all the petitioners and respondents, a concise statement of the
matters involved, the factual background of the case and the grounds relied upon for the relief prayed for.
xxx
The petitioner shall also submit together with the petition a sworn certification that he has not theretofore
commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or
different divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, he
must state the status of the same; and if he should thereafter learn that a similar action or proceeding has
been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, or
any other tribunal or agency, he undertakes to promptly inform the aforesaid courts and other tribunal or
agency thereof within five (5) days therefrom. xxx
Compliance with the certification against forum shopping is separate from and independent of the avoidance
of forum shopping itself. The requirement is mandatory. The failure of the petitioner to comply with the
foregoing requirement shall be sufficient ground for the dismissal of the petition without prejudice, unless
otherwise provided.26
Indubitably, the first paragraph of petitioners certification is incomplete and unintelligible. Petitioner
failed to certify that he "had not heretofore commenced any other action involving the same issues in the
Supreme Court, the Court of Appeals or the different divisions thereof or any other tribunal or agency" as
required by paragraph 4, Section 3, Rule 46 of the Revised Rules of Court.
We agree with petitioners contention that the certification is designed to promote and facilitate the orderly
administration of justice, and therefore, should not be interpreted with absolute literalness. In his works on
the Revised Rules of Civil Procedure, former Supreme Court Justice Florenz Regalado states that, with
respect to the contents of the certification which the pleader may prepare, the rule of substantial compliance
may be availed of.27 However, there must be a special circumstance or compelling reason which makes the
strict application of the requirement clearly unjustified. The instant petition has not alleged any such
extraneous circumstance. Moreover, as worded, the certification cannot even be regarded as substantial
compliance with the procedural requirement. Thus, the CA was not informed whether, aside from the
petition before it, petitioner had commenced any other action involving the same issues in other tribunals.
On the merits of the petition, the CA ruled that the petitioner failed to establish that the Secretary of Justice
committed grave abuse of discretion in finding probable cause against the petitioner for violation of estafa
under Article 315, paragraph 1(b) of the Revised Penal Code, in relation to P.D. No. 115. Thus, the appellate
court ratiocinated:
Be that as it may, even on the merits, the arguments advanced in support of the petition are not persuasive
enough to justify the desired conclusion that respondent Secretary of Justice gravely abused its discretion in
coming out with his assailed Resolutions. Petitioner posits that, except for his being the Senior VicePresident of the PBMI, there is no iota of evidence that he was a participes crimines in violating the trust
receipts sued upon; and that his liability, if at all, is purely civil because he signed the said trust receipts
merely as a xxx surety and not as the entrustee. These assertions are, however, too dull that they cannot even
just dent the findings of the respondent Secretary, viz:
"x x x it is apropos to quote section 13 of PD 115 which states in part, viz:

xxx If the violation or offense is committed by a corporation, partnership, association or other judicial
entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or
other officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising
from the criminal offense.
"There is no dispute that it was the respondent, who as senior vice-president of PBM, executed the thirteen
(13) trust receipts. As such, the law points to him as the official responsible for the offense. Since a
corporation cannot be proceeded against criminally because it cannot commit crime in which personal
violence or malicious intent is required, criminal action is limited to the corporate agents guilty of an act
amounting to a crime and never against the corporation itself (West Coast Life Ins. Co. vs. Hurd, 27 Phil.
401; Times, [I]nc. v. Reyes, 39 SCRA 303). Thus, the execution by respondent of said receipts is enough to
indict him as the official responsible for violation of PD 115.
"Parenthetically, respondent is estopped to still contend that PD 115 covers only goods which are ultimately
destined for sale and not goods, like those imported by PBM, for use in manufacture. This issue has already
been settled in the Allied Banking Corporation case, supra, where he was also a party, when the Supreme
Court ruled that PD 115 is not limited to transactions in goods which are to be sold (retailed), reshipped,
stored or processed as a component or a product ultimately sold but covers failure to turn over the
proceeds of the sale of entrusted goods, or to return said goods if unsold or disposed of in accordance with
the terms of the trust receipts.
"In regard to the other assigned errors, we note that the respondent bound himself under the terms of the
trust receipts not only as a corporate official of PBM but also as its surety. It is evident that these are two (2)
capacities which do not exclude the other. Logically, he can be proceeded against in two (2) ways: first, as
surety as determined by the Supreme Court in its decision in RCBC vs. Court of Appeals, 178 SCRA 739;
and, secondly, as the corporate official responsible for the offense under PD 115, the present case is an
appropriate remedy under our penal law.
"Moreover, PD 115 explicitly allows the prosecution of corporate officers without prejudice to the civil
liabilities arising from the criminal offense thus, the civil liability imposed on respondent in RCBC vs.
Court of Appeals case is clearly separate and distinct from his criminal liability under PD 115."28
Petitioner asserts that the appellate courts ruling is erroneous because (a) the transaction between PBMI
and respondent bank is not a trust receipt transaction; (b) he entered into the transaction and was sued in his
capacity as PBMI Senior Vice-President; (c) he never received the goods as an entrustee for PBMI, hence,
could not have committed any dishonesty or abused the confidence of respondent bank; and (d) PBMI
acquired the goods and used the same in operating its machineries and equipment and not for resale.
The OSG, for its part, submits a contrary view, to wit:
34. Petitioner further claims that he is not a person responsible for the offense allegedly because "[b]eing
charged as the Senior Vice-President of Philippine Blooming Mills (PBM), petitioner cannot be held
criminally liable as the transactions sued upon were clearly entered into in his capacity as an officer of the
corporation" and that [h]e never received the goods as an entrustee for PBM as he never had or took
possession of the goods nor did he commit dishonesty nor "abuse of confidence in transacting with RCBC."
Such argument is bereft of merit.
35. Petitioners being a Senior Vice-President of the Philippine Blooming Mills does not exculpate him
from any liability. Petitioners responsibility as the corporate official of PBM who received the goods in
trust is premised on Section 13 of P.D. No. 115, which provides:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or instruments if they were not sold or
disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable
under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three
thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. If the
violation or offense is committed by a corporation, partnership, association or other juridical entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other
officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from
the criminal offense. (Emphasis supplied)
36. Petitioner having participated in the negotiations for the trust receipts and having received the goods for
PBM, it was inevitable that the petitioner is the proper corporate officer to be proceeded against by virtue of
the PBMs violation of P.D. No. 115.29

The ruling of the CA is correct.

In Mendoza-Arce v. Office of the Ombudsman (Visayas),30 this Court held that the acts of a quasi-judicial
officer may be assailed by the aggrieved party via a petition for certiorari and enjoined (a) when necessary to
afford adequate protection to the constitutional rights of the accused; (b) when necessary for the orderly
administration of justice; (c) when the acts of the officer are without or in excess of authority; (d) where the
charges are manifestly false and motivated by the lust for vengeance; and (e) when there is clearly no prima
facie case against the accused.31 The Court also declared that, if the officer conducting a preliminary
investigation (in that case, the Office of the Ombudsman) acts without or in excess of his authority and
resolves to file an Information despite the absence of probable cause, such act may be nullified by a writ of
certiorari.32
Indeed, under Section 4, Rule 112 of the 2000 Rules of Criminal Procedure,33 the Information shall be
prepared by the Investigating Prosecutor against the respondent only if he or she finds probable cause to
hold such respondent for trial. The Investigating Prosecutor acts without or in excess of his authority under
the Rule if the Information is filed against the respondent despite absence of evidence showing probable
cause therefor.34 If the Secretary of Justice reverses the Resolution of the Investigating Prosecutor who found
no probable cause to hold the respondent for trial, and orders such prosecutor to file the Information despite
the absence of probable cause, the Secretary of Justice acts contrary to law, without authority and/or in
excess of authority. Such resolution may likewise be nullified in a petition for certiorari under Rule 65 of the
Revised Rules of Civil Procedure.35
A preliminary investigation, designed to secure the respondent against hasty, malicious and oppressive
prosecution, is an inquiry to determine whether (a) a crime has been committed; and (b) whether there is
probable cause to believe that the accused is guilty thereof. It is a means of discovering the person or
persons who may be reasonably charged with a crime. Probable cause need not be based on clear and
convincing evidence of guilt, as the investigating officer acts upon probable cause of reasonable belief.
Probable cause implies probability of guilt and requires more than bare suspicion but less than evidence
which would justify a conviction. A finding of probable cause needs only to rest on evidence showing that
more likely than not, a crime has been committed by the suspect.36
However, while probable cause should be determined in a summary manner, there is a need to examine the
evidence with care to prevent material damage to a potential accuseds constitutional right to liberty and
the guarantees of freedom and fair play37 and to protect the State from the burden of unnecessary expenses in
prosecuting alleged offenses and holding trials arising from false, fraudulent or groundless charges.38
In this case, petitioner failed to establish that the Secretary of Justice committed grave abuse of discretion in
issuing the assailed resolutions. Indeed, he acted in accord with law and the evidence.
Section 4 of P.D. No. 115 defines a trust receipt transaction, thus:
Section 4. What constitutes a trust receipt transaction. A trust receipt transaction, within the meaning of this
Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another
person referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or
security interests over certain specified goods, documents or instruments, releases the same to the possession
of the entrustee upon the latters execution and delivery to the entruster of a signed document called a
"trust receipt" wherein the entrustee binds himself to hold the designated goods, documents or instruments in
trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the
obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster
or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not
otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other
purposes substantially equivalent to any of the following:
1. In case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process
the goods with the purpose of ultimate sale; Provided, That, in the case of goods delivered under trust receipt
for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over
the goods whether in its original or processed form until the entrustee has complied fully with his obligation
under the trust receipt; or (c) to load, unload, ship or otherwise deal with them in a manner preliminary or
necessary to their sale; or
2. In the case of instruments a) to sell or procure their sale or exchange; or b) to deliver them to a principal;
or c) to effect the consummation of some transactions involving delivery to a depository or register; or d) to
effect their presentation, collection or renewal.

The sale of goods, documents or instruments by a person in the business of selling goods, documents or
instruments for profit who, at the outset of the transaction, has, as against the buyer, general property rights
in such goods, documents or instruments, or who sells the same to the buyer on credit, retaining title or other
interest as security for the payment of the purchase price, does not constitute a trust receipt transaction and is
outside the purview and coverage of this Decree.
An entrustee is one having or taking possession of goods, documents or instruments under a trust receipt
transaction, and any successor in interest of such person for the purpose of payment specified in the trust
receipt agreement.39 The entrustee is obliged to: (1) hold the goods, documents or instruments in trust for the
entruster and shall dispose of them strictly in accordance with the terms and conditions of the trust receipt;
(2) receive the proceeds in trust for the entruster and turn over the same to the entruster to the extent of the
amount owing to the entruster or as appears on the trust receipt; (3) insure the goods for their total value
against loss from fire, theft, pilferage or other casualties; (4) keep said goods or proceeds thereof whether in
money or whatever form, separate and capable of identification as property of the entruster; (5) return the
goods, documents or instruments in the event of non-sale or upon demand of the entruster; and (6) observe
all other terms and conditions of the trust receipt not contrary to the provisions of the decree.40
The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released
under a trust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the
trust receipt, or to the return of the goods, documents or instruments in case of non-sale, and to the
enforcement of all other rights conferred on him in the trust receipt; provided, such are not contrary to the
provisions of the document.41
In the case at bar, the transaction between petitioner and respondent bank falls under the trust receipt
transactions envisaged in P.D. No. 115. Respondent bank imported the goods and entrusted the same to
PBMI under the trust receipts signed by petitioner, as entrustee, with the bank as entruster. The agreement
was as follows:
And in consideration thereof, I/we hereby agree to hold said goods in trust for the said BANK as its property
with liberty to sell the same within ____days from the date of the execution of this Trust Receipt and for the
Banks account, but without authority to make any other disposition whatsoever of the said goods or any
part thereof (or the proceeds) either by way of conditional sale, pledge or otherwise.
I/we agree to keep the said goods insured to their full value against loss from fire, theft, pilferage or other
casualties as directed by the BANK, the sum insured to be payable in case of loss to the BANK, with the
understanding that the BANK is, not to be chargeable with the storage premium or insurance or any other
expenses incurred on said goods.
In case of sale, I/we further agree to turn over the proceeds thereof as soon as received to the BANK, to
apply against the relative acceptances (as described above) and for the payment of any other indebtedness of
mine/ours to the BANK. In case of non-sale within the period specified herein, I/we agree to return the
goods under this Trust Receipt to the BANK without any need of demand.
I/we agree to keep the said goods, manufactured products or proceeds thereof, whether in the form of money
or bills, receivables, or accounts separate and capable of identification as property of the BANK.42
It must be stressed that P.D. No. 115 is a declaration by legislative authority that, as a matter of public
policy, the failure of person to turn over the proceeds of the sale of the goods covered by a trust receipt or to
return said goods, if not sold, is a public nuisance to be abated by the imposition of penal sanctions.43
The Court likewise rules that the issue of whether P.D. No. 115 encompasses transactions involving goods
procured as a component of a product ultimately sold has been resolved in the affirmative in Allied Banking
Corporation v. Ordoez.44 The law applies to goods used by the entrustee in the operation of its machineries
and equipment. The non-payment of the amount covered by the trust receipts or the non-return of the goods
covered by the receipts, if not sold or otherwise not disposed of, violate the entrustees obligation to pay
the amount or to return the goods to the entruster.
In Colinares v. Court of Appeals,45 the Court declared that there are two possible situations in a trust receipt
transaction. The first is covered by the provision which refers to money received under the obligation
involving the duty to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by
the provision which refers to merchandise received under the obligation to return it (devolvera) to the
owner.46 Thus, failure of the entrustee to turn over the proceeds of the sale of the goods covered by the trust
receipts to the entruster or to return said goods if they were not disposed of in accordance with the terms of
the trust receipt is a crime under P.D. No. 115, without need of proving intent to defraud. The law punishes
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of the entruster,

regardless of whether the latter is the owner or not. A mere failure to deliver the proceeds of the sale of the
goods, if not sold, constitutes a criminal offense that causes prejudice, not only to another, but more to the
public interest.47
The Court rules that although petitioner signed the trust receipts merely as Senior Vice-President of PBMI
and had no physical possession of the goods, he cannot avoid prosecution for violation of P.D. No. 115.
The penalty clause of the law, Section 13 of P.D. No. 115 reads:
Section 13. Penalty Clause. The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or instruments if they were not sold or
disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable
under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three
thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code.1wphi1 If the
violation or offense is committed by a corporation, partnership, association or other juridical entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other
officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from
the criminal offense.
The crime defined in P.D. No. 115 is malum prohibitum but is classified as estafa under paragraph 1(b),
Article 315 of the Revised Penal Code, or estafa with abuse of confidence. It may be committed by a
corporation or other juridical entity or by natural persons. However, the penalty for the crime is
imprisonment for the periods provided in said Article 315, which reads:
ARTICLE 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned
hereinbelow shall be punished by:
1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if
the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds
the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one
year for each additional 10,000 pesos; but the total penalty which may be imposed shall not exceed twenty
years. In such cases, and in connection with the accessory penalties which may be imposed and for the
purpose of the other provisions of this Code, the penalty shall be termed prision mayor or reclusion
temporal, as the case may be;
2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of the fraud is
over 6,000 pesos but does not exceed 12,000 pesos;
3rd. The penalty of arresto mayor in its maximum period to prision correccional in its minimum period, if
such amount is over 200 pesos but does not exceed 6,000 pesos; and
4th. By arresto mayor in its medium and maximum periods, if such amount does not exceed 200 pesos,
provided that in the four cases mentioned, the fraud be committed by any of the following means; xxx
Though the entrustee is a corporation, nevertheless, the law specifically makes the officers, employees or
other officers or persons responsible for the offense, without prejudice to the civil liabilities of such
corporation and/or board of directors, officers, or other officials or employees responsible for the offense.
The rationale is that such officers or employees are vested with the authority and responsibility to devise
means necessary to ensure compliance with the law and, if they fail to do so, are held criminally
accountable; thus, they have a responsible share in the violations of the law.48
If the crime is committed by a corporation or other juridical entity, the directors, officers, employees or other
officers thereof responsible for the offense shall be charged and penalized for the crime, precisely because of
the nature of the crime and the penalty therefor. A corporation cannot be arrested and imprisoned; hence,
cannot be penalized for a crime punishable by imprisonment.49 However, a corporation may be charged and
prosecuted for a crime if the imposable penalty is fine. Even if the statute prescribes both fine and
imprisonment as penalty, a corporation may be prosecuted and, if found guilty, may be fined.50
A crime is the doing of that which the penal code forbids to be done, or omitting to do what it commands. A
necessary part of the definition of every crime is the designation of the author of the crime upon whom the
penalty is to be inflicted. When a criminal statute designates an act of a corporation or a crime and
prescribes punishment therefor, it creates a criminal offense which, otherwise, would not exist and such can
be committed only by the corporation. But when a penal statute does not expressly apply to corporations, it
does not create an offense for which a corporation may be punished. On the other hand, if the State, by
statute, defines a crime that may be committed by a corporation but prescribes the penalty therefor to be
suffered by the officers, directors, or employees of such corporation or other persons responsible for the

offense, only such individuals will suffer such penalty.51 Corporate officers or employees, through whose
act, default or omission the corporation commits a crime, are themselves individually guilty of the crime.52
The principle applies whether or not the crime requires the consciousness of wrongdoing. It applies to those
corporate agents who themselves commit the crime and to those, who, by virtue of their managerial
positions or other similar relation to the corporation, could be deemed responsible for its commission, if by
virtue of their relationship to the corporation, they had the power to prevent the act.53 Moreover, all parties
active in promoting a crime, whether agents or not, are principals.54 Whether such officers or employees are
benefited by their delictual acts is not a touchstone of their criminal liability. Benefit is not an operative fact.
In this case, petitioner signed the trust receipts in question. He cannot, thus, hide behind the cloak of the
separate corporate personality of PBMI. In the words of Chief Justice Earl Warren, a corporate officer
cannot protect himself behind a corporation where he is the actual, present and efficient actor.55
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the
petitioner.
SO ORDERED.
G.R. No. 119858
April 29, 2003
EDWARD C. ONG, petitioner,
vs.
THE COURT OF APPEALS AND THE PEOPLE OF THE PHILIPPINES, respondents.
CARPIO, J.:
The Case
Petitioner Edward C. Ong ("petitioner") filed this petition for review on certiorari1 to nullify the
Decision2 dated 27 October 1994 of the Court of Appeals in CA-G.R. C.R. No. 14031, and its
Resolution3 dated 18 April 1995, denying petitioner's motion for reconsideration. The assailed Decision
affirmed in toto petitioner's conviction4 by the Regional Trial Court of Manila, Branch 35,5 on two counts
of estafa for violation of the Trust Receipts Law,6 as follows:
WHEREFORE, judgment is rendered: (1) pronouncing accused EDWARD C. ONG guilty beyond
reasonable doubt on two counts, as principal on both counts, of ESTAFA defined under No. 1 (b) of Article
315 of the Revised Penal Code in relation to Section 13 of Presidential Decree No. 115, and penalized under
the 1st paragraph of the same Article 315, and sentenced said accused in each count to TEN (10) YEARS
of prision mayor, as minimum, to TWENTY (20) YEARS of reclusion temporal, as maximum;
(2) ACQUITTING accused BENITO ONG of the crime charged against him, his guilt thereof not having
been established by the People beyond reasonable doubt;
(3) Ordering accused Edward C. Ong to pay private complainant Solid Bank Corporation the aggregate sum
of P2,976,576.37 as reparation for the damages said accused caused to the private complainant, plus the
interest thereon at the legal rate and the penalty of 1% per month, both interest and penalty computed from
July 15, 1991, until the principal obligation is fully paid;
(4) Ordering Benito Ong to pay, jointly and severally with Edward C. Ong, the private complainant the legal
interest and the penalty of 1% per month due and accruing on the unpaid amount of P1,449,395.71, still
owing to the private offended under the trust receipt Exhibit C, computed from July 15, 1991, until the said
unpaid obligation is fully paid;
(5) Ordering accused Edward C. Ong to pay the costs of these two actions.
SO ORDERED.7
The Charge
Assistant City Prosecutor Dina P. Teves of the City of Manila charged petitioner and Benito Ong with two
counts of estafa under separate Informations dated 11 October 1991.
In Criminal Case No. 92-101989, the Information indicts petitioner and Benito Ong of the crime
of estafacommitted as follows:
That on or about July 23, 1990, in the City of Manila, Philippines, the said accused, representing ARMAGRI
International Corporation, conspiring and confederating together did then and there willfully, unlawfully and
feloniously defraud the SOLIDBANK Corporation represented by its Accountant, DEMETRIO LAZARO, a
corporation duly organized and existing under the laws of the Philippines located at Juan Luna Street,
Binondo, this City, in the following manner, to wit: the said accused received in trust from said
SOLIDBANK Corporation the following, to wit:
10,000 bags of urea

valued at P2,050,000.00 specified in a Trust Receipt Agreement and covered by a Letter of Credit No. DOM
GD 90-009 in favor of the Fertiphil Corporation; under the express obligation on the part of the said accused
to account for said goods to Solidbank Corporation and/or remit the proceeds of the sale thereof within the
period specified in the Agreement or return the goods, if unsold immediately or upon demand; but said
accused, once in possession of said goods, far from complying with the aforesaid obligation failed and
refused and still fails and refuses to do so despite repeated demands made upon him to that effect and with
intent to defraud, willfully, unlawfully and feloniously misapplied, misappropriated and converted the same
or the value thereof to his own personal use and benefit, to the damage and prejudice of the said Solidbank
Corporation in the aforesaid amount of P2,050,000.00 Philippine Currency.
Contrary to law.
In Criminal Case No. 92-101990, the Information likewise charges petitioner of the crime
of estafa committed as follows:
That on or about July 6, 1990, in the City of Manila, Philippines, the said accused, representing ARMAGRI
International Corporation, did then and there willfully, unlawfully and feloniously defraud the SOLIDBANK
Corporation represented by its Accountant, DEMETRIO LAZARO, a corporation duly organized and
existing under the laws of the Philippines located at Juan Luna Street, Binondo, this City, in the following
manner, to wit: the said accused received in trust from said SOLIDBANK Corporation the following goods,
to wit:
125 pcs. Rear diff. assy RNZO 49"
50 pcs. Front & Rear diff assy. Isuzu Elof
85 units 1-Beam assy. Isuzu Spz
all valued at P2,532,500.00 specified in a Trust Receipt Agreement and covered by a Domestic Letter of
Credit No. DOM GD 90-006 in favor of the Metropole Industrial Sales with address at P.O. Box AC 219,
Quezon City; under the express obligation on the part of the said accused to account for said goods to
Solidbank Corporation and/or remit the proceeds of the sale thereof within the period specified in the
Agreement or return the goods, if unsold immediately or upon demand; but said accused, once in possession
of said goods, far from complying with the aforesaid obligation failed and refused and still fails and refuses
to do so despite repeated demands made upon him to that effect and with intent to defraud, willfully,
unlawfully and feloniously misapplied, misappropriated and converted the same or the value thereof to his
own personal use and benefit, to the damage and prejudice of the said Solidbank Corporation in the
aforesaid amount of P2,532,500.00 Philippine Currency.
Contrary to law.
Arraignment and Plea
With the assistance of counsel, petitioner and Benito Ong both pleaded not guilty when arraigned.
Thereafter, trial ensued.
Version of the Prosecution
The prosecution's evidence disclosed that on 22 June 1990, petitioner, representing ARMAGRI International
Corporation8 ("ARMAGRI"), applied for a letter of credit for P2,532,500.00 with SOLIDBANK
Corporation ("Bank") to finance the purchase of differential assemblies from Metropole Industrial Sales. On
6 July 1990, petitioner, representing ARMAGRI, executed a trust receipt9 acknowledging receipt from the
Bank of the goods valued at P2,532,500.00.
On 12 July 1990, petitioner and Benito Ong, representing ARMAGRI, applied for another letter of credit for
P2,050,000.00 to finance the purchase of merchandise from Fertiphil Corporation. The Bank approved the
application, opened the letter of credit and paid to Fertiphil Corporation the amount of P2,050,000.00. On 23
July 1990, petitioner, signing for ARMAGRI, executed another trust receipt10 in favor of the Bank
acknowledging receipt of the merchandise.
Both trust receipts contained the same stipulations. Under the trust receipts, ARMAGRI undertook to
account for the goods held in trust for the Bank, or if the goods are sold, to turn over the proceeds to the
Bank. ARMAGRI also undertook the obligation to keep the proceeds in the form of money, bills or
receivables as the separate property of the Bank or to return the goods upon demand by the Bank, if not sold.
In addition, petitioner executed the following additional undertaking stamped on the dorsal portion of both
trust receipts:
I/We jointly and severally agreed to any increase or decrease in the interest rate which may occur after July
1, 1981, when the Central Bank floated the interest rates, and to pay additionally the penalty of 1% per

month until the amount/s or installment/s due and unpaid under the trust receipt on the reverse side hereof
is/are fully paid.11
Petitioner signed alone the foregoing additional undertaking in the Trust Receipt for P2,253,500.00, while
both petitioner and Benito Ong signed the additional undertaking in the Trust Receipt for P2,050,000.00.
When the trust receipts became due and demandable, ARMAGRI failed to pay or deliver the goods to the
Bank despite several demand letters.12 Consequently, as of 31 May 1991, the unpaid account under the first
trust receipt amounted to P1,527,180.66,13 while the unpaid account under the second trust receipt amounted
to P1,449,395.71.14
Version of the Defense
After the prosecution rested its case, petitioner and Benito Ong, through counsel, manifested in open court
that they were waiving their right to present evidence. The trial court then considered the case submitted for
decision.15
The Ruling of the Court of Appeals
Petitioner appealed his conviction to the Court of Appeals. On 27 October 1994, the Court of Appeals
affirmed the trial court's decision in toto. Petitioner filed a motion for reconsideration but the same was
denied by the Court of Appeals in the Resolution dated 18 April 1995.
The Court of Appeals held that although petitioner is neither a director nor an officer of ARMAGRI, he
certainly comes within the term "employees or other x x x persons therein responsible for the offense" in
Section 13 of the Trust Receipts Law. The Court of Appeals explained as follows:
It is not disputed that appellant transacted with the Solid Bank on behalf of ARMAGRI. This is because the
Corporation cannot by itself transact business or sign documents it being an artificial person. It has to
accomplish these through its agents. A corporation has a personality distinct and separate from those acting
on its behalf. In the fulfillment of its purpose, the corporation by necessity has to employ persons to act on
its behalf.
Being a mere artificial person, the law (Section 13, P.D. 115) recognizes the impossibility of imposing the
penalty of imprisonment on the corporation itself. For this reason, it is the officers or employees or other
persons whom the law holds responsible.16
The Court of Appeals ruled that what made petitioner liable was his failure to account to the entruster Bank
what he undertook to perform under the trust receipts. The Court of Appeals held that ARMAGRI, which
petitioner represented, could not itself negotiate the execution of the trust receipts, go to the Bank to receive,
return or account for the entrusted goods. Based on the representations of petitioner, the Bank accepted the
trust receipts and, consequently, expected petitioner to return or account for the goods entrusted.17
The Court of Appeals also ruled that the prosecution need not prove that petitioner is occupying a position in
ARMAGRI in the nature of an officer or similar position to hold him the "person(s) therein responsible for
the offense." The Court of Appeals held that petitioner's admission that his participation was merely
incidental still makes him fall within the purview of the law as one of the corporation's "employees or other
officials or persons therein responsible for the offense." Incidental or not, petitioner was then acting on
behalf of ARMAGRI, carrying out the corporation's decision when he signed the trust receipts.
The Court of Appeals further ruled that the prosecution need not prove that petitioner personally received
and misappropriated the goods subject of the trust receipts. Evidence of misappropriation is not required
under the Trust Receipts Law. To establish the crime of estafa, it is sufficient to show failure by the entrustee
to turn over the goods or the proceeds of the sale of the goods covered by a trust receipt. Moreover, the bank
is not obliged to determine if the goods came into the actual possession of the entrustee. Trust receipts are
issued to facilitate the purchase of merchandise. To obligate the bank to examine the fact of actual
possession by the entrustee of the goods subject of every trust receipt will greatly impede commercial
transactions.
Hence, this petition.
The Issues
Petitioner seeks to reverse his conviction by contending that the Court of Appeals erred:
1. IN RULING THAT, BY THE MERE CIRCUMSTANCE THAT PETITIONER ACTED AS AGENT AND
SIGNED FOR THE ENTRUSTEE CORPORATION, PETITIONER WAS NECESSARILY THE ONE
RESPONSIBLE FOR THE OFFENSE; AND
2. IN CONVICTING PETITIONER UNDER SPECIFICATIONS NOT ALLEGED IN THE
INFORMATION.
The Ruling of the Court

The Court sustains the conviction of petitioner.

