G.R. No.

58168 December 19, 1989

CONCEPCION MAGSAYSAY-LABRADOR, SOLEDAD MAGSAYSAYCABRERA, LUISA MAGSAYSAY-CORPUZ, assisted be her husband,
Dr. Jose Corpuz, FELICIDAD P. MAGSAYSAY, and MERCEDES
MAGSAYSAY-DIAZ, petitioners,
vs.
THE COURT OF APPEALS and ADELAIDA RODRIGUEZ-MAGSAYSAY,
Special Administratrix of the Estate of the late Genaro F.
Magsaysay respondents.

FERNAN, C.J.:
In this petition for review on certiorari, petitioners seek to reverse and set
aside [1] the decision of the Court of Appeals dated July l3,
1981, 1 affirming that of the Court of First Instance of Zambales and
Olongapo City which denied petitioners' motion to intervene in an
annulment suit filed by herein private respondent, and [2] its resolution
dated September 7, 1981, denying their motion for reconsideration.
Petitioners are raising a purely legal question; whether or not respondent
Court of Appeals correctly denied their motion for intervention.
The facts are not controverted.
On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special
administratix of the estate of the late Senator Genaro Magsaysay,
brought before the then Court of First Instance of Olongapo an action
against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas
Manufacturer's Bank (FILMANBANK) and the Register of Deeds of
Zambales. In her complaint, she alleged that in 1958, she and her
husband acquired, thru conjugal funds, a parcel of land with
improvements, known as "Pequena Island", covered by TCT No. 3258; that
after the death of her husband, she discovered [a] an annotation at the
back of TCT No. 3258 that "the land was acquired by her husband from
his separate capital;" [b] the registration of a Deed of Assignment dated
June 25, 1976 purportedly executed by the late Senator in favor of SUBIC,
as a result of which TCT No. 3258 was cancelled and TCT No. 22431
issued in the name of SUBIC; and [c] the registration of Deed of Mortgage
dated April 28, 1977 in the amount of P 2,700,000.00 executed by SUBIC
in favor of FILMANBANK; that the foregoing acts were void and done in an
attempt to defraud the conjugal partnership considering that the land is
conjugal, her marital consent to the annotation on TCT No. 3258 was not
obtained, the change made by the Register of Deeds of the titleholders

was effected without the approval of the Commissioner of Land

Registration and that the late Senator did not execute the purported Deed
of Assignment or his consent thereto, if obtained, was secured by
mistake, violence and intimidation. She further alleged that the
assignment in favor of SUBIC was without consideration and consequently
null and void. She prayed that the Deed of Assignment and the Deed of
Mortgage be annulled and that the Register of Deeds be ordered to cancel
TCT No. 22431 and to issue a new title in her favor.
On March 7, 1979, herein petitioners, sisters of the late senator, filed a
motion for intervention on the ground that on June 20, 1978, their brother
conveyed to them one-half (1/2 ) of his shareholdings in SUBIC or a total
of 416,566.6 shares and as assignees of around 41 % of the total
outstanding shares of such stocks of SUBIC, they have a substantial and
legal interest in the subject matter of litigation and that they have a legal
interest in the success of the suit with respect to SUBIC.
On July 26, 1979, the court denied the motion for intervention, and ruled
that petitioners have no legal interest whatsoever in the matter in
litigation and their being alleged assignees or transferees of certain
shares in SUBIC cannot legally entitle them to intervene because SUBIC
has a personality separate and distinct from its stockholders.
On appeal, respondent Court of Appeals found no factual or legal
justification to disturb the findings of the lower court. The appellate court
further stated that whatever claims the petitioners have against the late
Senator or against SUBIC for that matter can be ventilated in a separate
proceeding, such that with the denial of the motion for intervention, they
are not left without any remedy or judicial relief under existing law.
Petitioners' motion for reconsideration was denied. Hence, the instant
recourse.
Petitioners anchor their right to intervene on the purported assignment
made by the late Senator of a certain portion of his shareholdings to them
as evidenced by a Deed of Sale dated June 20, 1978. 2 Such transfer,
petitioners posit, clothes them with an interest, protected by law, in the
matter of litigation.
Invoking the principle enunciated in the case of PNB v. Phil. Veg. Oil Co.,
49 Phil. 857,862 & 853 (1927), 3 petitioners strongly argue that their
ownership of 41.66% of the entire outstanding capital stock of SUBIC
entitles them to a significant vote in the corporate affairs; that they are
affected by the action of the widow of their late brother for it concerns the
only tangible asset of the corporation and that it appears that they are
more vitally interested in the outcome of the case than SUBIC.

CORPO 1

Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this
Court affirms the respondent court's holding that petitioners herein have
no legal interest in the subject matter in litigation so as to entitle them to
intervene in the proceedings below. In the case of Batama Farmers'
Cooperative Marketing Association, Inc. v. Rosal, 4 we held: "As clearly
stated in Section 2 of Rule 12 of the Rules of Court, to be permitted to
intervene in a pending action, the party must have a legal interest in the
matter in litigation, or in the success of either of the parties or an interest
against both, or he must be so situated as to be adversely affected by a
distribution or other disposition of the property in the custody of the court
or an officer thereof ."
To allow intervention, [a] it must be shown that the movant has legal
interest in the matter in litigation, or otherwise qualified; and [b]
consideration must be given as to whether the adjudication of the rights
of the original parties may be delayed or prejudiced, or whether the
intervenor's rights may be protected in a separate proceeding or not.
Both requirements must concur as the first is not more important than the
second. 5
The interest which entitles a person to intervene in a suit between other
parties must be in the matter in litigation and of such direct and
immediate character that the intervenor will either gain or lose by the
direct legal operation and effect of the judgment. Otherwise, if persons
not parties of the action could be allowed to intervene, proceedings will
become unnecessarily complicated, expensive and interminable. And this
is not the policy of the law. 6
The words "an interest in the subject" mean a direct interest in the cause
of action as pleaded, and which would put the intervenor in a legal
position to litigate a fact alleged in the complaint, without the
establishment of which plaintiff could not recover. 7
Here, the interest, if it exists at all, of petitioners-movants is indirect,
contingent, remote, conjectural, consequential and collateral. At the very
least, their interest is purely inchoate, or in sheer expectancy of a right in
the management of the corporation and to share in the profits thereof
and in the properties and assets thereof on dissolution, after payment of
the corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the
property of the corporation, it does not vest the owner thereof with any
legal right or title to any of the property, his interest in the corporate
property being equitable or beneficial in nature. Shareholders are in no
legal sense the owners of corporate property, which is owned by the
corporation as a distinct legal person. 8

2 CORPO

Petitioners further contend that the availability of other remedies, as

declared by the Court of appeals, is totally immaterial to the availability of
the remedy of intervention.
We cannot give credit to such averment. As earlier stated, that the
movant's interest may be protected in a separate proceeding is a factor
to be considered in allowing or disallowing a motion for intervention. It is
significant to note at this juncture that as per records, there are four
pending cases involving the parties herein, enumerated as follows: [1]
Special Proceedings No. 122122 before the CFI of Manila, Branch XXII,
entitled "Concepcion Magsaysay-Labrador, et al. v. Subic Land Corp., et
al.", involving the validity of the transfer by the late Genaro Magsaysay of
one-half of his shareholdings in Subic Land Corporation; [2] Civil Case No.
2577-0 before the CFI of Zambales, Branch III, "Adelaida RodriguezMagsaysay v. Panganiban, etc.; Concepcion Labrador, et al. Intervenors",
seeking to annul the purported Deed of Assignment in favor of SUBIC and
its annotation at the back of TCT No. 3258 in the name of respondent's
deceased husband; [3] SEC Case No. 001770, filed by respondent
praying, among other things that she be declared in her capacity as the
surviving spouse and administratrix of the estate of Genaro Magsaysay as
the sole subscriber and stockholder of SUBIC. There, petitioners, by
motion, sought to intervene. Their motion to reconsider the denial of their
motion to intervene was granted; [4] SP No. Q-26739 before the CFI of
Rizal, Branch IV, petitioners herein filing a contingent claim pursuant to
Section 5, Rule 86, Revised Rules of Court. 9 Petitioners' interests are no
doubt amply protected in these cases.
Neither do we lend credence to petitioners' argument that they are more
interested in the outcome of the case than the corporation-assignee,
owing to the fact that the latter is willing to compromise with widowrespondent and since a compromise involves the giving of reciprocal
concessions, the only conceivable concession the corporation may give is
a total or partial relinquishment of the corporate assets. 10
Such claim all the more bolsters the contingent nature of petitioners'
interest in the subject of litigation.
The factual findings of the trial court are clear on this point. The
petitioners cannot claim the right to intervene on the strength of the
transfer of shares allegedly executed by the late Senator. The corporation
did not keep books and records. 11 Perforce, no transfer was ever
recorded, much less effected as to prejudice third parties. The transfer
must be registered in the books of the corporation to affect third persons.
The law on corporations is explicit. Section 63 of the Corporation Code
provides, thus: "No transfer, however, shall be valid, except as between
the parties, until the transfer is recorded in the books of the corporation
showing the names of the parties to the transaction, the date of the

transfer, the number of the certificate or certificates and the number of

shares transferred."
And even assuming arguendo that there was a valid transfer, petitioners
are nonetheless barred from intervening inasmuch as their rights can be
ventilated and amply protected in another proceeding.
WHEREFORE, the instant petition is hereby DENIED. Costs against
petitioners.

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

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

ANTONIO, J.:
The issue posed in this appeal is whether or not plaintiff corporation (nonstock may institute an action in behalf of its individual members for the
recovery of certain parcels of land allegedly owned by said members; for
the nullification of the transfer certificates of title issued in favor of
defendants appellees covering the aforesaid parcels of land; for a
declaration of "plaintiff's members as absolute owners of the property"
and the issuance of the corresponding certificate of title; and for
damages.
On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion
de revindicacion with the Court of First Instance of Bulacan, Fifth Judicial
District, Valenzuela, Bulacan, against defendants-appellees to recover the
ownership and possession of a large tract of land in San Jose del Monte,
Bulacan, containing an area of 27,982,250 square meters, more or less,
registered under the Torrens System in the name of defendants-appellees'
predecessors-in-interest. 1 The complaint, as amended on June 13, 1966,
specifically alleged that plaintiff is a corporation organized and existing
under the laws of the Philippines, with its principal office and place of
business at San Jose del Monte, Bulacan; that its membership is
composed of natural persons residing at San Jose del Monte, Bulacan; that
the members of the plaintiff corporation, through themselves and their

CORPO 3

predecessors-in-interest, had pioneered in the clearing of the forementioned tract of land, cultivated the same since the Spanish regime
and continuously possessed the said property openly and public under
concept of ownership adverse against the whole world; that defendantappellee Gregorio Araneta, Inc., sometime in the year 1958, through force
and intimidation, ejected the members of the plaintiff corporation fro their
possession of the aforementioned vast tract of land; that upon
investigation conducted by the members and officers of plaintiff
corporation, they found out for the first time in the year 1961 that the
land in question "had been either fraudelently or erroneously included, by
direct or constructive fraud, in Original Certificate of Title No. 466 of the
Land of Records of the province of Bulacan", issued on May 11, 1916,
which title is fictitious, non-existent and devoid of legal efficacy due to
the fact that "no original survey nor plan whatsoever" appears to have
been submitted as a basis thereof and that the Court of First Instance of
Bulacan which issued the decree of registration did not acquire
jurisdiction over the land registration case because no notice of such
proceeding was given to the members of the plaintiff corporation who
were then in actual possession of said properties; that as a consequence
of the nullity of the original title, all subsequent titles derived therefrom,
such as Transfer Certificate of Title No. 4903 issued in favor of Gregorio
Araneta and Carmen Zaragoza, which was subsequently cancelled by
Transfer Certificate of Title No. 7573 in the name of Gregorio Araneta,
Inc., Transfer Certificate of Title No. 4988 issued in the name of, the
National Waterworks & Sewerage Authority (NWSA), Transfer Certificate of
Title No. 4986 issued in the name of Hacienda Caretas, Inc., and another
transfer certificate of title in the name of Paradise Farms, Inc., are
therefore void. Plaintiff-appellant consequently prayed (1) that Original
Certificate of Title No. 466, as well as all transfer certificates of title issued
and derived therefrom, be nullified; (2) that "plaintiff's members" be
declared as absolute owners in common of said property and that the
corresponding certificate of title be issued to plaintiff; and (3) that
defendant-appellee Gregorio Araneta, Inc. be ordered to pay to plaintiff
the damages therein specified.
On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a
motion to dismiss the amended complaint on the grounds that (1) the
complaint states no cause of action; and (2) the cause of action, if any, is
barred by prescription and laches. Paradise Farms, Inc. and Hacienda
Caretas, Inc. filed motions to dismiss based on the same grounds.
Appellee National Waterworks & Sewerage Authority did not file any
motion to dismiss. However, it pleaded in its answer as special and
affirmative defenses lack of cause of action by the plaintiff-appellant and
the barring of such action by prescription and laches.
During the pendency of the motion to dismiss, plaintiff-appellant filed a
motion, dated October 7, 1966, praying that the case be transferred to
another branch of the Court of First Instance sitting at Malolos, Bulacan,

4 CORPO

According to defendants-appellees, they were not furnished a copy of said

motion, hence, on October 14, 1966, the lower court issued an Order
requiring plaintiff-appellant to furnish the appellees copy of said motion,
hence, on October 14, 1966, defendant-appellant's motion dated October
7, 1966 and, consequently, prayed that the said motion be denied for lack
of notice and for failure of the plaintiff-appellant to comply with the Order
of October 14, 1966. Similarly, defendant-appellee paradise Farms, Inc.
filed, on December 2, 1966, a manifestation information the court that it
also did not receive a copy of the afore-mentioned of appellant. On
January 24, 1967, the trial court issued an Order dismissing the amended
complaint.
On February 14, 1967, appellant filed a motion to reconsider the Order of
dismissal on the grounds that the court had no jurisdiction to issue the
Order of dismissal, because its request for the transfer of the case from
the Valenzuela Branch of the Court of First Instance to the Malolos Branch
of the said court has been approved by the Department of Justice; that
the complaint states a sufficient cause of action because the subject
matter of the controversy in one of common interest to the members of
the corporation who are so numerous that the present complaint should
be treated as a class suit; and that the action is not barred by the statute
of limitations because (a) an action for the reconveyance of property
registered through fraud does not prescribe, and (b) an action to impugn
a void judgment may be brought any time. This motion was denied by the
trial court in its Order dated February 22, 1967. From the afore-mentioned
Order of dismissal and the Order denying its motion for reconsideration,
plaintiff-appellant appealed to the Court of Appeals.
On September 3, 1969, the Court of Appeals, upon finding that no
question of fact was involved in the appeal but only questions of law and
jurisdiction, certified this case to this Court for resolution of the legal
issues involved in the controversy.
I
Appellant contends, as a first assignment of error, that the trial court
acted without authority and jurisdiction in dismissing the amended
complaint when the Secretary of Justice had already approved the
transfer of the case to any one of the two branches of the Court of First
Instance of Malolos, Bulacan.
Appellant confuses the jurisdiction of a court and the venue of cases with
the assignment of cases in the different branches of the same Court of
First Instance. Jurisdiction implies the power of the court to decide a case,
while venue the place of action. There is no question that respondent
court has jurisdiction over the case. The venue of actions in the Court of
First Instance is prescribed in Section 2, Rule 4 of the Revised Rules of

Court. The laying of venue is not left to the caprice of plaintiff, but must
be in accordance with the aforesaid provision of the rules. 2 The mere fact
that a request for the transfer of a case to another branch of the same
court has been approved by the Secretary of Justice does not divest the
court originally taking cognizance thereof of its jurisdiction, much less
does it change the venue of the action. As correctly observed by the trial
court, the indorsement of the Undersecretary of Justice did not order the
transfer of the case to the Malolos Branch of the Bulacan Court of First
Instance, but only "authorized" it for the reason given by plaintiff's
counsel that the transfer would be convenient for the parties. The trial
court is not without power to either grant or deny the motion, especially
in the light of a strong opposition thereto filed by the defendant. We hold
that the court a quoacted within its authority in denying the motion for
the transfer the case to Malolos notwithstanding the authorization" of the
same by the Secretary of Justice.
II
Let us now consider the substantive aspect of the Order of dismissal.
In dismissing the amended complaint, the court a quo said:
The issue of lack of cause of action raised in the motions to
dismiss refer to the lack of personality of plaintiff to file the
instant action. Essentially, the term 'cause of action' is
composed of two elements: (1) the right of the plaintiff and
(2) the violation of such right by the defendant. (Moran, Vol.
1, p. 111). For these reasons, the rules require that every
action must be prosecuted and defended in the name of
the real party in interest and that all persons having an
interest in the subject of the action and in obtaining the
relief demanded shall be joined as plaintiffs (Sec. 2, Rule 3).
In the amended complaint, the people whose rights were
alleged to have been violated by being deprived and
dispossessed of their land are the members of the
corporation and not the corporation itself. The corporation
has a separate. and distinct personality from its members,
and this is not a mere technicality but a matter of
substantive law. There is no allegation that the members
have assigned their rights to the corporation or any
showing that the corporation has in any way or manner
succeeded to such rights. The corporation evidently did not
have any rights violated by the defendants for which it
could seek redress. Even if the Court should find against
the defendants, therefore, the plaintiff corporation would
not be entitled to the reliefs prayed for, which are
recoveries of ownership and possession of the land,
issuance of the corresponding title in its name, and

payment of damages. Neither can such reliefs be awarded

to the members allegedly deprived of their land, since they
are not parties to the suit. It appearing clearly that the
action has not been filed in the names of the real parties in
interest, the complaint must be dismissed on the ground of
lack of cause of action. 3
Viewed in the light of existing law and jurisprudence, We find that the trial
court correctly dismissed the amended complaint.
It is a doctrine well-established and obtains both at law and in equity that
a corporation is a distinct legal entity to be considered as separate and
apart from the individual stockholders or members who compose it, and is
not affected by the personal rights, obligations and transactions of its
stockholders or members. 4 The property of the corporation is its property
and not that of the stockholders, as owners, although they have equities
in it. Properties registered in the name of the corporation are owned by it
as an entity separate and distinct from its members. 5 Conversely, a
corporation ordinarily has no interest in the individual property of its
stockholders unless transferred to the corporation, "even in the case of a
one-man corporation. 6 The mere fact that one is president of a
corporation does not render the property which he owns or possesses the
property of the corporation, since the president, as individual, and the
corporation are separate similarities. 7Similarly, stockholders in a
corporation engaged in buying and dealing in real estate whose
certificates of stock entitled the holder thereof to an allotment in the
distribution of the land of the corporation upon surrender of their stock
certificates were considered not to have such legal or equitable title or
interest in the land, as would support a suit for title, especially against
parties other than the corporation. 8
It must be noted, however, that the juridical personality of the
corporation, as separate and distinct from the persons composing it, is
but a legal fiction introduced for the purpose of convenience and to
subserve the ends of justice. 9This separate personality of the corporation
may be disregarded, or the veil of corporate fiction pierced, in cases
where it is used as a cloak or cover for fraud or illegality, or to work -an
injustice, or where necessary to achieve equity. 10
Thus, when "the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, ... the law will
regard the corporation as an association of persons, or in the case of two
corporations, merge them into one, the one being merely regarded as
part or instrumentality of the other. 11 The same is true where a
corporation is a dummy and serves no business purpose and is intended
only as a blind, or an alter ego or business conduit for the sole benefit of
the stockholders. 12 This doctrine of disregarding the distinct personality
of the corporation has been applied by the courts in those cases when the

CORPO 5

corporate entity is used for the evasion of taxes 13 or when the veil of
corporate fiction is used to confuse legitimate issue of employeremployee relationship, 14 or when necessary for the protection of
creditors, in which case the veil of corporate fiction may be pierced and
the funds of the corporation may be garnished to satisfy the debts of a
principal stockholder. 15 The aforecited principle is resorted to by the
courts as a measure protection for third parties to prevent fraud, illegality
or injustice. 16
It has not been claimed that the members have assigned or transferred
whatever rights they may have on the land in question to the plaintiff
corporation. Absent any showing of interest, therefore, a corporation, like
plaintiff-appellant herein, has no personality to bring an action for and in
behalf of its stockholders or members for the purpose of recovering
property which belongs to said stockholders or members in their personal
capacities.
It is fundamental that there cannot be a cause of action 'without an
antecedent primary legal right conferred' by law upon a
person. 17 Evidently, there can be no wrong without a corresponding right,
and no breach of duty by one person without a corresponding right
belonging to some other person. 18 Thus, the essential elements of a
cause of action are legal right of the plaintiff, correlative obligation of the
defendant, an act or omission of the defendant in violation of the
aforesaid legal right. 19 Clearly, no right of action exists in favor of plaintiff
corporation, for as shown heretofore it does not have any interest in the
subject matter of the case which is material and, direct so as to entitle it
to file the suit as a real party in interest.
III
Appellant maintains, however, that the amended complaint may be
treated as a class suit, pursuant to Section 12 of Rule 3 of the Revised
Rules of Court.
In order that a class suit may prosper, the following requisites must be
present: (1) that the subject matter of the controversy is one of common
or general interest to many persons; and (2) that the parties are so
numerous that it is impracticable to bring them all before the court. 20
Under the first requisite, the person who sues must have an interest in
the controversy, common with those for whom he sues, and there must
be that unity of interest between him and all such other persons which
would entitle them to maintain the action if suit was brought by them
jointly. 21

6 CORPO

As to what constitutes common interest in the subject matter of the

controversy, it has been explained in Scott v. Donald 22 thus:
The interest that will allow parties to join in a bill of
complaint, or that will enable the court to dispense with the
presence of all the parties, when numerous, except a
determinate number, is not only an interest in the
question, but one in common in the subject Matter of the
suit; ... a community of interest growing out of the nature
and condition of the right in dispute; for, although there
may not be any privity between the numerous parties,
there is a common title out of which the question arises,
and which lies at the foundation of the proceedings ...
[here] the only matter in common among the plaintiffs, or
between them and the defendants, is an interest in the
Question involved which alone cannot lay a foundation for
the joinder of parties. There is scarcely a suit at law, or in
equity which settles a Principle or applies a principle to a
given state of facts, or in which a general statute is
interpreted, that does not involved a Question in which
other parties are interested. ... (Emphasis supplied )
Here, there is only one party plaintiff, and the plaintiff corporation does
not even have an interest in the subject matter of the controversy, and
cannot, therefore, represent its members or stockholders who claim to
own in their individual capacities ownership of the said property.
Moreover, as correctly stated by the appellees, a class suit does not lie in
actions for the recovery of property where several persons claim
Partnership of their respective portions of the property, as each one could
alleged and prove his respective right in a different way for each portion
of the land, so that they cannot all be held to have Identical title through
acquisition prescription. 23
Having shown that no cause of action in favor of the plaintiff exists and
that the action in the lower court cannot be considered as a class suit, it
would be unnecessary and an Idle exercise for this Court to resolve the
remaining issue of whether or not the plaintiffs action for reconveyance of
real property based upon constructive or implied trust had already
prescribed.
ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against
the plaintiff-appellant.