First Assigned Error: Petitioner comes
within the purview of Section 13 of the Trust Receipts Law.
Petitioner contends that the Court of Appeals erred in finding him liable for the default of ARMAGRI,
arguing that in signing the trust receipts, he merely acted as an agent of ARMAGRI. Petitioner asserts that
nowhere in the trust receipts did he assume personal responsibility for the undertakings of ARMAGRI which
was the entrustee.
Petitioner's arguments fail to persuade us.
The pivotal issue for resolution is whether petitioner comes within the purview of Section 13 of the Trust
Receipts Law which provides:
x x x . If the violation is committed by a corporation, partnership, association or other juridical entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other
officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from
the offense. (Emphasis supplied)
We hold that petitioner is a person responsible for violation of the Trust Receipts Law.
The relevant penal provision of the Trust Receipts Law reads:
SEC. 13. Penalty Clause. - The failure of the entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or instruments if they were not sold or
disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable
under the provisions of Article Three Hundred and Fifteen, Paragraph One (b), of Act Numbered Three
Thousand Eight Hundred and Fifteen, as amended, otherwise known as the Revised Penal Code. If the
violation or offense is committed by a corporation, partnership, association or other juridical entities, the
penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other
officials or persons therein responsible for the offense, without prejudice to the civil liabilities arising from
the criminal offense. (Emphasis supplied)
The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over the proceeds of the sale of
the goods, or (2) return the goods covered by the trust receipts if the goods are not sold.18 The mere failure to
account or return gives rise to the crime which is malum prohibitum.19 There is no requirement to prove
intent to defraud.20
The Trust Receipts Law recognizes the impossibility of imposing the penalty of imprisonment on a
corporation. Hence, if the entrustee is a corporation, the law makes the officers or employees or other
persons responsible for the offense liable to suffer the penalty of imprisonment. The reason is obvious:
corporations, partnerships, associations and other juridical entities cannot be put to jail. Hence, the criminal
liability falls on the human agent responsible for the violation of the Trust Receipts Law.
In the instant case, the Bank was the entruster while ARMAGRI was the entrustee. Being the entrustee,
ARMAGRI was the one responsible to account for the goods or its proceeds in case of sale. However, the
criminal liability for violation of the Trust Receipts Law falls on the human agent responsible for the
violation. Petitioner, who admits being the agent of ARMAGRI, is the person responsible for the offense for
two reasons. First, petitioner is the signatory to the trust receipts, the loan applications and the letters of
credit. Second, despite being the signatory to the trust receipts and the other documents, petitioner did not
explain or show why he is not responsible for the failure to turn over the proceeds of the sale or account for
the goods covered by the trust receipts.
The Bank released the goods to ARMAGRI upon execution of the trust receipts and as part of the loan
transactions of ARMAGRI. The Bank had a right to demand from ARMAGRI payment or at least a return of
the goods. ARMAGRI failed to pay or return the goods despite repeated demands by the Bank.
It is a well-settled doctrine long before the enactment of the Trust Receipts Law, that the failure to account,
upon demand, for funds or property held in trust is evidence of conversion or misappropriation.21 Under the
law, mere failure by the entrustee to account for the goods received in trust constitutes estafa. The Trust
Receipts Law punishes dishonesty and abuse of confidence in the handling of money or goods to the
prejudice of public order.22 The mere failure to deliver the proceeds of the sale or the goods if not sold
constitutes a criminal offense that causes prejudice not only to the creditor, but also to the public
interest.23 Evidently, the Bank suffered prejudice for neither money nor the goods were turned over to the
Bank.

The Trust Receipts Law expressly makes the corporation's officers or employees or other persons therein
responsible for the offense liable to suffer the penalty of imprisonment. In the instant case, petitioner signed
the two trust receipts on behalf of ARMAGRI 24 as the latter could only act through its agents. When
petitioner signed the trust receipts, he acknowledged receipt of the goods covered by the trust receipts. In
addition, petitioner was fully aware of the terms and conditions stated in the trust receipts, including the
obligation to turn over the proceeds of the sale or return the goods to the Bank, to wit:
Received, upon the TRUST hereinafter mentioned from SOLIDBANK CORPORATION (hereafter referred
to as the BANK), the following goods and merchandise, the property of said BANK specified in the bill of
lading as follows: x x x and in consideration thereof, I/we hereby agree to hold said goods in Trust for the
said BANK and as its property with liberty to sell the same for its account but without authority to make any
other disposition whatsoever of the said goods or any part thereof (or the proceeds thereof) either by way of
conditional sale, pledge, or otherwise.
In case of sale I/we agree to hand the proceeds as soon as received to the BANK to apply against the relative
acceptance (as described above) and for the payment of any other indebtedness of mine/ours to
SOLIDBANK CORPORATION.
xxx
xxx
xxx.
I/we agree to keep said goods, manufactured products, or proceeds thereof, whether in the form of money or
bills, receivables, or accounts, separate and capable of identification as the property of the BANK.
I/we further agree to return the goods, documents, or instruments in the event of their non-sale, upon
demand or within ____ days, at the option of the BANK.
xxx
xxx
xxx. (Emphasis supplied)25
True, petitioner acted on behalf of ARMAGRI. However, it is a well-settled rule that the law of agency
governing civil cases has no application in criminal cases. When a person participates in the commission of
a crime, he cannot escape punishment on the ground that he simply acted as an agent of another party.26 In
the instant case, the Bank accepted the trust receipts signed by petitioner based on petitioner's
representations. It is the fact of being the signatory to the two trust receipts, and thus a direct participant to
the crime, which makes petitioner a person responsible for the offense.
Petitioner could have raised the defense that he had nothing to do with the failure to account for the proceeds
or to return the goods. Petitioner could have shown that he had severed his relationship with ARMAGRI
prior to the loss of the proceeds or the disappearance of the goods. Petitioner, however, waived his right to
present any evidence, and thus failed to show that he is not responsible for the violation of the Trust Receipts
Law.
There is no dispute that on 6 July 1990 and on 23 July 1990, petitioner signed the two trust receipts27 on
behalf of ARMAGRI. Petitioner, acting on behalf of ARMAGRI, expressly acknowledged receipt of the
goods in trust for the Bank. ARMAGRI failed to comply with its undertakings under the trust receipts. On
the other hand, petitioner failed to explain and communicate to the Bank what happened to the goods despite
repeated demands from the Bank. As of 13 May 1991, the unpaid account under the first and second trust
receipts amounted to P1,527,180.60 and P1,449,395.71, respectively.28
Second Assigned Error: Petitioner's conviction under the
allegations in the two Informations for Estafa.
Petitioner argues that he cannot be convicted on a new set of facts not alleged in the Informations. Petitioner
claims that the trial court's decision found that it was ARMAGRI that transacted with the Bank, acting
through petitioner as its agent. Petitioner asserts that this contradicts the specific allegation in the
Informations that it was petitioner who was constituted as the entrustee and was thus obligated to account
for the goods or its proceeds if sold. Petitioner maintains that this absolves him from criminal liability.
We find no merit in petitioner's arguments.
Contrary to petitioner's assertions, the Informations explicitly allege that petitioner, representing
ARMAGRI, defrauded the Bank by failing to remit the proceeds of the sale or to return the goods despite
demands by the Bank, to the latter's prejudice. As an essential element of estafa with abuse of confidence, it
is sufficient that the Informations specifically allege that the entrustee received the goods. The Informations
expressly state that ARMAGRI, represented by petitioner, received the goods in trust for the Bank under the
express obligation to remit the proceeds of the sale or to return the goods upon demand by the Bank. There
is no need to allege in the Informations in what capacity petitioner participated to hold him responsible for
the offense. Under the Trust Receipts Law, it is sufficient to allege and establish the failure of ARMAGRI,
whom petitioner represented, to remit the proceeds or to return the goods to the Bank.

When petitioner signed the trust receipts, he claimed he was representing ARMAGRI. The corporation
obviously acts only through its human agents and it is the conduct of such agents which the law must
deter.29 The existence of the corporate entity does not shield from prosecution the agent who knowingly and
intentionally commits a crime at the instance of a corporation.30
Penalty for the crime of Estafa.
The penalty for the crime of estafa is prescribed in Article 315 of the Revised Penal Code, as follows:
1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if
the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds
the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period, adding one
year for each additional 10,000 pesos; but the total penalty which may be imposed should not exceed twenty
years. x x x .
In the instant case, the amount of the fraud in Criminal Case No. 92-101989 is P1,527,180.66. In Criminal
Case No. 92-101990, the amount of the fraud is P1,449,395.71. Since the amounts of the fraud in
each estafa exceeds P22,000.00, the penalty of prision correccional maximum to prision mayor minimum
should be imposed in its maximum period as prescribed in Article 315 of the Revised Penal Code. The
maximum indeterminate sentence should be taken from this maximum period which has a duration of 6
years, 8 months and 21 days to 8 years. One year is then added for each additional P10,000.00, but the total
penalty should not exceed 20 years. Thus, the maximum penalty for each count of estafa in this case should
be 20 years.
Under the Indeterminate Sentence Law, the minimum indeterminate sentence can be anywhere within the
range of the penalty next lower in degree to the penalty prescribed by the Code for the offense. The
minimum range of the penalty is determined without first considering any modifying circumstance attendant
to the commission of the crime and without reference to the periods into which it may be subdivided.31 The
modifying circumstances are considered only in the imposition of the maximum term of the indeterminate
sentence.32 Since the penalty prescribed in Article 315 is prision correccional maximum to prision
mayor minimum, the penalty next lower in degree would be prision correccional minimum to medium.
Thus, the minimum term of the indeterminate penalty should be anywhere within 6 months and 1 day to 4
years and 2 months.33
Accordingly, the Court finds a need to modify in part the penalties imposed by the trial court. The minimum
penalty for each count of estafa should be reduced to four (4) years and two (2) months of prision
correccional.
As for the civil liability arising from the criminal offense, the question is whether as the signatory for
ARMAGRI, petitioner is personally liable pursuant to the provision of Section 13 of the Trust Receipts Law.
In Prudential Bank v. Intermediate Appellate Court,34 the Court discussed the imposition of civil liability for
violation of the Trust Receipts Law in this wise:
It is clear that if the violation or offense is committed by a corporation, partnership, association or other
juridical entities, the penalty shall be imposed upon the directors, officers, employees or other officials or
persons responsible for the offense. The penalty referred to is imprisonment, the duration of which would
depend on the amount of the fraud as provided for in Article 315 of the Revised Penal Code. The reason for
this is obvious: corporation, partnership, association or other juridical entities cannot be put in jail. However,
it is these entities which are made liable for the civil liabilities arising from the criminal offense. This is the
import of the clause 'without prejudice to the civil liabilities arising from the criminal offense'. (Emphasis
supplied)
In Prudential Bank, the Court ruled that the person signing the trust receipt for the corporation is not
solidarily liable with the entrustee-corporation for the civil liability arising from the criminal offense. He
may, however, be personally liable if he bound himself to pay the debt of the corporation under a separate
contract of surety or guaranty.
In the instant case, petitioner did not sign in his personal capacity the solidary guarantee clause 35 found on
the dorsal portion of the trust receipts. Petitioner placed his signature after the typewritten words "ARMCO
INDUSTRIAL CORPORATION" found at the end of the solidary guarantee clause. Evidently, petitioner did
not undertake to guaranty personally the payment of the principal and interest of ARMAGRI's debt under
the two trust receipts.
In contrast, petitioner signed the stamped additional undertaking without any indication he was signing for
ARMAGRI. Petitioner merely placed his signature after the additional undertaking. Clearly, what petitioner

signed in his personal capacity was the stamped additional undertaking to pay a monthly penalty of 1% of
the total obligation in case of ARMAGRI's default.
In the additional undertaking, petitioner bound himself to pay "jointly and severally" a monthly penalty of
1% in case of ARMAGRI's default. 35 Thus, petitioner is liable to the Bank for the stipulated monthly
penalty of 1% on the outstanding amount of each trust receipt. The penalty shall be computed from 15 July
1991, when petitioner received the demand letter, 36 until the debt is fully paid.
WHEREFORE, the assailed Decision is AFFIRMED with MODIFICATION. In Criminal Case No. 92101989 and in Criminal Case No. 92-101990, for each count of estafa, petitioner EDWARD C. ONG is
sentenced to an indeterminate penalty of imprisonment from four (4) years and two (2) months of prision
correctional as MINIMUM, to twenty (20) years of reclusion temporal as MAXIMUM. Petitioner is ordered
to pay SOLIDBANK CORPORATION the stipulated penalty of 1% per month on the outstanding balance of
the two trust receipts to be computed from 15 July 1991 until the debt is fully paid.
SO ORDERED.
Davide, Jr., C .J ., Vitug, Ynares-Santiago and Azcuna, JJ ., concur.
ABS-CBN BROADCASTING CORPORATION, petitioners, vs. HONORABLE COURT OF
APPEALS, REPUBLIC BROADCASTING CORP., VIVA PRODUCTIONS, INC., and
VICENTE DEL ROSARIO, respondents.
DECISION
DAVIDE, JR., C.J.:
In this petition for review on certiorari, petitioners ABS-CBN Broadcasting Corp. (hereinafter ABSCBN) seeks to reverse and set aside the decision[1] of 31 October 1996 and the resolution[2] of 10 March
1997 of the Court of Appeals in CA-G.R. CV No. 44125. The former affirmed with modification the
decision[3] of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case No.
Q-12309. The latter denied the motion to reconsider the decision of 31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement (Exh. A) whereby Viva gave ABSCBN an exclusive right to exhibit some Viva films. Sometime in December 1991, in accordance with
paragraph 2.4 [sic] of said agreement stating that1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast
under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be
exercised by ABS-CBN from the actual offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a
list of three (3) film packages (36 title) from which ABS-CBN may exercise its right of first refusal under
the afore-said agreement (Exhs. 1 par. 2, 2, 2-A and 2-B Viva). ABS-CBN, however through Mrs. Concio,
can tick off only ten (10) titles (from the list) we can purchase (Exh. 3 Viva) and therefore did not accept
said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the subject of the case at
bar except the film Maging Sino Ka Man.
For further enlightenment, this rejection letter dated January 06, 1992 (Exh 3 Viva) is hereby quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to express my difficulty in
recommending the purchase of the three film packages you are offering ABS-CBN.
From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I hope you
will understand my position. Most of the action pictures in the list do not have big action stars in the
cast. They are not for primetime. In line with this I wish to mention that I have not scheduled for telecast
several action pictures in our very first contract because of the cheap production value of these movies as
well as the lack of big action stars. As a film producer, I am sure you understand what I am trying to say as
Viva produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in out
non-primetime slots. We have to cover the amount that was paid for these movies because as you very well
know that non-primetime advertising rates are very low. These are the unaired titles in the first contract.
1. Kontra Persa [sic]
2. Raider Platoon
3. Underground guerillas

4. Tiger Command
5. Boy de Sabog
6. lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been rejected because of the ruling of
MTRCB to have them aired at 9:00 p.m. due to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva
movies produced last year, I have quite an attractive offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBNs Ms. Concio, with a list consisting of
52 original movie titles (i.e., not yet aired on television) including the 14 titles subject of the present case, as
well as 104 re-runs (previously aired on television) from which ABS-CBN may choose another 52 titles, as a
total of 156 titles, proposing to sell to ABS-CBN airing rights over this package of 52 originals and 52 reruns for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of television
spots (Exh. 4 to 4-C Viva; 9 Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBNs general manager, Eugenio Lopez III, met at the
Tamarind Grill Restaurant in Quezon City to discuss the package proposal of VIVA. What transpired in that
lunch meeting is the subject of conflicting versions. Mr. Lopez testified that he and Mr. Del Rosario
allegedly agreed that ABS-CBN was granted exclusive film rights to fourteen (14) films for a total
consideration of P36 million; that he allegedly put this agreement as to the price and number of films in a
napkin and signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992).On the
other hand. Del Rosario denied having made any agreement with Lopez regarding the 14 Viva films; denied
the existence of a napkin in which Lopez wrote something; and insisted that what he and Lopez discussed at
the lunch meeting was Vivas film package offer of 104 films (52 originals and 52 re-runs) for a total price
of P60 million. Mr. Lopez promising [sic]to make a counter proposal which came in the form of a proposal
contract Annex C of the complaint (Exh. 1 Viva; Exh C ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance
discussed the terms and conditions of Vivas offer to sell the 104 films, after the rejection of the same
package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary , a handwritten note from Ms.
Concio, (Exh. 5 Viva), which reads: Heres the draft of the contract. I hope you find everything in order, to
which was attached a draft exhibition agreement (Exh. C ABS-CBN; Exh. 9 Viva p. 3) a counter-proposal
covering 53 films, 52 of which came from the list sent by defendant Del Rosario and one film was added by
Ms. Concio, for a consideration of P35 million. Exhibit C provides that ABS-CBN is granted film rights to
53 films and contains a right of first refusal to 1992 Viva Films. The said counter proposal was however
rejected by Vivas Board of Directors [in the] evening of the same day, April 7, 1992, as Viva would not sell
anything less than the package of 104 films for P60 million pesos (Exh. 9 Viva), and such rejection was
relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings
defendant Del Rosario and Vivas President Teresita Cruz, in consideration of P60 million, signed a letter of
agreement dated April 24, 1992, granting RBS the exclusive right to air 104 Viva-produced and/or acquired
films (Exh. 7-A - RBS; Exh. 4 RBS) including the fourteen (14) films subject of the present case.[4]
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer
for a writ of preliminary injunction and/or temporary restraining order against private respondents Republic
Broadcasting Corporation[5] (hereafter RBS), Viva Production (hereafter VIVA), and Vicente del
Rosario. The complaint was docketed as Civil Case No. Q-92-12309.
On 28 May 1992, the RTC issued a temporary restraining order[6] enjoining private respondents from
proceeding with the airing, broadcasting, and televising of the fourteen VIVA films subject of the
controversy, starting with the film Maging Sino Ka Man, which was scheduled to be shown on private
respondent RBS channel 7 at seven oclock in the evening of said date.

On 17 June 1992, after appropriate proceedings, the RTC issued an order[7] directing the issuance of a
writ of preliminary injunction upon ABS-CBNs posting of a P35 million bond. ABS-CBN moved for the
reduction of the bond,[8] while private respondents moved for reconsideration of the order and offered to put
up a counterbond.[9]
In the meantime, private respondents filed separate answer with counterclaim.[10] RBS also set up a
cross-claim against VIVA.
On 3 August 1992, the RTC issued an order[11] dissolving the writ of preliminary injunction upon the
posting by RBS of a P30 million counterbond to answer for whatever damages ABS-CBN might suffer by
virtue of such dissolution. However, it reduced petitioners injunction bond to P15 million as a condition
precedent for the reinstatement of the writ of preliminary injunction should private respondents be unable to
post a counterbond.
At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the court, agreed to explore the
possibility of an amicable settlement. In the meantime, RBS prayed for and was granted reasonable time
within which to put up a P30 million counterbond in the event that no settlement would be reached.
As the parties failed to enter into an amicable settlement, RBS posted on 1 October 1992 a counterbond,
which the RTC approved in its Order of 15 October 1992.[13]
On 19 October 1992, ABS-CBN filed a motion for reconsideration[14] of the 3 August and 15 October
1992 Orders, which RBS opposed.[15]
On 29 October, the RTC conducted a pre-trial.[16]
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a
petition[17] challenging the RTCs Order of 3 August and 15 October 1992 and praying for the issuance of a
writ of preliminary injunction to enjoin the RTC from enforcing said orders. The case was docketed as CAG.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining order[18] to enjoin the airing,
broadcasting, and televising of any or all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a decision[19] dismissing the petition in CAG.R. SP No. 29300 for being premature. ABS-CBN challenged the dismissal in a petition for review filed
with this Court on 19 January 1993, which was docketed s G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-9212309. Thereafter, on 28 April 1993, it rendered a decision[20] in favor of RBS and VIVA and against ABSCBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgment is rendered in favor of
defendants and against the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00 the amount of premium paid by RBS to the surety which issued defendants
RBSs bond to lift the injunction;
b) P191,843.00 for the amount of print advertisement for Maging Sino Ka Man in various
newspapers;
c) Attorneys fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of
reasonable attorneys fees.
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged
agreement between Lopez III and Del Rosario was subject to the approval of the VIVA Board of Directors,
and said agreement was disapproved during the meeting of the Board on 7 April 1992. Hence, there was no
basis for ABS-CBNs demand that VIVA signed the 1992 Film Exhibition Agreement.Furthermore, the right
of first refusal under the 1990 Film Exhibition Agreement had previously been exercised per Ms. Concios
letter to Del Rosario ticking off ten titles acceptable to them, which would have made the 1992 agreement an
entirely new contract.
On 21 June 1993, this Court denied[21] ABS-CBNs petition for review in G.R. No. 108363, as no
reversible error was committed by the Court of Appeals in its challenged decision and the case had become

moot and academic in view of the dismissal of the main action by the court a quo in its decision of 28 April
1993.
Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of Appeals claiming that there was a
perfected contract between ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the
subject films. Private respondents VIVA and Del Rosario also appealed seeking moral and exemplary
damages and additional attorneys fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between
ABS-CBN and VIVA had not been perfected, absent the approval by the VIVA Board of Directors of
whatever Del Rosario, its agent, might have agreed with Lopez III. The appellate court did not even believe
ABS-CBNs evidence that Lopez III actually wrote down such an agreement on a napkin, as the same was
never produced in court. It likewise rejected ABS-CBNs insistence on its right of first refusal and
ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered
into between Appellant ABS-CBN and appellant VIVA under Exhibit A in 1990 and that parag. 1.4 thereof
provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV telecast
under such terms as may be agreed upon by the parties hereto, provided, however, that such right shall be
exercised by ABS-CBN within a period of fifteen (15) days from the actual offer in writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subjected to such
terms as may be agreed upon by the parties thereto, and that the said right shall be exercised by ABS-CBN
within fifteen (15) days from the actual offer in writing.
Said parag. 1.4 of the agreement Exhibit A on the right of first refusal did not fix the price of the film right to
the twenty-four (24) films, nor did it specify the terms thereof. The same are still left to be agreed upon by
the parties.
In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick off ten
(10) films, and the draft contract Exhibit C accepted only fourteen (14) films, while parag. 1.4 of Exhibit A
speaks of the next twenty-four (24) films.
The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-B; Records, pp. 86-88; Decision, p.
11, Records, p. 1150), when the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN.The Vice
President of ABS-CBN, Mrs. Charo Santos-Concio, sent a letter dated January 6, 1992 (Exhibit 3, Records,
p. 89) where ABS-CBN exercised its right of refusal by rejecting the offer of VIVA. As aptly observed by
the trial court, with the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first
refusal. And even if We reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when
another list was sent to ABS-CBN after the letter of Mrs. Concio, still the fifteen (15) day period within
which ABS-CBN shall exercise its right of first refusal has already expired.[22]
Accordingly, respondent court sustained the award factual damages consisting in the cost of print
advertisements and the premium payments for the counterbond, there being adequate proof of the pecuniary
loss which RBS has suffered as a result of the filing of the complaint by ABS-CBN. As to the award of
moral damages, the Court of Appeals found reasonable basis therefor, holding that RBSs reputation was
debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-showing of the
film Maging Sino Ka Man. Respondent court also held that exemplary damages were correctly imposed by
way of example or correction for the public good in view of the filing of the complaint despite petitioners
knowledge that the contract with VIVA had not been perfected. It also upheld the award of attorneys fees,
reasoning that with ABS-CBNs act of instituting Civil Case No. Q-92-12309, RBS was unnecessarily forced
to litigate. The appellate court, however, reduced the awards of moral damages to P 2 million, exemplary
damages to P2 million, and attorneys fees to P500,000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosarios appeal because it was
RBS and not VIVA which was actually prejudiced when the complaint was filed by ABS-CBN.
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending
that the Court of Appeals gravely erred in
I
RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER
AND PRIVATE RESPONDENT VIVA NOTWITHSTANDING PREPONFERANCE OF
EVIDENCE ADDUCED BY PETITIONER TO THE CONTRARY.
II

IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE

RESPONDENT RBS.
III
IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE
RESPONDENT RBS.
IV
IN AWARDING ATORNEYS FEES OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under
the 1990 Film Exhibition Agreement, as it had chosen only ten titles from the first list. It insists that we give
credence to Lopezs testimony that he and Del Rosario met at the Tamarind Grill Restaurant, discussed the
terms and conditions of the second list (the 1992 Film Exhibition Agreement) and upon agreement thereon,
wrote the same on a paper napkin. It also asserts that the contract has already been effective, as the elements
thereof, namely, consent, object, and consideration were established. It then concludes that the Court of
Appeals pronouncements were not supported by law and jurisprudence, as per our decision of 1 December
1995 in Limketkai Sons Milling, Inc. v. Court of Appeals,[23] which cited Toyota Shaw, Inc. v. Court of
Appeals;[24] Ang Yu Asuncion v. Court of Appeals,[25] and Villonco Realty Company v. Bormaheco, Inc.[26]
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the
premium on the counterbond of its own volition in order to negate the injunction issued by the trial court
after the parties had ventilated their respective positions during the hearings for the purpose. The filing of
the counterbond was an option available to RBS, but it can hardly be argued that ABS-CBN compelled RBS
to incur such expense. Besides, RBS had another available option, i.e., move for the dissolution of the
injunction; or if it was determined to put up a counterbond, it could have presented a cash bond. Furthermore
under Article 2203 of the Civil Code, the party suffering loss injury is also required to exercise the diligence
of a good father of a family to minimize the damages resulting from the act or omission. As regards the cost
of print advertisements, RBS had not convincingly established that this was a loss attributable to the nonshowing of Maging Sino Ka Man; on the contrary, it was brought out during trial that with or without the
case or injunction, RBS would have spent such an amount to generate interest in the film.
ABS-CBN further contends that there was no other clear basis for the awards of moral and exemplary
damages. The controversy involving ABS-CBN and RBS did not in any way originate from business
transaction between them. The claims for such damages did not arise from any contractual dealings or from
specific acts committed by ABS-CBN against RBS that may be characterized as wanton, fraudulent, or
reckless; they arose by virtue only of the filing of the complaint. An award of moral and exemplary damages
is not warranted where the record is bereft of any proof that a party acted maliciously or in bad faith in filing
an action.[27] In any case, free resort to courts for redress of wrongs is a matter of public policy. The law
recognizes the right of every one to sue for that which he honestly believes to be his right without fear of
standing trial for damages where by lack of sufficient evidence, legal technicalities, or a different
interpretation of the laws on the matter, the case would lose ground.[28]One who, makes use of his own legal
right does no injury.[29] If damage results from filing of the complaint, it is damnum absque injuria.
[30]
Besides, moral damages are generally not awarded in favor of a juridical person, unless it enjoys a good
reputation that was debased by the offending party resulting in social humiliation.[31]
As regards the award of attorneys fees, ABS-CBN maintains that the same had no factual, legal, or
equitable justification. In sustaining the trial courts award, the Court of Appeals acted in clear disregard of
the doctrine laid down in Buan v. Camaganacan[32] that the text of the decision should state the reason why
attorneys fees are being awarded; otherwise, the award should be disallowed. Besides, no bad faith has been
imputed on, much less proved as having been committed by, ABS-CBN. It has been held that where no
sufficient showing of bad faith would be reflected in a partys persistence in a case other than an erroneous
conviction of the righteousness of his cause, attorneys fees shall not be recovered as cost.[33]
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA
absent meeting of minds between them regarding the object and consideration of the alleged contract. It
affirms that ABS-CBNs claim of a right of first refusal was correctly rejected by the trial court. RBS insists
the premium it had paid for the counterbond constituted a pecuniary loss upon which it may recover. It was
obliged to put up the counterbond due to the injunction procured by ABS-CBN. Since the trial court found
that ABS-CBN had no cause of action or valid claim against RBS and, therefore not entitled to the writ of
injunction, RBS could recover from ABS-CBN the premium paid on the counterbond. Contrary to the claim

of ABS-CBN, the cash bond would prove to be more expensive, as the loss would be equivalent to the cost
of money RBS would forego in case the P30 million came from its funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the
film Maging Sino Ka Man because the print advertisements were out to announce the showing on a
particular day and hour on Channel 7, i.e., in its entirety at one time, not as series to be shown on a periodic
basis. Hence, the print advertisements were good and relevant for the particular date of showing, and since
the film could not be shown on that particular date and hour because of the injunction, the expenses for the
advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured
injunctions purely for the purpose of harassing and prejudicing RBS. Pursuant then to Articles 19 and 21 of
the Civil Code, ABS-CBN must be held liable for such damages. Citing Tolentino,[34] damages may be
awarded in cases of abuse of rights even if the done is not illicit, and there is abuse of rights where a plaintiff
institutes an action purely for the purpose of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages, private
respondent RBS cited People v. Manero,[35] where it was stated that such entity may recover moral and
exemplary damages if it has a good reputation that is debased resulting in social humiliation. It then
ratiocinates; thus:
There can be no doubt that RBS reputation has been debased by ABS-CBNs acts in this case. When RBS
was not able to fulfill its commitment to the viewing public to show the film Maging Sino Ka Man on the
scheduled dates and times (and on two occasions that RBS advertised), it suffered serious embarrassment
and social humiliation. When the showing was cancelled, irate viewers called up RBS offices and subjected
RBS to verbal abuse (Announce kayo ng announce, hindi ninyo naman ilalabas, nanloloko yata kayo) (Exh.
3-RBS, par.3). This alone was not something RBS brought upon itself. It was exactly what ABS-CBN had
planted to happen.
The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the
amount of the award.
The first is that the humiliation suffered by RBS, is national in extent. RBS operations as a broadcasting
company is [sic] nationwide. Its clientele, like that of ABS-CBN, consists of those who own and watch
television. It is not an exaggeration to state, and it is a matter of judicial notice that almost every other
person in the country watches television. The humiliation suffered by RBS is multiplied by the number of
televiewers who had anticipated the showing of the film, Maging Sino Ka Man on May 28 and November 3,
1992 but did not see it owing to the cancellation. Added to this are the advertisers who had placed
commercial spots for the telecast and to whom RBS had a commitment in consideration of the placement to
show the film in the dates and times specified.
The second is that it is a competitor that caused RBS suffer the humiliation. The humiliation and injury are
far greater in degree when caused by an entity whose ultimate business objective is to lure customers
(viewers in this case) away from the competition.[36]
For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the
Court of Appeals do not support ABS-CBNs claim that there was a perfected contract. Such factual findings
can no longer be disturbed in this petition for review under Rule 45, as only questions of law can be raised,
not questions of fact. On the issue of damages and attorneys fees, they adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract between VIVA and
ABS-CBN, and (2) whether RBS is entitled to damages and attorneys fees. It may be noted that that award
of attorneys fees of P212,000 in favor of VIVA is not assigned as another error.
I
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two
persons whereby one binds himself to give something or render some service to another[37] for a
consideration. There is no contract unless the following requisites concur: (1) consent of the contracting
parties; (2) object certain which is the subject of the contract; and (3) cause of the obligation, which is
established.[38] A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending
at the moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to agree on the
terms of the contract; and

(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the
contract.[39]
Contracts that are consensual in nature are perfected upon mere meeting of the minds. Once there is
concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of
payment a contract is produced. The offer must be certain. To convert the offer into a contract, the
acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal,
unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that
involves a new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently,
when something is desired which is not exactly what is proposed in the offer, such acceptance is not
sufficient to generate consent because any modification or variation from the terms of the offer annuls the
offer.[40]
When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to
discuss the package of films, said package of 104 VIVA films was VIVAs offer to ABS-CBN to enter into a
new Film Exhibition Agreement. But ABS-CBN, sent through Ms. Concio, counter-proposal in the form a
draft contract proposing exhibition of 53 films for a consideration of P35 million. This counter-proposal
could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at
Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVAs offer, for it was met by a counteroffer which substantially varied the terms of the offer.
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of Appeals[41] and Villonco Realty
Company v. Bormaheco, Inc.,[42] is misplaced. In these cases, it was held that an acceptance may contain a
request for certain changes in the terms of the offer and yet be a binding acceptance as long as it is clear that
the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is
granted or not. This ruling was, however, reversed in the resolution of 29 March 1996,[43] which ruled that
the acceptance of an offer must be unqualified and absolute, i.e., it must be identical in all respects with that
of the offer so as to produce consent or meetings of the minds.
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were
not material but merely clarificatory of what had previously been agreed upon. It cited the statement
in Stuart v. Franklin Life Insurance Co.[44] that a vendors change in a phrase of the offer to purchase, which
change does not essentially change the terms of the offer, does not amount to a rejection of the offer and the
tender of a counter-offer.[45] However, when any of the elements of the contract is modified upon acceptance,
such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVAs offer hence, they underwent
period of bargaining. ABS-CBN then formalized its counter-proposals or counter-offer in a draft
contract. VIVA through its Board of Directors, rejected such counter-offer. Even if it be
conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA, as
there was no proof whatsoever that Del Rosario had the specific authority to do so.
Under the Corporation Code,[46] unless otherwise provided by said Code, corporate powers, such as the
power to enter into contracts, are exercised by the Board of Directors. However, the Board may delegate
such powers to either an executive committee or officials or contracted managers. The delegation, except for
the executive committee, must be for specific purposes.[47] Delegation to officers makes the latter agents of
the corporation; accordingly, the general rules of agency as to the binding effects of their acts would apply.
[48]
For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the
latter must specially authorize them to do so. that Del Rosario did not have the authority to accept ABSCBNs counter-offer was best evidenced by his submission of the draft contract to VIVAs Board of Directors
for the latters approval. In any event, there was between Del Rosario and Lopez III no meeting of
minds. The following findings of the trial court are instructive:
A number of considerations militate against ABS-CBNs claim that a contract was perfected at that lunch
meeting on April 02, 1992 at the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the
number of films, which he wrote on a napkin. However, Exhibit C contains numerous provisions which were
not discussed at the Tamarind Grill, if Lopez testimony was to be believed nor could they have been
physically written on a napkin. There was even doubt as to whether it was a paper napkin or cloth napkin. In
short what were written in Exhibit C were not discussed, and therefore could not have been agreed upon, by
the parties. How then could this court compel the parties to sign Exhibit C when the provisions thereof were
not previously agreed upon?

SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14
films. The complaint in fact prays for delivery of 14 films. But Exhibit C mentions 53 films as its subject
matter. Which is which? If Exhibit C reflected the true intent of the parties, then ABS-CBNs claim for 14
films in its complaint is false or if what it alleged in the complaint is true, then Exhibit C did not reflect what
was agreed upon by the parties. This underscores the fact that there was no meeting of the minds as to the
subject matter of the contract, so as to preclude perfection thereof. For settled is the rule that there can be no
contract where there is no object certain which is its subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. D) States:
We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14) films,
and we agreed to pay Viva the amount of P16,050,000.00 as well as grant Viva commercial slots
worth P19,950,000.00. We had already earmarked this P16,050,000.00.
which gives a total consideration of P36 million (P19,951,000.00 plus P16,050,000.00
equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q What was written in this napkin?
A The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7 Viva
movies because the price was broken down accordingly. The none [sic] Viva and the seven other
Viva movies and the sharing between the cash portion and the concerned spot portion in the total
amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBNs claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit C to Mr. Del Rosario
with a handwritten note, describing said Exhibit C as a draft. (Exh. 5 Viva; tsn pp. 23-24, June 08,
1992). The said draft has a well defined meaning.
Since Exhibit C is only a draft, or a tentative, provisional or preparatory writing prepared for discussion, the
terms and conditions thereof could not have been previously agreed upon by ABS-CBN and Viva.Exhibit C
could not therefore legally bind Viva, not having agreed thereto. In fact, Ms. Concio admitted that the terms
and conditions embodied in Exhibit C were prepared by ABS-CBNs lawyers and there was no discussion on
said terms and conditions.
As the parties had not yet discussed the proposed terms and conditions in Exhibit C, and there was no
evidence whatsoever that Viva agreed to the terms and conditions thereof, said document cannot be a
binding contract. The fact that Viva refused to sign Exhibit C reveals only two [sic] well that it did not agree
on its terms and conditions, and this court has no authority to compel Viva to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill was
only provisional, in the sense that it was subject to approval by the Board of Directors of Viva. He testified:
Q Now, Mr. Witness, and after that Tamarinf meeting the second meeting wherein you claimed that you
have the meeting of the minds between you and Mr. Vic del Rosario, what happened?
A Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the
Board of Directors.
Q And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?
A Yes, sir.
Q So, he was going to forward that to the board of Directors for approval?
A Yes, sir (Tsn, pp. 42-43, June 8, 1992)
Q Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority to
bind Viva to a contract with ABS-CBN until and unless its Board of Directors approved it. The complaint, in
fact, alleges that Mr. Del Rosario is the Executive Producer of defendant Viva which is a corporation. (par. 2,
complaint). As a mere agent of Viva, Del Rosario could not bind Viva unless what he did is ratified by its
Directors. (Vicente vs.Geraldez, 52 SCRA 210; Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere
agent, recognized as such by plaintiff, Del Rosario could not be held liable jointly and severally with Viva
and his inclusion as party defendant has no legal basis. (Salonga vs. Warner Barnes [sic],COLTA, 88 Phil.
125; Salmon vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was
supposed to have been agreed upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a
binding agreement. It is as it should be because corporate power to enter into a contract is lodged in the

Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the Viva board, whatever
agreement Lopez and Del Rosario arrived at could not ripen into a valid binding upon Viva (Yao Ka Sin
Trading vs. Court of Appeals, 209 SCRA 763). The evidence adduced shows that the Board of Directors of
Viva rejected Exhibit C and insisted that the film package for 104 films be maintained (Exh. 7-1 Cica).[49]
The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films
under the 1990 Film Exhibition Agreement and that the meeting between Lopez and Del Rosario was a
continuation of said previous contract is untenable. As observed by the trial court, ABS-CBNs right of first
refusal had already been exercised when Ms. Concio wrote to Viva ticking off ten films.Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an
entirely different package. Ms. Concio herself admitted on cross-examination to having used or
exercised the right of first refusal. She stated that the list was not acceptable and was indeed not
accepted by ABS-CBN, (Tsn, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the right of
first refusal may have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 7175). Del Rosario himself knew and understand [sic] that ABS-CBN has lost its right of first refusal
when his list of 36 titles were rejected (Tsn, June 9, 1992, pp. 10-11).[50]
II
However, we find for ABS-CBN on the issue of damages. We shall first take up actual
damages. Chapter 2, Title XVIII, Book IV of the Civil Code is the specific law on actual or compensatory
damages.Except as provided by law or by stipulation, one is entitled to compensation for actual damages
only for such pecuniary loss suffered by him as he has duly proved.[51] The indemnification shall
comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed to
obtain.[52] In contracts and quasi-contracts the damages which may be awarded are dependent on whether the
obligor acted with good faith or otherwise. In case of good faith, the damages recoverable are those which
are the natural and probable consequences of the breach of the obligation and which the parties have
foreseen or could have reasonably foreseen at the time of the constitution of the obligation. If the obligor
acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all damages which may be
reasonably attributed to the non-performance of the obligation.[53] In crimes and quasi-delicts, the defendants
shall be liable for all damages which are the natural and probable consequences of the act or omission
complained of, whether or not such damages have been foreseen or could have reasonably been foreseen by
the defendant.[54]
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of
temporary or permanent personal injury, or for injury to the plaintiffs business standing or commercial
credit.[55]
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasidelict. It arose from the fact of filing of the complaint despite ABS-CBNs alleged knowledge of lack of
cause of action. Thus paragraph 12 of RBSs Answer with Counterclaim and Cross-claim under the heading
COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action against RBS. As
a result thereof, RBS suffered actual damages in the amount of P6,621,195.32.[56]
Needless to state the award of actual damages cannot be comprehended under the above law on actual
damages. RBS could only probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read
as follows:
ART. 19. Every person must, in the exercise of hid rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.
ART. 20. Every person who, contrary to law, wilfully or negligently causes damage to another shall
indemnify the latter for the same.
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.
It may further be observed that in cases where a writ of preliminary injunction is issued, the damages
which the defendant may suffer by reason of the writ are recoverable from the injunctive bond.[57] In this
case, ABS-CBN had not yet filed the required bond; as a matter of fact, it asked for reduction of the bond
and even went to the Court of Appeals to challenge the order on the matter. Clearly then, it was not
necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS
paid for the counterbond.

Neither could ABS-CBN be liable for the print advertisements for Maging Sino Ka Man for lack of
sufficient legal basis. The RTC issued a temporary restraining order and later, a writ of preliminary
injunction on the basis of its determination that there existed sufficient ground for the issuance
thereof. Notably, the RTC did not dissolve the injunction on the ground of lack of legal and factual basis, but
because of the plea of RBS that it be allowed to put up a counterbond.
As regards attorneys fees, the law is clear that in the absence of stipulation, attorneys fees may be
recovered as actual or compensatory damages under any of the circumstances provided for in Article 2208 of
the Civil Code.[58]
The general rule is that attorneys fees cannot be recovered as part of damages because of the policy that
no premium should be placed on the right to litigate.[59] They are not to be awarded every time a party wins a
suit. The power of the court t award attorneys fees under Article 2208 demands factual, legal, and equitable
justification.[60] Even when a claimant is compelled to litigate with third persons or to incur expenses to
protect his rights, still attorneys fees may not be awarded where no sufficient showing of bad faith could be
reflected in a partys persistence in a case other than an erroneous conviction of the righteousness of his
cause.[61]
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article
2217 thereof defines what are included in moral damages, while Article 2219 enumerates the cases where
they may be recovered. Article 2220 provides that moral damages may be recovered in breaches of contract
where the defendant acted fraudulently or in bad faith. RBSs claim for moral damages could possibly fall
only under item (10) of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 and 35.
Moral damages are in the category of an award designed to compensate the claimant for actual injury
suffered and not to impose a penalty on the wrongdoer.[62] The award is not meant to enrich the complainant
at the expense of the defendant, but to enable the injured party to obtain means, diversion, or amusements
that will serve to obviate the moral suffering he has undergone. It is aimed at the restoration, within the
limits of the possible, of the spiritual status quo ante, and should be proportionate to the suffering inflicted.
[63]
Trial courts must then guard against the award of exorbitant damages; they should exercise balanced
restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption or
the part of the trial court.[64]
The award of moral damages cannot be granted in favor of a corporation because, being an artificial
person and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It
cannot, therefore, experience physical suffering and mental anguish, which can be experienced only by one
having a nervous system.[65] The statement in People v. Manero[66] and Mambulao Lumber Co. v. PNB[67] that
a corporation may recover moral damages if it has a good reputation that is debased, resulting in social
humiliation is an obiter dictum. On this score alone the award for damages must be set aside, since RBS is a
corporation.
The basic law on exemplary damages is Section 5 Chapter 3, Title XVIII, Book IV of the Civil
Code. These are imposed by way of example or correction for the public good, in addition to moral,
temperate, liquidated, or compensatory damages.[68] They are recoverable in criminal cases as part of the
civil liability when the crime was committed with one or more aggravating circumstances;[69] in quasidelicts, if the defendant acted with gross negligence;[70] and in contracts and quasi-contracts, if the defendant
acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.[71]
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract,
delict, or quasi-delict. Hence, the claims for moral and exemplary damages can only be based on Articles 19,
20, and 21 of the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or
duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another.Article
20 speaks of the general sanction for all provisions of law which do not especially provide for their own
sanction; while Article 21 deals with acts contra bonus mores, and has the following elements: (1) there is an
act which is legal, (2) but which is contrary to morals, good custom, public order, or public policy, and (3)
and it is done with intent to injure.[72]
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a
conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.[73]Such
must be substantiated by evidence.[74]

There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly
convinced of the merits of its cause after it had undergone serious negotiations culminating in its formal
submission of a draft contract. Settled is the rule that the adverse result of an action does not per se make the
action wrongful and subject the actor to damages, for the law could not have meant impose a penalty on the
right to litigate. If damages result from a persons exercise of a right, it is damnum absque injuria.[75]
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in
CA-G.R. CV No. 44125 is hereby REVERSED except as to unappealed award of attorneys fees in favor of
VIVA Productions, Inc.
No pronouncement as to costs.
SO ORDERED.
Melo, Kapunan, Martinez, and Pardo, JJ., concur.
[G.R. No. 141994. January 17, 2005]
FILIPINAS BROADCASTING NETWORK, INC., petitioner, vs. AGO MEDICAL AND
EDUCATIONAL CENTER-BICOL CHRISTIAN COLLEGE OF MEDICINE, (AMECBCCM) and ANGELITA F. AGO, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review[1] assails the 4 January 1999 Decision[2] and 26 January 2000 Resolution of the
Court of Appeals in CA-G.R. CV No. 40151. The Court of Appeals affirmed with modification the 14
December 1992 Decision[3] of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236.
The Court of Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre
and Carmelo Rima liable for libel and ordered them to solidarily pay Ago Medical and Educational CenterBicol Christian College of Medicine moral damages, attorneys fees and costs of suit.
The Antecedents
Expos is a radio documentary[4] program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun
Alegre (Alegre).[5] Expos is aired every morning over DZRC-AM which is owned by Filipinas Broadcasting
Network, Inc. (FBNI). Expos is heard over Legazpi City, the Albay municipalities and other Bicol areas.[6]
In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from
students, teachers and parents against Ago Medical and Educational Center-Bicol Christian College of
Medicine (AMEC) and its administrators. Claiming that the broadcasts were defamatory, AMEC and
Angelita Ago (Ago), as Dean of AMECs College of Medicine, filed a complaint for damages [7] against
FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM,
advise them to pass all subjects because if they fail in any subject they will repeat their year level,
taking up all subjects including those they have passed already. Several students had approached me
stating that they had consulted with the DECS which told them that there is no such regulation. If [there] is
no such regulation why is AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized
by DECS. xxx
Third: Students are required to take and pay for the subject even if the subject does not have an
instructor - such greed for money on the part of AMECs administration. Take the subject Anatomy:
students would pay for the subject upon enrolment because it is offered by the school. However there would
be no instructor for such subject. Students would be informed that course would be moved to a later date
because the school is still searching for the appropriate instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving
for the past few years since its inception because of funds support from foreign foundations. If you will take
a look at the AMEC premises youll find out that the names of the buildings there are foreign soundings.
There is a McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable
evidence that the support of foreign foundations for AMEC is substantial, isnt it? With the report which is
the basis of the expose in DZRC today, it would be very easy for detractors and enemies of the Ago family

to stop the flow of support of foreign foundations who assist the medical school on the basis of the latters
purpose. But if the purpose of the institution (AMEC) is to deceive students at cross purpose with its reason
for being it is possible for these foreign foundations to lift or suspend their donations temporarily.[8]
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMECInstitute of Mass Communication in their effort to minimize expenses in terms of salary are absorbing
or continues to accept rejects. For example how many teachers in AMEC are former teachers of Aquinas
University but were removed because of immorality? Does it mean that the present administration of AMEC
have the total definite moral foundation from catholic administrator of Aquinas University. I will prove to
you my friends, that AMEC is a dumping ground, garbage, not merely of moral and physical misfits.
Probably they only qualify in terms of intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the
family name implies. She is too old to work, being an old woman. Is the AMEC administration exploiting
the very [e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just patiently
making use of Dean Justita Lola were if she is very old. As in atmospheric situation zero visibility the plane
cannot land, meaning she is very old, low pay follows. By the way, Dean Justita Lola is also the chairman of
the committee on scholarship in AMEC. She had retired from Bicol University a long time ago but AMEC
has patiently made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people.
What does this mean? Immoral and physically misfits as teachers.
May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to
teach. You are too old. As an aviation, your case is zero visibility. Dont insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that.
The reason is practical cost saving in salaries, because an old person is not fastidious, so long as she has
money to buy the ingredient of beetle juice. The elderly can get by thats why she (Lola) was taken in as
Dean.
xxx
xxx On our end our task is to attend to the interests of students. It is likely that the students would be
influenced by evil. When they become members of society outside of campus will be liabilities rather
than assets. What do you expect from a doctor who while studying at AMEC is so much burdened with
unreasonable imposition? What do you expect from a student who aside from peculiar problems because not
all students are rich in their struggle to improve their social status are even more burdened with false
regulations. xxx[9] (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs,
FBNI, Rima and Alegre transmitted malicious imputations, and as such, destroyed plaintiffs (AMEC and
Ago) reputation. AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence
in the selection and supervision of its employees, particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer [10] alleging that
the broadcasts against AMEC were fair and true. FBNI, Rima and Alegre claimed that they were plainly
impelled by a sense of public duty to report the goings-on in AMEC, [which is] an institution imbued with
public interest.
Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea,
collaborating counsel of Atty. Lozares, filed a Motion to Dismiss [11] on FBNIs behalf. The trial court denied
the motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence
in the selection and supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the
broadcaster should (1) file an application; (2) be interviewed; and (3) undergo an apprenticeship and training
program after passing the interview. FBNI likewise claimed that it always reminds its broadcasters to
observe truth, fairness and objectivity in their broadcasts and to refrain from using libelous and indecent
language. Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga Brodkaster sa
Pilipinas (KBP) accreditation test and to secure a KBP permit.
On 14 December 1992, the trial court rendered a Decision[12] finding FBNI and Alegre liable for libel
except Rima. The trial court held that the broadcasts are libelous per se. The trial court rejected the
broadcasters claim that their utterances were the result of straight reporting because it had no factual basis.
The broadcasters did not even verify their reports before airing them to show good faith. In holding FBNI

liable for libel, the trial court found that FBNI failed to exercise diligence in the selection and supervision of
its employees.
In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he
agreed with Alegres expos. The trial court found Rimas statement within the bounds of freedom of speech,
expression, and of the press. The dispositive portion of the decision reads:
WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages
caused by the controversial utterances, which are not found by this court to be really very serious and
damaging, and there being no showing that indeed the enrollment of plaintiff school
dropped, defendants Hermogenes Jun Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio
station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago Medical and Educational
Center-Bicol Christian College of Medicine (AMEC-BCCM) the amount of P300,000.00 moral damages,
plus P30,000.00 reimbursement of attorneys fees, and to pay the costs of suit.
SO ORDERED. [13] (Emphasis supplied)
Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed
the decision to the Court of Appeals. The Court of Appeals affirmed the trial courts judgment with
modification. The appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court
denied Agos claim for damages and attorneys fees because the broadcasts were directed against AMEC, and
not against her. The dispositive portion of the Court of Appeals decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that
broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I] and Hermo[g]enes Alegre.
SO ORDERED.[14]
FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26
January 2000 Resolution.
Hence, FBNI filed this petition.[15]
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and
that FBNI, Rima and Alegre failed to overcome the legal presumption of malice. The Court of Appeals
found Rima and Alegres claim that they were actuated by their moral and social duty to inform the public of
the students gripes as insufficient to justify the utterance of the defamatory remarks.
Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled
that the broadcasts were made with reckless disregard as to whether they were true or false. The appellate
court pointed out that FBNI, Rima and Alegre failed to present in court any of the students who allegedly
complained against AMEC. Rima and Alegre merely gave a single name when asked to identify the students.
According to the Court of Appeals, these circumstances cast doubt on the veracity of the broadcasters claim
that they were impelled by their moral and social duty to inform the public about the students gripes.
The Court of Appeals found Rima also liable for libel since he remarked that (1) AMEC-BCCM is a
dumping ground for morally and physically misfit teachers; (2) AMEC obtained the services of Dean Justita
Lola to minimize expenses on its employees salaries; and (3) AMEC burdened the students with
unreasonable imposition and false regulations.[16]
The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of
its employees for allowing Rima and Alegre to make the radio broadcasts without the proper KBP
accreditation. The Court of Appeals denied Agos claim for damages and attorneys fees because the libelous
remarks were directed against AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima and
Alegre solidarily liable to pay AMEC moral damages, attorneys fees and costs of suit.
Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF
MORAL DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT.
The Courts Ruling
We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre
against AMEC.[17] While AMEC did not point out clearly the legal basis for its complaint, a reading of the