G.R. No. 75885 May 27, 1987

BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner,
vs.
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, CHAIRMAN
JOVITO SALONGA, COMMISSIONER MARY CONCEPCION BAUTISTA,
COMMISSIONER RAMON DIAZ, COMMISSIONER RAUL R. DAZA,
COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO,
et al., respondents.

7. New Trident Management

8. Bay Transport
9. And all affiliate companies of Alfredo
"Bejo" Romualdez
You are hereby ordered:
1. To implement this sequestration order with a minimum
disruption of these companies' business activities.

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

2. To ensure the continuity of these companies as going

concerns, the care and maintenance of these assets until
such time that the Office of the President through the
Commission on Good Government should decide otherwise.

NARVASA, J.:

3. To report to the Commission on Good Government

periodically.

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

Challenged in this special civil action of certiorari and prohibition by a

private corporation known as the Bataan Shipyard and Engineering Co.,
Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by
President Corazon C. Aquino on February 28, 1986 and March 12, 1986,
respectively, and (2) the sequestration, takeover, and other orders issued,
and acts done, in accordance with said executive orders by the
Presidential Commission on Good Government and/or its Commissioners
and agents, affecting said corporation.
1. The Sequestration, Takeover, and Other Orders Complained of
a. The Basic Sequestration Order
The sequestration order which, in the view of the petitioner corporation,
initiated all its misery was issued on April 14, 1986 by Commissioner Mary
Concepcion Bautista. It was addressed to three of the agents of the
Commission, hereafter simply referred to as PCGG. It reads as follows:

Further, you are authorized to request for Military/Security

Support from the Military/Police authorities, and such other
acts essential to the achievement of this sequestration
order. 1
b. Order for Production of Documents
On the strength of the above sequestration order, Mr. Jose M. Balde,
acting for the PCGG, addressed a letter dated April 18, 1986 to the
President and other officers of petitioner firm, reiterating an earlier
request for the production of certain documents, to wit:
1. Stock Transfer Book
2. Legal documents, such as:
2.1. Articles of Incorporation

RE: SEQUESTRATION ORDER

2.2. By-Laws

By virtue of the powers vested in the Presidential

Commission on Good Government, by authority of the
President of the Philippines, you are hereby directed to
sequester the following companies.

2.3. Minutes of the Annual Stockholders

Meeting from 1973 to 1986

1. Bataan Shipyard and Engineering Co., Inc.

(Engineering Island Shipyard and Mariveles
Shipyard)
2. Baseco Quarry
3. Philippine Jai-Alai Corporation
4. Fidelity Management Co., Inc.
5. Romson Realty, Inc.

2.4. Minutes of the Regular and Special

Meetings of the Board of Directors from 1973
to 1986
2.5. Minutes of the Executive Committee
Meetings from 1973 to 1986
2.6. Existing contracts with
suppliers/contractors/others.
3. Yearly list of stockholders with their corresponding
share/stockholdings from 1973 to 1986 duly certified by the
Corporate Secretary.

6. Trident Management Co.

CORPO 7

4. Audited Financial Statements such as Balance Sheet,

Profit & Loss and others from 1973 to December 31, 1985.
5. Monthly Financial Statements for the current year up to
March 31, 1986.
6. Consolidated Cash Position Reports from January to April
15, 1986.
7. Inventory listings of assets up dated up to March 31,
1986.
8. Updated schedule of Accounts Receivable and Accounts
Payable.
9. Complete list of depository banks for all funds with the
authorized signatories for withdrawals thereof.
10. Schedule of company investments and placements.

The letter closed with the warning that if the documents were not
submitted within five days, the officers would be cited for "contempt in
pursuance with Presidential Executive Order Nos. 1 and 2."
c. Orders Re Engineer Island
(1) Termination of Contract for Security
Services
A third order assailed by petitioner corporation, hereafter referred to
simply as BASECO, is that issued on April 21, 1986 by a Capt. Flordelino
B. Zabala, a member of the task force assigned to carry out the basic
sequestration order. He sent a letter to BASECO's Vice-President for
Finance, 3 terminating the contract for security services within the
Engineer Island compound between BASECO and "Anchor and FAIRWAYS"
and "other civilian security agencies," CAPCOM military personnel having
already been assigned to the area,
(2) Change of Mode of Payment of Entry
Charges
On July 15, 1986, the same Capt. Zabala issued a Memorandum
addressed to "Truck Owners and Contractors," particularly a "Mr. Buddy
Ondivilla National Marine Corporation," advising of the amendment in part
of their contracts with BASECO in the sense that the stipulated charges
for use of the BASECO road network were made payable "upon entry and
not anymore subject to monthly billing as was originally agreed upon." 4
d. Aborted Contract for Improvement of Wharf at Engineer
Island
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a
contract in behalf of BASECO with Deltamarine Integrated Port Services,
Inc., in virtue of which the latter undertook to introduce improvements
costing approximately P210,000.00 on the BASECO wharf at Engineer

8 CORPO

Island, allegedly then in poor condition, avowedly to "optimize its

utilization and in return maximize the revenue which would flow into the
government coffers," in consideration of Deltamarine's being granted
"priority in using the improved portion of the wharf ahead of anybody"
and exemption "from the payment of any charges for the use of wharf
including the area where it may install its bagging equipments" "until the
improvement remains in a condition suitable for port operations." 5 It
seems however that this contract was never consummated. Capt. Jorge B.
Siacunco, "Head- (PCGG) BASECO Management Team," advised
Deltamarine by letter dated July 30, 1986 that "the new management is
not in a position to honor the said contract" and thus "whatever
improvements * * (may be introduced) shall be deemed unauthorized * *
and shall be at * * (Deltamarine's) own risk." 6
e. Order for Operation of Sesiman Rock Quarry, Mariveles,
Bataan
By Order dated June 20, 1986, Commissioner Mary Bautista first directed
a PCGG agent, Mayor Melba O. Buenaventura, "to plan and implement
progress towards maximizing the continuous operation of the BASECO
Sesiman Rock Quarry * * by conventional methods;" but afterwards,
Commissioner Bautista, in representation of the PCGG, authorized
another party, A.T. Abesamis, to operate the quarry, located at Mariveles,
Bataan, an agreement to this effect having been executed by them on
September 17, 1986. 7
f. Order to Dispose of Scrap, etc.
By another Order of Commissioner Bautista, this time dated June 26,
1986, Mayor Buenaventura was also "authorized to clean and beautify the
Company's compound," and in this connection, to dispose of or sell
"metal scraps" and other materials, equipment and machineries no longer
usable, subject to specified guidelines and safeguards including audit and
verification. 8
g. The TAKEOVER Order
By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the
provisional takeover by the PCGG of BASECO, "the Philippine Dockyard
Corporation and all their affiliated companies." 9 Diaz invoked the
provisions of Section 3 (c) of Executive Order No. 1, empowering the
Commission
* * To provisionally takeover in the public interest or to
prevent its disposal or dissipation, business enterprises and
properties taken over by the government of the Marcos
Administration or by entities or persons close to former
President Marcos, until the transactions leading to such
acquisition by the latter can be disposed of by the
appropriate authorities.

A management team was designated to implement the order, headed by

Capt. Siacunco, and was given the following powers:
1. Conducts all aspects of operation of the subject
companies;
2. Installs key officers, hires and terminates personnel as
necessary;
3. Enters into contracts related to management and
operation of the companies;
4. Ensures that the assets of the companies are not
dissipated and used effectively and efficiently; revenues
are duly accounted for; and disburses funds only as may be
necessary;
5. Does actions including among others, seeking of military
support as may be necessary, that will ensure compliance
to this order;
6. Holds itself fully accountable to the Presidential
Commission on Good Government on all aspects related to
this take-over order.
h. Termination of Services of BASECO
Officers
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S.
Mendoza, Moises M. Valdez, Gilberto Pasimanero, and Benito R. Cuesta I,
advising of the termination of their services by the PCGG. 10
2. Petitioner's Plea and Postulates
It is the foregoing specific orders and acts of the PCGG and its members
and agents which, to repeat, petitioner BASECO would have this Court
nullify. More particularly, BASECO prays that this Court1) declare unconstitutional and void Executive Orders Numbered 1 and 2;
2) annul the sequestration order dated April- 14, 1986, and all other
orders subsequently issued and acts done on the basis thereof, inclusive
of the takeover order of July 14, 1986 and the termination of the services
of the BASECO executives. 11
a. Re Executive Orders No. 1 and 2, and the Sequestration
and Takeover Orders
While BASECO concedes that "sequestration without resorting to judicial
action, might be made within the context of Executive Orders Nos. 1 and
2 before March 25, 1986 when the Freedom Constitution was
promulgated, under the principle that the law promulgated by the ruler
under a revolutionary regime is the law of the land, it ceased to be
acceptable when the same ruler opted to promulgate the Freedom
Constitution on March 25, 1986 wherein under Section I of the same,

Article IV (Bill of Rights) of the 1973 Constitution was adopted providing,

among others, that "No person shall be deprived of life, liberty and
property without due process of law." (Const., Art. I V, Sec. 1)." 12
It declares that its objection to the constitutionality of the Executive
Orders "as well as the Sequestration Order * * and Takeover Order * *
issued purportedly under the authority of said Executive Orders, rests on
four fundamental considerations: First, no notice and hearing was
accorded * * (it) before its properties and business were taken
over; Second, the PCGG is not a court, but a purely investigative agency
and therefore not competent to act as prosecutor and judge in the same
cause; Third, there is nothing in the issuances which envisions any
proceeding, process or remedy by which petitioner may expeditiously
challenge the validity of the takeover after the same has been effected;
and Fourthly, being directed against specified persons, and in disregard of
the constitutional presumption of innocence and general rules and
procedures, they constitute a Bill of Attainder." 13
b. Re Order to Produce Documents
It argues that the order to produce corporate records from 1973 to 1986,
which it has apparently already complied with, was issued without court
authority and infringed its constitutional right against self-incrimination,
and unreasonable search and seizure. 14
c. Re PCGG's Exercise of Right of Ownership and
Management
BASECO further contends that the PCGG had unduly interfered with its
right of dominion and management of its business affairs by
1) terminating its contract for security services with Fairways & Anchor,
without the consent and against the will of the contracting parties; and
amending the mode of payment of entry fees stipulated in its Lease
Contract with National Stevedoring & Lighterage Corporation, these acts
being in violation of the non-impairment clause of the constitution; 15
2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous
contract" with Deltamarine Integrated Port Services, Inc., giving the latter
free use of BASECO premises; 16
3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and
operate its rock quarry at Sesiman, Mariveles; 17
4) authorizing the same mayor to sell or dispose of its metal scrap,
equipment, machinery and other materials; 18
5) authorizing the takeover of BASECO, Philippine Dockyard Corporation,
and all their affiliated companies;
6) terminating the services of BASECO executives: President Hilario M.
Ruiz; EVP Manuel S. Mendoza; GM Moises M. Valdez; Finance Mgr. Gilberto
Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19

CORPO 9

7) planning to elect its own Board of Directors;

20

8) allowing willingly or unwillingly its personnel to take, steal, carry away

from petitioner's premises at Mariveles * * rolls of cable wires, worth
P600,000.00 on May 11, 1986; 21
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold
bars supposed to have been buried therein. 22
3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover
Orders
Many misconceptions and much doubt about the matter of sequestration,
takeover and freeze orders have been engendered by misapprehension,
or incomplete comprehension if not indeed downright ignorance of the
law governing these remedies. It is needful that these misconceptions
and doubts be dispelled so that uninformed and useless debates about
them may be avoided, and arguments tainted b sophistry or intellectual
dishonesty be quickly exposed and discarded. Towards this end, this
opinion will essay an exposition of the law on the matter. In the process
many of the objections raised by BASECO will be dealt with.
4. The Governing Law
a. Proclamation No. 3
The impugned executive orders are avowedly meant to carry out the
explicit command of the Provisional Constitution, ordained by
Proclamation No. 3, 23 that the President-in the exercise of legislative
power which she was authorized to continue to wield "(until a legislature
is elected and convened under a new Constitution" "shall give priority
to measures to achieve the mandate of the people," among others
to (r)ecover ill-gotten properties amassed by the leaders and supporters
of the previous regime and protect the interest of the people through
orders of sequestration or freezing of assets or accounts." 24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent need to recover all ill-gotten
wealth," and postulates that "vast resources of the government have
been amassed by former President Ferdinand E. Marcos, his immediate
family, relatives, and close associates both here and abroad." 25 Upon
these premises, the Presidential Commission on Good Government was
created, 26 "charged with the task of assisting the President in regard to
(certain specified) matters," among which was precisely* * The recovery of all in-gotten wealth accumulated by
former President Ferdinand E. Marcos, his immediate
family, relatives, subordinates and close associates,
whether located in the Philippines or abroad, including
the takeover or sequestration of all business enterprises
and entities owned or controlled by them, during his
administration, directly or through nominees, by taking

10 CORPO

undue advantage of their public office and/or using their

powers, authority, influence, connections or relationship.

27

In relation to the takeover or sequestration that it was authorized to

undertake in the fulfillment of its mission, the PCGG was granted "power
and authority" to do the following particular acts, to wit:
1. To sequester or place or cause to be placed under its
control or possession any building or office wherein any illgotten wealth or properties may be found, and any records
pertaining thereto, in order to prevent their destruction,
concealment or disappearance which would frustrate or
hamper the investigation or otherwise prevent the
Commission from accomplishing its task.
2. To provisionally take over in the public interest or to
prevent the disposal or dissipation, business enterprises
and properties taken over by the government of the Marcos
Administration or by entities or persons close to former
President Marcos, until the transactions leading to such
acquisition by the latter can be disposed of by the
appropriate authorities.
3. To enjoin or restrain any actual or threatened
commission of acts by any person or entity that may render
moot and academic, or frustrate or otherwise make
ineffectual the efforts of the Commission to carry out its
task under this order. 28
So that it might ascertain the facts germane to its objectives, it was
granted power to conduct investigations; require submission of evidence
by subpoenae ad testificandum and duces tecum; administer oaths;
punish for contempt. 29It was given power also to promulgate such rules
and regulations as may be necessary to carry out the purposes of * * (its
creation). 30
c. Executive Order No. 2
Executive Order No. 2 gives additional and more specific data and
directions respecting "the recovery of ill-gotten properties amassed by
the leaders and supporters of the previous regime." It declares that:
1) * * the Government of the Philippines is in possession of
evidence showing that there are assets and properties
purportedly pertaining to former Ferdinand E. Marcos,
and/or his wife Mrs. Imelda Romualdez Marcos, their close
relatives, subordinates, business associates, dummies,
agents or nominees which had been or were acquired by
them directly or indirectly, through or as a result of the
improper or illegal use of funds or properties owned by the
government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial

institutions, or by taking undue advantage of their office,

authority, influence, connections or relationship, resulting
in their unjust enrichment and causing grave damage and
prejudice to the Filipino people and the Republic of the
Philippines:" and
2) * * said assets and properties are in the form of bank
accounts, deposits, trust accounts, shares of stocks,
buildings, shopping centers, condominiums, mansions,
residences, estates, and other kinds of real and personal
properties in the Philippines and in various countries of the
world." 31
Upon these premises, the President1) froze "all assets and properties in the Philippines in
which former President Marcos and/or his wife, Mrs. Imelda
Romualdez Marcos, their close relatives, subordinates,
business associates, dummies, agents, or nominees have
any interest or participation;
2) prohibited former President Ferdinand Marcos and/or his
wife * *, their close relatives, subordinates, business
associates, duties, agents, or nominees from transferring,
conveying, encumbering, concealing or dissipating said
assets or properties in the Philippines and abroad, pending
the outcome of appropriate proceedings in the Philippines
to determine whether any such assets or properties were
acquired by them through or as a result of improper or
illegal use of or the conversion of funds belonging to the
Government of the Philippines or any of its branches,
instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of their official
position, authority, relationship, connection or influence to
unjustly enrich themselves at the expense and to the grave
damage and prejudice of the Filipino people and the
Republic of the Philippines;
3) prohibited "any person from transferring, conveying,
encumbering or otherwise depleting or concealing such
assets and properties or from assisting or taking part in
their transfer, encumbrance, concealment or dissipation
under pain of such penalties as are prescribed by law;" and
4) required "all persons in the Philippines holding such
assets or properties, whether located in the Philippines or
abroad, in their names as nominees, agents or trustees, to
make full disclosure of the same to the Commission on
Good Government within thirty (30) days from publication
of * (the) Executive Order, * *. 32

A third executive order is relevant: Executive Order No. 14, 33 by which

the PCGG is empowered, "with the assistance of the Office of the Solicitor
General and other government agencies, * * to file and prosecute all
cases investigated by it * * as may be warranted by its findings." 34 All
such cases, whether civil or criminal, are to be filed "with
the Sandiganbayanwhich shall have exclusive and original jurisdiction
thereof." 35 Executive Order No. 14 also pertinently provides that civil
suits for restitution, reparation of damages, or indemnification for
consequential damages, forfeiture proceedings provided for under
Republic Act No. 1379, or any other civil actions under the Civil Code or
other existing laws, in connection with * * (said Executive Orders
Numbered 1 and 2) may be filed separately from and proceed
independently of any criminal proceedings and may be proved by a
preponderance of evidence;" and that, moreover, the "technical rules of
procedure and evidence shall not be strictly applied to* * (said)civil
cases." 36
5. Contemplated Situations
The situations envisaged and sought to be governed are self-evident,
these being:
1) that "(i)ll-gotten properties (were) amassed by the
leaders and supporters of the previous regime"; 37
a) more particularly, that ill-gotten wealth (was)
accumulated by former President Ferdinand E. Marcos, his
immediate family, relatives, subordinates and close
associates, * * located in the Philippines or abroad, * * (and)
business enterprises and entities (came to be) owned or
controlled by them, during * * (the Marcos) administration,
directly or through nominees, by taking undue advantage
of their public office and/or using their powers, authority,
influence, Connections or relationship; 38
b) otherwise stated, that "there are assets and properties
purportedly pertaining to former President Ferdinand E.
Marcos, and/or his wife Mrs. Imelda Romualdez Marcos,
their close relatives, subordinates, business associates,
dummies, agents or nominees which had been or were
acquired by them directly or indirectly, through or as a
result of the improper or illegal use of funds or properties
owned by the Government of the Philippines or any of its
branches, instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of their office,
authority, influence, connections or relationship, resulting
in their unjust enrichment and causing grave damage and
prejudice to the Filipino people and the Republic of the
Philippines"; 39

d. Executive Order No. 14

CORPO 11

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

accounts. deposits, trust. accounts, shares of stocks,
buildings, shopping centers, condominiums, mansions,
residences, estates, and other kinds of real and personal
properties in the Philippines and in various countries of the
world;" 40 and
2) that certain "business enterprises and properties (were)
taken over by the government of the Marcos Administration
or by entities or persons close to former President
Marcos. 41
6. Government's Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of the
Government's plan "to recover all ill-gotten wealth."
Neither can there be any debate about the proposition that assuming the
above described factual premises of the Executive Orders and
Proclamation No. 3 to be true, to be demonstrable by competent
evidence, the recovery from Marcos, his family and his dominions of the
assets and properties involved, is not only a right but a duty on the part
of Government.
But however plain and valid that right and duty may be, still a balance
must be sought with the equally compelling necessity that a proper
respect be accorded and adequate protection assured, the fundamental
rights of private property and free enterprise which are deemed pillars of
a free society such as ours, and to which all members of that society may
without exception lay claim.
* * Democracy, as a way of life enshrined in the
Constitution, embraces as its necessary components
freedom of conscience, freedom of expression, and
freedom in the pursuit of happiness. Along with these
freedoms are included economic freedom and freedom of
enterprise within reasonable bounds and under proper
control. * * Evincing much concern for the protection of
property, the Constitution distinctly recognizes the
preferred position which real estate has occupied in law for
ages. Property is bound up with every aspect of social life
in a democracy as democracy is conceived in the
Constitution.The Constitution realizes the indispensable role
which property, owned in reasonable quantities and used
legitimately, plays in the stimulation to economic effort and
the formation and growth of a solid social middle class that
is said to be the bulwark of democracy and the backbone of
every progressive and happy country. 42
a. Need of Evidentiary Substantiation in Proper Suit