complaint reveals that AMECs cause of action is based on Articles 30 and 33 of the Civil Code. Article
30[18] authorizes a separate civil action to recover civil liability arising from a criminal offense. On the other
hand, Article 33[19] particularly provides that the injured party may bring a separate civil action for damages
in cases of defamation, fraud, and physical injuries. AMEC also invokes Article 19 [20] of the Civil Code to
justify its claim for damages. AMEC cites Articles 2176[21] and 2180[22] of the Civil Code to hold FBNI
solidarily liable with Rima and Alegre.
I.
Whether the broadcasts are libelous
A libel[23] is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or
any act or omission, condition, status, or circumstance tending to cause the dishonor, discredit, or contempt
of a natural or juridical person, or to blacken the memory of one who is dead.[24]
There is no question that the broadcasts were made public and imputed to AMEC defects or
circumstances tending to cause it dishonor, discredit and contempt. Rima and Alegres remarks such as greed
for money on the part of AMECs administrators; AMEC is a dumping ground, garbage of xxx moral and
physical misfits; and AMEC students who graduate will be liabilities rather than assets of the society are
libelous per se. Taken as a whole, the broadcasts suggest that AMEC is a money-making institution where
physically and morally unfit teachers abound.
However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were
plainly impelled by their civic duty to air the students gripes. FBNI alleges that there is no evidence that ill
will or spite motivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima and
Alegre exerted efforts to obtain AMECs side and gave Ago the opportunity to defend AMEC and its
administrators. FBNI concludes that since there is no malice, there is no libel.
FBNIs contentions are untenable.
Every defamatory imputation is presumed malicious.[25] Rima and Alegre failed to show adequately their
good intention and justifiable motive in airing the supposed gripes of the students. As hosts of a
documentary or public affairs program, Rima and Alegre should have presented the public issues free
from inaccurate and misleading information.[26] Hearing the students alleged complaints a month before the
expos,[27] they had sufficient time to verify their sources and information. However, Rima and Alegre hardly
made a thorough investigation of the students alleged gripes. Neither did they inquire about nor confirm the
purported irregularities in AMEC from the Department of Education, Culture and Sports. Alegre testified
that he merely went to AMEC to verify his report from an alleged AMEC official who refused to disclose
any information. Alegre simply relied on the words of the students because they were many and not because
there is proof that what they are saying is true.[28] This plainly shows Rima and Alegres reckless disregard of
whether their report was true or not.
Contrary to FBNIs claim, the broadcasts were not the result of straight reporting. Significantly, some
courts in the United States apply the privilege of neutral reportage in libel cases involving matters of public
interest or public figures. Under this privilege, a republisher who accurately and disinterestedly reports
certain defamatory statements made against public figures is shielded from liability, regardless of the
republishers subjective awareness of the truth or falsity of the accusation. [29] Rima and Alegre cannot invoke
the privilege of neutral reportage because unfounded comments abound in the broadcasts. Moreover, there is
no existing controversy involving AMEC when the broadcasts were made. The privilege of neutral reportage
applies where the defamed person is a public figure who is involved in an existing controversy, and a party
to that controversy makes the defamatory statement.[30]
However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court
of Appeals,[31] FBNI contends that the broadcasts fall within the coverage of qualifiedly privileged
communications for being commentaries on matters of public interest. Such being the case, AMEC should
prove malice in fact or actual malice. Since AMEC allegedly failed to prove actual malice, there is no libel.
FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine of fair comment,
thus:
[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action
for libel or slander. The doctrine of fair comment means that while in general every discreditable imputation
publicly made is deemed false, because every man is presumed innocent until his guilt is judicially proved,
and every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed
against a public person in his public capacity, it is not necessarily actionable. In order that such
discreditable imputation to a public official may be actionable, it must either be a false allegation of

fact or a comment based on a false supposition. If the comment is an expression of opinion, based on
established facts, then it is immaterial that the opinion happens to be mistaken, as long as it might
reasonably be inferred from the facts.[32] (Emphasis supplied)
True, AMEC is a private learning institution whose business of educating students is genuinely imbued
with public interest. The welfare of the youth in general and AMECs students in particular is a matter which
the public has the right to know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts
dealt with matters of public interest. However, unlike in Borjal, the questioned broadcasts are not based
on established facts. The record supports the following findings of the trial court:
xxx Although defendants claim that they were motivated by consistent reports of students and parents
against plaintiff, yet, defendants have not presented in court, nor even gave name of a single student who
made the complaint to them, much less present written complaint or petition to that effect. To accept this
defense of defendants is too dangerous because it could easily give license to the media to malign people
and establishments based on flimsy excuses that there were reports to them although they could not
satisfactorily establish it. Such laxity would encourage careless and irresponsible broadcasting which is
inimical to public interests.
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their
duties, did not verify and analyze the truth of the reports before they aired it, in order to prove that they are
in good faith.
Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses.
Yet, plaintiff produced a certificate coming from DECS that as of Sept. 22, 1987 or more than 2 years before
the controversial broadcast, accreditation to offer Physical Therapy course had already been given the
plaintiff, which certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes
R. Quisumbing (Exh. C-rebuttal). Defendants could have easily known this were they careful enough to
verify. And yet, defendants were very categorical and sounded too positive when they made the erroneous
report that plaintiff had no permit to offer Physical Therapy courses which they were offering.
The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald
Foundation prove not to be true also. The truth is there is no Mcdonald Foundation existing. Although a big
building of plaintiff school was given the name Mcdonald building, that was only in order to honor the first
missionary in Bicol of plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants
over the air, not a single centavo appears to be received by plaintiff school from the aforementioned
McDonald Foundation which does not exist.
Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical
students fail in one subject, they are made to repeat all the other subject[s], even those they have already
passed, nor their claim that the school charges laboratory fees even if there are no laboratories in the school.
No evidence was presented to prove the bases for these claims, at least in order to give semblance of good
faith.
As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s]
singled out Dean Justita Lola who is said to be so old, with zero visibility already. Dean Lola testified in
court last Jan. 21, 1991, and was found to be 75 years old. xxx Even older people prove to be effective
teachers like Supreme Court Justices who are still very much in demand as law professors in their late years.
Counsel for defendants is past 75 but is found by this court to be still very sharp and effective. So is
plaintiffs counsel.
Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert
and docile.
The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere
conclusion. Being from the place himself, this court is aware that majority of the medical graduates of
plaintiffs pass the board examination easily and become prosperous and responsible professionals.[33]
Had the comments been an expression of opinion based on established facts, it is immaterial that the
opinion happens to be mistaken, as long as it might reasonably be inferred from the facts. [34] However, the
comments of Rima and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged and
remain libelous per se.
The broadcasts also violate the Radio Code[35] of the Kapisanan ng mga Brodkaster sa Pilipinas,
Ink. (Radio Code). Item I(B) of the Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. x x x

4. Public affairs program shall present public issues free from personal bias, prejudice
and inaccurate and misleading information. x x x Furthermore, the station shall strive to
present balanced discussion of issues. x x x.
xxx
7. The station shall be responsible at all times in the supervision of public affairs, public issues and
commentary programs so that they conform to the provisions and standards of this code.
8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public
interest, general welfare and good order in the presentation of public affairs and public issues.
[36]
(Emphasis supplied)
The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of
ethical conduct governing practitioners in the radio broadcast industry. The Radio Code is a voluntary code
of conduct imposed by the radio broadcast industry on its own members. The Radio Code is a public
warranty by the radio broadcast industry that radio broadcast practitioners are subject to a code by which
their conduct are measured for lapses, liability and sanctions.
The public has a right to expect and demand that radio broadcast practitioners live up to the code of
conduct of their profession, just like other professionals. A professional code of conduct provides the
standards for determining whether a person has acted justly, honestly and with good faith in the exercise of
his rights and performance of his duties as required by Article 19 [37] of the Civil Code. A professional code of
conduct also provides the standards for determining whether a person who willfully causes loss or injury to
another has acted in a manner contrary to morals or good customs under Article 21[38] of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a corporation.[39]
A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot
experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or
moral shock.[40] The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.[41] to justify the award of
moral damages. However, the Courts statement in Mambulao that a corporation may have a good reputation
which, if besmirched, may also be a ground for the award of moral damages is an obiter dictum.[42]
Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219 [43] of the Civil Code.
This provision expressly authorizes the recovery of moral damages in cases of libel, slander or any other
form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person.
Therefore, a juridical person such as a corporation can validly complain for libel or any other form of
defamation and claim for moral damages.[44]
Moreover, where the broadcast is libelous per se, the law implies damages.[45] In such a case, evidence
of an honest mistake or the want of character or reputation of the party libeled goes only in mitigation of
damages.[46] Neither in such a case is the plaintiff required to introduce evidence of actual damages as a
condition precedent to the recovery of some damages.[47] In this case, the broadcasts are libelous per se.
Thus, AMEC is entitled to moral damages.
However, we find the award of P300,000 moral damages unreasonable. The record shows that even
though the broadcasts were libelous per se, AMEC has not suffered any substantial or material damage to its
reputation. Therefore, we reduce the award of moral damages from P300,000 to P150,000.
III.
Whether the award of attorneys fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of
attorneys fees. FBNI adds that the instant case does not fall under the enumeration in Article 2208 [48] of the
Civil Code.
The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for
attorneys fees. AMEC did not adduce evidence to warrant the award of attorneys fees. Moreover, both the
trial and appellate courts failed to explicitly state in their respective decisions the rationale for the award of
attorneys fees.[49] In Inter-Asia Investment Industries, Inc. v. Court of Appeals,[50] we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule,
and counsels fees are not to be awarded every time a party wins a suit. The power of the court to award
attorneys fees under Article 2208 of the Civil Code demands factual, legal and equitable justification,
without which the award is a conclusion without a premise, its basis being improperly left to

speculation and conjecture. In all events, the court must explicitly state in the text of the decision, and not
only in the decretal portion thereof, the legal reason for the award of attorneys fees.[51](Emphasis supplied)
While it mentioned about the award of attorneys fees by stating that it lies within the discretion of the
court and depends upon the circumstances of each case, the Court of Appeals failed to point out any
circumstance to justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre
for moral damages, attorneys fees
and costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and
attorneys fees because it exercised due diligence in the selection and supervision of its employees,
particularly Rima and Alegre. FBNI maintains that its broadcasters, including Rima and Alegre, undergo a
very regimented process before they are allowed to go on air. Those who apply for broadcaster are subjected
to interviews, examinations and an apprenticeship program.
FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a
broadcaster. FBNI points out that the minor deficiencies in the KBP accreditation of Rima and Alegre do not
in any way prove that FBNI did not exercise the diligence of a good father of a family in selecting and
supervising them. Rimas accreditation lapsed due to his non-payment of the KBP annual fees while Alegres
accreditation card was delayed allegedly for reasons attributable to the KBP Manila Office. FBNI claims that
membership in the KBP is merely voluntary and not required by any law or government regulation.
FBNIs arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort
which they commit.[52] Joint tort feasors are all the persons who command, instigate, promote, encourage,
advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done,
if done for their benefit.[53] Thus, AMEC correctly anchored its cause of action against FBNI on Articles
2176 and 2180 of the Civil Code.
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for
damages arising from the libelous broadcasts. As stated by the Court of Appeals, recovery for defamatory
statements published by radio or television may be had from the owner of the station, a
licensee, the operator of the station, or a person who procures, or participates in, the making of the
defamatory statements.[54] An employer and employee are solidarily liable for a defamatory statement by the
employee within the course and scope of his or her employment, at least when the employer authorizes or
ratifies the defamation.[55] In this case, Rima and Alegre were clearly performing their official duties as hosts
of FBNIs radio program Expos when they aired the broadcasts. FBNI neither alleged nor proved that Rima
and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did
not authorize and ratify the defamatory broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due diligence in
the selection and supervision of its employees, particularly Rima and Alegre. FBNI merely showed that it
exercised diligence in the selection of its broadcasters without introducing any evidence to prove that it
observed the same diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised
diligence in supervising its broadcasters. FBNIs alleged constant reminder to its broadcasters to observe
truth, fairness and objectivity and to refrain from using libelous and indecent language is not enough to
prove due diligence in the supervision of its broadcasters. Adequate training of the broadcasters on the
industrys code of conduct, sufficient information on libel laws, and continuous evaluation of the
broadcasters performance are but a few of the many ways of showing diligence in the supervision of
broadcasters.
FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as broadcasters,
bearing in mind their qualifications. However, no clear and convincing evidence shows that Rima and
Alegre underwent FBNIs regimented process of application. Furthermore, FBNI admits that Rima and
Alegre had deficiencies in their KBP accreditation,[56] which is one of FBNIs requirements before it hires a
broadcaster. Significantly, membership in the KBP, while voluntary, indicates the broadcasters strong
commitment to observe the broadcast industrys rules and regulations. Clearly, these circumstances show
FBNIs lack of diligence in selecting and supervising Rima and Alegre. Hence, FBNI is solidarily liable to
pay damages together with Rima and Alegre.

WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and
Resolution of 26 January 2000 of the Court of Appeals in CA-G.R. CV No. 40151 with the
MODIFICATION that the award of moral damages is reduced from P300,000 to P150,000 and the award of
attorneys fees is deleted. Costs against petitioner.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.

G.R. No. 131723

MANILA ELECTRIC COMPANY,Petitioners,
VERSUS
T.E.A.M. ELECTRONICS CORPORATION, TECHNOLOGY ELECTRONICS ASSEMBLY and
MANAGEMENT PACIFIC CORPORATION; and ULTRA ELECTRONICS INSTRUMENTS, INC.,
Respondents.
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal
of the Decision[1] of the Court of Appeals (CA) dated June 18, 1997 and its Resolution[2] dated December
3, 1997 in CA-G.R. CV No. 40282 denying the appeal filed by petitioner Manila Electric Company.
The facts of the case, as culled from the records, are as follows:
Respondent T.E.A.M. Electronics Corporation (TEC) was formerly known as NS Electronics
(Philippines), Inc. before 1982 and National Semi-Conductors (Phils.) before 1988. TEC is wholly owned
by respondent Technology Electronics Assembly and Management Pacific Corporation (TPC). On the
other hand, petitioner Manila Electric Company (Meralco) is a utility company supplying electricity in
the Metro Manila area.
Petitioner and NS Electronics (Philippines), Inc., the predecessor-in-interest of respondent TEC,
were parties to two separate contracts denominated as Agreements for the Sale of Electric Energy
under the following account numbers: 09341-1322-16[3] and 09341-1812-13.[4] Under the aforesaid
agreements, petitioner undertook to supply TECs building known as Dyna Craft International Manila
(DCIM) located at Electronics Avenue, Food Terminal Complex, Taguig, Metro Manila, with electric
power. Another contract was entered into for the supply of electric power to TECs NS Building under
Account No. 19389-0900-10.
In September 1986, TEC, under its former name National Semi-Conductors (Phils.) entered into a
Contract of Lease[5] with respondent Ultra Electronics Industries, Inc. (Ultra) for the use of the formers
DCIM building for a period of five years or until September 1991. Ultra was, however, ejected from the
premises on February 12, 1988 by virtue of a court order, for repeated violation of the terms and
conditions of the lease contract.
On September 28, 1987, a team of petitioners inspectors conducted a surprise inspection of the
electric meters installed at the DCIM building, witnessed by Ultras [6]representative, Mr. Willie
Abangan. The two meters covered by account numbers 09341-1322-16 and 09341-1812-13,
were found to be allegedly tampered with and did not register the actual power consumption in the
building. The results of the inspection were reflected in the Service Inspection Reports [7] prepared by
the team.
In a letter dated November 25, 1987, petitioner informed TEC of the results of the inspection
and demanded from the latter the payment of P7,040,401.01 representing its unregistered
consumption from February 10, 1986 until September 28, 1987, as a result of the alleged tampering of
the meters.[8] TEC received the letters on January 7, 1988.Since Ultra was in possession of the subject
building during the covered period, TECs Managing Director, Mr. Bobby Tan, referred the demand letter
to Ultra[9] which, in turn, informed TEC that its Executive Vice-President had met with petitioners
representative. Ultra further intimated that assuming that there was tampering of the meters,
petitioners assessment was excessive. [10] For failure of TEC to pay the differential billing, petitioner
disconnected the electricity supply to the DCIM building on April 29, 1988.
TEC demanded from petitioner the reconnection of electrical service, claiming that it had
nothing to do with the alleged tampering but the latter refused to heed the demand. Hence, TEC filed a
complaint on May 27, 1988 before the Energy Regulatory Board (ERB) praying that electric power be
restored to the DCIM building.[11] The ERB immediately ordered the reconnection of the service but

petitioner complied with it only on October 12, 1988 after TEC paid P1,000,000.00, under protest. The
complaint before the ERB was later withdrawn as the parties deemed it best to have the issues
threshed out in the regular courts. Prior to the reconnection, or on June 7, 1988, petitioner conducted a
scheduled inspection of the questioned meters and found them to have been tampered anew. [12]
Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in TECs NS
Building. The inspection allegedly revealed that the electric meters were not registering the correct
power consumption. Petitioner, thus, sent a letter dated June 18, 1988 demanding payment
of P280,813.72 representing the differential billing. [13] TEC denied petitioners allegations and claim in a
letter dated June 29, 1988.[14] Petitioner, thus, sent TEC another letter demanding payment of the
aforesaid amount, with a warning that the electric service would be disconnected in case of continued
refusal to pay the differential billing. [15] To avert the impending disconnection of electrical service, TEC
paid the above amount, under protest.[16]
On January 13, 1989, TEC and TPC filed a complaint for damages against petitioner and
Ultra[17] before the Regional Trial Court (RTC) of Pasig. The case was raffled to Branch 162 and was
docketed as Civil Case No. 56851.[18] Upon the filing of the parties answer to the complaint, pre-trial was
scheduled.
At the pre-trial, the parties agreed to limit the issues, as follows:
1. Whether or not the defendant Meralco is liable for the plaintiffs disconnection of
electric service at DCIM Building.
2. Whether or not the plaintiff is liable for (sic) the defendant for the differential
billings in the amount of P7,040,401.01.
3. Whether or not the plaintiff is liable to defendant for exemplary damages. [19]
For failure of the parties to reach an amicable settlement, trial on the merits ensued. On June 17, 1992,
the trial court rendered a Decision in favor of respondents TEC and TPC, and against respondent Ultra
and petitioner. The pertinent portion of the decision reads:
WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiffs and
against the defendants as follows:
(1)
Ordering both defendants Meralco and ULTRA Electronics
Instruments, Inc. to jointly and severally reimburse plaintiff TEC actual
damages in the amount of ONE MILLION PESOS with legal rate of interest
from the date of the filing of this case on January 19, 1989 until the said
amount shall have been fully paid;
(2)
Ordering defendant Meralco to pay to plaintiff TEC the amount
of P280,813.72 as actual damages with legal rate of interest also
from January 19, 1989;
(3)
Ordering defendant Meralco to pay to plaintiff TPC the amount
of P150,000.00 as actual damages with interest at legal rate from January
19, 1989;
(4)
Condemning defendant Meralco to pay both plaintiffs moral
damages in the amount pf P500,000.00;
(5)
Condemning defendant Meralco to pay both plaintiffs corrective
and/or exemplary damages in the amount of P200,000.00;
(6)
Ordering defendant Meralco to pay attorneys fees in the
amount of P200,000.00
Costs against defendant Meralco.
SO ORDERED.[20]
The trial court found the evidence of petitioner insufficient to prove that TEC was guilty of
tampering the meter installations. The deformed condition of the meter seal and the existence of an
opening in the wire duct leading to the transformer vault did not, in themselves, prove the alleged
tampering, especially since access to the transformer was given only to petitioners employees. [21] The
sudden drop in TECs (or Ultras) electric consumption did not, per se, show meter tampering. The delay
in the sending of notice of the results of the inspection was likewise viewed by the court as evidence of
inefficiency and arbitrariness on the part of petitioner. More importantly, petitioners act of
disconnecting the DCIM buildings electric supply constituted bad faith and thus makes it liable for
damages.[22] The court further denied petitioners claim of differential billing primarily on the ground of

equitable negligence.[23] Considering that TEC and TPC paid P1,000,000.00 to avert the disconnection of
electric power; and because Ultra manifested to settle the claims of petitioner, the court imposed
solidary liability on both Ultra and petitioner for the payment of the P1,000,000.00.
Ultra and petitioner appealed to the CA which affirmed the RTC decision, with a modification of
the amount of actual damages and interest thereon. The dispositive portion of the CA decision
dated June 18, 1997, states:
WHEREFORE, this Court renders judgment affirming in toto the Decision rendered
by the trial court with the slight modification that the interest at legal rate shall be
computed from January 13, 1989 and that Meralco shall pay plaintiff T.E.A.M. Electronics
Corporation and Technology Electronics Assembly and Management Pacific Corporation
the sum of P150,000.00 per month for five (5) months for actual damages incurred when
it was compelled to lease a generator set with interest at the legal rate from the abovestated date.
SO ORDERED.[24]
The appellate court agreed with the RTCs conclusion. In addition, it considered petitioner negligent for
failing to discover the alleged defects in the electric meters; in belatedly notifying TEC and TPC of the
results of the inspection; and in disconnecting the electric power without prior notice.
Petitioner now comes before this Court in this petition for review on certiorari contending that:
The Court of Appeals committed grievous errors and decided matters of substance
contrary to law and the rulings of this Honorable Court:
1. In finding that the issue in the case is whether there was deliberate tampering of the
metering installations at the building owned by TEC.
2. In not finding that the issue is: whether or not, based on the tampered meters,
whether or not petitioner is entitled to differential billing, and if so, how much.
3. In declaring that petitioner ME RALCO had the burden of proof to show by clear and
convincing evidence that with respect to the tampered meters that TEC and/or TPC
authored their tampering.
4. In finding that petitioner Meralco should not have held TEC and/or TPC responsible for
the acts of Ultra.
5. In finding that TEC should not be held liable for the tampering of this electric meter in
its DCIM Building.
6. In finding that there was no notice of disconnection.
7. In finding that petitioner MERALCO was negligent in informing TEC of the alleged
tampering.
8. In making the finding that it is difficult to believe that when petitioner MERALCO
inspected on June 7, 1988 the meter installations, they were found to be tampered.
9.
In declaring that petitioner MERALCO estopped from claiming any
tampering of the meters.
10. In finding that the method employed by MERALCO to as certain (sic) the
correct amount of electricity consumed is questionable;
11. In declaring that MERALCO all throughout its dealings with TEC took on an
attitude which is oppressive, wanton and reckless.
12. In declaring that MERALCO acted arbitrarily in inspecting TECs DCIM building
and the NS building.
13. In declaring that respondents TEC and TPC are entitled to the damages which
it awarded.
14. In not declaring that petitioner is entitled to the differential bill.

15. In not declaring that respondents are liable to petitioner for exemplary
damages, attorneys fee and expenses for litigation. [25]
The petition must fail.
The issues for resolution can be summarized as follows: 1) whether or not TEC tampered with the
electric meters installed at its DCIM and NS buildings; 2) If so, whether or not it is liable for the
differential billing as computed by petitioner; and 3) whether or not petitioner was justified in
disconnecting the electric power supply in TECs DCIM building.
Petitioner insists that the tampering of the electric meters installed at the DCIM and NS buildings owned
by respondent TEC has been established by overwhelming evidence, as specifically shown by the
shorting devices found during the inspection. Thus, says petitioner, tampering of the meter is no longer
an issue.
It is obvious that petitioner wants this Court to revisit the factual findings of the lower courts. Wellestablished is the doctrine that under Rule 45 of the Rules of Court, only questions of law, not of fact,
may be raised before the Court. We would like to stress that this Court is not a trier of facts and may
not re-examine and weigh anew the respective evidence of the parties. Factual findings of the trial
court, especially those affirmed by the Court of Appeals, are binding on this Court. [26]
Looking at the record, we note that petitioner claims to have discovered three incidences of metertampering; twice in the DCIM building on September 28, 1987 and June 7, 1988; and once in the NS
building on April 24, 1988.
The first instance was supposedly discovered on September 28, 1987. The inspector allegedly found
the presence of a short circuiting device and saw that the meter seal was deformed. In addition,
petitioner, through the Supervising Engineer of its Special Billing Analysis Department, [27] claimed that
there was a sudden and unexplainable drop in TECs electrical consumption starting February 10,
1986. On the basis of the foregoing, petitioner concluded that the electric meters were tampered with.
However, contrary to petitioners claim that there was a drastic and unexplainable drop in TECs electric
consumption during the affected period, the Pattern of TECs Electrical Consumption [28] shows that the
sudden drop is not peculiar to the said period. Noteworthy is the observation of the RTC in this wise:
In fact, in Account No. 09341-1812-13 (heretofore referred as Account/Meter No. 2), as
evidenced by Exhibits 35 and 35-A, there was likewise a sudden drop of electrical
consumption from the year 1984 which recorded an average 141,300 kwh/month to 1985
which recorded an average kwh/month at 87,600 or a difference-drop of 53,700
kwh/month; from 1985s 87,600 recorded consumption, the same dropped to 18,600
kwh/month or a difference-drop of 69,000 kwh/month. Surely, a drop of 53,700 could be
equally categorized as a sudden drop amounting to 69,000 which, incidentally, the
Meralco claimed as unexplainable. x x x.[29]
The witnesses for petitioner who testified on the alleged tampering of the electric meters,
declared that tampering is committed by consumers to prevent the meter from registering the correct
amount of electric consumption, and result in a reduced monthly electric bill, while continuing to enjoy
the same power supply. Only the registration of actual electric energy consumption, not the supply of
electricity, is affected when a meter is tampered with. [30] The witnesses claimed that after the
inspection, the tampered electric meters were corrected, so that they would register the correct
consumption of TEC. Logically, then, after the correction of the allegedly tampered meters, the
customers registered consumption would go up.
In this case, the period claimed to have been affected by the tampered electric meters is from
February 1986 until September 1987. Based on petitioners Billing Record[31](for the DCIM building), TECs
monthly electric consumption on Account No. 9341-1322-16 was between 4,500 and 27,000 kwh.
[32]
Account No. 9341-1812-13 showed a monthly consumption between 9,600 and 34,200 kwh. [33] It is
interesting to note that, after correction of the allegedly tampered meters, TECs monthly electric
consumption from October 1987 to February 1988 (the last month that Ultra occupied the DCIM
building) was between 8,700 and 24,300 kwh in its first account, and 16,200 to 46,800 kwh on the
second account.
Even more revealing is the fact that TECs meters registered 9,300 kwh and 19,200 kwh
consumption on the first and second accounts, respectively, a month prior to the inspection. On the
first month after the meters were corrected, TECs electric consumption registered at 9,300 kwh and
22,200 kwh on the respective accounts. These figures clearly show that there was no palpably drastic
difference between the consumption before and after the inspection, casting a cloud of doubt over

petitioners claim of meter-tampering. Indeed, Ultras explanation that the corporation was losing; thus,
it had lesser consumption of electric power appear to be the more plausible reason for the drop in
electric consumption.
Petitioner likewise claimed that when the subject meters were again inspected on June 7, 1988,
they were found to have been tampered anew. The Court notes that prior to the inspection, TEC was
informed about it; and months before the inspection, there was an unsettled controversy between TEC
and petitioner, brought about by the disconnection of electric power and the non-payment of
differential billing. We are more disposed to accept the trial courts conclusion that it is hard to believe
that a customer previously apprehended for tampered meters and assessed P7 million would further
jeopardize itself in the eyes of petitioner. [34] If it is true that there was evidence of tampering found
on September 28, 1987 and again on June 7, 1988, the better view would be that the defective meters
were not actually corrected after the first inspection. If so, then Manila Electric Company v. Macro
Textile Mills Corporation[35] would apply, where we said that we cannot sanction a situation wherein the
defects in the electric meter are allowed to continue indefinitely until suddenly, the public utilities
demand payment for the unrecorded electricity utilized when they could have remedied the situation
immediately. Petitioners failure to do so may encourage neglect of public utilities to the detriment of
the consuming public. Corollarily, it must be underscored that petitioner has the imperative duty to
make a reasonable and proper inspection of its apparatus and equipment to ensure that they do not
malfunction, and the due diligence to discover and repair defects therein. Failure to perform such duties
constitutes negligence.[36] By reason of said negligence, public utilities run the risk of forfeiting amounts
originally due from their customers.[37]
As to the alleged tampering of the electric meter in TECs NS building, suffice it to state that the
allegation was not proven, considering that the meters therein were enclosed in a metal cabinet the
metal seal of which was unbroken, with petitioner having sole access to the said meters. [38]
In view of the negative finding on the alleged tampering of electric meters on TECs DCIM and NS
buildings, petitioners claim of differential billing was correctly denied by the trial and appellate
courts. With greater reason, therefore, could petitioner not exercise the right of immediate
disconnection.
The law in force at the time material to this controversy was Presidential Decree (P.D.) No. 401 [39] issued
on March 1, 1974.[40] The decree penalized unauthorized installation of water, electrical or telephone
connections and such acts as the use of tampered electrical meters. It was issued in answer to the
urgent need to put an end to illegal activities that prejudice the economic well-being of both the
companies concerned and the consuming public. [41] P.D. 401 granted the electric companies the right to
conduct inspections of electric meters and the criminal prosecution [42] of erring consumers who were
found to have tampered with their electric meters. It did not expressly provide for more expedient
remedies such as the charging of differential billing and immediate disconnection against erring
consumers. Thus, electric companies found a creative way of availing themselves of such remedies by
inserting into their service contracts (or agreements for the sale of electric energy) a provision for
differential billing with the option of disconnection upon non-payment by the erring consumer. The
Court has recognized the validity of such stipulations. [43] However, recourse to differential billing with
disconnection was subject to the prior requirement of a 48-hour written notice of disconnection. [44]
Petitioner, in the instant case, resorted to the remedy of disconnection without prior notice. While it is
true that petitioner sent a demand letter to TEC for the payment of differential billing, it did not include
any notice that the electric supply would be disconnected. In fine, petitioner abused the remedies
granted to it under P.D. 401 and Revised General Order No. 1 by outrightly depriving TEC of electrical
services without first notifying it of the impending disconnection. Accordingly, the CA did not err in
affirming the RTC decision.
As to the damages awarded by the CA, we deem it proper to modify the same. Actual damages are
compensation for an injury that will put the injured party in the position where it was before the
injury. They pertain to such injuries or losses that are actually sustained and susceptible of
measurement. Except as provided by law or by stipulation, a party is entitled to adequate
compensation only for such pecuniary loss as is duly proven. Basic is the rule that to recover actual
damages, not only must the amount of loss be capable of proof; it must also be actually proven with a
reasonable degree of certainty, premised upon competent proof or the best evidence obtainable. [45]
Respondent TEC sufficiently established, and petitioner in fact admitted, that the former
paid P1,000,000.00 and P280,813.72 under protest, the amounts representing a portion of the latters
claim of differential billing. With the finding that no tampering was committed and, thus, no differential
billing due, the aforesaid amounts should be returned by petitioner, with interest, as ordered by the
Court of Appeals and pursuant to the guidelines set forth by the Court. [46]

However, despite the appellate courts conclusion that no tampering was committed, it held Ultra
solidarily liable with petitioner for P1,000,000.00, only because the former, as occupant of the building,
promised to settle the claims of the latter. This ruling is erroneous. Ultras promise was conditioned upon
the finding of defect or tampering of the meters. It did not acknowledge any culpability and liability,
and absent any tampered meter, it is absurd to make the lawful occupant liable. It was petitioner who
received the P1 million; thus, it alone should be held liable for the return of the amount.
TEC also sufficiently established its claim for the reimbursement of the amount paid as rentals
for the generator set it was constrained to rent by reason of the illegal disconnection of electrical
service. The official receipts and purchase orders submitted by TEC as evidence sufficiently show that
such rentals were indeed made. However, the amount of P150,000.00 per month for five months,
awarded by the CA, is excessive. Instead, a total sum of P150,000.00, as found by the RTC, is proper.
As to the payment of exemplary damages and attorneys fees, we find no cogent reason to
disturb the same. Exemplary damages are imposed by way of example or correction for the public good
in addition to moral, temperate, liquidated, or compensatory damages. [47] In this case, to serve as an
example that before a disconnection of electrical supply can be effected by a public utility, the
requisites of law must be complied with we affirm the award of P200,000.00 as exemplary damages.
With the award of exemplary damages, the award of attorneys fees is likewise proper, pursuant to
Article 2208[48] of the Civil Code. It is obvious that TEC needed the services of a lawyer to argue its
cause through three levels of the judicial hierarchy. Thus, the award of P200,000.00 is in order.[49]
We, however, deem it proper to delete the award of moral damages. TECs claim was premised
allegedly on the damage to its goodwill and reputation. [50] As a rule, a corporation is not entitled to
moral damages because, not being a natural person, it cannot experience physical suffering or
sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only exception
to this rule is when the corporation has a reputation that is debased, resulting in its humiliation in the
business realm.[51] But in such a case, it is imperative for the claimant to present proof to justify the
award. It is essential to prove the existence of the factual basis of the damage and its causal relation to
petitioners acts.[52] In the present case, the records are bereft of any evidence that the name or
reputation of TEC/TPC has been debased as a result of petitioners acts. Besides, the trial court simply
awarded moral damages in the dispositive portion of its decision without stating the basis thereof.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No.
40282 dated June 18, 1997 and its Resolution dated December 3, 1997 are AFFIRMED with the
following MODIFICATIONS: (1) the award of P150,000.00 per month for five months as reimbursement
for the rentals of the generator set is REDUCED to P150,000.00; and (2) the award of P500,000.00 as
moral damages is hereby DELETED.
SO ORDERED.
MARISSA R. UNCHUAN,
Petitioner,
- versus ANTONIO J.P. LOZADA, ANITA LOZADA and THE REGISTER OF DEEDS OF CEBU CITY,
Respondents.

DECISION
QUISUMBING, J.:
For review are the Decision[1] dated February 23, 2006 and Resolution[2] dated April 12, 2006 of
the Court of Appeals in CA-G.R. CV. No. 73829. The appellate court had affirmed with modification the
Order[3] of the Regional Trial Court (RTC) of Cebu City, Branch 10 reinstating its Decision[4] dated June 9,
1997.
The facts of the case are as follows:
Sisters Anita Lozada Slaughter and Peregrina Lozada Saribay were the registered co-owners of
Lot Nos. 898-A-3 and 898-A-4 covered by Transfer Certificates of Title (TCT) Nos. 53258 [5] and
53257[6] in Cebu City.
The sisters, who were based in the United States, sold the lots to their nephew Antonio J.P.
Lozada (Antonio) under a Deed of Sale [7] dated March 11, 1994. Armed with a Special Power of
Attorney[8] from Anita, Peregrina went to the house of their brother, Dr. Antonio Lozada (Dr. Lozada),
located at 4356 Faculty Avenue, Long Beach California.[9] Dr. Lozada agreed to advance the purchase
price of US$367,000 or P10,000,000 for Antonio, his nephew. The Deed of Sale was later notarized and
authenticated at the Philippine Consuls Office. Dr. Lozada then forwarded the deed, special power of
attorney, and owners copies of the titles to Antonio in the Philippines. Upon receipt of said documents,
the latter recorded the sale with the Register of Deeds of Cebu. Accordingly, TCT Nos. 128322[10] and
128323[11] were issued in the name of Antonio Lozada.

Pending registration of the deed, petitioner Marissa R. Unchuan caused the annotation of an
adverse claim on the lots. Marissa claimed that Anita donated an undivided share in the lots to her
under an unregistered Deed of Donation[12] dated February 4, 1987.
Antonio and Anita brought a case against Marissa for quieting of title with application for
preliminary injunction and restraining order. Marissa for her part, filed an action to declare the Deed of
Sale void and to cancel TCT Nos. 128322 and 128323. On motion, the cases were consolidated and
tried jointly.
At the trial, respondents presented a notarized and duly authenticated sworn statement, and a
videotape where Anita denied having donated land in favor of Marissa. Dr. Lozada testified that he agreed
to advance payment for Antonio in preparation for their plan to form a corporation. The lots are to be
eventually infused in the capitalization of Damasa Corporation, where he and Antonio are to have 40% and
60% stake, respectively. Meanwhile, Lourdes G. Vicencio, a witness for respondents confirmed that she had
been renting the ground floor of Anitas house since 1983, and tendering rentals to Antonio.
For her part, Marissa testified that she accompanied Anita to the office of Atty. Cresencio
Tomakin for the signing of the Deed of Donation. She allegedly kept it in a safety deposit box but
continued to funnel monthly rentals to Peregrinas account.
A witness for petitioner, one Dr. Cecilia Fuentes, testified on Peregrinas medical
records. According to her interpretation of said records, it was physically impossible for Peregrina to
have signed the Deed of Sale on March 11, 1994, when she was reported to be suffering from
edema. Peregrina died on April 4, 1994.
In a Decision dated June 9, 1997, RTC Judge Leonardo B. Caares disposed of the consolidated
cases as follows:
WHEREFORE, judgment is hereby rendered in Civil Case No. CEB-16145, to wit:
1. Plaintiff Antonio J.P. Lozada is declared the absolute owner of the properties in
question;
2. The Deed of Donation (Exh. 9) is declared null and void, and Defendant Marissa
R. Unchuan is directed to surrender the original thereof to the Court for cancellation;
3. The Register of Deeds of Cebu City is ordered to cancel the annotations of the
Affidavit of Adverse Claim of defendant Marissa R. Unchuan on TCT Nos. 53257 and
53258 and on such all other certificates of title issued in lieu of the aforementioned
certificates of title;
4. Defendant Marissa R. Unchuan is ordered to pay Antonio J.P. Lozada and Anita
Lozada Slaughter the sum of P100,000.00 as moral damages; exemplary damages
of P50,000.00; P50,000.00 for litigation expenses and attorneys fees of P50,000.00; and
5. The counterclaims of defendant Marissa R. Unchuan [are] DISMISSED.
In Civil Case No. CEB-16159, the complaint is hereby DISMISSED.
In both cases, Marissa R. Unchuan is ordered to pay the costs of suit.
SO ORDERED.[13]
On motion for reconsideration by petitioner, the RTC of Cebu City, Branch 10, with Hon. Jesus S.
dela Pea as Acting Judge, issued an Order [14] dated April 5, 1999. Said order declared the Deed of Sale
void, ordered the cancellation of the new TCTs in Antonios name, and directed Antonio to pay
Marissa P200,000 as moral damages, P100,000 as exemplary damages, P100,000 attorneys fees
and P50,000 for expenses of litigation. The trial court also declared the Deed of Donation in favor of
Marissa valid. The RTC gave credence to the medical records of Peregrina.
Respondents moved for reconsideration. On July 6, 2000, now with Hon. Soliver C. Peras, as
Presiding Judge, the RTC of Cebu City, Branch 10, reinstated the Decision dated June 9, 1997, but with the
modification that the award of damages, litigation expenses and attorneys fees were disallowed.
Petitioner appealed to the Court of Appeals. On February 23, 2006 the appellate court affirmed
with modification the July 6, 2000 Order of the RTC. It, however, restored the award of P50,000
attorneys fees and P50,000 litigation expenses to respondents.
Thus, the instant petition which raises the following issues:
I.
WHETHER THE COURT OF APPEALS ERRED AND VIOLATED PETITIONERS RIGHT TO DUE
PROCESS WHEN IT FAILED TO RESOLVE PETITIONERS THIRD ASSIGNED ERROR.
II.
WHETHER THE HONORABLE SUPREME COURT MAY AND SHOULD REVIEW THE
CONFLICTING FACTUAL FINDINGS OF THE HONORABLE REGIONAL TRIAL COURT IN ITS

OWN DECISION AND RESOLUTIONS ON THE MOTIONS FOR RECONSIDERATION, AND THAT
OF THE HONORABLE COURT OF APPEALS.
III.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS
CASE IS BARRED BY LACHES.
IV.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF
DONATION EXECUTED IN FAVOR OF PETITIONER IS VOID.
V.
WHETHER THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT ANITA
LOZADAS VIDEOTAPED STATEMENT IS HEARSAY.[15]
Simply stated, the issues in this appeal are: (1) Whether the Court of Appeals erred in upholding
the Decision of the RTC which declared Antonio J.P. Lozada the absolute owner of the questioned
properties; (2) Whether the Court of Appeals violated petitioners right to due process; and (3) Whether
petitioners case is barred by laches.
Petitioner contends that the appellate court violated her right to due process when it did not rule
on the validity of the sale between the sisters Lozada and their nephew, Antonio. Marissa finds it
anomalous that Dr. Lozada, an American citizen, had paid the lots for Antonio. Thus, she accuses the
latter of being a mere dummy of the former.Petitioner begs the Court to review the conflicting factual
findings of the trial and appellate courts on Peregrinas medical condition on March 11, 1994 and Dr.
Lozadas financial capacity to advance payment for Antonio. Likewise, petitioner assails the ruling of the
Court of Appeals which nullified the donation in her favor and declared her case barred by
laches. Petitioner finally challenges the admissibility of the videotaped statement of Anita who was not
presented as a witness.
On their part, respondents pray for the dismissal of the petition for petitioners failure to furnish
the Register of Deeds of Cebu City with a copy thereof in violation of Sections 3 [16] and 4,[17] Rule 45 of
the Rules. In addition, they aver that Peregrinas unauthenticated medical records were merely falsified
to make it appear that she was confined in the hospital on the day of the sale. Further, respondents
question the credibility of Dr. Fuentes who was neither presented in court as an expert witness [18] nor
professionally involved in Peregrinas medical care.
Further, respondents impugn the validity of the Deed of Donation in favor of Marissa. They
assert that the Court of Appeals did not violate petitioners right to due process inasmuch as it resolved
collectively all the factual and legal issues on the validity of the sale.
Faithful adherence to Section 14, [19] Article VIII of the 1987 Constitution is indisputably a
paramount component of due process and fair play. The parties to a litigation should be informed of
how it was decided, with an explanation of the factual and legal reasons that led to the conclusions of
the court.[20]
In the assailed Decision, the Court of Appeals reiterates the rule that a notarized and
authenticated deed of sale enjoys the presumption of regularity, and is admissible without further proof
of due execution. On the basis thereof, it declared Antonio a buyer in good faith and for value, despite
petitioners contention that the sale violates public policy. While it is a part of the right of appellant to
urge that the decision should directly meet the issues presented for resolution, [21] mere failure by the
appellate court to specify in its decision all contentious issues raised by the appellant and the reasons
for refusing to believe appellants contentions is not sufficient to hold the appellate courts decision
contrary to the requirements of the law[22] and the Constitution.[23] So long as the decision of the Court
of Appeals contains the necessary findings of facts to warrant its conclusions, we cannot declare said
court in error if it withheld any specific findings of fact with respect to the evidence for the defense.
[24]
We will abide by the legal presumption that official duty has been regularly performed, [25] and all
matters within an issue in a case were laid down before the court and were passed upon by it. [26]
In this case, we find nothing to show that the sale between the sisters Lozada and their nephew
Antonio violated the public policy prohibiting aliens from owning lands in the Philippines. Even as Dr.
Lozada advanced the money for the payment of Antonios share, at no point were the lots registered in Dr.
Lozadas name. Nor was it contemplated that the lots be under his control for they are actually to be
included as capital of Damasa Corporation. According to their agreement, Antonio and Dr. Lozada are to
hold 60% and 40% of the shares in said corporation, respectively. Under Republic Act No. 7042,
[27]
particularly Section 3,[28] a corporation organized under the laws of the Philippines of which at least
60% of the capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines,
is considered a Philippine National. As such, the corporation may acquire disposable lands in
the Philippines. Neither did petitioner present proof to belie Antonios capacity to pay for the lots subjects
of this case.
Petitioner, likewise, calls on the Court to ascertain Peregrinas physical ability to execute the Deed of
Sale on March 11, 1994. This essentially necessitates a calibration of facts, which is not the function of this
Court.[29] Nevertheless, we have sifted through the Decisions of the RTC and the Court of Appeals but found
no reason to overturn their factual findings. Both the trial court and appellate court noted the lack of
substantial evidence to establish total impossibility for Peregrina to execute the Deed of Sale.

In support of its contentions, petitioner submits a copy of Peregrinas medical records to show
that she was confined at the Martin Luther Hospital from February 27, 1994until she died on April 4,
1994. However, a Certification[30] from Randy E. Rice, Manager for the Health Information Management
of the hospital undermines the authenticity of said medical records. In the certification, Rice denied
having certified or having mailed copies of Peregrinas medical records to the Philippines. As a rule, a
document to be admissible in evidence, should be previously authenticated, that is, its due execution or
genuineness should be first shown.[31] Accordingly, the unauthenticated medical records were excluded
from the evidence. Even assuming that Peregrina was confined in the cited hospital, the Deed of Sale
was executed on March 11, 1994, a month before Peregrina reportedly succumbed to Hepato Renal
Failure caused by Septicemia due to Myflodysplastic Syndrome. [32] Nothing in the records appears to
show that Peregrina was so incapacitated as to prevent her from executing the Deed of Sale. Quite the
contrary, the records reveal that close to the date of the sale, specifically on March 9, 1994, Peregrina
was even able to issue checks[33] to pay for her attorneys professional fees and her own hospital
bills. At no point in the course of the trial did petitioner dispute this revelation.
Now, as to the validity of the donation, the provision of Article 749 of the Civil Code is in point:

ART. 749. In order that the donation of an immovable may be valid, it must be made
in a public document, specifying therein the property donated and the value of the charges
which the donee must satisfy.
The acceptance may be made in the same deed of donation or in a separate public
document, but it shall not take effect unless it is done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be notified thereof
in an authentic form, and this step shall be noted in both instruments.
When the law requires that a contract be in some form in order that it may be valid or enforceable, or
that a contract be proved in a certain way, that requirement is absolute and indispensable. [34] Here, the Deed of
Donation does not appear to be duly notarized. In page three of the deed, the stamped name of Cresencio
Tomakin appears above the words Notary Public until December 31, 1983 but below it were the typewritten
words Notary Public until December 31, 1987. A closer examination of the document further reveals that the
number 7 in 1987 and Series of 1987 were merely superimposed.[35] This was confirmed by petitioners nephew
Richard Unchuan who testified that he saw petitioners husband write 7 over 1983 to make it appear that the
deed was notarized in 1987. Moreover, a Certification[36] from Clerk of Court Jeoffrey S. Joaquino of the
Notarial Records Division disclosed that the Deed of Donation purportedly identified in Book No. 4,
Document No. 48, and Page No. 35 Series of 1987 was not reported and filed with said office. Pertinent to this,
the Rules require a party producing a document as genuine which has been altered and appears to have been
altered after its execution, in a part material to the question in dispute, to account for the alteration. He may
show that the alteration was made by another, without his concurrence, or was made with the consent of the
parties affected by it, or was otherwise properly or innocently made, or that the alteration did not change the
meaning or language of the instrument. If he fails to do that, the document shall, as in this case, not be
admissible in evidence.[37]
Remarkably, the lands described in the Deed of Donation are covered by TCT Nos. 73645 [38] and
73646,[39] both of which had been previously cancelled by an Order [40] dated April 8, 1981 in LRC Record
No. 5988. We find it equally puzzling that on August 10, 1987, or six months after Anita supposedly donated
her undivided share in the lots to petitioner, the Unchuan Development Corporation, which was represented
by petitioners husband, filed suit to compel the Lozada sisters to surrender their titles by virtue of a sale. The
sum of all the circumstances in this case calls for no other conclusion than that the Deed of Donation
allegedly in favor of petitioner is void. Having said that, we deem it unnecessary to rule on the issue of
laches as the execution of the deed created no right from which to reckon delay in making any claim of
rights under the instrument.
Finally, we note that petitioner faults the appellate court for not excluding the videotaped statement of
Anita as hearsay evidence. Evidence is hearsay when its probative force depends, in whole or in part, on the
competency and credibility of some persons other than the witness by whom it is sought to be produced. There
are three reasons for excluding hearsay evidence: (1) absence of cross-examination; (2) absence of demeanor
evidence; and (3) absence of oath.[41] It is a hornbook doctrine that an affidavit is merely hearsay evidence
where its maker did not take the witness stand.[42] Verily, the sworn statement of Anita was of this kind because
she did not appear in court to affirm her averments therein.Yet, a more circumspect examination of our rules of
exclusion will show that they do not cover admissions of a party; [43] the videotaped statement of Anita appears
to belong to this class. Section 26 of Rule 130 provides that the act, declaration or omission of a party as to a
relevant fact may be given in evidence against him. It has long been settled that these admissions are
admissible even if they are hearsay.[44] Indeed, there is a vital distinction between admissions against interest

and declaration against interest. Admissions against interest are those made by a party to a litigation or by one
in privity with or identified in legal interest with such party, and are admissible whether or not the declarant is
available as a witness. Declaration against interest are those made by a person who is neither a party nor in
privity with a party to the suit, are secondary evidence and constitute an exception to the hearsay rule. They are
admissible only when the declarant is unavailable as a witness.[45] Thus, a mans acts, conduct, and
declaration, wherever made, if voluntary, are admissible against him, for the reason that it is fair to presume
that they correspond with the truth, and it is his fault if they do not. [46] However, as a further qualification,
object evidence, such as the videotape in this case, must be authenticated by a special testimony showing that it
was a faithful reproduction.[47] Lacking this, we are constrained to exclude as evidence the videotaped
statement of Anita. Even so, this does not detract from our conclusion concerning petitioners failure to prove,
by preponderant evidence, any right to the lands subject of this case.
Anent the award of moral damages in favor of respondents, we find no factual and legal basis
therefor. Moral damages cannot be awarded in the absence of a wrongful act or omission or fraud or bad
faith. When the action is filed in good faith there should be no penalty on the right to litigate. One may have
erred, but error alone is not a ground for moral damages.[48] The award of moral damages must be solidly
anchored on a definite showing that respondents actually experienced emotional and mental sufferings. Mere
allegations do not suffice; they must be substantiated by clear and convincing proof. [49] As exemplary damages
can be awarded only after the claimant has shown entitlement to moral damages,[50] neither can it be granted in
this case.
WHEREFORE, the instant petition is DENIED. The Decision dated February 23, 2006, and
Resolution dated April 12, 2006 of the Court of Appeals in CA-G.R. CV. No. 73829 are AFFIRMED with
MODIFICATION. The awards of moral damages and exemplary damages in favor of respondents are
deleted. No pronouncement as to costs.
SO ORDERED.