12 CORPO

Consequently, the factual premises of the Executive Orders cannot simply

be assumed. They will have to be duly established by adequate proof in
each case, in a proper judicial proceeding, so that the recovery of the illgotten wealth may be validly and properly adjudged and consummated;
although there are some who maintain that the fact-that an immense
fortune, and "vast resources of the government have been amassed by
former President Ferdinand E. Marcos, his immediate family, relatives, and
close associates both here and abroad," and they have resorted to all
sorts of clever schemes and manipulations to disguise and hide their illicit
acquisitions-is within the realm of judicial notice, being of so extensive
notoriety as to dispense with proof thereof, Be this as it may, the
requirement of evidentiary substantiation has been expressly
acknowledged, and the procedure to be followed explicitly laid down, in
Executive Order No. 14.
b. Need of Provisional Measures to Collect and Conserve
Assets Pending Suits
Nor may it be gainsaid that pending the institution of the suits for the
recovery of such "ill-gotten wealth" as the evidence at hand may reveal,
there is an obvious and imperative need for preliminary, provisional
measures to prevent the concealment, disappearance, destruction,
dissipation, or loss of the assets and properties subject of the suits, or to
restrain or foil acts that may render moot and academic, or effectively
hamper, delay, or negate efforts to recover the same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three (3) provisional
remedies. These are: (1) sequestration; (2) freeze orders; and (3)
provisional takeover.
Sequestration and freezing are remedies applicable generally to
unearthed instances of "ill-gotten wealth." The remedy of "provisional
takeover" is peculiar to cases where "business enterprises and properties
(were) taken over by the government of the Marcos Administration or by
entities or persons close to former President Marcos." 43
a. Sequestration
By the clear terms of the law, the power of the PCGG to sequester
property claimed to be "ill-gotten" means to place or cause to be placed
under its possession or control said property, or any building or office
wherein any such property and any records pertaining thereto may be
found, including "business enterprises and entities,"-for the purpose of
preventing the destruction, concealment or dissipation of, and otherwise
conserving and preserving, the same-until it can be determined, through
appropriate judicial proceedings, whether the property was in truth willgotten," i.e., acquired through or as a result of improper or illegal use of
or the conversion of funds belonging to the Government or any of its
branches, instrumentalities, enterprises, banks or financial institutions, or
by taking undue advantage of official position, authority relationship,

connection or influence, resulting in unjust enrichment of the ostensible

owner and grave damage and prejudice to the State. 44 And this, too, is
the sense in which the term is commonly understood in other
jurisdictions. 45
b. "Freeze Order"
A "freeze order" prohibits the person having possession or control of
property alleged to constitute "ill-gotten wealth" "from transferring,
conveying, encumbering or otherwise depleting or concealing such
property, or from assisting or taking part in its transfer, encumbrance,
concealment, or dissipation." 46 In other words, it commands the
possessor to hold the property and conserve it subject to the orders and
disposition of the authority decreeing such freezing. In this sense, it is
akin to a garnishment by which the possessor or ostensible owner of
property is enjoined not to deliver, transfer, or otherwise dispose of any
effects or credits in his possession or control, and thus becomes in a
sense an involuntary depositary thereof. 47
c. Provisional Takeover
In providing for the remedy of "provisional takeover," the law
acknowledges the apparent distinction between "ill gotten" "business
enterprises and entities" (going concerns, businesses in actual operation),
generally, as to which the remedy of sequestration applies, it being
necessarily inferred that the remedy entails no interference, or the least
possible interference with the actual management and operations
thereof; and "business enterprises which were taken over by the
government government of the Marcos Administration or by entities or
persons close to him," in particular, as to which a "provisional takeover" is
authorized, "in the public interest or to prevent disposal or dissipation of
the enterprises." 48 Such a "provisional takeover" imports something more
than sequestration or freezing, more than the placing of the business
under physical possession and control, albeit without or with the least
possible interference with the management and carrying on of the
business itself. In a "provisional takeover," what is taken into custody is
not only the physical assets of the business enterprise or entity, but the
business operation as well. It is in fine the assumption of control not only
over things, but over operations or on- going activities. But, to repeat,
such a "provisional takeover" is allowed only as regards "business
enterprises * * taken over by the government of the Marcos
Administration or by entities or persons close to former President
Marcos."
d. No Divestment of Title Over Property Seized
It may perhaps be well at this point to stress once again the provisional,
contingent character of the remedies just described. Indeed the law
plainly qualifies the remedy of take-over by the adjective, "provisional."
These remedies may be resorted to only for a particular exigency: to
prevent in the public interest the disappearance or dissipation of property

or business, and conserve it pending adjudgment in appropriate

proceedings of the primary issue of whether or not the acquisition of title
or other right thereto by the apparent owner was attended by some
vitiating anomaly. None of the remedies is meant to deprive the owner or
possessor of his title or any right to the property sequestered, frozen or
taken over and vest it in the sequestering agency, the Government or
other person. This can be done only for the causes and by the processes
laid down by law.
That this is the sense in which the power to sequester, freeze or
provisionally take over is to be understood and exercised, the language of
the executive orders in question leaves no doubt. Executive Order No. 1
declares that the sequestration of property the acquisition of which is
suspect shall last "until the transactions leading to such acquisition *
* can be disposed of by the appropriate authorities." 49 Executive Order
No. 2 declares that the assets or properties therein mentioned shall
remain frozen "pending the outcome of appropriate proceedings in the
Philippines to determine whether any such assets or properties were
acquired" by illegal means. Executive Order No. 14 makes clear that
judicial proceedings are essential for the resolution of the basic issue of
whether or not particular assets are "ill-gotten," and resultant recovery
thereof by the Government is warranted.
e. State of Seizure Not To Be Indefinitely Maintained; The
Constitutional Command
There is thus no cause for the apprehension voiced by BASECO 50 that
sequestration, freezing or provisional takeover is designed to be an end in
itself, that it is the device through which persons may be deprived of their
property branded as "ill-gotten," that it is intended to bring about a
permanent, rather than a passing, transitional state of affairs. That this is
not so is quite explicitly declared by the governing rules.
Be this as it may, the 1987 Constitution should allay any lingering fears
about the duration of these provisional remedies. Section 26 of its
Transitory Provisions, 51 lays down the relevant rule in plain terms, apart
from extending ratification or confirmation (although not really necessary)
to the institution by presidential fiat of the remedy of sequestration and
freeze orders:
SEC. 26. The authority to issue sequestration or freeze
orders under Proclamation No. 3 dated March 25, 1986 in
relation to the recovery of ill-gotten wealth shag remain
operative for not more than eighteen months after the
ratification of this Constitution. However, in the national
interest, as certified by the President, the Congress may
extend said period.
A sequestration or freeze order shall be issued only upon
showing of a prima facie case. The order and the list of the
sequestered or frozen properties shall forthwith be

CORPO 13

registered with the proper court. For orders issued before

the ratification of this Constitution, the corresponding
judicial action or proceeding shall be filed within six months
from its ratification. For those issued after such ratification,
the judicial action or proceeding shall be commenced
within six months from the issuance thereof.
The sequestration or freeze order is deemed automatically
lifted if no judicial action or proceeding is commenced as
herein provided. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and provisional takeover are
akin to the provisional remedy of preliminary attachment, or
receivership. 53 By attachment, a sheriff seizes property of a defendant in
a civil suit so that it may stand as security for the satisfaction of any
judgment that may be obtained, and not disposed of, or dissipated, or lost
intentionally or otherwise, pending the action. 54 By receivership,
property, real or personal, which is subject of litigation, is placed in the
possession and control of a receiver appointed by the Court, who shall
conserve it pending final determination of the title or right of possession
over it. 55 All these remedies sequestration, freezing, provisional,
takeover, attachment and receivership are provisional, temporary,
designed for-particular exigencies, attended by no character of
permanency or finality, and always subject to the control of the issuing
court or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover orders
are not issued by a court is of no moment. The Solicitor General draws
attention to the writ of distraint and levy which since 1936 the
Commissioner of Internal Revenue has been by law authorized to issue
against property of a delinquent taxpayer. 56 BASECO itself declares that it
has not manifested "a rigid insistence on sequestration as a purely
judicial remedy * * (as it feels) that the law should not be ossified to a
point that makes it insensitive to change." What it insists on, what it
pronounces to be its "unyielding position, is that any change in procedure,
or the institution of a new one, should conform to due process and the
other prescriptions of the Bill of Rights of the Constitution." 57 It is, to be
sure, a proposition on which there can be no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well as
delivery of personal property in replevinsuits, sequestration and
provisional takeover writs may issue ex parte. 58 And as in preliminary
attachment, receivership, and delivery of personality, no objection of any
significance may be raised to the ex parte issuance of an order of
sequestration, freezing or takeover, given its fundamental character of
temporariness or conditionality; and taking account specially of the

14 CORPO

constitutionally expressed "mandate of the people to recover ill-gotten

properties amassed by the leaders and supporters of the previous regime
and protect the interest of the people;" 59 as well as the obvious need to
avoid alerting suspected possessors of "ill-gotten wealth" and thereby
cause that disappearance or loss of property precisely sought to be
prevented, and the fact, just as self-evident, that "any transfer,
disposition, concealment or disappearance of said assets and properties
would frustrate, obstruct or hamper the efforts of the Government" at the
just recovery thereof. 60
8. Requisites for Validity
What is indispensable is that, again as in the case of attachment and
receivership, there exist a prima facie factual foundation, at least, for the
sequestration, freeze or takeover order, and adequate and fair
opportunity to contest it and endeavor to cause its negation or
nullification. 61
Both are assured under the executive orders in question and the rules and
regulations promulgated by the PCGG.
a. Prima Facie Evidence as Basis for Orders
Executive Order No. 14 enjoins that there be "due regard to the
requirements of fairness and due process." 62Executive Order No. 2
declares that with respect to claims on allegedly "ill-gotten" assets and
properties, "it is the position of the new democratic government that
President Marcos * * (and other parties affected) be afforded fair
opportunity to contest these claims before appropriate Philippine
authorities." 63 Section 7 of the Commission's Rules and Regulations
provides that sequestration or freeze (and takeover) orders issue upon
the authority of at least two commissioners, based on the affirmation or
complaint of an interested party, or motu proprio when the Commission
has reasonable grounds to believe that the issuance thereof is
warranted. 64 A similar requirement is now found in Section 26, Art. XVIII
of the 1987 Constitution, which requires that a "sequestration or freeze
order shall be issued only upon showing of a prima facie case." 65
b. Opportunity to Contest
And Sections 5 and 6 of the same Rules and Regulations lay down the
procedure by which a party may seek to set aside a writ of sequestration
or freeze order, viz:
SECTION 5. Who may contend.-The person against whom a
writ of sequestration or freeze or hold order is directed may
request the lifting thereof in writing, either personally or
through counsel within five (5) days from receipt of the writ
or order, or in the case of a hold order, from date of
knowledge thereof.
SECTION 6. Procedure for review of writ or order.-After due
hearing or motu proprio for good cause shown, the

Commission may lift the writ or order unconditionally or

subject to such conditions as it may deem necessary,
taking into consideration the evidence and the
circumstance of the case. The resolution of the commission
may be appealed by the party concerned to the Office of
the President of the Philippines within fifteen (15) days from
receipt thereof.
Parenthetically, even if the requirement for a prima facie showing of "illgotten wealth" were not expressly imposed by some rule or regulation as
a condition to warrant the sequestration or freezing of property
contemplated in the executive orders in question, it would nevertheless
be exigible in this jurisdiction in which the Rule of Law prevails and official
acts which are devoid of rational basis in fact or law, or are whimsical and
capricious, are condemned and struck down. 66
9. Constitutional Sanction of Remedies
If any doubt should still persist in the face of the foregoing considerations
as to the validity and propriety of sequestration, freeze and takeover
orders, it should be dispelled by the fact that these particular remedies
and the authority of the PCGG to issue them have received constitutional
approbation and sanction. As already mentioned, the Provisional or
"Freedom" Constitution recognizes the power and duty of the President to
enact "measures to achieve the mandate of the people to * * * (recover
ill- gotten properties amassed by the leaders and supporters of the
previous regime and protect the interest of the people through orders of
sequestration or freezing of assets or accounts." And as also already
adverted to, Section 26, Article XVIII of the 1987 Constitution 67 treats of,
and ratifies the "authority to issue sequestration or freeze orders under
Proclamation No. 3 dated March 25, 1986."
The institution of these provisional remedies is also premised upon the
State's inherent police power, regarded, as t lie power of promoting the
public welfare by restraining and regulating the use of liberty and
property," 68 and as "the most essential, insistent and illimitable of powers
* * in the promotion of general welfare and the public interest," 69 and
said to be co-extensive with self-protection and * * not inaptly termed
(also) the'law of overruling necessity." " 70
10. PCGG not a "Judge"; General Functions
It should also by now be reasonably evident from what has thus far been
said that the PCGG is not, and was never intended to act as, a judge. Its
general function is to conduct investigations in order to collect
evidence establishing instances of "ill-gotten wealth;" issue
sequestration, and such orders as may be warranted by the evidence thus
collected and as may be necessary to preserve and conserve the assets
of which it takes custody and control and prevent their disappearance,
loss or dissipation; and eventually file and prosecute in the proper court
of competent jurisdiction all cases investigated by it as may be warranted

by its findings. It does not try and decide, or hear and determine, or
adjudicate with any character of finality or compulsion, cases involving
the essential issue of whether or not property should be forfeited and
transferred to the State because "ill-gotten" within the meaning of the
Constitution and the executive orders. This function is reserved to the
designated court, in this case, the Sandiganbayan. 71 There can therefore
be no serious regard accorded to the accusation, leveled by
BASECO, 72 that the PCGG plays the perfidious role of prosecutor and
judge at the same time.
11. Facts Preclude Grant of Relief to Petitioner
Upon these premises and reasoned conclusions, and upon the facts
disclosed by the record, hereafter to be discussed, the petition cannot
succeed. The writs of certiorari and prohibition prayed for will not be
issued.
The facts show that the corporation known as BASECO was owned or
controlled by President Marcos "during his administration, through
nominees, by taking undue advantage of his public office and/or using his
powers, authority, or influence, " and that it was by and through the same
means, that BASECO had taken over the business and/or assets of the
National Shipyard and Engineering Co., Inc., and other government-owned
or controlled entities.
12. Organization and Stock Distribution of BASECO
BASECO describes itself in its petition as "a shiprepair and shipbuilding
company * * incorporated as a domestic private corporation * * (on Aug.
30, 1972) by a consortium of Filipino shipowners and shipping executives.
Its main office is at Engineer Island, Port Area, Manila, where its Engineer
Island Shipyard is housed, and its main shipyard is located at Mariveles
Bataan." 73 Its Articles of Incorporation disclose that its authorized capital
stock is P60,000,000.00 divided into 60,000 shares, of which 12,000
shares with a value of P12,000,000.00 have been subscribed, and on said
subscription, the aggregate sum of P3,035,000.00 has been paid by the
incorporators. 74 The same articles Identify the incorporators, numbering
fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo T.
Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7)
Antonio M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10)
Jose Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S.
Mendoza, (14) Magiliw Torres, and (15) Rodolfo Torres.
By 1986, however, of these fifteen (15) incorporators, six (6) had ceased
to be stockholders, namely: (1) Generoso Tanseco, (2) Antonio Ezpeleta,
(3) Zacarias Amante, (4) Octavio Posadas, (5) Magiliw Torres, and (6)
Rodolfo Torres. As of this year, 1986, there were twenty (20) stockholders
listed in BASECO's Stock and Transfer Book. 75Their names and the
number of shares respectively held by them are as follows:
1. Jose A. Rojas

1,248 shares

CORPO 15

18. Jose J. Tanchanco

1 share

2. Severino G. de la Cruz

1,248 shares

19. Dioscoro Papa

128 shares

3. Emilio T. Yap

2,508 shares

20. Edward T. Marcelo

4 shares

4. Jose Fernandez

1,248 shares

TOTAL

218,819 shares.

5. Jose Francisco

128 shares

6. Manuel S. Mendoza

96 shares

7. Anthony P. Lee

1,248 shares

8. Hilario M. Ruiz

32 shares

9. Constante L. Farias

8 shares

10. Fidelity Management,

Inc.

65,882 shares

11. Trident Management

7,412 shares

12. United Phil. Lines

1,240 shares

13. Renato M. Tanseco

8 shares

14. Fidel Ventura

8 shares

15. Metro Bay Drydock

136,370 shares

16. Manuel Jacela

1 share

13 Acquisition of NASSCO by BASECO

Barely six months after its incorporation, BASECO acquired from National
Shipyard & Steel Corporation, or NASSCO, a government-owned or
controlled corporation, the latter's shipyard at Mariveles, Bataan, known
as the Bataan National Shipyard (BNS), and except for NASSCO's
Engineer Island Shops and certain equipment of the BNS, consigned for
future negotiation all its structures, buildings, shops, quarters, houses,
plants, equipment and facilities, in stock or in transit. This it did in virtue
of a "Contract of Purchase and Sale with Chattel Mortgage" executed on
February 13, 1973. The price was P52,000,000.00. As partial payment
thereof, BASECO delivered to NASSCO a cash bond of P11,400,000.00,
convertible into cash within twenty-four (24) hours from completion of the
inventory undertaken pursuant to the contract. The balance of
P41,600,000.00, with interest at seven percent (7%) per annum,
compounded semi-annually, was stipulated to be paid in equal semiannual installments over a term of nine (9) years, payment to commence
after a grace period of two (2) years from date of turnover of the shipyard
to BASECO. 76
14. Subsequent Reduction of Price; Intervention of Marcos
Unaccountably, the price of P52,000,000.00 was reduced by more than
one-half, to P24,311,550.00, about eight (8) months later. A document to
this effect was executed on October 9, 1973, entitled "Memorandum
Agreement," and was signed for NASSCO by Arturo Pacificador, as
Presiding Officer of the Board of Directors, and David R. Ines, as General
Manager. 77 This agreement bore, at the top right corner of the first page,
the word "APPROVED" in the handwriting of President Marcos, followed by
his usual full signature. The document recited that a down payment of
P5,862,310.00 had been made by BASECO, and the balance of
P19,449,240.00 was payable in equal semi-annual installments over nine
(9) years after a grace period of two (2) years, with interest at 7% per
annum.
15. Acquisition of 300 Hectares from Export Processing Zone Authority

17. Jonathan G. Lu

16 CORPO

1 share

On October 1, 1974, BASECO acquired three hundred (300) hectares of

land in Mariveles from the Export Processing Zone Authority for the price
of P10,047,940.00 of which, as set out in the document of sale,