G.R. No. 124293

January 31, 2005
J.G. SUMMIT HOLDINGS, INC., petitioner,
vs.
COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its Chairman and Members; ASSET
PRIVATIZATION TRUST; and PHILYARDS HOLDINGS, INC., respondents.
RESOLUTION
PUNO, J.:
For resolution before this Court are two motions filed by the petitioner, J.G. Summit Holdings, Inc. for
reconsideration of our Resolution dated September 24, 2003 and to elevate this case to the Court En Banc.
The petitioner questions the Resolution which reversed our Decision of November 20, 2000, which in turn
reversed and set aside a Decision of the Court of Appeals promulgated on July 18, 1995.
I. Facts
The undisputed facts of the case, as set forth in our Resolution of September 24, 2003, are as follows:
On January 27, 1997, the National Investment and Development Corporation (NIDC), a government
corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe,
Japan (KAWASAKI) for the construction, operation and management of the Subic National Shipyard, Inc.
(SNS) which subsequently became the Philippine Shipyard and Engineering Corporation (PHILSECO).
Under the JVA, the NIDC and KAWASAKI will contribute P330 million for the capitalization of
PHILSECO in the proportion of 60%-40% respectively. One of its salient features is the grant to the parties
of the right of first refusal should either of them decide to sell, assign or transfer its interest in the joint
venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any third
party without giving the other under the same terms the right of first refusal. This provision shall not apply if
the transferee is a corporation owned or controlled by the GOVERNMENT or by a KAWASAKI affiliate.
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the Philippine
National Bank (PNB). Such interests were subsequently transferred to the National Government pursuant to
Administrative Order No. 14. On December 8, 1986, President Corazon C. Aquino issued Proclamation No.
50 establishing the Committee on Privatization (COP) and the Asset Privatization Trust (APT) to take title
to, and possession of, conserve, manage and dispose of non-performing assets of the National Government.
Thereafter, on February 27, 1987, a trust agreement was entered into between the National Government and
the APT wherein the latter was named the trustee of the National Government's share in PHILSECO. In

1989, as a result of a quasi-reorganization of PHILSECO to settle its huge obligations to PNB, the National
Government's shareholdings in PHILSECO increased to 97.41% thereby reducing KAWASAKI's
shareholdings to 2.59%.
In the interest of the national economy and the government, the COP and the APT deemed it best to sell the
National Government's share in PHILSECO to private entities. After a series of negotiations between the
APT and KAWASAKI, they agreed that the latter's right of first refusal under the JVA be "exchanged" for
the right to top by five percent (5%) the highest bid for the said shares. They further agreed that
KAWASAKI would be entitled to name a company in which it was a stockholder, which could exercise the
right to top. On September 7, 1990, KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) 1 would
exercise its right to top.
At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of the JVA
between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for the National
Government's 87.6% equity share in PHILSECO. The provisions of the ASBR were explained to the
interested bidders who were notified that the bidding would be held on December 2, 1993. A portion of the
ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National
Government's equity in PHILSECO consisting of 896,869,942 shares of stock (representing 87.67% of
PHILSECO's outstanding capital stock), which will be sold as a whole block in accordance with the rules
herein enumerated.
xxx xxx xxx
2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT Board of
Trustees and the Committee on Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the
National Government's 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED
MILLION (P1,300,000,000.00).
xxx xxx xxx
6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting following
the bidding, for the purpose of determining whether or not it should be endorsed by the APT Board of
Trustees to the COP, and the latter approves the same. The APT shall advise Kawasaki Heavy Industries, Inc.
and/or its nominee, [PHILYARDS] Holdings, Inc., that the highest bid is acceptable to the National
Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period
of thirty (30) calendar days from the date of receipt of such advice from APT within which to exercise their
"Option to Top the Highest Bid" by offering a bid equivalent to the highest bid plus five (5%) percent
thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. exercise their "Option to
Top the Highest Bid," they shall so notify the APT about such exercise of their option and deposit with APT
the amount equivalent to ten percent (10%) of the highest bid plus five percent (5%) thereof within the thirty
(30)-day period mentioned in paragraph 6.0 above. APT will then serve notice upon Kawasaki Heavy
Industries, Inc. and/or [PHILYARDS] Holdings, Inc. declaring them as the preferred bidder and they shall
have a period of ninety (90) days from the receipt of the APT's notice within which to pay the balance of
their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail to exercise their
"Option to Top the Highest Bid" within the thirty (30)-day period, APT will declare the highest bidder as the
winning bidder.
xxx xxx xxx
12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the official bid
forms, including any addenda or amendments thereto issued during the bidding period. The bidder shall
likewise be responsible for informing itself with respect to any and all conditions concerning the
PHILSECO Shares which may, in any manner, affect the bidder's proposal. Failure on the part of the bidder
to so examine and inform itself shall be its sole risk and no relief for error or omission will be given by APT
or COP. . . .
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. 2 submitted a bid of Two Billion
and Thirty Million Pesos (P2,030,000,000.00) with an acknowledgment of KAWASAKI/[PHILYARDS']
right to top, viz:

4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on APT's
recommendation based on the result of this bidding. Should the COP approve the highest bid, APT shall
advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc. that the highest
bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such advice
from APT within which to exercise their "Option to Top the Highest Bid" by offering a bid equivalent to the
highest bid plus five (5%) percent thereof.
As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993 "subject to
the right of Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5% as
specified in the bidding rules."
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its bid on the
grounds that: (a) the KAWASAKI/PHI consortium composed of KAWASAKI, [PHILYARDS], Mitsui,
Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the last four (4) companies were the
losing bidders thereby circumventing the law and prejudicing the weak winning bidder; (b) only
KAWASAKI could exercise the right to top; (c) giving the same option to top to PHI constituted
unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a public bidding or
auction sale; and (e) the JG Summit consortium was not estopped from questioning the proceedings.
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase price of the
subject bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised its option to top the
highest bid and that the COP had approved the same on January 6, 1994. On February 24, 1994, the APT and
PHI executed a Stock Purchase Agreement. Consequently, petitioner filed with this Court a Petition for
Mandamus under G.R. No. 114057. On May 11, 1994, said petition was referred to the Court of Appeals. On
July 18, 1995, the Court of Appeals denied the same for lack of merit. It ruled that the petition for
mandamus was not the proper remedy to question the constitutionality or legality of the right of first refusal
and the right to top that was exercised by KAWASAKI/PHI, and that the matter must be brought "by the
proper party in the proper forum at the proper time and threshed out in a full blown trial." The Court of
Appeals further ruled that the right of first refusal and the right to top are prima facie legal and that the
petitioner, "by participating in the public bidding, with full knowledge of the right to top granted to
KAWASAKI/[PHILYARDS] isestopped from questioning the validity of the award given to
[PHILYARDS] after the latter exercised the right to top and had paid in full the purchase price of the subject
shares, pursuant to the ASBR." Petitioner filed a Motion for Reconsideration of said Decision which was
denied on March 15, 1996. Petitioner thus filed a Petition for Certiorari with this Court alleging grave abuse
of discretion on the part of the appellate court.
On November 20, 2000, this Court rendered x x x [a] Decision ruling among others that the Court of
Appeals erred when it dismissed the petition on the sole ground of the impropriety of the special civil action
of mandamus because the petition was also one of certiorari. It further ruled that a shipyard like PHILSECO
is a public utility whose capitalization must be sixty percent (60%) Filipino-owned. Consequently, the right
to top granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR) drafted for the sale of the
87.67% equity of the National Government in PHILSECO is illegal not only because it violates the rules
on competitive bidding but more so, because it allows foreign corporations to own more than 40% equity
in the shipyard. It also held that "although the petitioner had the opportunity to examine the ASBR before it
participated in the bidding, it cannot be estopped from questioning the unconstitutional, illegal and
inequitable provisions thereof." Thus, this Court voided the transfer of the national government's 87.67%
share in PHILSECO to Philyard[s] Holdings, Inc., and upheld the right of JG Summit, as the highest bidder,
to take title to the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and
Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its
bid price of Two Billion Thirty Million Pesos (P2,030,000,000.00), less its bid deposit plus interests upon
the finality of this Decision. In turn, APT is ordered to:
(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6% of PHILSECO's
total capitalization;
(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One Million Five
Hundred Thousand Pesos (P2,131,500,000.00); and

(e) cause the cancellation of the stock certificates issued to PHI.

SO ORDERED.
In separate Motions for Reconsideration, respondents submit[ted] three basic issues for x x x resolution: (1)
Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI can exercise its right
of first refusal only up to 40% of the total capitalization of PHILSECO; and (3) Whether the right to top
granted to KAWASAKI violates the principles of competitive bidding.3 (citations omitted)
In a Resolution dated September 24, 2003, this Court ruled in favor of the respondents. On the first issue, we
held that Philippine Shipyard and Engineering Corporation (PHILSECO) is not a public utility, as by nature,
a shipyard is not a public utility4 and that no law declares a shipyard to be a public utility.5 On the second
issue, we found nothing in the 1977 Joint Venture Agreement (JVA) which prevents Kawasaki Heavy
Industries, Ltd. of Kobe, Japan (KAWASAKI) from acquiring more than 40% of PHILSECOs total
capitalization.6 On the final issue, we held that the right to top granted to KAWASAKI in exchange for its
right of first refusal did not violate the principles of competitive bidding.7
On October 20, 2003, the petitioner filed a Motion for Reconsideration 8 and a Motion to Elevate This Case
to the Court En Banc.9 Public respondents Committee on Privatization (COP) and Asset Privatization Trust
(APT), and private respondent Philyards Holdings, Inc. (PHILYARDS) filed their Comments on J.G.
Summit Holdings, Inc.s (JG Summits) Motion for Reconsideration and Motion to Elevate This Case to
the Court En Banc on January 29, 2004 and February 3, 2004, respectively.
II. Issues
Based on the foregoing, the relevant issues to resolve to end this litigation are the following:
1. Whether there are sufficient bases to elevate the case at bar to the Court en banc.
2. Whether the motion for reconsideration raises any new matter or cogent reason to warrant a
reconsideration of this Courts Resolution of September 24, 2003.
Motion to Elevate this Case to the
Court En Banc
The petitioner prays for the elevation of the case to the Court en banc on the following grounds:
1. The main issue of the propriety of the bidding process involved in the present case has been confused with
the policy issue of the supposed fate of the shipping industry which has never been an issue that is
determinative of this case.10
2. The present case may be considered under the Supreme Court Resolution dated February 23, 1984 which
included among en banc cases those involving a novel question of law and those where a doctrine or
principle laid down by the Court en banc or in division may be modified or reversed.11
3. There was clear executive interference in the judicial functions of the Court when the Honorable Jose
Isidro Camacho, Secretary of Finance, forwarded to Chief Justice Davide, a memorandum dated November
5, 2001, attaching a copy of the Foreign Chambers Report dated October 17, 2001, which matter was placed
in the agenda of the Court and noted by it in a formal resolution dated November 28, 2001.12
Opposing J.G. Summits motion to elevate the case en banc, PHILYARDS points out the petitioners
inconsistency in previously opposing PHILYARDS Motion to Refer the Case to the Court En
Banc. PHILYARDS contends that J.G. Summit should now be estopped from asking that the case be referred
to the Court en banc. PHILYARDS further contends that the Supreme Court en banc is not an appellate court
to which decisions or resolutions of its divisions may be appealed citing Supreme Court Circular No. 2-89
dated February 7, 1989.13 PHILYARDS also alleges that there is no novel question of law involved in the
present case as the assailed Resolution was based on well-settled jurisprudence. Likewise, PHILYARDS
stresses that the Resolution was merely an outcome of the motions for reconsideration filed by it and the
COP and APT and is "consistent with the inherent power of courts to amend and control its process and
orders so as to make them conformable to law and justice. (Rule 135, sec. 5)"14 Private respondent
belittles the petitioners allegations regarding the change in ponente and the alleged executive interference
as shown by former Secretary of Finance Jose Isidro Camachos memorandum dated November 5, 2001
arguing that these do not justify a referral of the present case to the Court en banc.
In insisting that its Motion to Elevate This Case to the Court En Banc should be granted, J.G. Summit
further argued that: its Opposition to the Office of the Solicitor Generals Motion to Refer is different from
its own Motion to Elevate; different grounds are invoked by the two motions; there was unwarranted
"executive interference"; and the change in ponente is merely noted in asserting that this case should be
decided by the Court en banc.15

We find no merit in petitioners contention that the propriety of the bidding process involved in the present
case has been confused with the policy issue of the fate of the shipping industry which, petitioner maintains,
has never been an issue that is determinative of this case. The Courts Resolution of September 24, 2003
reveals a clear and definitive ruling on the propriety of the bidding process. In discussing whether the right
to top granted to KAWASAKI in exchange for its right of first refusal violates the principles of competitive
bidding, we made an exhaustive discourse on the rules and principles of public bidding and whether they
were complied with in the case at bar.16 This Court categorically ruled on the petitioners argument that
PHILSECO, as a shipyard, is a public utility which should maintain a 60%-40% Filipino-foreign equity
ratio, as it was a pivotal issue. In doing so, we recognized the impact of our ruling on the shipbuilding
industry which was beyond avoidance.17
We reject petitioners argument that the present case may be considered under the Supreme Court
Resolution dated February 23, 1984 which included among en banc cases those involving a novel question
of law and those where a doctrine or principle laid down by the court en banc or in division may be
modified or reversed. The case was resolved based on basic principles of the right of first refusal in
commercial law and estoppel in civil law. Contractual obligations arising from rights of first refusal are not
new in this jurisdiction and have been recognized in numerous cases. 18 Estoppel is too known a civil law
concept to require an elongated discussion. Fundamental principles on public bidding were likewise used to
resolve the issues raised by the petitioner. To be sure, petitioner leans on the right to top in a public bidding
in arguing that the case at bar involves a novel issue. We are not swayed. The right to top was merely a
condition or a reservation made in the bidding rules which was fully disclosed to all bidding parties.
In Bureau Veritas, represented by Theodor H. Hunermann v. Office of the President, et al., 19 we dealt
with this conditionality, viz:
x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al., (L-18751, 28 April
1962, 4 SCRA 1245), that in an "invitation to bid, there is a condition imposed upon the bidders to the
effect that the bidding shall be subject to the right of the government to reject any and all bids subject
to its discretion. In the case at bar, the government has made its choice and unless an unfairness or
injustice is shown, the losing bidders have no cause to complain nor right to dispute that choice. This
is a well-settled doctrine in this jurisdiction and elsewhere."
The discretion to accept or reject a bid and award contracts is vested in the Government agencies entrusted
with that function. The discretion given to the authorities on this matter is of such wide latitude that the
Courts will not interfere therewith, unless it is apparent that it is used as a shield to a fraudulent award
(Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x The exercise of this discretion is a policy decision that
necessitates prior inquiry, investigation, comparison, evaluation, and deliberation. This task can best be
discharged by the Government agencies concerned, not by the Courts. The role of the Courts is to ascertain
whether a branch or instrumentality of the Government has transgressed its constitutional boundaries. But
the Courts will not interfere with executive or legislative discretion exercised within those boundaries.
Otherwise, it strays into the realm of policy decision-making.
It is only upon a clear showing of grave abuse of discretion that the Courts will set aside the award of a
contract made by a government entity. Grave abuse of discretion implies a capricious, arbitrary and
whimsical exercise of power (Filinvest Credit Corp. v. Intermediate Appellate Court, No. 65935, 30
September 1988, 166 SCRA 155). The abuse of discretion must be so patent and gross as to amount to an
evasion of positive duty or to a virtual refusal to perform a duty enjoined by law, as to act at all in
contemplation of law, where the power is exercised in an arbitrary and despotic manner by reason of passion
or hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.], L-40867, 26 July 1988, 163 SCRA 489).
The facts in this case do not indicate any such grave abuse of discretion on the part of public respondents
when they awarded the CISS contract to Respondent SGS. In the "Invitation to Prequalify and Bid" (Annex
"C," supra), the CISS Committee made an express reservation of the right of the Government to "reject
any or all bids or any part thereof or waive any defects contained thereon and accept an offer most
advantageous to the Government." It is a well-settled rule that where such reservation is made in an
Invitation to Bid, the highest or lowest bidder, as the case may be, is not entitled to an award as a
matter of right (C & C Commercial Corp. v. Menor, L-28360, 27 January 1983, 120 SCRA 112). Even the
lowest Bid or any Bid may be rejected or, in the exercise of sound discretion, the award may be made to
another than the lowest bidder (A.C. Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur., 788). (emphases
supplied)1awphi1.nt

Like the condition in the Bureau Veritas case, the right to top was a condition imposed by the government
in the bidding rules which was made known to all parties. It was a condition imposed on all bidders
equally, based on the APTs exercise of its discretion in deciding on how best to privatize the
governments shares in PHILSECO. It was not a whimsical or arbitrary condition plucked from the
ether and inserted in the bidding rules but a condition which the APT approved as the best way the
government could comply with its contractual obligations to KAWASAKI under the JVA and its mandate of
getting the most advantageous deal for the government. The right to top had its history in the mutual right of
first refusal in the JVA and was reached by agreement of the government and KAWASAKI.
Further, there is no "executive interference" in the functions of this Court by the mere filing of a
memorandum by Secretary of Finance Jose Isidro Camacho. The memorandum was merely "noted" to
acknowledge its filing. It had no further legal significance. Notably too, the assailed Resolution dated
September 24, 2003 was decided unanimously by the Special First Division in favor of the
respondents.
Again, we emphasize that a decision or resolution of a Division is that of the Supreme Court 20 and the
Court en banc is not an appellate court to which decisions or resolutions of a Division may be appealed.21
For all the foregoing reasons, we find no basis to elevate this case to the Court en banc.
Motion for Reconsideration
Three principal arguments were raised in the petitioners Motion for Reconsideration. First, that a fair
resolution of the case should be based on contract law, not on policy considerations; the contracts do not
authorize the right to top to be derived from the right of first refusal. 22 Second, that neither the right of first
refusal nor the right to top can be legally exercised by the consortium which is not the proper party granted
such right under either the JVA or the Asset Specific Bidding Rules (ASBR). 23 Third, that the maintenance of
the 60%-40% relationship between the National Investment and Development Corporation (NIDC) and
KAWASAKI arises from contract and from the Constitution because PHILSECO is a landholding
corporation and need not be a public utility to be bound by the 60%-40% constitutional limitation.24
On the other hand, private respondent PHILYARDS asserts that J.G. Summit has not been able to show
compelling reasons to warrant a reconsideration of the Decision of the Court. 25 PHILYARDS denies that the
Decision is based mainly on policy considerations and points out that it is premised on principles governing
obligations and contracts and corporate law such as the rule requiring respect for contractual stipulations,
upholding rights of first refusal, and recognizing the assignable nature of contracts rights. 26 Also, the ruling
that shipyards are not public utilities relies on established case law and fundamental rules of statutory
construction. PHILYARDS stresses that KAWASAKIs right of first refusal or even the right to top is not
limited to the 40% equity of the latter.27 On the landholding issue raised by J.G. Summit, PHILYARDS
emphasizes that this is a non-issue and even involves a question of fact. Even assuming that this Court can
take cognizance of such question of fact even without the benefit of a trial, PHILYARDS opines that
landholding by PHILSECO at the time of the bidding is irrelevant because what is essential is that ultimately
a qualified entity would eventually hold PHILSECOs real estate properties.28 Further, given the assignable
nature of the right of first refusal, any applicable nationality restrictions, including landholding limitations,
would not affect the right of first refusal itself, but only the manner of its exercise. 29 Also, PHILYARDS
argues that if this Court takes cognizance of J.G. Summits allegations of fact regarding PHILSECOs
landholding, it must also recognize PHILYARDS assertions that PHILSECOs landholdings were sold to
another corporation.30 As regards the right of first refusal, private respondent explains that KAWASAKIs
reduced shareholdings (from 40% to 2.59%) did not translate to a deprivation or loss of its contractually
granted right of first refusal.31 Also, the bidding was valid because PHILYARDS exercised the right to top
and it was of no moment that losing bidders later joined PHILYARDS in raising the purchase price.32
In cadence with the private respondent PHILYARDS, public respondents COP and APT contend:
1. The conversion of the right of first refusal into a right to top by 5% does not violate any provision in the
JVA between NIDC and KAWASAKI.
2. PHILSECO is not a public utility and therefore not governed by the constitutional restriction on foreign
ownership.
3. The petitioner is legally estopped from assailing the validity of the proceedings of the public bidding as it
voluntarily submitted itself to the terms of the ASBR which included the provision on the right to top.
4. The right to top was exercised by PHILYARDS as the nominee of KAWASAKI and the fact that
PHILYARDS formed a consortium to raise the required amount to exercise the right to top the highest bid by
5% does not violate the JVA or the ASBR.

5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition of lands does not apply to
PHILSECO because as admitted by petitioner itself, PHILSECO no longer owns real property.
6. Petitioners motion to elevate the case to the Court en banc is baseless and would only delay the
termination of this case.33
In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the arguments of the public and
private respondents in this wise:
1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with losing bidders through the
exercise of a right to top, which is contrary to law and the constitution is null and void for being violative of
substantive due process and the abuse of right provision in the Civil Code.
a. The bidders[] right to top was actually exercised by losing bidders.
b. The right to top or the right of first refusal cannot co-exist with a genuine competitive bidding.
c. The benefits derived from the right to top were unwarranted.
2. The landholding issue has been a legitimate issue since the start of this case but is shamelessly ignored by
the respondents.
a. The landholding issue is not a non-issue.
b. The landholding issue does not pose questions of fact.
c. That PHILSECO owned land at the time that the right of first refusal was agreed upon and at the time of
the bidding are most relevant.
d. Whether a shipyard is a public utility is not the core issue in this case.
3. Fraud and bad faith attend the alleged conversion of an inexistent right of first refusal to the right to top.
a. The history behind the birth of the right to top shows fraud and bad faith.
b. The right of first refusal was, indeed, "effectively useless."
4. Petitioner is not legally estopped to challenge the right to top in this case.
a. Estoppel is unavailing as it would stamp validity to an act that is prohibited by law or against public
policy.
b. Deception was patent; the right to top was an attractive nuisance.
c. The 10% bid deposit was placed in escrow.
J.G. Summits insistence that the right to top cannot be sourced from the right of first refusal is not new
and we have already ruled on the issue in our Resolution of September 24, 2003. We upheld the mutual right
of first refusal in the JVA.34 We also ruled that nothing in the JVA prevents KAWASAKI from acquiring
more than 40% of PHILSECOs total capitalization.35 Likewise, nothing in the JVA or ASBR bars the
conversion of the right of first refusal to the right to top. In sum, nothing new and of significance in the
petitioners pleading warrants a reconsideration of our ruling.
Likewise, we already disposed of the argument that neither the right of first refusal nor the right to top can
legally be exercised by the consortium which is not the proper party granted such right under either the JVA
or the ASBR. Thus, we held:
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life
Assurance, Mitsui and ICTSI), has joined PHILYARDS in the latter's effort to raise P2.131 billion necessary
in exercising the right to top is not contrary to law, public policy or public morals. There is nothing in the
ASBR that bars the losing bidders from joining either the winning bidder (should the right to top is not
exercised) or KAWASAKI/PHI (should it exercise its right to top as it did), to raise the purchase price. The
petitioner did not allege, nor was it shown by competent evidence, that the participation of the losing bidders
in the public bidding was done with fraudulent intent. Absent any proof of fraud, the formation by
[PHILYARDS] of a consortium is legitimate in a free enterprise system. The appellate court is thus correct in
holding the petitioner estopped from questioning the validity of the transfer of the National Government's
shares in PHILSECO to respondent.36
Further, we see no inherent illegality on PHILYARDS act in seeking funding from parties who were
losing bidders. This is a purely commercial decision over which the State should not interfere absent any
legal infirmity. It is emphasized that the case at bar involves the disposition of shares in a corporation which
the government sought to privatize. As such, the persons with whom PHILYARDS desired to enter into
business with in order to raise funds to purchase the shares are basically its business. This is in contrast to a
case involving a contract for the operation of or construction of a government infrastructure where the
identity of the buyer/bidder or financier constitutes an important consideration. In such cases, the
government would have to take utmost precaution to protect public interest by ensuring that the parties with
which it is contracting have the ability to satisfactorily construct or operate the infrastructure.

On the landholding issue, J.G. Summit submits that since PHILSECO is a landholding company,
KAWASAKI could exercise its right of first refusal only up to 40% of the shares of PHILSECO due to the
constitutional prohibition on landholding by corporations with more than 40% foreign-owned equity. It
further argues that since KAWASAKI already held at least 40% equity in PHILSECO, the right of first
refusal was inutile and as such, could not subsequently be converted into the right to top. 37 Petitioner also
asserts that, at present, PHILSECO continues to violate the constitutional provision on landholdings as its
shares are more than 40% foreign-owned.38 PHILYARDS admits that it may have previously held land but
had already divested such landholdings.39 It contends, however, that even if PHILSECO owned land, this
would not affect the right of first refusal but only the exercise thereof. If the land is retained, the right of first
refusal, being a property right, could be assigned to a qualified party. In the alternative, the land could be
divested before the exercise of the right of first refusal. In the case at bar, respondents assert that since the
right of first refusal was validly converted into a right to top, which was exercised not by KAWASAKI, but
by PHILYARDS which is a Filipino corporation (i.e., 60% of its shares are owned by Filipinos), then there is
no violation of the Constitution.40 At first, it would seem that questions of fact beyond cognizance by this
Court were involved in the issue. However, the records show that PHILYARDS admits it had owned land
up until the time of the bidding. 41 Hence, the only issue is whether KAWASAKI had a valid right of
first refusal over PHILSECO shares under the JVA considering that PHILSECO owned land until the
time of the bidding and KAWASAKI already held 40% of PHILSECOs equity.
We uphold the validity of the mutual rights of first refusal under the JVA between KAWASAKI and NIDC.
First of all, the right of first refusal is a property right of PHILSECO shareholders, KAWASAKI and NIDC,
under the terms of their JVA. This right allows them to purchase the shares of their co-shareholder before
they are offered to a third party. The agreement of co-shareholders to mutually grant this right to each
other, by itself, does not constitute a violation of the provisions of the Constitution limiting land
ownership to Filipinos and Filipino corporations. As PHILYARDS correctly puts it, if PHILSECO still
owns land, the right of first refusal can be validly assigned to a qualified Filipino entity in order to maintain
the 60%-40% ratio. This transfer, by itself, does not amount to a violation of the Anti-Dummy Laws, absent
proof of any fraudulent intent. The transfer could be made either to a nominee or such other party which the
holder of the right of first refusal feels it can comfortably do business with. Alternatively, PHILSECO may
divest of its landholdings, in which case KAWASAKI, in exercising its right of first refusal, can exceed 40%
of PHILSECOs equity. In fact, it can even be said that if the foreign shareholdings of a landholding
corporation exceeds 40%, it is not the foreign stockholders ownership of the shares which is
adversely affected but the capacity of the corporation to own land that is, the corporation becomes
disqualified to own land. This finds support under the basic corporate law principle that the corporation and
its stockholders are separate juridical entities. In this vein, the right of first refusal over shares pertains to the
shareholders whereas the capacity to own land pertains to the corporation. Hence, the fact that PHILSECO
owns land cannot deprive stockholders of their right of first refusal. No law disqualifies a person from
purchasing shares in a landholding corporation even if the latter will exceed the allowed foreign
equity, what the law disqualifies is the corporation from owning land. This is the clear import of the
following provisions in the Constitution:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces
of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural resources are
owned by the State. With the exception of agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of natural resources shall be under the full control
and supervision of the State. The State may directly undertake such activities, or it may enter into coproduction, joint venture, or production-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may
be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under
such terms and conditions as may be provided by law. In cases of water rights for irrigation, water supply,
fisheries, or industrial uses other than the development of water power, beneficial use may be the measure
and limit of the grant.
xxx xxx xxx
Section 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed
except to individuals, corporations, or associations qualified to acquire or hold lands of the public
domain.42(emphases supplied)