P2,000.000.00 was paid upon its execution, and the balance stipulated to
be payable in installments. 78
16. Acquisition of Other Assets of NASSCO; Intervention of Marcos
Some nine months afterwards, or on July 15, 1975, to be precise, BASECO,
again with the intervention of President Marcos, acquired ownership of
the rest of the assets of NASSCO which had not been included in the first
two (2) purchase documents. This was accomplished by a deed entitled
"Contract of Purchase and Sale," 79 which, like the Memorandum of
Agreement dated October 9, 1973 supra also bore at the upper right-hand
corner of its first page, the handwritten notation of President
Marcos reading, "APPROVED, July 29, 1973," and underneath it, his usual
full signature. Transferred to BASECO were NASSCO's "ownership and all
its titles, rights and interests over all equipment and facilities including
structures, buildings, shops, quarters, houses, plants and expendable or
semi-expendable assets, located at the Engineer Island, known as the
Engineer Island Shops, including all the equipment of the Bataan National
Shipyards (BNS) which were excluded from the sale of NBS to BASECO but
retained by BASECO and all other selected equipment and machineries of
NASSCO at J. Panganiban Smelting Plant." In the same deed, NASSCO
committed itself to cooperate with BASECO for the acquisition from the
National Government or other appropriate Government entity of Engineer
Island. Consideration for the sale was set at P5,000,000.00; a down
payment of P1,000,000.00 appears to have been made, and the balance
was stipulated to be paid at 7% interest per annum in equal semi annual
installments over a term of nine (9) years, to commence after a grace
period of two (2) years. Mr. Arturo Pacificador again signed for NASSCO,
together with the general manager, Mr. David R. Ines.
17. Loans Obtained
It further appears that on May 27, 1975 BASECO obtained a loan from the
NDC, taken from "the last available Japanese war damage fund of
$19,000,000.00," to pay for "Japanese made heavy equipment (brand
new)." 80 On September 3, 1975, it got another loan also from the NDC in
the amount of P30,000,000.00 (id.). And on January 28, 1976, it got still
another loan, this time from the GSIS, in the sum of
P12,400,000.00. 81 The claim has been made that not a single centavo
has been paid on these loans. 82
18. Reports to President Marcos
In September, 1977, two (2) reports were submitted to President Marcos
regarding BASECO. The first was contained in a letter dated September 5,
1977 of Hilario M. Ruiz, BASECO president. 83 The second was embodied in
a confidential memorandum dated September 16, 1977 of Capt. A.T.
Romualdez. 84 They further disclose the fine hand of Marcos in the affairs
of BASECO, and that of a Romualdez, a relative by affinity.
a. BASECO President's Report

In his letter of September 5, 1977, BASECO President Ruiz reported to

Marcos that there had been "no orders or demands for ship construction"
for some time and expressed the fear that if that state of affairs persisted,
BASECO would not be able to pay its debts to the Government, which at
the time stood at the not inconsiderable amount of
P165,854,000.00. 85 He suggested that, to "save the situation," there be
a "spin-of (of their) shipbuilding activities which shall be handled
exclusively by an entirely new corporation to be created;" and towards
this end, he informed Marcos that BASECO was
* * inviting NDC and LUSTEVECO to participate by
converting the NDC shipbuilding loan to BASECO amounting
to P341.165M and assuming and converting a portion of
BASECO's shipbuilding loans from REPACOM amounting to
P52.2M or a total of P83.365M as NDC's equity contribution
in the new corporation. LUSTEVECO will participate by
absorbing and converting a portion of the REPACOM loan of
Bay Shipyard and Drydock, Inc., amounting to P32.538M. 86
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was submitted eleven (11)
days later. It opened with the following caption:
MEMORANDUM:
FOR : The President
SUBJECT: An Evaluation and Re-assessment of a
Performance of a Mission
FROM: Capt. A.T. Romualdez.
Like Ruiz, Romualdez wrote that BASECO faced great difficulties in
meeting its loan obligations due chiefly to the fact that "orders to build
ships as expected * * did not materialize."
He advised that five stockholders had "waived and/or assigned their
holdings inblank," these being: (1) Jose A. Rojas, (2) Severino de la Cruz,
(3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out
that "Mr. Magiliw Torres * * is already dead and Mr. Jose A. Rojas had a
major heart attack," he made the following quite revealing, and it may be
added, quite cynical and indurate recommendation, to wit:
* * (that) their replacements (be effected) so we can
register their names in the stock book prior to the
implementation of your instructions to pass a board
resolution to legalize the transfers under SEC regulations;
2. By getting their replacements, the families cannot
question us later on; and
3. We will owe no further favors from them.

87

CORPO 17

He also transmitted to Marcos, together with the report, the following

documents: 88
1. Stock certificates indorsed and assigned in blank with
assignments and waivers; 89
2. The articles of incorporation, the amended articles, and
the by-laws of BASECO;
3. Deed of Sales, wherein NASSCO sold to BASECO four (4)
parcels of land in "Engineer Island", Port Area, Manila;
4. Transfer Certificate of Title No. 124822 in the name of
BASECO, covering "Engineer Island";
5. Contract dated October 9, 1973, between NASSCO and
BASECO re-structure and equipment at Mariveles, Bataan;
6. Contract dated July 16, 1975, between NASSCO and
BASECO re-structure and equipment at Engineer Island,
Port Area Manila;
7. Contract dated October 1, 1974, between EPZA and
BASECO re 300 hectares of land at Mariveles, Bataan;
8. List of BASECO's fixed assets;
9. Loan Agreement dated September 3, 1975, BASECO's
loan from NDC of P30,000,000.00;
10. BASECO-REPACOM Agreement dated May 27, 1975;
11. GSIS loan to BASECO dated January 28, 1976 of
P12,400,000.00 for the housing facilities for BASECO's rankand-file employees. 90
Capt. Romualdez also recommended that BASECO's loans be restructured
"until such period when BASECO will have enough orders for ships in
order for the company to meet loan obligations," and that
An LOI may be issued to government agencies using
floating equipment, that a linkage scheme be applied to a
certain percent of BASECO's net profit as part of BASECO's
amortization payments to make it justifiable for you, Sir. 91
It is noteworthy that Capt. A.T. Romualdez does not appear to be a
stockholder or officer of BASECO, yet he has presented a report on
BASECO to President Marcos, and his report demonstrates intimate
familiarity with the firm's affairs and problems.
19. Marcos' Response to Reports
President Marcos lost no time in acting on his subordinates'
recommendations, particularly as regards the "spin-off" and the "linkage
scheme" relative to "BASECO's amortization payments."
a. Instructions re "Spin-Of"

18 CORPO

Under date of September 28, 1977, he addressed a Memorandum to

Secretary Geronimo Velasco of the Philippine National Oil Company and
Chairman Constante Farias of the National Development Company,
directing them "to participate in the formation of a new corporation
resulting from the spin-of of the shipbuilding component ofBASECO along
the following guidelines:
a. Equity participation of government shall be through
LUSTEVECO and NDC in the amount of P115,903,000
consisting of the following obligations of BASECO which are
hereby authorized to be converted to equity of the said
new corporation, to wit:
1. NDC P83,865,000 (P31.165M loan &
P52.2M Reparation)
2. LUSTEVECO P32,538,000 (Reparation)
b. Equity participation of government shall be in the form of
non- voting shares.
For immediate compliance.

92

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

Twenty-two (22) days after receiving their president's memorandum,
Messrs. Hilario M. Ruiz, Constante L. Farias and Geronimo Z. Velasco, in
representation of their respective corporations, executed a PREINCORPORATION AGREEMENT dated October 20, 1977. 93 In it, they
undertook to form a shipbuilding corporation to be known as "PHIL-ASIA
SHIPBUILDING CORPORATION," to bring to realization their president's
instructions. It would seem that the new corporation ultimately formed
was actually named "Philippine Dockyard Corporation (PDC)." 94
b. Letter of Instructions No. 670
Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of
instructions. On February 14, 1978, he issued Letter of Instructions No.
670 addressed to the Reparations Commission REPACOM the Philippine
National Oil Company (PNOC), the Luzon Stevedoring Company
(LUSTEVECO), and the National Development Company (NDC). What is
commanded therein is summarized by the Solicitor General, with pithy
and not inaccurate observations as to the effects thereof (in italics), as
follows:
* * 1) the shipbuilding equipment procured by BASECO
through reparations be transferred to NDC subject to
reimbursement by NDC to BASECO (of) the amount of s
allegedly representing the handling and incidental
expenses incurred by BASECO in the installation of said
equipment (so instead of NDC getting paid on its loan to
BASECO, it was made to pay BASECO instead the amount
of P18.285M); 2) the shipbuilding equipment procured from
reparations through EPZA, now in the possession of

BASECO and BSDI (Bay Shipyard & Drydocking, Inc.) be

transferred to LUSTEVECO through PNOC; and 3) the
shipbuilding equipment (thus) transferred be invested by
LUSTEVECO, acting through PNOC and NDC, as the
government's equity participation in a shipbuilding
corporation to be established in partnership with the
private sector.
xxx xxx xxx
And so, through a simple letter of instruction and
memorandum, BASECO's loan obligation to NDC and
REPACOM * * in the total amount of P83.365M and BSD's
REPACOM loan of P32.438M were wiped out and converted
into non-voting preferred shares. 95
20. Evidence of Marcos'
Ownership of BASECO
It cannot therefore be gainsaid that, in the context of the proceedings at
bar, the actuality of the control by President Marcos of BASECO has been
sufficiently shown.
Other evidence submitted to the Court by the Solicitor General proves
that President Marcos not only exercised control over BASECO, but also
that he actually owns well nigh one hundred percent of its outstanding
stock.
It will be recalled that according to petitioner- itself, as of April 23, 1986,
there were 218,819 shares of stock outstanding, ostensibly owned by
twenty (20) stockholders. 96 Four of these twenty are juridical persons:
(1) Metro Bay Drydock, recorded as holding 136,370 shares; (2) Fidelity
Management, Inc., 65,882 shares; (3) Trident Management, 7,412 shares;
and (4) United Phil. Lines, 1,240 shares. The first three corporations,
among themselves, own an aggregate of 209,664 shares of BASECO
stock, or 95.82% of the outstanding stock.
Now, the Solicitor General has drawn the Court's attention to the
intriguing circumstance that found in Malacanang shortly after the sudden
flight of President Marcos, were certificates corresponding to more
than ninety-five percent (95%) of all the outstanding shares of stock of
BASECO, endorsed in blank, together with deeds of assignment of
practically all the outstanding shares of stock of the three (3) corporations
above mentioned (which hold 95.82% of all BASECO stock), signed by the
owners thereof although not notarized. 97
More specifically, found in Malacanang (and now in the custody of the
PCGG) were:
1) the deeds of assignment of all 600 outstanding shares of
Fidelity Management Inc. which supposedly owns as
aforesaid 65,882 shares of BASECO stock;

2) the deeds of assignment of 2,499,995 of the 2,500,000

outstanding shares of Metro Bay Drydock Corporation
which allegedly owns 136,370 shares of BASECO stock;
3) the deeds of assignment of 800 outstanding shares of
Trident Management Co., Inc. which allegedly owns
7,412 shares of BASECO stock, assigned in blank; 98 and
4) stock certificates corresponding to 207,725 out of the
218,819 outstanding shares of BASECO stock;that is, all but
5 % all endorsed in blank. 99
While the petitioner's counsel was quick to dispute this asserted fact,
assuring this Court that the BASECO stockholders were still in possession
of their respective stock certificates and had "never endorsed * * them in
blank or to anyone else," 100 that denial is exposed by his own prior and
subsequent recorded statements as a mere gesture of defiance rather
than a verifiable factual declaration.
By resolution dated September 25, 1986, this Court granted BASECO's
counsel a period of 10 days "to SUBMIT, as undertaken by him, * * the
certificates of stock issued to the stockholders of * * BASECO as of April
23, 1986, as listed in Annex 'P' of the petition.' 101 Counsel thereafter
moved for extension; and in his motion dated October 2, 1986, he
declared inter alia that "said certificates of stock are in the possession of
third parties, among whom being the respondents themselves * *
and petitioner is still endeavoring to secure copies thereof from
them." 102 On the same day he filed another motion praying that he be
allowed "to secure copies of the Certificates of Stock in the name of Metro
Bay Drydock, Inc., and of all other Certificates, of Stock of petitioner's
stockholders in possession of respondents." 103
In a Manifestation dated October 10, 1986,, 104 the Solicitor General not
unreasonably argued that counsel's aforestated motion to secure copies
of the stock certificates "confirms the fact that stockholders of petitioner
corporation are not in possession of * * (their) certificates of stock," and
the reason, according to him, was "that 95% of said shares * * have been
endorsed in blank and found in Malacaang after the former President
and his family fled the country." To this manifestation BASECO's counsel
replied on November 5, 1986, as already mentioned, Stubbornly insisting
that the firm's stockholders had not really assigned their stock. 105
In view of the parties' conflicting declarations, this Court resolved on
November 27, 1986 among other things "to require * * the petitioner * *
to deposit upon proper receipt with Clerk of Court Juanito Ranjo the
originals of the stock certificates alleged to be in its possession or
accessible to it, mentioned and described in Annex 'P' of its petition, (and
other pleadings) * * within ten (10) days from notice." 106 In a motion
filed on December 5, 1986, 107 BASECO's counsel made the statement,
quite surprising in the premises, that "it will negotiate with the owners (of
the BASECO stock in question) to allow petitioner to borrow from them, if

CORPO 19

available, the certificates referred to" but that "it needs a more sufficient
time therefor" (sic). BASECO's counsel however eventually had to confess
inability to produce the originals of the stock certificates, putting up the
feeble excuse that while he had "requested the stockholders to allow * *
(him) to borrow said certificates, * * some of * * (them) claimed that they
had delivered the certificates to third parties by way of pledge and/or to
secure performance of obligations, while others allegedly have entrusted
them to third parties in view of last national emergency." 108 He has
conveniently omitted, nor has he offered to give the details of the
transactions adverted to by him, or to explain why he had not impressed
on the supposed stockholders the primordial importance of convincing
this Court of their present custody of the originals of the stock, or if he
had done so, why the stockholders are unwilling to agree to some sort of
arrangement so that the originals of their certificates might at the very
least be exhibited to the Court. Under the circumstances, the Court can
only conclude that he could not get the originals from the stockholders for
the simple reason that, as the Solicitor General maintains, said
stockholders in truth no longer have them in their possession, these
having already been assigned in blank to then President Marcos.
21. Facts Justify Issuance of Sequestration and Takeover Orders
In the light of the affirmative showing by the Government that, prima
facie at least, the stockholders and directors of BASECO as of April,
1986 109 were mere "dummies," nominees or alter egos of President
Marcos; at any rate, that they are no longer owners of any shares of stock
in the corporation, the conclusion cannot be avoided that said
stockholders and directors have no basis and no standing whatever to
cause the filing and prosecution of the instant proceeding; and to grant
relief to BASECO, as prayed for in the petition, would in effect be to
restore the assets, properties and business sequestered and taken over
by the PCGG to persons who are "dummies," nominees or alter egos of
the former president.
From the standpoint of the PCGG, the facts herein stated at some length
do indeed show that the private corporation known as BASECO was
"owned or controlled by former President Ferdinand E. Marcos * * during
his administration, * * through nominees, by taking advantage of * * (his)
public office and/or using * * (his) powers, authority, influence * *," and
that NASSCO and other property of the government had been taken over
by BASECO; and the situation justified the sequestration as well as the
provisional takeover of the corporation in the public interest, in
accordance with the terms of Executive Orders No. 1 and 2, pending the
filing of the requisite actions with the Sandiganbayan to cause divestment
of title thereto from Marcos, and its adjudication in favor of the Republic
pursuant to Executive Order No. 14.
As already earlier stated, this Court agrees that this assessment of the
facts is correct; accordingly, it sustains the acts of sequestration and
takeover by the PCGG as being in accord with the law, and, in view of

20 CORPO

what has thus far been set out in this opinion, pronounces to be without
merit the theory that said acts, and the executive orders pursuant to
which they were done, are fatally defective in not according to the parties
affected prior notice and hearing, or an adequate remedy to impugn, set
aside or otherwise obtain relief therefrom, or that the PCGG had acted as
prosecutor and judge at the same time.
22. Executive Orders Not a Bill of Attainder
Neither will this Court sustain the theory that the executive orders in
question are a bill of attainder. 110 "A bill of attainder is a legislative act
which inflicts punishment without judicial trial." 111 "Its essence is the
substitution of a legislative for a judicial determination of guilt." 112
In the first place, nothing in the executive orders can be reasonably
construed as a determination or declaration of guilt. On the contrary, the
executive orders, inclusive of Executive Order No. 14, make it perfectly
clear that any judgment of guilt in the amassing or acquisition of "illgotten wealth" is to be handed down by a judicial tribunal, in this case,
the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In
the second place, no punishment is inflicted by the executive orders, as
the merest glance at their provisions will immediately make apparent. In
no sense, therefore, may the executive orders be regarded as a bill of
attainder.
23. No Violation of Right against Self-Incrimination and Unreasonable
Searches and Seizures
BASECO also contends that its right against self incrimination and
unreasonable searches and seizures had been transgressed by the Order
of April 18, 1986 which required it "to produce corporate records from
1973 to 1986 under pain of contempt of the Commission if it fails to do
so." The order was issued upon the authority of Section 3 (e) of Executive
Order No. 1, treating of the PCGG's power to "issue subpoenas requiring *
* the production of such books, papers, contracts, records, statements of
accounts and other documents as may be material to the investigation
conducted by the Commission, " and paragraph (3), Executive Order No. 2
dealing with its power to "require all persons in the Philippines holding * *
(alleged "ill-gotten") assets or properties, whether located in the
Philippines or abroad, in their names as nominees, agents or trustees, to
make full disclosure of the same * *." The contention lacks merit.
It is elementary that the right against self-incrimination has no application
to juridical persons.
While an individual may lawfully refuse to answer
incriminating questions unless protected by an immunity
statute, it does not follow that a corporation, vested with
special privileges and franchises, may refuse to show its
hand when charged with an abuse ofsuchprivileges * * 113
Relevant jurisprudence is also cited by the Solicitor General. 114

* * corporations are not entitled to all of the constitutional

protections which private individuals have. * * They are not
at all within the privilege against selfincrimination, although this court more than once has said
that the privilege runs very closely with the 4th
Amendment's Search and Seizure provisions. It is also
settled that an officer of the company cannot refuse to
produce its records in its possession upon the plea that
they will either incriminate him or may incriminate
it." (Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186;
emphasis, the Solicitor General's).
* * The corporation is a creature of the state. It is presumed
to be incorporated for the benefit of the public. It received
certain special privileges and franchises, and holds them
subject to the laws of the state and the limitations of its
charter. Its powers are limited by law. It can make no
contract not authorized by its charter. Its rights to act as a
corporation are only preserved to it so long as it obeys the
laws of its creation. There is a reserve right in the
legislature to investigate its contracts and find out whether
it has exceeded its powers. It would be a strange anomaly
to hold that a state, having chartered a corporation to
make use of certain franchises, could not, in the exercise of
sovereignty, inquire how these franchises had been
employed, and whether they had been abused, and
demand the production of the corporate books and papers
for that purpose. The defense amounts to this, that an
officer of the corporation which is charged with a criminal
violation of the statute may plead the criminality of such
corporation as a refusal to produce its books. To state this
proposition is to answer it. While an individual may lawfully
refuse to answer incriminating questions unless protected
by an immunity statute, it does not follow that a
corporation, vested with special privileges and franchises
may refuse to show its hand when charged with an abuse
of such privileges. (Wilson v. United States, 55 Law Ed.,
771, 780 [emphasis, the Solicitor General's])
At any rate, Executive Order No. 14-A, amending Section 4 of Executive
Order No. 14 assures protection to individuals required to produce
evidence before the PCGG against any possible violation of his right
against self-incrimination. It gives them immunity from prosecution on the
basis of testimony or information he is compelled to present. As
amended, said Section 4 now provides that
xxx xxx xxx
The witness may not refuse to comply with the order on the
basis of his privilege against self-incrimination; but no

testimony or other information compelled under the order

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

CORPO 21

any person or entity that may render moot and academic, or frustrate or
otherwise make ineffectual its efforts to carry out its task; punish for
direct or indirect contempt in accordance with the Rules of Court; and
seek and secure the assistance of any office, agency or instrumentality of
the government. 116 In the case of sequestered businesses generally
(i.e., going concerns, businesses in current operation), as in the case of
sequestered objects, its essential role, as already discussed, is that of
conservator, caretaker, "watchdog" or overseer. It is not that of manager,
or innovator, much less an owner.
c. Powers over Business Enterprises Taken Over by Marcos
or Entities or Persons Close to him; Limitations Thereon
Now, in the special instance of a business enterprise shown by evidence
to have been "taken over by the government of the Marcos Administration
or by entities or persons close to former President Marcos," 117 the PCGG
is given power and authority, as already adverted to, to "provisionally
take (it) over in the public interest or to prevent * * (its) disposal or
dissipation;" and since the term is obviously employed in reference to
going concerns, or business enterprises in operation, something more
than mere physical custody is connoted; the PCGG may in this case
exercise some measure of control in the operation, running, or
management of the business itself. But even in this special situation, the
intrusion into management should be restricted to the minimum degree
necessary to accomplish the legislative will, which is "to prevent the
disposal or dissipation" of the business enterprise. There should be no
hasty, indiscriminate, unreasoned replacement or substitution of
management officials or change of policies, particularly in respect of
viable establishments. In fact, such a replacement or substitution should
be avoided if at all possible, and undertaken only when justified by
demonstrably tenable grounds and in line with the stated objectives of
the PCGG. And it goes without saying that where replacement of
management officers may be called for, the greatest prudence,
circumspection, care and attention - should accompany that undertaking
to the end that truly competent, experienced and honest managers may
be recruited. There should be no role to be played in this area by rank
amateurs, no matter how wen meaning. The road to hell, it has been said,
is paved with good intentions. The business is not to be experimented or
played around with, not run into the ground, not driven to bankruptcy, not
fleeced, not ruined. Sight should never be lost sight of the ultimate
objective of the whole exercise, which is to turn over the business to the
Republic, once judicially established to be "ill-gotten." Reason dictates
that it is only under these conditions and circumstances that the
supervision, administration and control of business enterprises
provisionally taken over may legitimately be exercised.
d. Voting of Sequestered Stock; Conditions Therefor
So, too, it is within the parameters of these conditions and circumstances
that the PCGG may properly exercise the prerogative to vote sequestered

22 CORPO

stock of corporations, granted to it by the President of the Philippines

through a Memorandum dated June 26, 1986. That Memorandum
authorizes the PCGG, "pending the outcome of proceedings to determine
the ownership of * * (sequestered) shares of stock," "to vote such shares
of stock as it may have sequestered in corporations at all stockholders'
meetings called for the election of directors, declaration of dividends,
amendment of the Articles of Incorporation, etc." The Memorandum
should be construed in such a manner as to be consistent with, and not
contradictory of the Executive Orders earlier promulgated on the same
matter. There should be no exercise of the right to vote simply because
the right exists, or because the stocks sequestered constitute the
controlling or a substantial part of the corporate voting power. The stock
is not to be voted to replace directors, or revise the articles or by-laws, or
otherwise bring about substantial changes in policy, program or practice
of the corporation except for demonstrably weighty and defensible
grounds, and always in the context of the stated purposes of
sequestration or provisional takeover, i.e., to prevent the dispersion or
undue disposal of the corporate assets. Directors are not to be voted out
simply because the power to do so exists. Substitution of directors is not
to be done without reason or rhyme, should indeed be shunned if at an
possible, and undertaken only when essential to prevent disappearance
or wastage of corporate property, and always under such circumstances
as assure that the replacements are truly possessed of competence,
experience and probity.
In the case at bar, there was adequate justification to vote the incumbent
directors out of office and elect others in their stead because the
evidence showed prima facie that the former were just tools of President
Marcos and were no longer owners of any stock in the firm, if they ever
were at all. This is why, in its Resolution of October 28, 1986; 118 this
Court declared that
Petitioner has failed to make out a case of grave abuse or
excess of jurisdiction in respondents' calling and holding of
a stockholders' meeting for the election of directors as
authorized by the Memorandum of the President * * (to the
PCGG) dated June 26, 1986, particularly, where as in this
case, the government can, through its designated directors,
properly exercise control and management over what
appear to be properties and assets owned and belonging to
the government itself and over which the persons who
appear in this case on behalf of BASECO have failed to
show any right or even any shareholding in said
corporation.
It must however be emphasized that the conduct of the PCGG nominees
in the BASECO Board in the management of the company's affairs should
henceforth be guided and governed by the norms herein laid down. They
should never for a moment allow themselves to forget that they are
conservators, not owners of the business; they are fiduciaries, trustees, of

whom the highest degree of diligence and rectitude is, in the premises,
required.
25. No Sufficient Showing of Other Irregularities
As to the other irregularities complained of by BASECO, i.e., the
cancellation or revision, and the execution of certain contracts, inclusive
of the termination of the employment of some of its executives, 119 this
Court cannot, in the present state of the evidence on record, pass upon
them. It is not necessary to do so. The issues arising therefrom may and
will be left for initial determination in the appropriate action. But the
Court will state that absent any showing of any important cause therefor,
it will not normally substitute its judgment for that of the PCGG in these
individual transactions. It is clear however, that as things now stand, the
petitioner cannot be said to have established the correctness of its
submission that the acts of the PCGG in question were done without or in
excess of its powers, or with grave abuse of discretion.
WHEREFORE, the petition is dismissed. The temporary restraining order
issued on October 14, 1986 is lifted.

G.R. No. 125986 January 28, 1999

LUXURIA HOMES, INC., and/or AIDA M. POSADAS, petitioners,
vs.
HONORABLE COURT OF APPEALS, JAMES BUILDER CONSTRUCTION
and/or JAIME T. BRAVO,respondents.

MARTINEZ, J.:
This petition for review assails the decision of the respondent Court of
Appeals dated March 15, 1996, 1 which affirmed with modification the
judgment of default rendered by the Regional Trial Court of Muntinlupa,
Branch 276, in Civil Case No. 92-2592 granting all the reliefs prayed for in
the complaint of private respondents James Builder Construction and/or
Jaime T. Bravo.
As culled from the record, the facts are as follows:
Petitioner Aida M. Posadas and her two (2) minor children co-owned a 1.6
hectare property in Sucat, Muntinlupa, which was occupied by squatters.
Petitioner Posadas entered into negotiations with private respondent
Jaime T. Bravo regarding the development of the said property into a
residential subdivision. On May 3, 1989, she authorized private
respondent to negotiate with the squatters to leave the said property.
With a written authorization, respondent Bravo buckled down to work and
started negotiations with the squatters.
Meanwhile, some seven (7) months later, on December 11, 1989,
petitioner Posadas and her two (2) children, through a Deed of
Assignment, assigned the said property to petitioner Luxuria Homes, Inc.,
purportedly for organizational and tax avoidance purposes. Respondent
Bravo signed as one of the witnesses to the execution of the Deed of
Assignment and the Articles of Incorporation of petitioner Luxuria Homes,
Inc.
Then sometime in 1992, the harmonious and congenial relationship of
petitioner Posadas and respondent Bravo turned sour when the former
supposedly could not accept the management contracts to develop the
1.6 hectare property into a residential subdivision, the latter was
proposing. In retaliation, respondent Bravo demanded payment for
services rendered in connection with the development of the land. In his
statement of account dated 21 August 1991 2 respondent demanded the
payment of P1,708,489.00 for various services rendered, i.e., relocation of

CORPO 23

squatters, preparation of the architectural design and site development

plan, survey and fencing.
Petitioner Posadas refused to pay the amount demanded. Thus, in
September 1992, private respondents James Builder Construction and
Jaime T. Bravo instituted a complaint for specific performance before the
trial court against petitioners Posadas and Luxuria Homes, Inc. Private
respondents alleged therein that petitioner Posadas asked them to clear
the subject parcel of land of squatters for a fee of P1,100,000.00 for
which they were partially paid the amount of P461,511.50, leaving a
balance of P638,488.50. They were also supposedly asked to prepare a
site development plan and an architectural design for a contract price of
P450,000.00 for which they were partially paid the amount of P25,000.00,
leaving a balance of P425,000.00. And in anticipation of the signing of the
land development contract, they had to construct a bunkhouse and
warehouse on the property which amounted to P300,000.00, and a hollow
blocks factory for P60,000.00. Private respondents also claimed that
petitioner Posadas agreed that private respondents will develop the land
into a first class subdivision thru a management contract and that
petitioner Posadas is unjustly refusing to comply with her obligation to
finalize the said management contract.
The prayer in the complaint of the private respondents before the trial
court reads as follows:
WHEREFORE, premises considered, it is respectfully prayed
of this Honorable Court that after hearing/trial judgment be
rendered ordering defendant to:
a) Comply with its obligation to deliver/finalize
Management Contract of its land in Sucat, Muntinlupa,
Metro Manila and to pay plaintiff its balance in the amount
of P1,708,489.00:
b) Pay plaintiff moral and exemplary damages in the
amount of P500.000.00;
c) Pay plaintiff actual damages in the amount of
P500.000.00 (Bunkhouse/warehouse- P300.000.00, Hollowblock factory-P60.000.00, lumber, cement, etc.,
P120.000.00, guard-P20.000.00);
d) Pay plaintiff attorney's fee of P50.000 plus P700 per
appearance in court and 5% of that which may be awarded
by the court to plaintiff re its monetary claims:
e) Pay cost of this suit. 3

24 CORPO

On September 27, 1993, the trial court declared petitioner Posadas in

default and allowed the private respondents to present their evidence exparte. On March 8, 1994, it ordered petitioner Posadas, jointly and in
solidum with petitioner Luxuria Homes, Inc., to pay private respondents
as follows:
1. . . . the balance of the payment for the various services
performed by Plaintiff with respect to the land covered by
TCT NO. 167895 previously No. 158290 in the total amount
of P1,708,489.00.
2. . . . actual damages incurred for the construction of the
warehouse/bunks, and for the material used in the total
sum of P1,500.000.00.
3. Moral and exemplary damages of P500.000.00.
4. Attorney's fee of P50,000.00.
5. And cost of this proceedings.
Defendant Aida Posadas as the Representative of the
Corporation Luxuria Homes, Incorporated, is further
directed to execute the management contract she
committed to do, also in consideration of the various
undertakings that Plaintiff rendered for her. 4
Aggrieved by the aforecited decision, petitioners appealed to respondent
Court of Appeals, which, as aforestated, affirmed with modification the
decision of the trial court. The appellate court deleted the award of moral
damages on the ground that respondent James Builder Construction is a
corporation and hence could not experience physical suffering and mental
anguish. It also reduced the award of exemplary damages. The dispositive
portion of the decision reads:
WHEREFORE, the decision appealed from is hereby
AFFIRMED with the modification that the award of moral
damages is ordered deleted and the award of exemplary
damages to the plaintiff's-appellee should only be in the
amount of FIFTY THOUSAND (P50,000.00) PESOS. 5
Petitioners' motion for reconsideration was denied, prompting the filing of
this petition for review before this Court.
On January 15, 1997, the Third Division of this Court denied due course to
this petition for failing to show convincingly any reversible error on the

part of the Court of Appeals. This Court however deleted the grant of
exemplary damages and attorney's fees. The Court also reduced the trial
court's award of actual damages from P1,500,000.00 to P500,000.00
reasoning that the grant should not exceed the amount prayed for in the
complaint. In the prayer in the complaint respondents asked for actual
damages in the amount of P500,000.00 only.
Still feeling aggrieved with the resolution of this Court, petitioners filed a
motion for reconsideration. On March 17, 1997, this Court found merit in
the petitioners' motion for reconsideration and reinstated this petition for
review.
From their petition for review and motion for reconsideration before this
Court, we now synthesize the issues as follows:
1. Were private respondents able to present ex-parte sufficient evidence
to substantiate the allegations in their complaint and entitle them to their
prayers?
2. Can petitioner Luxuria Homes, Inc., be held liable to private
respondents for the transactions supposedly entered into between
petitioner Posadas and private respondents?
3. Can petitioners be compelled to enter into a management contract
with private respondents?
Petitioners who were declared in default assert that the private
respondents who presented their evidence ex-partenonetheless utterly
failed to substantiate the allegations in their complaint and as such
cannot be entitled to the reliefs prayed for.
A perusal of the record shows that petitioner Posadas contracted
respondent Bravo to render various services for the initial development of
the property as shown by vouchers evidencing payments made by
petitioner Posadas to respondent Bravo for squatter relocation,
architectural design, survey and fencing.
Respondents prepared the architectural design, site development plan
and survey in connection with petitioner Posadas' application with the
Housing and Land Use Regulatory Board (HLURB) for the issuance of the
Development Permit, Preliminary Approval and Locational
Clearance. 6 Petitioner benefited from said services as the Development
Permit and the Locational Clearance were eventually issued by the HLURB
in her favor. Petitioner Posadas is therefore liable to pay for these services
rendered by respondents. The contract price for the survey of the land is
P140,000.00. Petitioner made partial payments totaling P130,000.00
leaving a payable balance of P10,000.00.

In his testimony, 7 he alleged that the agreed price for the preparation of
the site development plan is P500,000.00 and that the preparation of the
architectural designs is for P450,000, or a total of P950,000.00 for the two
contracts. In his complaint however, respondent Bravo alleged that he
was asked "to prepare the site development plan and the architectural
designs . . . for a contract price of P450,000.00 . . . " 8 The discrepancy or
inconsistency was never reconciled and clarified.
We reiterate that we cannot award an amount higher than what was
claimed in the complaint. Consequently for the preparation of both the
architectural design and site development plan, respondent is entitled to
the amount of P450,000.00 less partial payments made in the amount of
P25,000.00. In Policarpio v. RTC of Quezon City, 9 it was held that a court
is bereft of jurisdiction to award, in a judgment by default, a relief other
than that specifically prayed for in the complaint.
As regards the contracts for the ejectment of squatters and fencing, we
believe however that respondents failed to show proof that they actually
fulfilled their commitments therein. Aside from the bare testimony of
respondent Bravo, no other evidence was presented to show that all the
squatters were ejected from the property. Respondent Bravo failed to
show how many shanties or structures were actually occupying the
property before he entered the same, to serve as basis for concluding
whether the task was finished or not. His testimony alone that he
successfully negotiated for the ejectment of all the squatters from the
property will not suffice.
Likewise, in the case of fencing, there is no proof that it was accomplished
as alleged. Respondent Bravo claims that he finished sixty percent (60%)
of the fencing project but he failed to present evidence showing the area
sought to be fenced and the actual area fenced by him. We therefore
have no basis to determining the veracity respondent's allegations. We
cannot assume that the said services rendered for it will be unfair to
require petitioner to pay the full amount claimed in case the respondents
obligations were not completely fulfilled.
For respondents' failure to show proof of accomplishment of the aforesaid
services, their claims cannot be granted. In P.T. Cerna Corp. v. Court of
Appeals, 10 we ruled that in civil cases, the burden of proof rests upon the
party who, as determined by the pleadings or the nature of the case,
asserts the affirmative of an issue. In this case the burden lies on the
complainant, who is duty bound to prove the allegations in the complaint.
As this Court has held, he who alleges a fact has the burden of proving it
and A MERE ALLEGATION IS NOT EVIDENCE.
And the rules do not change even if the defendant is declared in default.
In the leading case of Lopez v. Mendezona,11 this Court ruled that after

CORPO 25

entry of judgment in default against a defendant who has neither

appeared nor answered, and before final judgment in favor of the plaintiff,
the latter must establish by competent evidence all the material
allegations of his complaint upon which he bases his prayer for relief.
In De los Santos v. De la Cruz, 12 this Court declared that a judgement by
default against a defendant does not imply a waiver of rights except that
of being heard and of presenting evidence in his favor. It does not imply
admission by the defendant of the facts and causes of action of the
plaintiff, because the codal section requires the latter to adduce his
evidence in support of his allegations as an indispensable condition
before final judgment could be given in his favor. Nor could it be
interpreted as an admission by the defendant that the plaintiff's causes of
action finds support in the law or that the latter is entitled to the relief
prayed for.

In fine, as we declared in PNOC Shipping & Transport Corp. v. Court of

Appeals, 16 basic is the rule that to recover actual damages, the amount of
loss must not only be capable of proof but must actually be proven with
reasonable degree of certainty, premised upon competent proof or best
evidence obtainable of the actual amount thereof.

We explained the rule in judgments by default in Pascua v.

Florendo, 13 where we said that nowhere is it stated that the complainants
are automatically entitled to the relief prayed for, once the defendants
are declared in default. Favorable relief can be granted only after the
court has ascertained that the evidence offered and the facts proven by
the presenting party warrant the grant of the same. Otherwise it would be
meaningless to require presentation of evidence if everytime the other
party is declared in default, a decision would automatically be rendered in
favor of the non-defaulting party and exactly according to the tenor of his
prayer. In Lim Tanhu v. Ramolete 14 we elaborated and said that a
defaulted defendant is not actually thrown out of court. The rules see to it
that any judgment against him must be in accordance with law. The
evidence to support the plaintiff's cause is, of course, presented in his
absence, but the court is not supposed to admit that which is basically
incompetent. Although the defendant would not be in a position to object,
elementary justice requires that only legal evidence should be considered
against him. If the evidence presented should not be sufficient to justify a
judgment for the plaintiff, the complaint must be dismissed. And if an
unfavorable judgment should be justifiable, it cannot exceed the amount
or be different in kind from what is prayed for in the complaint.

On the contrary we hold that respondent Court of Appeals committed a

reversible error when it upheld the factual finding of the trial court that
petitioners' liability was aggravated by the fact that Luxuria Homes, Inc.,
was formed by petitioner Posadas after demand for payment had been
made, evidently for her to evade payment of her obligation, thereby
showing that the transfer of her property to Luxuria Homes, Inc., was in
fraud of creditors.

The prayer for actual damages in the amount of P500,000.00, supposedly

for the bunkhouse/warehouse, hollow-block factory, lumber, cement,
guard, etc., which the trial court granted and even increased to
P1,500,000.00, and which this Court would have rightly reduced to the
amount prayed for in the complaint, was not established, as shown upon
further review of the record. No receipts or vouchers were presented by
private respondents to show that they actually spent the amount. In Salas
v. Court of Appeals, 15 we said that the burden of proof of the damages
suffered is on the party claiming the same. It his duty to present evidence
to support his claim for actual damages. If he failed to do so, he has only
himself to blame if no award for actual damages is handed down.

26 CORPO

We go to the second issue of whether Luxuria Homes, Inc., was a party to

the transactions entered into by petitioner Posadas and private
respondents and thus could be held jointly and severally with petitioner
Posadas. Private respondents contend that petitioner Posadas
surreptitiously formed Luxuria Homes, Inc., and transferred the subject
parcel of land to it to evade payment and defraud creditors, including
private respondents. This allegation does not find support in the evidence
on record.

We easily glean from the record that private respondents sent demand
letters on 21 August 1991 and 14 September 1991, or more than a year
and a half after the execution of the Deed of Assignment on 11 December
1989, and the issuance of the Articles of Incorporation of petitioner
Luxuria Homes on 26 January 1990. And, the transfer was made at the
time the relationship between petitioner Posadas and private respondents
was supposedly very pleasant. In fact the Deed of Assignment dated 11
December 1989 and the Articles of Incorporation of Luxuria Homes, Inc.,
issued 26 January 1990 were both signed by respondent Bravo himself as
witness. It cannot be said then that the incorporation of petitioner Luxuria
Homes and the eventual transfer of the subject property to it were in
fraud of private respondents as such were done with the full knowledge of
respondent Bravo himself.
Besides petitioner Posadas is not the majority stockholder of petitioner
Luxuria Homes, Inc., as erroneously stated by the lower court. The
Articles of Incorporation of petitioner Luxuria Homes, Inc., clearly show
that petitioner Posadas owns approximately 33% only of the capital stock.
Hence petitioner Posadas cannot be considered as an alter ego of
petitioner Luxuria Homes, Inc.
To disregard the separate juridical personality of a corporation, the
wrongdoing must be clearly and convincingly established. It cannot be
presumed. This is elementary. Thus in Bayer-Roxas v. Court of

Appeals, 17 we said that 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 for the
protection of the creditors. Accordingly in Del Roscrrio v. NLRC, 18where
the Philsa International Placement and Services Corp. was organized and
registered with the POEA in 1981, several years before the complainant
was filed a case in 1985, we held that this cannot imply fraud.
Obviously in the instant case, private respondents failed to show proof
that petitioner Posadas acted in bad faith. Consequently since private
respondents failed to show that petitioner Luxuria Homes, Inc., was a
party to any of the supposed transactions, not even to the agreement to
negotiate with and relocate the squatters, it cannot be held liable, nay
jointly and in solidum, to pay private respondents. In this case since it
was petitioner Aida M. Posadas who contracted respondent Bravo to
render the subject services, only she is liable to pay the amounts
adjudged herein.
We now resolve the third and final issue. Private respondents urge the
court to compel petitioners to execute a management contract with them
on the basis of the authorization letter dated May 3, 1989. The full text of
Exh. "D" reads:
I hereby certify that we have duly authorized the bearer,
Engineer Bravo to negotiate, in our behalf, the ejectment of
squatters from our property of 1.6 hectares, more or less, in
Sucat Muntinlupa. This authority is extended to him as the
representative of the Managers; under our agreement for
them to undertake the development of said area and the
construction of housing units intended to convert the land
into a first class subdivision.

It is fundamental that there can be no contract in the true sense in the

absence of the element of agreement, or of mutual assent of the parties.
To compel petitioner Posadas, whether as representative of petitioner
Luxuria Homes or in her personal capacity, to execute a management
contract under the terms and conditions of private respondents would be
to violate the principle of consensuality of contracts. In Philippine National
Bank v. Court of Appeals, 20 we held that if the assent is wanting on the
part of one who contracts, his act has no more efficacy than if it had been
done under duress or by a person of unsound mind. In ordering petitioner
Posadas to execute a management contract with private respondents, the
trial court in effect is putting her under duress.
The parties are bound to fulfill the stipulations in a contract only upon its
perfection. At anytime prior to the perfection of a contract, unaccepted
offers and proposals remain as such and cannot be considered as binding
commitments; hence not demandable.
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed decision
dated March 15, 1996, of respondent Honorable Court of Appeals and its
Resolution dated August 12, 1996, are MODIFIED ordering PETITIONER
AIDA M. POSADAS to pay PRIVATE RESPONDENTS the amount of
P435,000.00 as balance for the preparation of the architectural design,
site development plan and survey. All other claims of respondents are
hereby DENIED for lack of merit.1wphi1.nt
SO ORDERED.