The petitioner further argues that "an option to buy land is void in itself (Philippine Banking Corporation v.
Lui She, 21 SCRA 52 [1967]). The right of first refusal granted to KAWASAKI, a Japanese corporation, is
similarly void. Hence, the right to top, sourced from the right of first refusal, is also void." 43 Contrary to the
contention of petitioner, the case of Lui She did not that say "an option to buy land is void in itself," for we
ruled as follows:
x x x To be sure, a lease to an alien for a reasonable period is valid. So is an option giving an alien the
right to buy real property on condition that he is granted Philippine citizenship. As this Court said in
Krivenko vs. Register of Deeds:
[A]liens are not completely excluded by the Constitution from the use of lands for residential purposes.
Since their residence in the Philippines is temporary, they may be granted temporary rights such as a lease
contract which is not forbidden by the Constitution. Should they desire to remain here forever and share our
fortunes and misfortunes, Filipino citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of which
the Filipino owner cannot sell or otherwise dispose of his property, this to last for 50 years, then it
becomes clear that the arrangement is a virtual transfer of ownership whereby the owner divests
himself in stages not only of the right to enjoy the land (jus possidendi, jus utendi, jus fruendi and jus
abutendi) but also of the right to dispose of it (jus disponendi) rights the sum total of which make up
ownership. It is just as if today the possession is transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights of which ownership is made up are consolidated in
an alien. And yet this is just exactly what the parties in this case did within this pace of one year, with the
result that Justina Santos'[s] ownership of her property was reduced to a hollow concept. If this can be done,
then the Constitutional ban against alien landholding in the Philippines, as announced in Krivenko vs.
Register of Deeds, is indeed in grave peril.44 (emphases supplied; Citations omitted)
In Lui She, the option to buy was invalidated because it amounted to a virtual transfer of ownership as the
owner could not sell or dispose of his properties. The contract in Lui She prohibited the owner of the land
from selling, donating, mortgaging, or encumbering the property during the 50-year period of the option to
buy. This is not so in the case at bar where the mutual right of first refusal in favor of NIDC and
KAWASAKI does not amount to a virtual transfer of land to a non-Filipino. In fact, the case at bar involves
a right of first refusal over shares of stock while the Lui She case involves an option to buy the land
itself. As discussed earlier, there is a distinction between the shareholders ownership of shares and the
corporations ownership of land arising from the separate juridical personalities of the corporation and its
shareholders.
We note that in its Motion for Reconsideration, J.G. Summit alleges that PHILSECO continues to violate the
Constitution as its foreign equity is above 40% and yet owns long-term leasehold rights which are real
rights.45 It cites Article 415 of the Civil Code which includes in the definition of immovable property,
"contracts for public works, and servitudes and other real rights over immovable property." 46 Any existing
landholding, however, is denied by PHILYARDS citing its recent financial statements. 47 First, these are
questions of fact, the veracity of which would require introduction of evidence. The Court needs to validate
these factual allegations based on competent and reliable evidence. As such, the Court cannot resolve the
questions they pose. Second, J.G. Summit misreads the provisions of the Constitution cited in its own
pleadings, to wit:
29.2 Petitioner has consistently pointed out in the past that private respondent is not a 60%-40% corporation,
and this violates the Constitution x x x The violation continues to this day because under the law, it
continues to own real property
xxx xxx xxx
32. To review the constitutional provisions involved, Section 14, Article XIV of the 1973 Constitution (the
JVA was signed in 1977), provided:
"Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to
individuals, corporations, or associations qualified to acquire or hold lands of the public domain."
32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution.
32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the public domain are
corporations at least 60% of which is owned by Filipino citizens (Sec. 22, Commonwealth Act 141, as
amended). (emphases supplied)
As correctly observed by the public respondents, the prohibition in the Constitution applies only to
ownership of land.48 It does not extend to immovable or real property as defined under Article 415 of

the Civil Code.Otherwise, we would have a strange situation where the ownership of immovable property
such as trees, plants and growing fruit attached to the land 49 would be limited to Filipinos and Filipino
corporations only.
III.
WHEREFORE, in view of the foregoing, the petitioners Motion for Reconsideration is DENIED WITH
FINALITY and the decision appealed from is AFFIRMED. The Motion to Elevate This Case to the
Court En Banc is likewise DENIED for lack of merit.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Corona, and Tinga, JJ., concur.
G.R. No. 176579
WILSON P. GAMBOA,Petitioner,
- versus FINANCE SECRETARY MARGARITO B. TEVES, FINANCE UNDERSECRETARY JOHN P.
SEVILLA, AND COMMISSIONER RICARDO ABCEDE OF THE PRESIDENTIAL COMMISSION
ON GOOD GOVERNMENT (PCGG) IN THEIR CAPACITIES AS CHAIR AND MEMBERS,
RESPECTIVELY, OF THE PRIVATIZATION COUNCIL,
CHAIRMAN ANTHONI SALIM OF FIRST PACIFIC CO., LTD. IN HIS CAPACITY AS
DIRECTOR OF METRO PACIFIC ASSET HOLDINGS INC., CHAIRMAN MANUEL V.
PANGILINAN OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY (PLDT) IN HIS
CAPACITY AS MANAGING DIRECTOR OF FIRST PACIFIC CO., LTD., PRESIDENT
NAPOLEON L. NAZARENO OF PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
CHAIR FE BARIN OF THE SECURITIES EXCHANGE COMMISSION, and PRESIDENT
FRANCIS LIM OF THE PHILIPPINE STOCK EXCHANGE, Respondents
DECISION
CARPIO, J.:
The Case
This is an original petition for prohibition, injunction, declaratory relief and declaration of nullity of the sale
of shares of stock of Philippine Telecommunications Investment Corporation (PTIC) by the government of
the Republic of the Philippines to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific
Company Limited (First Pacific).
The Antecedents
The facts, according to petitioner Wilson P. Gamboa, a stockholder of Philippine Long Distance Telephone
Company (PLDT), are as follows:1
On 28 November 1928, the Philippine Legislature enacted Act No. 3436 which granted PLDT a franchise
and the right to engage in telecommunications business. In 1969, General Telephone and Electronics
Corporation (GTE), an American company and a major PLDT stockholder, sold 26 percent of the
outstanding common shares of PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI) was incorporated by
several persons, including Roland Gapud and Jose Campos, Jr. Subsequently, PHI became the owner of
111,415 shares of stock of PTIC by virtue of three Deeds of Assignment executed by PTIC stockholders
Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 shares of stock of PTIC held by PHI were
sequestered by the Presidential Commission on Good Government (PCGG). The 111,415 PTIC shares,
which represent about 46.125 percent of the outstanding capital stock of PTIC, were later declared by this
Court to be owned by the Republic of the Philippines.2
In 1999, First Pacific, a Bermuda-registered, Hong Kong-based investment firm, acquired the remaining 54
percent of the outstanding capital stock of PTIC. On 20 November 2006, the Inter-Agency Privatization
Council (IPC) of the Philippine Government announced that it would sell the 111,415 PTIC shares, or

46.125 percent of the outstanding capital stock of PTIC, through a public bidding to be conducted on 4
December 2006. Subsequently, the public bidding was reset to 8 December 2006, and only two bidders,
Parallax Venture Fund XXVII (Parallax) and Pan-Asia Presidio Capital, submitted their bids. Parallax won
with a bid of P25.6 billion or US$510 million.
Thereafter, First Pacific announced that it would exercise its right of first refusal as a PTIC stockholder and
buy the 111,415 PTIC shares by matching the bid price of Parallax. However, First Pacific failed to do so by
the 1 February 2007 deadline set by IPC and instead, yielded its right to PTIC itself which was then given by
IPC until 2 March 2007 to buy the PTIC shares. On 14 February 2007, First Pacific, through its subsidiary,
MPAH, entered into a Conditional Sale and Purchase Agreement of the 111,415 PTIC shares, or 46.125
percent of the outstanding capital stock of PTIC, with the Philippine Government for the price
of P25,217,556,000 or US$510,580,189. The sale was completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the Philippine Government of 46.125 percent of PTIC
shares is actually an indirect sale of 12 million shares or about 6.3 percent of the outstanding common shares
of PLDT. With the sale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to
37 percent, thereby increasing the common shareholdings of foreigners in PLDT to about 81.47
percent. This violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign
ownership of the capital of a public utility to not more than 40 percent.3
On the other hand, public respondents Finance Secretary Margarito B. Teves, Undersecretary John P. Sevilla,
and PCGG Commissioner Ricardo Abcede allege the following relevant facts:
On 9 November 1967, PTIC was incorporated and had since engaged in the business of investment holdings.
PTIC held 26,034,263 PLDT common shares, or 13.847 percent of the total PLDT outstanding common
shares. PHI, on the other hand, was incorporated in 1977, and became the owner of 111,415 PTIC shares or
46.125 percent of the outstanding capital stock of PTIC by virtue of three Deeds of Assignment executed by
Ramon Cojuangco and Luis Tirso Rivilla. In 1986, the 111,415 PTIC shares held by PHI were sequestered
by the PCGG, and subsequently declared by this Court as part of the ill-gotten wealth of former President
Ferdinand Marcos. The sequestered PTIC shares were reconveyed to the Republic of the Philippines in
accordance with this Courts decision4 which became final and executory on 8 August 2006.
The Philippine Government decided to sell the 111,415 PTIC shares, which represent 6.4 percent of the
outstanding common shares of stock of PLDT, and designated the Inter-Agency Privatization Council (IPC),
composed of the Department of Finance and the PCGG, as the disposing entity. An invitation to bid was
published in seven different newspapers from 13 to 24 November 2006. On 20 November 2006, a pre-bid
conference was held, and the original deadline for bidding scheduled on 4 December 2006 was reset to 8
December 2006. The extension was published in nine different newspapers.
During the 8 December 2006 bidding, Parallax Capital Management LP emerged as the highest bidder with
a bid of P25,217,556,000. The government notified First Pacific, the majority owner of PTIC shares, of the
bidding results and gave First Pacific until 1 February 2007 to exercise its right of first refusal in accordance
with PTICs Articles of Incorporation. First Pacific announced its intention to match Parallaxs bid.
On 31 January 2007, the House of Representatives (HR) Committee on Good Government conducted a
public hearing on the particulars of the then impending sale of the 111,415 PTIC shares.
Respondents Teves and Sevilla were among those who attended the public hearing. The HR Committee
Report No. 2270 concluded that: (a) the auction of the governments 111,415 PTIC shares bore due diligence,
transparency and conformity with existing legal procedures; and (b) First Pacifics intended acquisition of
the governments 111,415 PTIC shares resulting in First Pacifics 100% ownership of PTIC will not
violate the 40 percent constitutional limit on foreign ownership of a public utility since PTIC holds
only 13.847 percent of the total outstanding common shares of PLDT.5 On 28 February 2007, First
Pacific completed the acquisition of the 111,415 shares of stock of PTIC.
Respondent Manuel V. Pangilinan admits the following facts: (a) the IPC conducted a public bidding for the
sale of 111,415 PTIC shares or 46 percent of the outstanding capital stock of PTIC (the remaining 54 percent

of PTIC shares was already owned by First Pacific and its affiliates); (b) Parallax offered the highest bid
amounting to P25,217,556,000; (c) pursuant to the right of first refusal in favor of PTIC and its shareholders
granted in PTICs Articles of Incorporation, MPAH, a First Pacific affiliate, exercised its right of first refusal
by matching the highest bid offered for PTIC shares on 13 February 2007; and (d) on 28 February 2007, the
sale was consummated when MPAH paid IPC P25,217,556,000 and the government delivered the
certificates for the 111,415 PTIC shares. Respondent Pangilinan denies the other allegations of facts of
petitioner.
On 28 February 2007, petitioner filed the instant petition for prohibition, injunction, declaratory relief, and
declaration of nullity of sale of the 111,415 PTIC shares. Petitioner claims, among others, that the sale of the
111,415 PTIC shares would result in an increase in First Pacifics common shareholdings in PLDT from 30.7
percent to 37 percent, and this, combined with Japanese NTT DoCoMos common shareholdings in PLDT,
would result to a total foreign common shareholdings in PLDT of 51.56 percent which is over the 40 percent
constitutional limit.6 Petitioner asserts:
If and when the sale is completed, First Pacifics equity in PLDT will go up from 30.7 percent to 37.0
percent of its common or voting- stockholdings, x x x. Hence, the consummation of the sale will put
the two largest foreign investors in PLDT First Pacific and Japans NTT DoCoMo, which is the
worlds largest wireless telecommunications firm, owning 51.56 percent of PLDT common equity.
x x x With the completion of the sale, data culled from the official website of the New York Stock
Exchange (www.nyse.com) showed that those foreign entities, which own at least five percent of
common equity, will collectively own 81.47 percent of PLDTs common equity. x x x
x x x as the annual disclosure reports, also referred to as Form 20-K reports
x x x which PLDT submitted to the New York Stock Exchange for the period 20032005, revealed that First Pacific and several other foreign entities breached the
constitutional limit of 40 percent ownership as early as 2003. x x x7
Petitioner raises the following issues: (1) whether the consummation of the then impending sale of 111,415
PTIC shares to First Pacific violates the constitutional limit on foreign ownership of a public utility; (2)
whether public respondents committed grave abuse of discretion in allowing the sale of the 111,415 PTIC
shares to First Pacific; and (3) whether the sale of common shares to foreigners in excess of 40 percent of
the entire subscribed common capital stock violates the constitutional limit on foreign ownership of a public
utility.8
On 13 August 2007, Pablito V. Sanidad and Arno V. Sanidad filed a Motion for Leave to Intervene and
Admit Attached Petition-in-Intervention. In the Resolution of 28 August 2007, the Court granted the motion
and noted the Petition-in-Intervention.
Petitioners-in-intervention join petitioner Wilson Gamboa x x x in seeking, among others, to enjoin and/or
nullify the sale by respondents of the 111,415 PTIC shares to First Pacific or assignee. Petitioners-inintervention claim that, as PLDT subscribers, they have a stake in the outcome of the controversy
x x x where the Philippine Government is completing the sale of government owned assets in [PLDT],
unquestionably a public utility, in violation of the nationality restrictions of the Philippine Constitution.
The Issue
This Court is not a trier of facts. Factual questions such as those raised by petitioner,9 which indisputably
demand a thorough examination of the evidence of the parties, are generally beyond this Courts jurisdiction.
Adhering to this well-settled principle, the Court shall confine the resolution of the instant controversy
solely on the threshold and purely legal issue of whether the term capital in Section 11, Article XII of the
Constitution refers to the total common shares only or to the total outstanding capital stock (combined total
of common and non-voting preferred shares) of PLDT, a public utility.

The Ruling of the Court

The petition is partly meritorious.
Petition for declaratory relief treated as petition for mandamus
At the outset, petitioner is faced with a procedural barrier. Among the remedies petitioner seeks, only the
petition for prohibition is within the original jurisdiction of this court, which however is not exclusive but is
concurrent with the Regional Trial Court and the Court of Appeals. The actions for declaratory
relief,10 injunction, and annulment of sale are not embraced within the original jurisdiction of the Supreme
Court. On this ground alone, the petition could have been dismissed outright.
While direct resort to this Court may be justified in a petition for prohibition,11 the Court shall nevertheless
refrain from discussing the grounds in support of the petition for prohibition since on 28 February 2007, the
questioned sale was consummated when MPAH paid IPC P25,217,556,000 and the government delivered
the certificates for the 111,415 PTIC shares.
However, since the threshold and purely legal issue on the definition of the term capital in Section 11,
Article XII of the Constitution has far-reaching implications to the national economy, the Court treats the
petition for declaratory relief as one for mandamus.12
In Salvacion v. Central Bank of the Philippines,13 the Court treated the petition for declaratory relief as one
for mandamus considering the grave injustice that would result in the interpretation of a banking law. In that
case, which involved the crime of rape committed by a foreign tourist against a Filipino minor and the
execution of the final judgment in the civil case for damages on the tourists dollar deposit with a local bank,
the Court declared Section 113 of Central Bank Circular No. 960, exempting foreign currency deposits from
attachment, garnishment or any other order or process of any court, inapplicable due to the peculiar
circumstances of the case. The Court held that injustice would result especially to a citizen aggrieved by a
foreign guest like accused x x x that would negate Article 10 of the Civil Code which provides that in case
of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right
and justice to prevail. The Court therefore required respondents Central Bank of the Philippines, the local
bank, and the accused to comply with the writ of execution issued in the civil case for damages and to
release the dollar deposit of the accused to satisfy the judgment.
In Alliance of Government Workers v. Minister of Labor,14 the Court similarly brushed aside the procedural
infirmity of the petition for declaratory relief and treated the same as one for mandamus. In Alliance, the
issue was whether the government unlawfully excluded petitioners, who were government employees, from
the enjoyment of rights to which they were entitled under the law. Specifically, the question was: Are the
branches, agencies, subdivisions, and instrumentalities of the Government, including government owned or
controlled corporations included among the four employers under Presidential Decree No. 851 which are
required to pay their employees x x x a thirteenth (13th) month pay x x x ? The Constitutional principle
involved therein affected all government employees, clearly justifying a relaxation of the technical rules of
procedure, and certainly requiring the interpretation of the assailed presidential decree.
In short, it is well-settled that this Court may treat a petition for declaratory relief as one for mandamus if the
issue involved has far-reaching implications. As this Court held in Salvacion:
The Court has no original and exclusive jurisdiction over a petition for declaratory relief. However,
exceptions to this rule have been recognized. Thus, where the petition has far-reaching
implications and raises questions that should be resolved, it may be treated as one for
mandamus.15 (Emphasis supplied)
In the present case, petitioner seeks primarily the interpretation of the term capital in Section 11, Article XII
of the Constitution. He prays that this Court declare that the term capital refers to common shares only, and

that such shares constitute the sole basis in determining foreign equity in a public utility. Petitioner further
asks this Court to declare any ruling inconsistent with such interpretation unconstitutional.
The interpretation of the term capital in Section 11, Article XII of the Constitution has far-reaching
implications to the national economy. In fact, a resolution of this issue will determine whether Filipinos are
masters, or second class citizens, in their own country. What is at stake here is whether Filipinos or
foreigners will have effective control of the national economy. Indeed, if ever there is a legal issue that has
far-reaching implications to the entire nation, and to future generations of Filipinos, it is the threshhold legal
issue presented in this case.
The Court first encountered the issue on the definition of the term capital in Section 11, Article XII of the
Constitution in the case of Fernandez v. Cojuangco, docketed as G.R. No. 157360.16 That case involved the
same public utility (PLDT) and substantially the same private respondents. Despite the importance and
novelty of the constitutional issue raised therein and despite the fact that the petition involved a purely legal
question, the Court declined to resolve the case on the merits, and instead denied the same for disregarding
the hierarchy of courts.17 There, petitioner Fernandez assailed on a pure question of law the Regional Trial
Courts Decision of 21 February 2003 via a petition for review under Rule 45. The Courts Resolution,
denying the petition, became final on 21 December 2004.
The instant petition therefore presents the Court with another opportunity to finally settle this purely legal
issue which is of transcendental importance to the national economy and a fundamental requirement to a
faithful adherence to our Constitution. The Court must forthwith seize such opportunity, not only for the
benefit of the litigants, but more significantly for the benefit of the entire Filipino people, to ensure, in the
words of the Constitution, a self-reliant and independent national economy effectively controlled by
Filipinos.18 Besides, in the light of vague and confusing positions taken by government agencies on this
purely legal issue, present and future foreign investors in this country deserve, as a matter of basic fairness, a
categorical ruling from this Court on the extent of their participation in the capital of public utilities and
other nationalized businesses.
Despite its far-reaching implications to the national economy, this purely legal issue has remained
unresolved for over 75 years since the 1935 Constitution. There is no reason for this Court to evade this ever
recurring fundamental issue and delay again defining the term capital, which appears not only in Section 11,
Article XII of the Constitution, but also in Section 2, Article XII on co-production and joint venture
agreements for the development of our natural resources,19 in Section 7, Article XII on ownership of private
lands,20 in Section 10, Article XII on the reservation of certain investments to Filipino citizens,21 in Section
4(2), Article XIV on the ownership of educational institutions,22 and in Section 11(2), Article XVI on the
ownership of advertising companies.23
Petitioner has locus standi
There is no dispute that petitioner is a stockholder of PLDT. As such, he has the right to question the subject
sale, which he claims to violate the nationality requirement prescribed in Section 11, Article XII of the
Constitution. If the sale indeed violates the Constitution, then there is a possibility that PLDTs franchise
could be revoked, a dire consequence directly affecting petitioners interest as a stockholder.
More importantly, there is no question that the instant petition raises matters of transcendental importance to
the public. The fundamental and threshold legal issue in this case, involving the national economy and the
economic welfare of the Filipino people, far outweighs any perceived impediment in the legal personality of
the petitioner to bring this action.
In Chavez v. PCGG,24 the Court upheld the right of a citizen to bring a suit on matters of transcendental
importance to the public, thus:
In Taada v. Tuvera, the Court asserted that when the issue concerns a public right and the
object of mandamus is to obtain the enforcement of a public duty, the people are

regarded as the real parties in interest; and because it is sufficient that petitioner is a
citizen and as such is interested in the execution of the laws, he need not show that he
has any legal or special interest in the result of the action. In the aforesaid case, the
petitioners sought to enforce their right to be informed on matters of public concern, a right
then recognized in Section 6, Article IV of the 1973 Constitution, in connection with the rule
that laws in order to be valid and enforceable must be published in the Official Gazette or
otherwise effectively promulgated. In ruling for the petitioners legal standing, the Court
declared that the right they sought to be enforced is a public right recognized by no less than
the fundamental law of the land.
Legaspi v. Civil Service Commission, while reiterating Taada, further declared that when a
mandamus proceeding involves the assertion of a public right, the requirement of
personal interest is satisfied by the mere fact that petitioner is a citizen and, therefore,
part of the general public which possesses the right.
Further, in Albano v. Reyes, we said that while expenditure of public funds may not have
been involved under the questioned contract for the development, management and operation
of the Manila International Container Terminal, public interest [was] definitely involved
considering the important role [of the subject contract] . . . in the economic development
of the country and the magnitude of the financial consideration involved. We concluded
that, as a consequence, the disclosure provision in the Constitution would constitute sufficient
authority for upholding the petitioners standing. (Emphasis supplied)
Clearly, since the instant petition, brought by a citizen, involves matters of transcendental public importance,
the petitioner has the requisite locus standi.
Definition of the Term Capital in
Section 11, Article XII of the 1987 Constitution
Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates
the Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines, at least sixty per centum of whose
capital is owned by such citizens; nor shall such franchise, certificate, or authorization be exclusive
in character or for a longer period than fifty years. Neither shall any such franchise or right be
granted except under the condition that it shall be subject to amendment, alteration, or repeal by the
Congress when the common good so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in the governing body of
any public utility enterprise shall be limited to their proportionate share in its capital, and all the
executive and managing officers of such corporation or association must be citizens of the
Philippines. (Emphasis supplied)
The above provision substantially reiterates Section 5, Article XIV of the 1973 Constitution, thus:
Section 5. No franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or
associations organized under the laws of the Philippines at least sixty per centum of the capital
of which is owned by such citizens, nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years. Neither shall any such franchise or right
be granted except under the condition that it shall be subject to amendment, alteration, or repeal by
the National Assembly when the public interest so requires. The State shall encourage equity
participation in public utilities by the general public. The participation of foreign investors in the

governing body of any public utility enterprise shall be limited to their proportionate share in the
capital thereof. (Emphasis supplied)

The foregoing provision in the 1973 Constitution reproduced Section 8, Article XIV of the 1935
Constitution, viz:
Section 8. No franchise, certificate, or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations or other
entities organized under the laws of the Philippines sixty per centum of the capital of which is
owned by citizens of the Philippines, nor shall such franchise, certificate, or authorization be
exclusive in character or for a longer period than fifty years. No franchise or right shall be granted to
any individual, firm, or corporation, except under the condition that it shall be subject to amendment,
alteration, or repeal by the Congress when the public interest so requires. (Emphasis supplied)
Father Joaquin G. Bernas, S.J., a leading member of the 1986 Constitutional Commission, reminds us that
the Filipinization provision in the 1987 Constitution is one of the products of the spirit of nationalism which
gripped the 1935 Constitutional Convention.25 The 1987 Constitution provides for the Filipinization of
public utilities by requiring that any form of authorization for the operation of public utilities should be
granted only to citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned by such citizens. The provision is [an
express] recognition of the sensitive and vital position of public utilities both in the national economy
and for national security.26 The evident purpose of the citizenship requirement is to prevent aliens from
assuming control of public utilities, which may be inimical to the national interest.27 This specific provision
explicitly reserves to Filipino citizens control of public utilities, pursuant to an overriding economic goal of
the 1987 Constitution: to conserve and develop our patrimony28 and ensure a self-reliant and independent
national economy effectively controlled by Filipinos.29
Any citizen or juridical entity desiring to operate a public utility must therefore meet the minimum
nationality requirement prescribed in Section 11, Article XII of the Constitution. Hence, for a corporation to
be granted authority to operate a public utility, at least 60 percent of its capital must be owned by Filipino
citizens.
The crux of the controversy is the definition of the term capital. Does the term capital in Section 11, Article
XII of the Constitution refer to common shares or to the total outstanding capital stock (combined total of
common and non-voting preferred shares)?
Petitioner submits that the 40 percent foreign equity limitation in domestic public utilities refers only to
common shares because such shares are entitled to vote and it is through voting that control over a
corporation is exercised. Petitioner posits that the term capital in Section 11, Article XII of the Constitution
refers to the ownership of common capital stock subscribed and outstanding, which class of shares alone,
under the corporate set-up of PLDT, can vote and elect members of the board of directors. It is undisputed
that PLDTs non-voting preferred shares are held mostly by Filipino citizens.30 This arose from Presidential
Decree No. 217,31 issued on 16 June 1973 by then President Ferdinand Marcos, requiring every applicant of
a PLDT telephone line to subscribe to non-voting preferred shares to pay for the investment cost of installing
the telephone line.32
Petitioners-in-intervention basically reiterate petitioners arguments and adopt petitioners definition of the
term capital.33 Petitioners-in-intervention allege that the approximate foreign ownership of common capital
stock of PLDT x x x already amounts to at least 63.54% of the total outstanding common stock, which
means that foreigners exercise significant control over PLDT, patently violating the 40 percent foreign
equity limitation in public utilities prescribed by the Constitution.

Respondents, on the other hand, do not offer any definition of the term capital in Section 11, Article XII of
the Constitution. More importantly, private respondents Nazareno and Pangilinan of PLDT do not dispute
that more than 40 percent of the common shares of PLDT are held by foreigners.
In particular, respondent Nazarenos Memorandum, consisting of 73 pages, harps mainly on the procedural
infirmities of the petition and the supposed violation of the due process rights of the affected foreign
common shareholders. Respondent Nazareno does not deny petitioners allegation of foreigners dominating
the common shareholdings of PLDT. Nazarenostressed mainly that the petition seeks to divest foreign
common shareholders purportedly exceeding 40% of the total common shareholdings in PLDT of
their ownership over their shares. Thus, the foreign natural and juridical PLDT shareholders must
be impleaded in this suit so that they can be heard.34 Essentially, Nazareno invokes denial of due process on
behalf of the foreign common shareholders.
While Nazareno does not introduce any definition of the term capital, he states that among the factual
assertions that need to be established to counter petitioners allegations is the uniform interpretation
by government agencies (such as the SEC), institutions and corporations (such as the Philippine
National Oil Company-Energy Development Corporation or PNOC-EDC) of including both preferred
shares and common shares in controlling interest in view of testing compliance with the 40%
constitutional limitation on foreign ownership in public utilities.35
Similarly, respondent Manuel V. Pangilinan does not define the term capital in Section 11, Article XII of the
Constitution. Neither does he refute petitioners claim of foreigners holding more than 40 percent of PLDTs
common shares. Instead, respondent Pangilinan focuses on the procedural flaws of the petition and the
alleged violation of the due process rights of foreigners. Respondent Pangilinan emphasizes in his
Memorandum (1) the absence of this Courts jurisdiction over the petition; (2) petitioners lack of standing;
(3) mootness of the petition; (4) non-availability of declaratory relief; and (5) the denial of due process
rights. Moreover, respondent Pangilinan alleges that the issue should be whether owners of shares in PLDT
as well as owners of shares in companies holding shares in PLDT may be required to relinquish their shares
in PLDT and in those companies without any law requiring them to surrender their shares and also without
notice and trial.
Respondent Pangilinan further asserts that Section 11, [Article XII of the Constitution] imposes no
nationality requirement on the shareholders of the utility company as a condition for keeping their
shares in the utility company. According to him, Section 11 does not authorize taking one persons property
(the shareholders stock in the utility company) on the basis of another partys alleged failure to satisfy a
requirement that is a condition only for that other partys retention of another piece of property (the utility
company being at least 60% Filipino-owned to keep its franchise).36
The OSG, representing public respondents Secretary Margarito Teves, Undersecretary John P. Sevilla,
Commissioner Ricardo Abcede, and Chairman Fe Barin, is likewise silent on the definition of the term
capital. In its Memorandum37 dated 24 September 2007, the OSG also limits its discussion on the supposed
procedural defects of the petition, i.e. lack of standing, lack of jurisdiction, non-inclusion of interested
parties, and lack of basis for injunction. The OSG does not present any definition or interpretation of the
term capital in Section 11, Article XII of the Constitution. The OSG contends that the petition actually
partakes of a collateral attack on PLDTs franchise as a public utility, which in effect requires a full-blown
trial where all the parties in interest are given their day in court.38
Respondent Francisco Ed Lim, impleaded as President and Chief Executive Officer of the Philippine Stock
Exchange (PSE), does not also define the term capital and seeks the dismissal of the petition on the
following grounds: (1) failure to state a cause of action against Lim; (2) the PSE allegedly implemented its
rules and required all listed companies, including PLDT, to make proper and timely disclosures; and (3) the
reliefs prayed for in the petition would adversely impact the stock market.