The aforecited document is nothing more than a "to-whom-it-mayconcern" authorization letter to negotiate with the squatters. Although it
appears that there was an agreement for the development of the area,
there is no showing that same was ever perfected and finalized. Private
respondents presented in evidence only drafts of a proposed
management contract with petitioner's handwritten marginal notes but
the management contract was not put in its final form. The reason why
there was no final uncorrected draft was because the parties could not
agree on the stipulations of said contract, which even private respondents
admitted as found by the trial court. 19 As a consequence the
management drafts submitted by the private respondents should at best
be considered as mere unaccepted offers. We find no cogent reason,
considering that the parties no longer are in a harmonious relationship,
for the execution of a contract to develop a subdivision.

CORPO 27

G.R. No. 108734 May 29, 1996

CONCEPT BUILDERS, INC., petitioner,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, (First Division);
and Norberto Marabe; Rodolfo Raquel, Cristobal Riego, Manuel
Gillego, Palcronio Giducos, Pedro Aboigar, Norberto Comendador,
Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea,
Alfredo Albera, Paquito Salut, Domingo Guarino, Romeo Galve,
Dominador Sabina, Felipe Radiana, Gavino Sualibio, Moreno
Escares, Ferdinand Torres, Felipe Basilan, and Ruben
Robalos, respondents.

HERMOSISIMA, JR., J.:p

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

28 CORPO

Public respondent found it to be, the fact, however, that at the time of the
termination of private respondent's employment, the project in which
they were hired had not yet been finished and completed. Petitioner had
to engage the services of sub-contractors whose workers performed the
functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal,
unfair labor practice and non-payment of their legal holiday pay, overtime
pay and thirteenth-month pay against petitioner.
On December 19, 1984, the Labor Arbiter rendered judgment 1 ordering
petitioner to reinstate private respondents and to pay them back wages
equivalent to one year or three hundred working days.
On November 27, 1985, the National Labor Relations Commission (NLRC)
dismissed the motion for reconsideration filed by petitioner on the ground
that the said decision had already become final and executory. 2
On October 16, 1986, the NLRC Research and Information Department
made the finding that private respondents' back wages amounted to
P199,800.00. 3
On October 29, 1986, the Labor Arbiter issued a writ of execution
directing the sheriff to execute the Decision, dated December 19, 1984.
The writ was partially satisfied through garnishment of sums from
petitioner's debtor, the Metropolitan Waterworks and Sewerage Authority,
in the amount of P81,385.34. Said amount was turned over to the cashier
of the NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by the Labor
Arbiter directing the sheriff to collect from herein petitioner the sum of
P117,414.76, representing the balance of the judgment award, and to
reinstate private respondents to their former positions.
On July 13, 1989, the sheriff issued a report stating that he tried to serve
the alias writ of execution on petitioner through the security guard on
duty but the service was refused on the ground that petitioner no longer
occupied the premises.
On September 26, 1986, upon motion of private respondents, the Labor
Arbiter issued a second alias writ of execution.
The said writ had not been enforced by the special sheriff because, as
stated in his progress report, dated November 2, 1989:

1. All the employees inside petitioner's premises at 355 Maysan Road,

Valenzuela, Metro Manila, claimed that they were employees of Hydro
Pipes Philippines, Inc. (HPPI) and not by respondent;

Elisa C. Lim 100,000.00

2. Levy was made upon personal properties he found in the premises;

Virgilio O. Casino 100.00

3. Security guards with high-powered guns prevented him from removing

the properties he had levied upon. 4
The said special sheriff recommended that a "break-open order" be issued
to enable him to enter petitioner's premises so that he could proceed with
the public auction sale of the aforesaid personal properties on November
7, 1989.
On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party
claim with the Labor Arbiter alleging that the properties sought to be
levied upon by the sheriff were owned by Hydro (Phils.), Inc. (HPPI) of
which he is the Vice-President.
On November 23, 1989, private respondents filed a "Motion for Issuance
of a Break-Open Order," alleging that HPPI and petitioner corporation
were owned by the same incorporator/stockholders. They also alleged
that petitioner temporarily suspended its business operations in order to
evade its legal obligations to them and that private respondents were
willing to post an indemnity bond to answer for any damages which
petitioner and HPPI may suffer because of the issuance of the break-open
order.
In support of their claim against HPPI, private respondents presented duly
certified copies of the General Informations Sheet, dated May 15, 1987,
submitted by petitioner to the Securities Exchange Commission (SEC) and
the General Information Sheet, dated May 25, 1987, submitted by HPPI to
the Securities and Exchange Commission.
The General Information Sheet submitted by the petitioner revealed the
following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
HPPI P 6,999,500.00
Antonio W. Lim 2,900,000.00

Teodulo R. Dino 100.00

2. Board of Directors
Antonio W. Lim Chairman
Dennis S. Cuyegkeng Member
Elisa C. Lim Member
Teodulo R. Dino Member
Virgilio O. Casino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the
President
Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road
Valenzuela, Metro Manila. 5
On the other hand, the General Information Sheet of HPPI revealed the
following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
Antonio W. Lim P 400,000.00

Dennis S. Cuyegkeng 300.00

CORPO 29

Elisa C. Lim 57,700.00

AWL Trading 455,000.00
Dennis S. Cuyegkeng 40,100.00
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Elisa C. Lim Member
Dennis S. Cuyegkeng Member
Virgilio O. Casino Member
Teodulo R. Dino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the
President
Elisa C. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road, Valenzuela, Metro Manila. 6
On February 1, 1990, HPPI filed an Opposition to private respondents'
motion for issuance of a break-open order, contending that HPPI is a
corporation which is separate and distinct from petitioner. HPPI also
alleged that the two corporations are engaged in two different kinds of
businesses, i.e., HPPI is a manufacturing firm while petitioner was then
engaged in construction.

30 CORPO

On March 2, 1990, the Labor Arbiter issued an Order which denied private
respondents' motion for break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992, the
NLRC set aside the order of the Labor Arbiter, issued a break-open order
and directed private respondents to file a bond. Thereafter, it directed the
sheriff to proceed with the auction sale of the properties already levied
upon. It dismissed the third-party claim for lack of merit.
Petitioner moved for reconsideration but the motion was denied by the
NLRC in a Resolution, dated December 3, 1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of discretion
when it ordered the execution of its decision despite a third-party claim
on the levied property. Petitioner further contends, that the doctrine of
piercing the corporate veil should not have been applied, in this case, in
the absence of any showing that it created HPPI in order to evade its
liability to private respondents. It also contends that HPPI is engaged in
the manufacture and sale of steel, concrete and iron pipes, a business
which is distinct and separate from petitioner's construction business.
Hence, it is of no consequence that petitioner and HPPI shared the same
premises, the same President and the same set of officers and
subscribers. 7
We find petitioner's contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation is an
entity separate and distinct from its stockholders and from other
corporations to which it may be connected. 8 But, this separate and
distinct personality of a corporation is merely a fiction created by law for
convenience and to promote justice. 9 So, when the notion of separate
juridical personality is used to defeat public convenience, justify wrong,
protect fraud or defend crime, or is used as a device to defeat the labor
laws, 10 this separate personality of the corporation may be disregarded or
the veil of corporate fiction pierced. 11 This is true likewise when the
corporation is merely an adjunct, a business conduit or an alter ego of
another corporation. 12
The conditions under which the juridical entity may be disregarded vary
according to the peculiar facts and circumstances of each case. No hard
and fast rule can be accurately laid down, but certainly, there are some
probative factors of identity that will justify the application of the doctrine
of piercing the corporate veil, to wit:

1. Stock ownership by one or common ownership of both

corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business. 13
The SEC en banc explained the "instrumentality rule" which the courts
have applied in disregarding the separate juridical personality of
corporations as follows:
Where one corporation is so organized and controlled and
its affairs are conducted so that it is, in fact, a mere
instrumentality or adjunct of the other, the fiction of the
corporate entity of the "instrumentality" may be
disregarded. The control necessary to invoke the rule is not
majority or even complete stock control but such
domination of instances, policies and practices that the
controlled corporation has, so to speak, no separate mind,
will or existence of its own, and is but a conduit for its
principal. It must be kept in mind that the control must be
shown to have been exercised at the time the acts
complained of took place. Moreover, the control and breach
of duty must proximately cause the injury or unjust loss for
which the complaint is made.
The test in determining the applicability of the doctrine of piercing the
veil of corporate fiction is as follows:
1. Control, not mere majority or complete stock control, but
complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so
that the corporate entity as to this transaction had at the
time no separate mind, will or existence of its own;
2. Such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty or dishonest and
unjust act in contravention of plaintiff's legal rights; and
3. The aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents

"piercing the corporate veil." In applying the
"instrumentality" or "alter ego" doctrine, the courts are
concerned with reality and not form, with how the
corporation operated and the individual defendant's
relationship to that operation. 14
Thus the question of whether a corporation is a mere alter ego, a mere
sheet or paper corporation, a sham or a subterfuge is purely one of fact. 15
In this case, the NLRC noted that, while petitioner claimed that it ceased
its business operations on April 29, 1986, it filed an Information Sheet
with the Securities and Exchange Commission on May 15, 1987, stating
that its office address is at 355 Maysan Road, Valenzuela, Metro Manila.
On the other hand, HPPI, the third-party claimant, submitted on the same
day, a similar information sheet stating that its office address is at 355
Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O.
Casio as the corporate secretary of both corporations. It
would also not be amiss to note that both corporations had
the same president, the same board of directors,
the same corporate officers, and substantially
the same subscribers.
From the foregoing, it appears that, among other things,
the respondent (herein petitioner) and the third-party
claimant shared the same address and/or premises. Under
this circumstances, (sic) it cannot be said that the property
levied upon by the sheriff were not of respondents. 16
Clearly, petitioner ceased its business operations in order to evade the
payment to private respondents of back wages and to bar their
reinstatement to their former positions. HPPI is obviously a business
conduit of petitioner corporation and its emergence was skillfully
orchestrated to avoid the financial liability that already attached to
petitioner corporation.
The facts in this case are analogous to Claparols v. Court of Industrial
Relations, 17 where we had the occasion to rule:
Respondent court's findings that indeed the Claparols Steel
and Nail Plant, which ceased operation of June 30, 1957,
was SUCCEEDED by the Claparols Steel Corporation
effective the next day, July 1, 1957, up to December 7,

CORPO 31

1962, when the latter finally ceased to operate, were not

disputed by petitioner. It is very clear that the latter
corporation was a continuation and successor of the first
entity . . . . Both predecessors and successor were owned
and controlled by petitioner Eduardo Claparols and there
was no break in the succession and continuity of the same
business. This "avoiding-the-liability" scheme is very
patent, considering that 90% of the subscribed shares of
stock of the Claparols Steel Corporation (the second
corporation) was owned by respondent . . . Claparols
himself, and all the assets of the dissolved Claparols Steel
and Nail plant were turned over to the emerging Claparols
Steel Corporation.
It is very obvious that the second corporation seeks the
protective shield of a corporate fiction whose veil in the
present case could, and should, be pierced as it was
deliberately and maliciously designed to evade its financial
obligation to its employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon
the property subject of the execution, private respondents had no other
recourse but to apply for a break-open order after the third-party claim of
HPPI was dismissed for lack of merit by the NLRC. This is in consonance
with Section 3, Rule VII of the NLRC Manual of Execution of Judgment
which provides that:
Should the losing party, his agent or representative, refuse
or prohibit the Sheriff or his representative entry to the
place where the property subject of execution is located or
kept, the judgment creditor may apply to the Commission
or Labor Arbiter concerned for a break-open order.
Furthermore, our perusal of the records shows that the twin requirements
of due notice and hearing were complied with. Petitioner and the thirdparty claimant were given the opportunity to submit evidence in support
of their claim.
Hence, the NLRC did not commit any grave abuse of discretion when it
affirmed the break-open order issued by the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual findings
of quasi-judicial agencies supported by substantial evidence are binding
on this Court and are entitled to great respect, in the absence of showing
of grave abuse of a discretion. 18

32 CORPO

WHEREFORE, the petition is DISMISSED and the assailed resolutions of the

NLRC, dated April 23, 1992 and December 3, 1992, are AFFIRMED.
SO ORDERED.

G.R. No. 100812 June 25, 1999

FRANCISCO MOTORS CORPORATION, petitioner,
vs.
COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA
MANUEL, respondents.

QUISUMBING, J.:
This petition for review on certiorari, under Rule 45 of the Rules of Court,
seeks to annul the decision 1 of the Court of Appeals in C.A. G.R. CV No.
10014 affirming the decision rendered by Branch 135, Regional Trial Court
of Makati, Metro Manila. The procedural antecedents of this petition are as
follows:
On January 23, 1985, petitioner filed a complaint 2 against private
respondents to recover three thousand four hundred twelve and six
centavos (P3,412.06), representing the balance of the jeep body
purchased by the Manuels from petitioner; an additional sum of twenty
thousand four hundred fifty-four and eighty centavos (P20,454.80)
representing the unpaid balance on the cost of repair of the vehicle; and
six thousand pesos (P6,000.00) for cost of suit and attorney's fees. 3 To
the original balance on the price of jeep body were added the costs of
repair. 4 In their answer, private respondents interposed a counterclaim
for unpaid legal services by Gregorio Manuel in the amount of fifty
thousand pesos (P50,000) which was not paid by the incorporators,
directors and officers of the petitioner. The trial court decided the case on
June 26, 1985, in favor of petitioner in regard to the petitioner's claim for
money, but also allowed the counter-claim of private respondents. Both
parties appealed. On April 15, 1991, the Court of Appeals sustained the
trial court's decision. 5 Hence, the present petition.
For our review in particular is the propriety of the permissive counterclaim
which private respondents filed together with their answer to petitioner's
complaint for a sum of money. Private respondent Gregorio Manuel
alleged as an affirmative defense that, while he was petitioner's Assistant
Legal Officer, he represented members of the Francisco family in the
intestate estate proceedings of the late Benita Trinidad. However, even
after the termination of the proceedings, his services were not paid. Said
family members, he said, were also incorporators, directors and officers of
petitioner. Hence to petitioner's collection suit, he filed a counter
permissive counterclaim for the unpaid attorney's fees. 6
For failure of petitioner to answer the counterclaim, the trial court
declared petitioner in default on this score, and evidence ex-parte was

presented on the counterclaim. The trial court ruled in favor of private

respondents and found that Gregorio Manuel indeed rendered legal
services to the Francisco family in Special Proceedings Number 7803
"In the Matter of Intestate Estate of Benita Trinidad". Said court also found
that his legal services were not compensated despite repeated demands,
and thus ordered petitioner to pay him the amount of fifty thousand
(P50,000.00) pesos. 7
Dissatisfied with the trial court's order, petitioner elevated the matter to
the Court of Appeals, posing the following issues:
I.
WHETHER OR NOT THE DECISION RENDERED BY THE
LOWER COURT IS NULL AND VOID AS IT NEVER ACQUIRED
JURISDICTION OVER THE PERSON OF THE DEFENDANT.
II.
WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A
REAL PARTY IN THE ALLEGED PERMISSIVE COUNTERCLAIM
SHOULD BE HELD LIABLE TO THE CLAIM OF DEFENDANTAPPELLEES.
III.
WHETHER OR NOT THERE IS FAILURE ON THE PART OF
PLAINTIFF-APPELLANT TO ANSWER THE ALLEGED
PERMISSIVE COUNTERCLAIM. 8
Petitioner contended that the trial court did not acquire jurisdiction over it
because no summons was validly served on it together with the copy of
the answer containing the permissive counterclaim. Further, petitioner
questions the propriety of its being made party to the case because it was
not the real party in interest but the individual members of the Francisco
family concerned with the intestate case.
In its assailed decision now before us for review, respondent Court of
Appeals held that a counterclaim must be answered in ten (10) days,
pursuant to Section 4, Rule 11, of the Rules of Court; and nowhere does it
state in the Rules that a party still needed to be summoned anew if a
counterclaim was set up against him. Failure to serve summons, said
respondent court, did not effectively negate trial court's jurisdiction over
petitioner in the matter of the counterclaim. It likewise pointed out that
there was no reason for petitioner to be excused from answering the
counterclaim. Court records showed that its former counsel, Nicanor G.
Alvarez, received the copy of the answer with counterclaim two (2) days

CORPO 33

prior to his withdrawal as counsel for petitioner. Moreover when

petitioner's new counsel, Jose N. Aquino, entered his appearance, three
(3) days still remained within the period to file an answer to the
counterclaim. Having failed to answer, petitioner was correctly considered
in default by the trial
court. 9 Even assuming that the trial court acquired no jurisdiction over
petitioner, respondent court also said, but having filed a motion for
reconsideration seeking relief from the said order of default, petitioner
was estopped from further questioning the trial court's jurisdiction. 10
On the question of its liability for attorney's fees owing to private
respondent Gregorio Manuel, petitioner argued that being a corporation,
it should not be held liable therefor because these fees were owed by the
incorporators, directors and officers of the corporation in their personal
capacity as heirs of Benita Trinidad. Petitioner stressed that the
personality of the corporation, vis-a-vis the individual persons who hired
the services of private respondent, is separate and distinct, 11 hence, the
liability of said individuals did not become an obligation chargeable
against petitioner.
Nevertheless, on the foregoing issue, the Court of Appeals ruled as
follows:
However, this distinct and separate personality is merely a
fiction created by law for convenience and to promote
justice. Accordingly, this separate personality of the
corporation may be disregarded, or the veil of corporate
fiction pierced, in cases where it is used as a cloak or cover
for found (sic) illegality, or to work an injustice, or where
necessary to achieve equity or when necessary for the
protection of creditors. (Sulo ng Bayan, Inc. vs. Araneta,
Inc., 72 SCRA 347) Corporations are composed of natural
persons and the legal fiction of a separate corporate
personality is not a shield for the commission of injustice
and inequity. (Chemplex Philippines, Inc. vs. Pamatian, 57
SCRA 408).
In the instant case, evidence shows that the plaintiffappellant Francisco Motors Corporation is composed of the
heirs of the late Benita Trinidad as directors and
incorporators for whom defendant Gregorio Manuel
rendered legal services in the intestate estate case of their
deceased mother. Considering the aforestated principles
and circumstances established in this case, equity and
justice demands plaintiff-appellant's veil of corporate
identity should be pierced and the defendant be
compensated for legal services rendered to the heirs, who
are directors of the plaintiff-appellant corporation. 12

34 CORPO

Now before us, petitioner assigns the following errors:

I.
THE COURT OF APPEALS ERRED IN APPLYING THE
DOCTRINE OF PIERCING THE VEIL OF CORPORATE ENTITY.
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE
WAS JURISDICTION OVER PETITIONER WITH RESPECT TO
THE COUNTERCLAIM. 13
Petitioner submits that respondent court should not have resorted to
piercing the veil of corporate fiction because the transaction concerned
only respondent Gregorio Manuel and the heirs of the late Benita Trinidad.
According to petitioner, there was no cause of action by said respondent
against petitioner; personal concerns of the heirs should be distinguished
from those involving corporate affairs. Petitioner further contends that the
present case does not fall among the instances wherein the courts may
look beyond the distinct personality of a corporation. According to
petitioner, the services for which respondent Gregorio Manuel seeks to
collect fees from petitioner are personal in nature. Hence, it avers the
heirs should have been sued in their personal capacity, and not involve
the corporation. 14
With regard to the permissive counterclaim, petitioner also insists that
there was no proper service of the answer containing the permissive
counterclaim. It claims that the counterclaim is a separate case which can
only be properly served upon the opposing party through summons.
Further petitioner states that by nature, a permissive counterclaim is one
which does not arise out of nor is necessarily connected with the subject
of the opposing party's claim. Petitioner avers that since there was no
service of summons upon it with regard to the counterclaim, then the
court did not acquire jurisdiction over petitioner. Since a counterclaim is
considered an action independent from the answer, according to
petitioner, then in effect there should be two simultaneous actions
between the same parties: each party is at the same time both plaintiff
and defendant with respect to the other, 15 requiring in each case
separate summonses.
In their Comment, private respondents focus on the two questions raised
by petitioner. They defend the propriety of piercing the veil of corporate
fiction, but deny the necessity of serving separate summonses on
petitioner in regard to their permissive counterclaim contained in the
answer.

Private respondents maintain both trial and appellate courts found that
respondent Gregorio Manuel was employed as assistant legal officer of
petitioner corporation, and that his services were solicited by the
incorporators, directors and members to handle and represent them in
Special Proceedings No. 7803, concerning the Intestate Estate of the late
Benita Trinidad. They assert that the members of petitioner corporation
took advantage of their positions by not compensating respondent
Gregorio Manuel after the termination of the estate proceedings despite
his repeated demands for payment of his services. They cite findings of
the appellate court that support piercing the veil of corporate identity in
this particular case. They assert that the corporate veil may be
disregarded when it is used to defeat public convenience, justify wrong,
protect fraud, and defend crime. It may also be pierced, according to
them, where the corporate entity is being used as an alter ego, adjunct,
or business conduit for the sole benefit of the stockholders or of another
corporate entity. In these instances, they aver, the corporation should be
treated merely as an association of individual persons. 16
Private respondents dispute petitioner's claim that its right to due process
was violated when respondents' counterclaim was granted due course,
although no summons was served upon it. They claim that no provision in
the Rules of Court requires service of summons upon a defendant in a
counterclaim. Private respondents argue that when the petitioner filed its
complaint before the trial court it voluntarily submitted itself to the
jurisdiction of the court. As a consequence, the issuance of summons on it
was no longer necessary. Private respondents say they served a copy of
their answer with affirmative defenses and counterclaim on petitioner's
former counsel, Nicanor G. Alvarez. While petitioner would have the Court
believe that respondents served said copy upon Alvarez after he had
withdrawn his appearance as counsel for the petitioner, private
respondents assert that this contention is utterly baseless. Records
disclose that the answer was received two (2) days before the former
counsel for petitioner withdrew his appearance, according to private
respondents. They maintain that the present petition is but a form of
dilatory appeal, to set off petitioner's obligations to the respondents by
running up more interest it could recover from them. Private respondents
therefore claim damages against petitioner. 17
To resolve the issues in this case, we must first determine the propriety of
piercing the veil of corporate fiction.
Basic in corporation law is the principle that a corporation has a separate
personality distinct from its stockholders and from other corporations to
which it may be connected. 18 However, under the doctrine of piercing the
veil of corporate entity, the corporation's separate juridical personality
may be disregarded, for example, when the corporate identity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime.
Also, where the corporation is a mere alter ego or business conduit of a

person, or where the corporation is so organized and controlled and its

affairs are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation, then its distinct personality
may be ignored. 19 In these circumstances, the courts will treat the
corporation as a mere aggrupation of persons and the liability will directly
attach to them. The legal fiction of a separate corporate personality in
those cited instances, for reasons of public policy and in the interest of
justice, will be justifiably set aside.
In our view, however, given the facts and circumstances of this case, the
doctrine of piercing the corporate veil has no relevant application here.
Respondent court erred in permitting the trial court's resort to this
doctrine. The rationale behind piercing a corporation's identity in a given
case is to remove the barrier between the corporation from the persons
comprising it to thwart the fraudulent and illegal schemes of those who
use the corporate personality as a shield for undertaking certain
proscribed activities. However, in the case at bar, instead of holding
certain individuals or persons responsible for an alleged corporate act,
the situation has been reversed. It is the petitioner as a corporation which
is being ordered to answer for the personal liability of certain individual
directors, officers and incorporators concerned. Hence, it appears to us
that the doctrine has been turned upside down because of its erroneous
invocation. Note that according to private respondent Gregorio Manuel his
services were solicited as counsel for members of the Francisco family to
represent them in the intestate proceedings over Benita Trinidad's estate.
These estate proceedings did not involve any business of petitioner.
Note also that he sought to collect legal fees not just from certain
Francisco family members but also from petitioner corporation on the
claims that its management had requested his services and he acceded
thereto as an employee of petitioner from whom it could be deduced he
was also receiving a salary. His move to recover unpaid legal fees through
a counterclaim against Francisco Motors Corporation, to offset the unpaid
balance of the purchase and repair of a jeep body could only result from
an obvious misapprehension that petitioner's corporate assets could be
used to answer for the liabilities of its individual directors, officers, and
incorporators. Such result if permitted could easily prejudice the
corporation, its own creditors, and even other stockholders; hence, clearly
inequitous to petitioner.
Furthermore, considering the nature of the legal services involved,
whatever obligation said incorporators, directors and officers of the
corporation had incurred, it was incurred in their personal capacity. When
directors and officers of a corporation are unable to compensate a party
for a personal obligation, it is far-fetched to allege that the corporation is
perpetuating fraud or promoting injustice, and be thereby held liable
therefor by piercing its corporate veil. While there are no hard and fast
rules on disregarding separate corporate identity, we must always be

CORPO 35

mindful of its function and purpose. A court should be careful in assessing

the milieu where the doctrine of piercing the corporate veil may be
applied. Otherwise an injustice, although unintended, may result from its
erroneous application.
The personality of the corporation and those of its incorporators, directors
and officers in their personal capacities ought to be kept separate in this
case. The claim for legal fees against the concerned individual
incorporators, officers and directors could not be properly directed against
the corporation without violating basic principles governing corporations.
Moreover, every action including a counterclaim must be prosecuted
or defended in the name of the real party in interest. 20 It is plainly an
error to lay the claim for legal fees of private respondent Gregorio Manuel
at the door of petitioner (FMC) rather than individual members of the
Francisco family.
However, with regard to the procedural issue raised by petitioner's
allegation, that it needed to be summoned anew in order for the court to
acquire jurisdiction over it, we agree with respondent court's view to the
contrary. Section 4, Rule 11 of the Rules of Court provides that a
counterclaim or cross-claim must be answered within ten (10) days from
service. Nothing in the Rules of Court says that summons should first be
served on the defendant before an answer to counterclaim must be
made. The purpose of a summons is to enable the court to acquire
jurisdiction over the person of the defendant. Although a counterclaim is
treated as an entirely distinct and independent action, the defendant in
the counterclaim, being the plaintiff in the original complaint, has already
submitted to the jurisdiction of the court. Following Rule 9, Section 3 of
the 1997 Rules of Civil Procedure, 21 if a defendant (herein petitioner) fails
to answer the counterclaim, then upon motion of plaintiff, the defendant
may be declared in default. This is what happened to petitioner in this
case, and this Court finds no procedural error in the disposition of the
appellate court on this particular issue. Moreover, as noted by the
respondent court, when petitioner filed its motion seeking to set aside the
order of default, in effect it submitted itself to the jurisdiction of the court.
As well said by respondent court:
Further on the lack of jurisdiction as raised by plaintiffappellant[,] [t]he records show that upon its request,
plaintiff-appellant was granted time to file a motion for
reconsideration of the disputed decision. Plaintiff-appellant
did file its motion for reconsideration to set aside the order
of default and the judgment rendered on the counterclaim.
Thus, even if the court acquired no jurisdiction over
plaintiff-appellant on the counterclaim, as it vigorously
insists, plaintiff-appellant is considered to have submitted
to the court's jurisdiction when it filed the motion for

36 CORPO

reconsideration seeking relief from the court. (Soriano vs.

Palacio, 12 SCRA 447). A party is estopped from assailing
the jurisdiction of a court after voluntarily submitting
himself to its jurisdiction. (Tejones vs. Gironella, 159 SCRA
100). Estoppel is a bar against any claims of lack of
jurisdiction. (Balais vs. Balais, 159 SCRA 37). 22
WHEREFORE, the petition is hereby GRANTED and the assailed decision is
hereby REVERSED insofar only as it held Francisco Motors Corporation
liable for the legal obligation owing to private respondent Gregorio
Manuel; but this decision is without prejudice to his filing the proper suit
against the concerned members of the Francisco family in their personal
capacity. No pronouncement as to costs.1wphi1.nt
SO ORDERED.

G.R. No. 163786

February 16, 2005

TIMES TRANSPORTATION COMPANY, INC., petitioner,

vs.
SANTOS SOTELO, CONRADO B. SALONGA, SAMSON C. SOLIVEN,
BIENVENIDO F. MALANA, JR., JOVITO V. ALCAUSIN, EFREN A.
RAMOS, RODRIGO P. CABUSAO, JR., EDGAR G. PONCE, RONALD
ALLAN PARINAS, RODEL PALO, REYNALDO R. RAGUCOS, MARIO T.
TOLEDO, BERNARDINO PADUA, DOMINGO P. BILAN, ARNEL
VALLEDORES, RAMON RETUTA, JR., PANTALEON TABANGIN,
ALBERTO PANDO, VIRGILIO E. OBAR, EULOGIO D. DIGA, SR.,
DANIEL LLADO, RONILO BALTAZAR, MARITO PANDO, LEOPOLDO
FUNTILA, GERRY B. CARRIDO, WILLIAM A. TABUCOL, ANTONIO L.
RAMOS, SR., PABLO P. PADRE, HENRY B. GANIR, TEOTIMO R.
REQUILMAN, CIPRIANO ULPINDO, ROGER BABIDA, SAMUEL
PERALTA, BONIFACIO TUMALIP, EDGAR ABLOG, EFREN ABELLA,
RODRIGO RABOY, RENATO SILVA, GEORGE PERALTA, RONILO
BARBOSA, JULIAN BUENAFE, FLORENCIO CARIO, BERNIE
TUMBAGA, RODRIGO CABAERO, ELMER TAMO, LEOPOLDO NANA,
NELIE BOSE, DEMETRIO HERRERA, RODOLFO ABELLA, ALVIN
ELEFANTE, REDENTOR GARCIA, JERRY PALACPAC, JOSE PAET,
ARTHUR IBEA, ELIZER BORJA, EDMUNDO ASPIRAS, JOSE V.
PESCADOR, WILLIAM GARCIA, ERNESTO P. MANGULABNAN,
BENJAMIN B. BLAZA, JOSELITO P. CACABELOS, LEON R. GALANTA,
JR., MARIANO P. TEJADA, PEDRITO C. ORTIZ, JR., NESTOR E.
BALCITA, FLOR BURBANO, HERNANDO A. PIMENTEL, ALEX A.
GOMEZ, ARNALDO P. BOSE, NAPOLEON BALDERAS, CARLINO V.
RULLODA, JR., RANDY R. AMODO, CORNELIO R. RAGUINI, ROBERT
CERIA, JUANITO U. UGALDE, ALBERTO PAJO, ALFREDO VALOROSO,
RUFINO ADRIATICO, BARTOLOME C. EDROSOLAN, JR., REYNANTE
A. ALCAIN, NOELITO SUSA and VICENTE NAVA, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the decision of the Court of
Appeals dated January 30, 2004 in CA-G.R. SP No. 75291, 1 which set aside
the decision and resolution of the National Labor Relations Commission,
and its resolution dated May 24, 20042 denying reconsideration thereof.
Petitioner Times Transportation Company, Inc. (Times) is a corporation
engaged in the business of land transportation. Prior to its closure in
1997, the Times Employees Union (TEU) was formed and issued a
certificate of union registration. Times challenged the legitimacy of TEU
by filing a petition for the cancellation of its union registration.

On March 3, 1997, TEU held a strike in response to Times alleged attempt

to form a rival union and its dismissal of the employees identified to be
active union members. Upon petition by Times, then Labor Secretary, and
now Associate Justice of this Court, Leonardo A. Quisumbing, assumed
jurisdiction over the case and referred the matter to the NLRC for
compulsory arbitration. The case was docketed as NLRC NCR CC-00013497. A return-to-work order was likewise issued on March 10, 1997.
In a certification election held on July 1, 1997, TEU was certified as the
sole and exclusive collective bargaining agent in Times. Consequently,
TEUs president wrote the management of Times and requested for
collective bargaining. Times refused on the ground that the decision of
the Med-Arbiter upholding the validity of the certification election was not
yet final and executory.
TEU filed a Notice of Strike on August 8, 1997. Another
conciliation/mediation proceeding was conducted for the purpose of
settling the brewing dispute. In the meantime, Times management
implemented a retrenchment program and notices of retrenchment dated
September 16, 1997 were sent to some of its employees, including the
respondents herein, informing them of their retrenchment effective 30
days thereafter.
On October 17, 1997, TEU held a strike vote on grounds of unfair labor
practice on the part of Times. For alleged participation in what it deemed
was an illegal strike, Times terminated all the 123 striking employees by
virtue of two notices dated October 26, 1997 and November 24,
1997.3 On November 17, 1997, then DOLE Secretary Quisumbing issued
the second return-to-work order certifying the dispute to the NLRC. While
the strike was ended, the employees were no longer admitted back to
work.
In the meantime, by December 12, 1997, Mencorp Transport Systems,
Inc. (Mencorp) had acquired ownership over Times Certificates of Public
Convenience and a number of its bus units by virtue of several deeds of
sale.4 Mencorp is controlled and operated by Mrs. Virginia Mendoza,
daughter of Santiago Rondaris, the majority stockholder of Times.
On May 21, 1998, the NLRC rendered a decision5 in the cases certified to
it by the DOLE, the dispositive portion of which read:
WHEREFORE, the respondents first strike, conducted from March 3, 1997
to March 12, 1997, is hereby declared LEGAL; its second strike, which
commenced on October 17, 1997, is hereby declared ILLEGAL.
Consequently, those 23 persons who participated in the illegal strike
are deemed to have lost their employment status and were therefore
validly dismissed from employment:

CORPO 37

The respondents "Motion to Implead Mencorp Transport Systems, Inc.

and/or Virginia Mendoza and/or Santiago Rondaris" is hereby DENIED for
lack of merit.

severally said complainants full back wages reckoned from their

respective dates of illegal dismissal as above-indicated, until
actually reinstated or in lieu of such reinstatement, at the option of
said complainants, payment of their separation pay of one (1)
month pay per year of service, reckoned from their date of hire as
above-indicated, until actual payment and/or finality of this
decision;

SO ORDERED.6
Times and TEU both appealed the decision of the NLRC, which the Court
of Appeals affirmed on November 17, 2000.7 Upon denial of its motion for
reconsideration, Times filed a petition for review on certiorari,8 docketed
as G.R. Nos. 148500-01, now pending with the Third Division of this Court.
TEU likewise appealed but its petition was denied due course.
In 1998, and after the closure of Times, the retrenched employees,
including practically all the respondents herein, filed cases for illegal
dismissal, money claims and unfair labor practices against Times before
the Regional Arbitration Branch in San Fernando City, La Union. Times
filed a Motion to Dismiss but on October 30, 1998, the arbitration branch
ordered the archiving of the cases pending resolution of G.R. Nos.
148500-01.9
The dismissed employees did not interpose an appeal from said Order.
Instead, they withdrew their complaints with leave of court and filed a
new set of cases before the National Capital Region Arbitration Branch.
This time, they impleaded Mencorp and the Spouses Reynaldo and
Virginia Mendoza. Times sought the dismissal of these cases on the
ground of litis pendencia and forum shopping. On January 31, 2002, Labor
Arbiter Renaldo O. Hernandez rendered a decision stating:
WHEREFORE, premises considered, judgment is hereby entered FINDING
that the dismissals of complainants, excluding the expunged ones, by
respondent Times Transit (sic) Company, Inc. effected, participated in,
authorized or ratified by respondent Santiago Rondaris constituted the
prohibited act of unfair labor practice under Article 248(a) and (e) of the
Labor Code, as amended and hence, illegal and that the sale of said
respondent company to respondents Mencorp Transport Systems
Company (sic), Inc. and/or Virginia Mendoza and Reynaldo Mendoza was
simulated and/or effected in bad faith, ORDERING:
1. respondents Times Transit (sic) Company, Inc. and Santiago
Rondaris as the officer administratively held liable of the unfair
labor practice herein to CEASE AND DESIST therefore (sic);
2. respondents Times Transit (sic) Company, Inc. and/or Santiago
Rondaris and Mencorp Transport Systems Company, Inc. and/or
Virginia Mendoza and Reynaldo Mendoza to cause the
reinstatement therein of complainants to their former positions
without loss of seniority rights and benefits and to pay jointly and

38 CORPO

3. and finally for respondents Times Transit (sic) Company, Inc.

and/or Santiago Rondaris to pay jointly and severally said
complainants as moral and exemplary damages the combined
amount of P75,000.00 and 5% of the total award as attorneys
fees.
All other claims of complainants are dismissed for lack of merit.
.
SO ORDERED.10
The monetary award amounted to P43,347,341.69. On March 4, 2002,
Times, Mencorp and the Spouses Mendoza submitted their respective
memorandum of appeal to the NLRC with motions to reduce the bond.
Mencorp posted a P5 million bond issued by Security Pacific Assurance
Corp. (SPAC). On April 30, 2002, the NLRC issued an order disposing of the
said motion, thus:
WHEREFORE, premises considered, the Urgent Motion for Reduction of
Bond is denied for lack of merit. Respondents are hereby ordered to
complete the bond equivalent to the monetary award in the Labor
Arbiters Decision, within an unextendible period of ten (10) days from
receipt hereof, otherwise, the appeal shall be dismissed for non-perfection
thereof.
SO ORDERED.11
On May 18, 2002, Times moved to reconsider said order arguing mainly
that it did not have sufficient funds to put up the required bond. On July
26, 2002, Mencorp and the Spouses Mendoza posted an additional P10
million appeal bond. Thus far, the total amount of bond posted was P15
million. On August 7, 2002, the NLRC granted the Motion for Reduction of
Bond and approved the P10 million additional appeal bond. 12
On September 17, 2002, the NLRC rendered its decision, stating:

WHEREFORE, the foregoing premises duly considered, the decision

appealed from is hereby VACATED. The records of these consolidated
cases are hereby ordered REMANDED to the Arbitration Branch of origin
for disposition and for the conduct of appropriate proceedings for a
decision to be rendered with dispatch.
SO ORDERED.13
Reconsideration thereof was denied by the NLRC on October 30, 2002.
Thus, the respondents appealed to the Court of Appeals by way of a
petition for certiorari, attributing grave abuse of discretion on the NLRC
for: (1) not dismissing the appeals of Times, Mencorp and the Spouses
Mendoza despite their failure to post the required bond; (2) remanding
the case for further proceedings despite the sufficiency of the evidence
presented by the parties; (3) not sustaining the labor arbiters ruling that
they were illegally dismissed; (4) not affirming the labor arbiters ruling
that there was no litis pendencia; and (5) not ruling that Times and
Mencorp are one and the same entity.1vvphi1.nt
On January 30, 2004, the Court of Appeals rendered the decision now
assailed in this petition, the decretal portion of which states:
WHEREFORE, based on the foregoing, the instant petition is hereby
GRANTED. The assailed Decision and Resolution of the NLRC are hereby
SET ASIDE. The Decision of the Labor Arbiter dated January 31, 2002 is
hereby REINSTATED.
SO ORDERED.14
Times, Mencorp and the Spouses Mendoza filed Motions for
Reconsideration, which were denied in a resolution promulgated on May
24, 2004. Hence, this petition for review based on the following grounds:
I. Petitioner respectfully maintains that the Honorable Court a quo,
in not dismissing the complaints against the petitioner on the
ground of lis pendens, decided the matter in a way not in accord
with existing laws and applicable decisions of this Honorable
Court.
II. Petitioner, further, respectfully maintains that the Honorable
Court a quo, in determining that herein petitioners hitherto lost
their right to appeal to the NLRC on account of their purported
failure to post an adequate appeal bond, radically departed from
the accepted and usual course of judicial proceedings, not to
mention resolved said issue in a manner and fashion antithetical
to existing jurisprudence.