In the earlier case of Fernandez v. Cojuangco, petitioner Fernandez who claimed to be a stockholder of
record of PLDT, contended that the term capital in the 1987 Constitution refers to shares entitled to vote or
the common shares. Fernandez explained thus:
The forty percent (40%) foreign equity limitation in public utilities prescribed by the Constitution
refers to ownership of shares of stock entitled to vote, i.e., common shares, considering that it is
through voting that control is being exercised. x x x
Obviously, the intent of the framers of the Constitution in imposing limitations and restrictions on
fully nationalized and partially nationalized activities is for Filipino nationals to be always in control
of the corporation undertaking said activities. Otherwise, if the Trial Courts ruling upholding
respondents arguments were to be given credence, it would be possible for the ownership structure of
a public utility corporation to be divided into one percent (1%) common stocks and ninety-nine
percent (99%) preferred stocks. Following the Trial Courts ruling adopting respondents arguments,
the common shares can be owned entirely by foreigners thus creating an absurd situation wherein
foreigners, who are supposed to be minority shareholders, control the public utility corporation.
xxxx
Thus, the 40% foreign ownership limitation should be interpreted to apply to both the beneficial
ownership and the controlling interest.
xxxx
Clearly, therefore, the forty percent (40%) foreign equity limitation in public utilities prescribed by
the Constitution refers to ownership of shares of stock entitled to vote, i.e., common shares.
Furthermore, ownership of record of shares will not suffice but it must be shown that the legal and
beneficial ownership rests in the hands of Filipino citizens. Consequently, in the case of petitioner
PLDT, since it is already admitted that the voting interests of foreigners which would gain entry to
petitioner PLDT by the acquisition of SMART shares through the Questioned Transactions is
equivalent to 82.99%, and the nominee arrangements between the foreign principals and the Filipino
owners is likewise admitted, there is, therefore, a violation of Section 11, Article XII of the
Constitution.
Parenthetically, the Opinions dated February 15, 1988 and April 14, 1987 cited by the Trial Court to
support the proposition that the meaning of the word capital as used in Section 11, Article XII of the
Constitution allegedly refers to the sum total of the shares subscribed and paid-in by the shareholder
and it allegedly is immaterial how the stock is classified, whether as common or preferred, cannot
stand in the face of a clear legislative policy as stated in the FIA which took effect in 1991 or way
after said opinions were rendered, and as clarified by the above-quoted Amendments. In this regard,
suffice it to state that as between the law and an opinion rendered by an administrative agency, the
law indubitably prevails. Moreover, said Opinions are merely advisory and cannot prevail over the
clear intent of the framers of the Constitution.
In the same vein, the SECs construction of Section 11, Article XII of the Constitution is at best
merely advisory for it is the courts that finally determine what a law means.39
On the other hand, respondents therein, Antonio O. Cojuangco, Manuel V. Pangilinan, Carlos A. Arellano,
Helen Y. Dee, Magdangal B. Elma, Mariles Cacho-Romulo, Fr. Bienvenido F. Nebres, Ray C. Espinosa,
Napoleon L. Nazareno, Albert F. Del Rosario, and Orlando B. Vea, argued that the term capital in Section
11, Article XII of the Constitution includes preferred shares since the Constitution does not distinguish
among classes of stock, thus:
16. The Constitution applies its foreign ownership limitation on the corporations capital, without
distinction as to classes of shares. x x x

In this connection, the Corporation Code which was already in force at the time the present (1987)
Constitution was drafted defined outstanding capital stock as follows:
Section 137. Outstanding capital stock defined. The term outstanding capital stock, as used in this
Code, means the total shares of stock issued under binding subscription agreements to subscribers or
stockholders, whether or not fully or partially paid, except treasury shares.
Section 137 of the Corporation Code also does not distinguish between common and preferred
shares, nor exclude either class of shares, in determining the outstanding capital stock (the capital) of
a corporation. Consequently, petitioners suggestion to reckon PLDTs foreign equity only on the basis
of PLDTs outstanding common shares is without legal basis. The language of the Constitution should
be understood in the sense it has in common use.
xxxx
17. But even assuming that resort to the proceedings of the Constitutional Commission is necessary,
there is nothing in the Record of the Constitutional Commission (Vol. III) which petitioner
misleadingly cited in the Petition x x x which supports petitioners view that only common shares
should form the basis for computing a public utilitys foreign equity.
xxxx
18. In addition, the SEC the government agency primarily responsible for implementing the Corporation
Code, and which also has the responsibility of ensuring compliance with the Constitutions foreign
equity restrictions as regards nationalized activities x x x has categorically ruled that both common
and preferred shares are properly considered in determining outstanding capital stock and the
nationality composition thereof.40
We agree with petitioner and petitioners-in-intervention. The term capital in Section 11, Article XII of the
Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in the present
case only to common shares,41 and not to the total outstanding capital stock comprising both common and
non-voting preferred shares.
The Corporation Code of the Philippines42 classifies shares as common or preferred, thus:
Sec. 6. Classification of shares. - The shares of stock of stock corporations may be divided into
classes or series of shares, or both, any of which classes or series of shares may have such rights,
privileges or restrictions as may be stated in the articles of incorporation: Provided, That no share
may be deprived of voting rights except those classified and issued as preferred or redeemable
shares, unless otherwise provided in this Code: Provided, further, That there shall always be a
class or series of shares which have complete voting rights. Any or all of the shares or series of
shares may have a par value or have no par value as may be provided for in the articles of
incorporation: Provided, however, That banks, trust companies, insurance companies, public utilities,
and building and loan associations shall not be permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the distribution of the
assets of the corporation in case of liquidation and in the distribution of dividends, or such other
preferences as may be stated in the articles of incorporation which are not violative of the provisions
of this Code: Provided, That preferred shares of stock may be issued only with a stated par value.
The Board of Directors, where authorized in the articles of incorporation, may fix the terms and
conditions of preferred shares of stock or any series thereof: Provided, That such terms and
conditions shall be effective upon the filing of a certificate thereof with the Securities and Exchange
Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and
the holder of such shares shall not be liable to the corporation or to its creditors in respect thereto:
Provided; That shares without par value may not be issued for a consideration less than the value of
five (P5.00) pesos per share: Provided, further, That the entire consideration received by the

corporation for its no-par value shares shall be treated as capital and shall not be available for
distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring compliance with
constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the certificate of stock,
each share shall be equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code,
the holders of such shares shall nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the
corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other corporations;
7. Investment of corporate funds in another corporation or business in accordance with this
Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote necessary to approve a
particular corporate act as provided in this Code shall be deemed to refer only to stocks with voting
rights.
Indisputably, one of the rights of a stockholder is the right to participate in the control or management of the
corporation.43 This is exercised through his vote in the election of directors because it is the board of
directors that controls or manages the corporation.44 In the absence of provisions in the articles of
incorporation denying voting rights to preferred shares, preferred shares have the same voting rights as
common shares. However, preferred shareholders are often excluded from any control, that is, deprived of
the right to vote in the election of directors and on other matters, on the theory that the preferred
shareholders are merely investors in the corporation for income in the same manner as bondholders.45 In
fact, under the Corporation Code only preferred or redeemable shares can be deprived of the right to
vote.46 Common shares cannot be deprived of the right to vote in any corporate meeting, and any provision
in the articles of incorporation restricting the right of common shareholders to vote is invalid.47
Considering that common shares have voting rights which translate to control, as opposed to preferred
shares which usually have no voting rights, the term capital in Section 11, Article XII of the Constitution
refers only to common shares. However, if the preferred shares also have the right to vote in the election of
directors, then the term capital shall include such preferred shares because the right to participate in the
control or management of the corporation is exercised through the right to vote in the election of
directors. In short, the term capital in Section 11, Article XII of the Constitution refers only to shares
of stock that can vote in the election of directors.
This interpretation is consistent with the intent of the framers of the Constitution to place in the hands of
Filipino citizens the control and management of public utilities. As revealed in the deliberations of the
Constitutional Commission, capital refers to the voting stock or controlling interest of a corporation, to wit:
MR. NOLLEDO. In Sections 3, 9 and 15, the Committee stated local or Filipino equity and foreign
equity; namely, 60-40 in Section 3, 60-40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always faced with this question: Where do we base the
equity requirement, is it on the authorized capital stock, on the subscribed capital stock, or on the
paid-up capital stock of a corporation? Will the Committee please enlighten me on this?

MR. VILLEGAS. We have just had a long discussion with the members of the team from the UP
Law Center who provided us a draft. The phrase that is contained here which we adopted from
the UP draft is 60 percent of voting stock.
MR. NOLLEDO. That must be based on the subscribed capital stock, because unless declared
delinquent, unpaid capital stock shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one corporation in another corporation, say, a corporation with 6040 percent equity invests in another corporation which is permitted by the Corporation Code, does
the Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding of the Committee.
MR. NOLLEDO. Therefore, we need additional Filipino capital?
MR. VILLEGAS. Yes.48
xxxx
MR. AZCUNA. May I be clarified as to that portion that was accepted by the Committee.
MR. VILLEGAS. The portion accepted by the Committee is the deletion of the phrase voting stock
or controlling interest.
MR. AZCUNA. Hence, without the Davide amendment, the committee report would read:
corporations or associations at least sixty percent of whose CAPITAL is owned by such citizens.
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is lost, we are stuck with 60 percent of the capital to be
owned by citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with the foreigners even if they are the minority. Let us
say 40 percent of the capital is owned by them, but it is the voting capital, whereas, the
Filipinos own the nonvoting shares. So we can have a situation where the corporation is
controlled by foreigners despite being the minority because they have the voting capital. That is
the anomaly that would result here.
MR. BENGZON. No, the reason we eliminated the word stock as stated in the 1973 and 1935
Constitutions is that according to Commissioner Rodrigo, there are associations that do not
have stocks. That is why we say CAPITAL.
MR. AZCUNA. We should not eliminate the phrase controlling interest.
MR. BENGZON. In the case of stock corporations, it is assumed.49 (Emphasis supplied)
Thus, 60 percent of the capital assumes, or should result in, controlling interest in the corporation.
Reinforcing this interpretation of the term capital, as referring to controlling interest or shares entitled to
vote, is the definition of a Philippine national in the Foreign Investments Act of 1991,50 to wit:

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

a. The term Philippine national shall mean a citizen of the Philippines; or a domestic partnership or
association wholly owned by citizens of the Philippines; or a corporation organized under the
laws of the Philippines of which at least sixty percent (60%) of the capital stock
outstanding and entitled to vote is owned and held by citizens of the Philippines; or a
corporation organized abroad and registered as doing business in the Philippines under the
Corporation Code of which one hundred percent (100%) of the capital stock outstanding and entitled
to vote is wholly owned by Filipinos or a trustee of funds for pension or other employee retirement
or separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of
the fund will accrue to the benefit of Philippine nationals: Provided, That where a corporation and its
non-Filipino stockholders own stocks in a Securities and Exchange Commission (SEC) registered
enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of each of
both corporations must be owned and held by citizens of the Philippines and at least sixty percent
(60%) of the members of the Board of Directors of each of both corporations must be citizens of the
Philippines, in order that the corporation, shall be considered a Philippine national. (Emphasis
supplied)
In explaining the definition of a Philippine national, the Implementing Rules and Regulations of the Foreign
Investments Act of 1991 provide:
b. Philippine national shall mean a citizen of the Philippines or a domestic partnership or association
wholly owned by the citizens of the Philippines; or a corporation organized under the laws of the
Philippines of which at least sixty percent [60%] of the capital stock outstanding and entitled to
vote is owned and held by citizens of the Philippines; or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a Philippine national and at least
sixty percent [60%] of the fund will accrue to the benefit of the Philippine nationals; Provided,that
where a corporation its non-Filipino stockholders own stocks in a Securities and Exchange
Commission [SEC] registered enterprise, at least sixty percent [60%] of the capital stock outstanding
and entitled to vote of both corporations must be owned and held by citizens of the Philippines and at
least sixty percent [60%] of the members of the Board of Directors of each of both corporation must
be citizens of the Philippines, in order that the corporation shall be considered a Philippine national.
The control test shall be applied for this purpose.
Compliance with the required Filipino ownership of a corporation shall be determined on the
basis of outstanding capital stock whether fully paid or not, but only such stocks which are
generally entitled to vote are considered.
For stocks to be deemed owned and held by Philippine citizens or Philippine nationals, mere
legal title is not enough to meet the required Filipino equity. Full beneficial ownership of the
stocks, coupled with appropriate voting rights is essential. Thus, stocks, the voting rights of
which have been assigned or transferred to aliens cannot be considered held by Philippine
citizens or Philippine nationals.
Individuals or juridical entities not meeting the aforementioned qualifications are considered
as non-Philippine nationals. (Emphasis supplied)

Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required in the Constitution.
Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the

voting rights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock
must rest in the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the
corporation is considered as non-Philippine national[s].
Under Section 10, Article XII of the Constitution, Congress may reserve to citizens of the Philippines or to
corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such
higher percentage as Congress may prescribe, certain areas of investments. Thus, in numerous laws
Congress has reserved certain areas of investments to Filipino citizens or to corporations at least sixty
percent of the capital of which is owned by Filipino citizens. Some of these laws are: (1) Regulation of
Award of Government Contracts or R.A. No. 5183; (2) Philippine Inventors Incentives Act or R.A. No.
3850; (3) Magna Carta for Micro, Small and Medium Enterprises or R.A. No. 6977; (4) Philippine Overseas
Shipping Development Act or R.A. No. 7471; (5) Domestic Shipping Development Act of 2004 or R.A. No.
9295; (6) Philippine Technology Transfer Act of 2009 or R.A. No. 10055; and (7) Ship Mortgage Decree or
P.D. No. 1521. Hence, the term capital in Section 11, Article XII of the Constitution is also used in the
same context in numerous lawsreserving certain areas of investments to Filipino citizens.
To construe broadly the term capital as the total outstanding capital stock, including both common and nonvoting preferred shares, grossly contravenes the intent and letter of the Constitution that the State shall
develop a self-reliant and independent national economy effectively controlled by Filipinos. A broad
definition unjustifiably disregards who owns the all-important voting stock, which necessarily equates to
control of the public utility.
We shall illustrate the glaring anomaly in giving a broad definition to the term capital. Let us assume that a
corporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred shares owned
by Filipinos, with both classes of share having a par value of one peso (P1.00) per share. Under the broad
definition of the term capital, such corporation would be considered compliant with the 40 percent
constitutional limit on foreign equity of public utilities since the overwhelming majority, or more than
99.999 percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd.
In the example given, only the foreigners holding the common shares have voting rights in the election of
directors, even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001
percent, exercise control over the public utility. On the other hand, the Filipinos, holding more than 99.999
percent of the equity, cannot vote in the election of directors and hence, have no control over the public
utility. This starkly circumvents the intent of the framers of the Constitution, as well as the clear language of
the Constitution, to place the control of public utilities in the hands of Filipinos. It also renders illusory the
State policy of an independent national economy effectively controlled by Filipinos.
The example given is not theoretical but can be found in the real world, and in fact exists in the present
case.
Holders of PLDT preferred shares are explicitly denied of the right to vote in the election of directors.
PLDTs Articles of Incorporation expressly state that the holders of Serial Preferred Stock shall not be
entitled to vote at any meeting of the stockholders for the election of directors or for any other
purpose or otherwise participate in any action taken by the corporation or its stockholders, or to receive
notice of any meeting of stockholders.51
On the other hand, holders of common shares are granted the exclusive right to vote in the election of
directors. PLDTs Articles of Incorporation52 state that each holder of Common Capital Stock shall have one
vote in respect of each share of such stock held by him on all matters voted upon by the stockholders,
and the holders of Common Capital Stock shall have the exclusive right to vote for the election of
directors and for all other purposes.53
In short, only holders of common shares can vote in the election of directors, meaning only common
shareholders exercise control over PLDT. Conversely, holders of preferred shares, who have no voting rights
in the election of directors, do not have any control over PLDT. In fact, under PLDTs Articles of

Incorporation, holders of common shares have voting rights for all purposes, while holders of preferred
shares have no voting right for any purpose whatsoever.
It must be stressed, and respondents do not dispute, that foreigners hold a majority of the common shares
of PLDT. In fact, based on PLDTs 2010 General Information Sheet (GIS),54which is a document required to
be submitted annually to the Securities and Exchange Commission,55 foreigners hold 120,046,690 common
shares of PLDT whereas Filipinos hold only 66,750,622 common shares.56 In other words, foreigners hold
64.27% of the total number of PLDTs common shares, while Filipinos hold only 35.73%. Since holding a
majority of the common shares equates to control, it is clear that foreigners exercise control over PLDT.
Such amount of control unmistakably exceeds the allowable 40 percent limit on foreign ownership of public
utilities expressly mandated in Section 11, Article XII of the Constitution.
Moreover, the Dividend Declarations of PLDT for 2009,57 as submitted to the SEC, shows that per share the
SIP58 preferred shares earn a pittance in dividends compared to the common shares. PLDT declared
dividends for the common shares at P70.00 per share, while the declared dividends for the preferred shares
amounted to a measly P1.00 per share.59 So the preferred shares not only cannot vote in the election of
directors, they also have very little and obviously negligible dividend earning capacity compared to common
shares.
As shown in PLDTs 2010 GIS,60 as submitted to the SEC, the par value of PLDT common shares is P5.00
per share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares
have twice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of
common shares. Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own
only a minuscule 0.56% of the preferred shares.61 Worse, preferred shares constitute 77.85% of the
authorized capital stock of PLDT while common shares constitute only 22.15%.62 This undeniably shows
that beneficial interest in PLDT is not with the non-voting preferred shares but with the common shares,
blatantly violating the constitutional requirement of 60 percent Filipino control and Filipino beneficial
ownership in a public utility.
The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the hands of
Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the
States grant of authority to operate a public utility. The undisputed fact that the PLDT preferred shares,
99.44% owned by Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT common shares
earn, grossly violates the constitutional requirement of 60 percent Filipino control and Filipino beneficial
ownership of a public utility.
In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the
dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of the
Constitution that [n]o franchise, certificate, or any other form of authorization for the operation of a public
utility shall be granted except to x x xcorporations x x x organized under the laws of the Philippines, at least
sixty per centum of whose capital is owned by such citizens x x x.
To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercises
the sole right to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own
only 35.73% of PLDTs common shares, constituting a minority of the voting stock, and thus do not exercise
control over PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred
shares earn only 1/70 of the dividends that common shares earn;63 (5) preferred shares have twice the par
value of common shares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT
and common shares only 22.15%. This kind of ownership and control of a public utility is a mockery of the
Constitution.
Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock market value
of P2,328.00 per share,64 while PLDT preferred shares with a par value of P10.00 per share have a current
stock market value ranging from only P10.92 to P11.06 per share,65 is a glaring confirmation by the market
that control and beneficial ownership of PLDT rest with the common shares, not with the preferred shares.

Indisputably, construing the term capital in Section 11, Article XII of the Constitution to include both voting
and non-voting shares will result in the abject surrender of our telecommunications industry to foreigners,
amounting to a clear abdication of the States constitutional duty to limit control of public utilities to Filipino
citizens. Such an interpretation certainly runs counter to the constitutional provision reserving certain areas
of investment to Filipino citizens, such as the exploitation of natural resources as well as the ownership of
land, educational institutions and advertising businesses. The Court should never open to foreign control
what the Constitution has expressly reserved to Filipinos for that would be a betrayal of the Constitution and
of the national interest. The Court must perform its solemn duty to defend and uphold the intent and letter of
the Constitution to ensure, in the words of the Constitution, a self-reliant and independent national
economy effectively controlled by Filipinos.
Section 11, Article XII of the Constitution, like other provisions of the Constitution expressly reserving to
Filipinos specific areas of investment, such as the development of natural resources and ownership of land,
educational institutions and advertising business, is self-executing. There is no need for legislation to
implement these self-executing provisions of the Constitution. The rationale why these constitutional
provisions are self-executing was explained in Manila Prince Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided that a legislative act is necessary to enforce a
constitutional mandate, the presumption now is that all provisions of the constitution are selfexecuting. If the constitutional provisions are treated as requiring legislation instead of selfexecuting, the legislature would have the power to ignore and practically nullify the mandate of the
fundamental law. This can be cataclysmic. That is why the prevailing view is, as it has always been,
that
. . . in case of doubt, the Constitution should be considered self-executing rather than non-selfexecuting. . . . Unless the contrary is clearly intended, the provisions of the Constitution should
be considered self-executing, as a contrary rule would give the legislature discretion to
determine when, or whether, they shall be effective. These provisions would be subordinated to
the will of the lawmaking body, which could make them entirely meaningless by simply refusing to
pass the needed implementing statute. (Emphasis supplied)

In Manila Prince Hotel, even the Dissenting Opinion of then Associate Justice Reynato S. Puno, later Chief
Justice, agreed that constitutional provisions are presumed to be self-executing. Justice Puno stated:
Courts as a rule consider the provisions of the Constitution as self-executing, rather than as requiring
future legislation for their enforcement. The reason is not difficult to discern. For if they are not
treated as self-executing, the mandate of the fundamental law ratified by the sovereign people
can be easily ignored and nullified by Congress. Suffused with wisdom of the ages is the
unyielding rule that legislative actions may give breath to constitutional rights but
congressional inaction should not suffocate them.
Thus, we have treated as self-executing the provisions in the Bill of Rights on arrests, searches and
seizures, the rights of a person under custodial investigation, the rights of an accused, and the
privilege against self-incrimination. It is recognized that legislation is unnecessary to enable courts to
effectuate constitutional provisions guaranteeing the fundamental rights of life, liberty and the
protection of property. The same treatment is accorded to constitutional provisions forbidding the
taking or damaging of property for public use without just compensation. (Emphasis supplied)

Thus, in numerous cases,67 this Court, even in the absence of implementing legislation, applied directly the
provisions of the 1935, 1973 and 1987 Constitutions limiting land ownership to Filipinos. In Soriano
v. Ong Hoo,68 this Court ruled:
x x x As the Constitution is silent as to the effects or consequences of a sale by a citizen of his land to
an alien, and as both the citizen and the alien have violated the law, none of them should have a
recourse against the other, and it should only be the State that should be allowed to intervene and
determine what is to be done with the property subject of the violation. We have said that what the
State should do or could do in such matters is a matter of public policy, entirely beyond the scope of
judicial authority. (Dinglasan, et al. vs. Lee Bun Ting, et al., 6 G. R. No. L-5996, June 27,
1956.) While the legislature has not definitely decided what policy should be followed in cases
of violations against the constitutional prohibition, courts of justice cannot go beyond by
declaring the disposition to be null and void as violative of the Constitution. x x x (Emphasis
supplied)
To treat Section 11, Article XII of the Constitution as not self-executing would mean that since the 1935
Constitution, or over the last 75 years, not one of the constitutional provisions expressly reserving specific
areas of investments to corporations, at least 60 percent of the capital of which is owned by Filipinos, was
enforceable. In short, the framers of the 1935, 1973 and 1987 Constitutions miserably failed to effectively
reserve to Filipinos specific areas of investment, like the operation by corporations of public utilities, the
exploitation by corporations of mineral resources, the ownership by corporations of real estate, and the
ownership of educational institutions. All the legislatures that convened since 1935 also miserably failed to
enact legislations to implement these vital constitutional provisions that determine who will effectively
control the national economy, Filipinos or foreigners. This Court cannot allow such an absurd interpretation
of the Constitution.
This Court has held that the SEC has both regulatory and adjudicative functions.69 Under its regulatory
functions, the SEC can be compelled by mandamus to perform its statutory duty when it unlawfully neglects
to perform the same. Under its adjudicative or quasi-judicial functions, the SEC can be also be compelled by
mandamus to hear and decide a possible violation of any law it administers or enforces when it is mandated
by law to investigate such violation.
Under Section 17(4)70 of the Corporation Code, the SEC has the regulatory function to reject or disapprove
the Articles of Incorporation of any corporation where the required percentage of ownership of the
capital stock to be owned by citizens of the Philippines has not been complied with as required by
existing laws or the Constitution. Thus, the SEC is the government agency tasked with the statutory duty
to enforce the nationality requirement prescribed in Section 11, Article XII of the Constitution on the
ownership of public utilities. This Court, in a petition for declaratory relief that is treated as a petition for
mandamus as in the present case, can direct the SEC to perform its statutory duty under the law, a duty that
the SEC has apparently unlawfully neglected to do based on the 2010 GIS that respondent PLDT submitted
to the SEC.
Under Section 5(m) of the Securities Regulation Code,71 the SEC is vested with the power and function
to suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds provided by law. The SEC is
mandated under Section 5(d) of the same Code with the power and function to investigate x x x the
activities of persons to ensure compliance with the laws and regulations that SEC administers or enforces.
The GIS that all corporations are required to submit to SEC annually should put the SEC on guard against
violations of the nationality requirement prescribed in the Constitution and existing laws. This Court can
compel the SEC, in a petition for declaratory relief that is treated as a petition for mandamus as in the
present case, to hear and decide a possible violation of Section 11, Article XII of the Constitution in view of
the ownership structure of PLDTs voting shares, as admitted by respondents and as stated in PLDTs 2010
GIS that PLDT submitted to SEC.

WHEREFORE, we PARTLY GRANT the petition and rule that the term capital in Section 11, Article XII
of the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in
the present case only to common shares, and not to the total outstanding capital stock (common and nonvoting preferred shares). Respondent Chairperson of the Securities and Exchange Commission
is DIRECTED to apply this definition of the term capital in determining the extent of allowable foreign
ownership in respondent Philippine Long Distance Telephone Company, and if there is a violation of Section
11, Article XII of the Constitution, to impose the appropriate sanctions under the law.
SO ORDERED.