III. Petitioner, furthermore, respectfully maintains that the

Honorable Court a quo, in applying wholesale the doctrine of
piercing the veil of corporate fiction and finding Times copetitioners liable for the formers obligations, resolved the matter
in a manner contradictory to existing applicable laws and
dispositions of this Honorable Court, and departed from the
accepted and usual course of judicial proceedings with regard to
admitting evidence to sustain the application of such principle. 15
The petition lacks merit.
As to the first issue, Times argues that there exists an identity of issues,
rights asserted, relief sought and causes of action between the present
case and the one concerning the legality of the second strike, which is
now pending with the Third Division of this Court. As such, the Court of
Appeals erred in not dismissing the case at bar on the ground of litis
pendencia.
Litis pendencia as a ground for dismissal of an action refers to that
situation wherein another action is pending between the same parties for
the same cause of action and the second action becomes unnecessary
and vexatious.16 We agree with the findings of the Court of Appeals that
there is no litis pendencia as the two cases involve dissimilar causes of
action. The first case, now pending with the Third Division, pertains to the
alleged error of the NLRC in not upholding the dismissal of all the striking
employees (not only of the 23 strikers so declared to have lost their
employment) in spite of the latters ruling that the second strike was
illegal. None of the respondents herein were among those deemed
terminated by virtue of the NLRC decision.
In the instant case, the issue is the validity of the retrenchment
implemented by Times prior to the second strike and the subsequent
dismissal of the striking employees. As such, there can be no question
that respondents were still employees of Times when they were
retrenched. In short, the outcome of this case does not hinge on the
legality of the second strike or the validity of the dismissal of the striking
employees, which issues are yet to be resolved in G.R. Nos. 148500-01.
Consequently, litis pendencia does not arise.
Anent the issue on whether Times perfected its appeal to the NLRC, the
right to appeal is a statutory right and one who seeks to avail of the right
must comply with the statute or rules. The rules for perfecting an appeal
must be strictly followed as they are considered indispensable
interdictions against needless delays and for orderly discharge of judicial
business.17 Section 3(a), Rule VI of the NLRC Rules of Procedure outlines
the requisites for perfecting an appeal, to wit:

CORPO 39

SECTION 3. Requisites for Perfection of Appeal. a) The Appeal shall be

filed within the reglementary period as provided in Section 1 of this Rule
and shall be under oath with proof of payment of the required appeal fee
and the posting of a cash or surety bond as provided in Section 6 of this
Rule; shall be accompanied by memorandum of appeal which shall state
the grounds relied upon and the arguments in support thereof; the relief
prayed for and a statement of the date when the appellant received the
appealed decision, order or award and proof of service on the other party
of such appeal.
A mere notice of appeal without complying with the other requisites
aforestated shall not stop the running of the period for perfecting an
appeal. (Emphasis supplied)
Article 223 of the Labor Code provides that in case of a judgment
involving a monetary award, an appeal by the employer may be perfected
only upon the posting of a cash or surety bond issued by a reputable
bonding company duly accredited by the NLRC in the amount equivalent
to the monetary award in the judgment appealed from. The perfection of
an appeal in the manner and within the period prescribed by law is not
only mandatory but also jurisdictional, and failure to perfect an appeal
has the effect of making the judgment final and executory. 18 However, in
several cases, we have relaxed the rules regarding the appeal bond
especially where it must necessarily yield to the broader interest of
substantial justice.19 The Rules of Procedure of the NLRC allows for the
reduction of the appeal bond upon motion of the appellant and on
meritorious grounds.20 It is required however that such motion is filed
within the reglementary period to appeal.
The records reveal that Times, Mencorp and the Spouses Mendozas
motion to reduce the bond was denied and the NLRC ordered them to
post the required amount within an unextendible period of ten (10)
days.21 However, instead of complying with the directive, Times filed
another motion for reconsideration of the order of denial. Several weeks
later, Mencorp posted an additional bond, which was still less than the
required amount. Three (3) months after the filing of the motion for
reconsideration, the NLRC reversed its previous order and granted the
motion for reduction of bond.1awphi1.nt
We agree with the Court of Appeals that the foregoing constitutes grave
abuse of discretion on the part of the NLRC. By delaying the resolution of
Times motion for reconsideration, it has unnecessarily prolonged the
period of appeal. We have held that to extend the period of appeal is to
prolong the resolution of the case, a circumstance which would give the
employer the opportunity to wear out the energy and meager resources
of the workers to the point that they would be constrained to give up for
less than what they deserve in law.22 The NLRC is well to take notice of
our pronouncement in Santos v. Velarde:23

40 CORPO

The Court is aware that the NLRC is not bound by the technical rules of
procedure and is allowed to be liberal in the interpretation of rules in
deciding labor cases. However, such liberality should not be applied in the
instant case as it would render futile the very purpose for which the
principle of liberality is adopted. From the decision of the Labor Arbiter,
it took the NLRC four months to rule on the "motion" for exemption to pay
bond and another four months to decide the merits of the case. This
Court has repeatedly ruled that delay in the settlement of labor cases
cannot be countenanced. Not only does it involve the survival of an
employee and his loved ones who are dependent on him, it also wears
down the meager resources of the workers...24 (Emphasis supplied)
The NLRCs reversal of its previous order of denial lacks basis. In the first
motion, Mencorp and Spouses Mendoza moved for the reduction of the
appeal bond on the ground that the computation of the monetary award
was highly suspicious and anomalous. In their motion for reconsideration
of the NLRCs denial, Mencorp and the Spouses Mendoza cited financial
difficulties in completing the appeal bond. Neither ground is well-taken.
Times and Mencorp failed to substantiate their allegations of errors in the
computation of the monetary award. They merely asserted "inaccuracies"
without specifying which aspect of the computation was inaccurate. If
Times and Mencorp truly believed that there were errors in the
computation, they could have presented their own computation for
comparison. As to the claim of financial difficulties, suffice it to say that
the law does not require outright payment of the total monetary award,
but only the posting of a bond to ensure that the award will be eventually
paid should the appeal fail.l^vvphi1.net What Times has to pay is a
moderate and reasonable sum for the premium for such bond.25 The
impression thus created was that Times, Mencorp and the Spouses
Mendoza were clearly circumventing, if not altogether dodging, the rules
on the posting of appeal bonds.
On the propriety of the piercing of the corporate veil, Times claims that
"to drag Mencorp, [Spouses] Mendoza and Rondaris into the picture on
the purported ground that a fictitious sale of Times assets in their favor
was consummated with the end in view of frustrating the ends of justice
and for purposes of evading compliance with the judgment is the
height of judicial arrogance."26 The Court of Appeals believes otherwise
and reckons that Times and Mencorp failed to adduce evidence to refute
allegations of collusion between them.
We have held that piercing the corporate veil is warranted only in cases
when the separate legal entity is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, such that in the case of two
corporations, the law will regard the corporations as merged into one. 27 It
may be allowed only if the following elements concur: (1) controlnot
mere stock control, but complete dominationnot only of finances, but of

policy and business practice in respect to the transaction attacked; (2)

such control must have been used to commit a fraud or a wrong to
perpetuate the violation of a statutory or other positive legal duty, or a
dishonest and an unjust act in contravention of a legal right; and (3) the
said control and breach of duty must have proximately caused the injury
or unjust loss complained of.28
The following findings of the Labor Arbiter, which were cited and affirmed
by the Court of Appeals, have not been refuted by Times, to wit:
1. The sale was transferred to a corporation controlled by V.
Mendoza, the daughter of respondent S. Rondaris of [Times] where
she is/was also a director, as proven by the articles of
incorporation of [Mencorp];

G.R. No. 168306

June 19, 2007

WILLIAM C. YAO, SR., LUISA C. YAO, RICHARD C. YAO, WILLIAM C.

YAO JR., and ROGER C. YAO,petitioners,
vs.
THE PEOPLE OF THE PHILIPPINES, PETRON CORPORATION and
PILIPINAS SHELL PETROLEUM CORP., and its Principal, SHELL
INTL PETROLEUM CO. LTD., respondents.
DECISION
CHICO-NAZARIO, J.:

3. The timing of the sale evidently was to negate the

employees/complainants/members right to organization as it was
effected when their union (TEU) was just organized/requesting
[Times] to bargain;

In this Petition for Review on Certiorari1 under Rule 45 of the Rules of

Court, petitioners William C. Yao, Sr., Luisa C. Yao, Richard C. Yao, William
C. Yao, Jr., and Roger C. Yao pray for the reversal of the Decision dated 30
September 2004,2 and Resolution dated 1 June 2005, of the Court of
Appeals in CA G.R. SP No. 79256,3 affirming the two Orders, both dated 5
June 2003, of the Regional Trial Court (RTC), Branch 17, Cavite City,
relative to Search Warrants No. 2-2003 and No. 3-2003.4 In the said
Orders, the RTC denied the petitioners Motion to Quash Search
Warrant5 and Motion for the Return of the Motor Compressor and Liquified
Petroleum Gas (LPG) Refilling Machine.6

The following are the facts:

5. [Mencorp] never obtained a franchise since its supposed

incorporation in 10 May 1994 but at present, all the buses of
[Times] are already being run/operated by respondent [Mencorp],
the franchise of [Times] having been transferred to it.29

Petitioners are incorporators and officers of MASAGANA GAS

CORPORATION (MASAGANA), an entity engaged in the refilling, sale and
distribution of LPG products. Private respondents Petron Corporation
(Petron) and Pilipinas Shell Petroleum Corporation (Pilipinas Shell) are two
of the largest bulk suppliers and producers of LPG in the Philippines. Their
LPG products are sold under the marks "GASUL" and "SHELLANE,"
respectively. Petron is the registered owner in the Philippines of the
trademarks GASUL and GASUL cylinders used for its LPG products. It is
the sole entity in the Philippines authorized to allow refillers and
distributors to refill, use, sell, and distribute GASUL LPG containers,
products and its trademarks. Pilipinas Shell, on the other hand, is the
authorized user in the Philippines of the tradename, trademarks, symbols,
or designs of its principal, Shell International Petroleum Company Limited
(Shell International), including the marks SHELLANE and SHELL device in
connection with the production, sale and distribution of SHELLANE LPGs.
It is the only corporation in the Philippines authorized to allow refillers and
distributors to refill, use, sell and distribute SHELLANE LPG containers and
products.7

2. All of the stockholders/incorporators of [Mencorp]: Reynaldo M.

Mendoza, Virginia R. Mendoza, Vernon Gerard R. Mendoza, Vivian
Charity R. Mendoza, Vevey Rosario R. Mendoza are all relatives of
respondent S. Rondaris;

We uphold the findings of the labor arbiter and the Court of Appeals. The
sale of Times franchise as well as most of its bus units to a company
owned by Rondaris daughter and family members, right in the middle of
a labor dispute, is highly suspicious. It is evident that the transaction was
made in order to remove Times remaining assets from the reach of any
judgment that may be rendered in the unfair labor practice cases filed
against it.
WHEREFORE, premises considered, the petition is DENIED. The decision
of the Court of Appeals in CA-G.R. SP No. 75291 dated January 30, 2004
and its resolution dated May 24, 2004, are hereby AFFIRMED in toto.
SO ORDERED.

CORPO 41

On 3 April 2003, National Bureau of Investigation (NBI) agent Ritche N.

Oblanca (Oblanca) filed two applications for search warrant with the RTC,
Branch 17, Cavite City, against petitioners and other occupants of the
MASAGANA compound located at Governors Drive, Barangay Lapidario,
Trece Martires, Cavite City, for alleged violation of Section 155, in relation
to Section 170 of Republic Act No. 8293, otherwise known as "The
Intellectual Property Code of the Philippines."8 The two applications for
search warrant uniformly alleged that per information, belief, and
personal verification of Oblanca, the petitioners are actually producing,
selling, offering for sale and/or distributing LPG products using steel
cylinders owned by, and bearing the tradenames, trademarks, and
devices of Petron and Pilipinas Shell, without authority and in violation of
the rights of the said entities.
In his two separate affidavits9 attached to the two applications for search
warrant, Oblanca alleged:
1. [That] on 11 February 2003, the National Bureau of Investigation
("NBI") received a letter-complaint from Atty. Bienvenido I. Somera Jr. of
Villaraza and Angangco, on behalf of among others, [Petron Corporation
(PETRON)] and Pilipinas Shell Petroleum Corporation (PSPC), the
authorized representative of Shell International Petroleum Company
Limited ("Shell International"), requesting assistance in the investigation
and, if warranted, apprehension and prosecution of certain persons and/or
establishments suspected of violating the intellectual property rights [of
PETRON] and of PSPC and Shell International.
2. [That] on the basis of the letter-complaint, I, together with Agent
Angelo Zarzoso, was assigned as the NBI agent on the case.
3. [That] prior to conducting the investigation on the reported illegal
activities, he reviewed the certificates of trademark registrations issued in
favor of [PETRON], PSPC and Shell International as well as other
documents and other evidence obtained by the investigative agency
authorized by [PETRON], PSPC and Shell International to investigate and
cause the investigation of persons and establishments violating the rights
of [PETRON], PSPC and Shell International, represented by Mr. Bernabe C.
Alajar. Certified copies of the foregoing trademark registrations are
attached hereto as Annexes "A" to ":E".
4. [That] among the establishments alleged to be unlawfully refilling and
unlawfully selling and distributing [Gasul LPG and] Shellane products is
Masagana Gas Corporation ("MASAGANA"). Based on Securities and
Exchange Commission Records, MASAGANA has its principal office
address at 9775 Kamagong Street, San Antonio Village, Makati, Metro
Manila. The incorporators and directors of MASAGANA are William C. Yao,
Sr., Luisa C. Yao, Richard C. Yao, William C. Yao, Jr., and Roger C. Yao. x x x.

42 CORPO

5. I confirmed that MASAGANA is not authorized to use [PETRON and]

Shellane LPG cylinders and its trademarks and tradenames or to be
refillers or distributors of [PETRON and] Shellane LPGs.
6. I went to MASAGANAs refilling station located at Governors Drive,
Barangay Lapidario, Trece Martires City (sic), Cavite to investigate its
activities. I confirmed that MASAGANA is indeed engaged in the
unauthorized refilling, sale and/or distribution of [Gasul and] Shellane LPG
cylinders. I found out that MASAGANA delivery trucks with Plate Nos.
UMN-971, PEZ-612, WTE-527, XAM-970 and WFC-603 coming in and out
of the refilling plant located at the aforementioned address contained
multi-brand LPG cylinders including [Gasul and] Shellane. x x x.
7. [That] on 13 February 2003, I conducted a test-buy accompanied by Mr.
Bernabe C. Alajar. After asking the purpose of our visit, MASAGANAs
guard allowed us to enter the MASAGANA refilling plant to purchase
GASUL and SHELLANE LPGs. x x x. We were issued an order slip which we
presented to the cashiers office located near the refilling station. After
paying the amount x x x covering the cost of the cylinders and their
contents, they were issued Cash Invoice No. 56210 dated February 13,
2003. We were, thereafter, assisted by the plant attendant in choosing
empty GASUL and SHELLANE 11 kg. cylinders, x x x were brought to the
refilling station [and filled in their presence.] I noticed that no valve seals
were placed on the cylinders.
[That] while inside the refilling plant doing the test-buy, I noticed that
stockpiles of multi-branded cylinders including GASUL and SHELLANE
cylinders were stored near the refilling station. I also noticed that the total
land area of the refilling plant is about 7,000 to 10,000 square meters. At
the corner right side of the compound immediately upon entering the
gate is a covered area where the maintenance of the cylinders is taking
place. Located at the back right corner of the compound are two storage
tanks while at the left side also at the corner portion is another storage
tank. Several meters and fronting the said storage tank is where the
refilling station and the office are located. It is also in this storage tank
where the elevated blue water tank depicting MASAGANA CORP. is
located. About eleven (11) refilling pumps and stock piles of multibranded cylinders including Shellane and GASUL are stored in the refilling
station. At the left side of the entrance gate is the guard house with small
door for the pedestrians and at the right is a blue steel gate used for
incoming and outgoing vehicles.
8. [That] on 27 February 2003, I conducted another test-buy accompanied
by Mr. Bernabe C. Alajar. x x x After choosing the cylinders, we were
issued an order slip which we presented to the cashier. Upon payment,
Cash Invoice No. 56398 was issued covering the cost of both GASUL and
SHELLANE LPG cylinders and their contents. x x x Both cylinders were
refilled in our presence and no valve seals were placed on the cylinders.

Copies of the photographs of the delivery trucks, LPG cylinders and

registration papers were also attached to the aforementioned affidavits. 10
Bernabe C. Alajar (Alajar), owner of Able Research and Consulting
Services Inc., was hired by Petron and Pilipinas Shell to assist them in
carrying out their Brand Protection Program. Alajar accompanied Oblanca
during the surveillance of and test-buys at the refilling plant of
MASAGANA. He also executed two separate affidavits corroborating the
statements of Oblanca. These were annexed to the two applications for
search warrant.11

c. Sales invoices, ledgers, journals, official receipts, purchase orders, and

all other books of accounts, inventories and documents pertaining to the
production, sale and/or distribution of the aforesaid goods/products.
d. Delivery truck bearing Plate Nos. WTE-527, XAM-970 and WFC-603,
hauling trucks, and/or other delivery trucks or vehicles or conveyances
being used or intended to be used for the purpose of selling and/or
distributing the above-mentioned counterfeit products.
Under Search Warrant No. 3-2003:

After conducting the preliminary examination on Oblanca and Alajar, and

upon reviewing their sworn affidavits and other attached documents,
Judge Melchor Q.C. Sadang (Judge Sadang), Presiding Judge of the RTC,
Branch 17, Cavite City, found probable cause and correspondingly issued
Search Warrants No. 2-2003 and No. 3-2003.12 The search warrants
commanded any peace officer to make an immediate search of the
MASAGANA compound and to seize the following items:

a. Empty/filled LPG cylinder tanks/containers, bearing Petron

Corporations (Petron) tradename and its tradename "GASUL" and other
devices owned and/or used exclusively by Petron;

Under Search Warrant No. 2-2003:

1. Bulk/Bullet LPG storage tanks;

a. Empty/filled LPG cylinder tanks/containers, bearing the tradename

"SHELLANE", "SHELL" (Device) of Pilipinas Shell Petroleum Corporation
and the trademarks and other devices owned by Shell International
Petroleum Company, Ltd.;

2. Compressor/s (for pneumatic filling system);

b. Machinery and/or equipment being used or intended to be used for the

purpose of illegally refilling LPG cylinders belonging to Pilipinas Shell
Petroleum Corporation bearing the latters tradename as well as the
marks belonging to Shell International Petroleum Company, Ltd.,
enumerated hereunder:

4. LPG filling heads/hoses and appurtenances or LPG filling assembly;

1. Bulk/Bullet LPG storage tanks;

7. Seals bearing the Petron mark;

2. Compressor/s (for pneumatic refilling system);

c. Sales invoices, ledgers, journals, official receipts, purchase orders, and

all other books of accounts, inventories and documents pertaining to the
production, sale and/or distribution of the aforesaid goods/products; and

3. LPG hydraulic pump/s;

4. LPG refilling heads/hoses and appurtenances or LPG filling assembly;
5. LPG pipeline gate valve or ball valve and handles and levers;
6. LPG weighing scales; and
7. Seals simulating the shell trademark.

b. Machinery and/or equipment being used or intended to be used for the

purpose of illegally refilling LPG cylinders belonging to Petron enumerated
hereunder;

3. LPG hydraulic pump/s;

5. LPG pipeline gate valve or ball valve and handles levers;

6. LPG weighing scales; and

d. Delivery trucks bearing Plate Nos. UMN-971, PEZ-612 and WFC-603,

hauling trucks, and/or other delivery trucks or vehicles or conveyances
being used for the purpose of selling and/or distributing the abovementioned counterfeit products.
Upon the issuance of the said search warrants, Oblanca and several NBI
operatives immediately proceeded to the MASAGANA compound and
served the search warrants on petitioners.13 After searching the premises

CORPO 43

of MASAGANA, the following articles described in Search Warrant No. 22003 were seized:
a. Thirty-eight (38) filled 11 kg. LPG cylinders, bearing the tradename of
Pilipinas Shell Petroleum Corporation and the trademarks and other
devices owned by Shell International Petroleum Company, Ltd.;
b. Thirty-nine (39) empty 11 kg. LPG cylinders, bearing the tradename of
Pilipinas Shell Petroleum Corporation and the trademarks and other
devices owned by Shell International Petroleum Company, Ltd.;
c. Eight (8) filled 50 kg. LPG cylinders, bearing the tradename of Pilipinas
Shell Petroleum Corporation and the trademarks and other devices owned
by Shell International Petroleum Company, Ltd.;
d. Three (3) empty 50 kg. LPG cylinders, bearing the tradename of
Pilipinas Shell Petroleum Corporation and the trademarks and other
devices owned by Shell International Petroleum Company, Ltd.;
e. One (1) set of motor compressor for filling system.
Pursuant to Search Warrant No. 3-2003, the following articles were also
seized:
a. Six (6) filled 11 kg. LPG cylinders without seal, bearing Petrons
tradename and its trademark "GASUL" and other devices owned and/or
used exclusively by Petron;
b. Sixty-three (63) empty 11 kg. LPG cylinders, bearing Petrons
tradename and its trademark "GASUL" and other devices owned and/or
used exclusively by Petron;
c. Seven (7) tampered 11 kg. LPG cylinders, bearing Petrons tradename
and its trademark "GASUL" and other devices owned and/or used
exclusively by Petron;
d. Five (5) tampered 50 kg. LPG cylinders, bearing Petrons tradename
and its trademark "GASUL" and other devices owned and/or used
exclusively by Petron with tampered "GASUL" logo;
e. One (1) set of motor compressor for filling system; and
f. One (1) set of LPG refilling machine.
On 22 April 2003, petitioners filed with the RTC a Motion to Quash Search
Warrants No. 2-2003 and No. 3-200314on the following grounds:

44 CORPO

1. There is no probable cause for the issuance of the search warrant and
the conditions for the issuance of a search warrant were not complied
with;
2. Applicant NBI Agent Ritchie N. Oblanca and his witness Bernabe C.
Alajar do not have any authority to apply for a search warrant.
Furthermore, they committed perjury when they alleged in their sworn
statements that they conducted a test-buy on two occasions;
3. The place to be searched was not specified in the Search Warrant as
the place has an area of 10,000 square meters (one hectare) more or
less, for which reason the place to be searched must be indicated with
particularity;
4. The search warrant is characterized as a general warrant as the items
to be seized as mentioned in the search warrant are being used in the
conduct of the lawful business of respondents and the same are not being
used in refilling Shellane and Gasul LPGs.
On 30 April 2003, MASAGANA, as third party claimant, filed with the RTC a
Motion for the Return of Motor Compressor and LPG Refilling Machine. 15 It
claimed that it is the owner of the said motor compressor and LPG refilling
machine; that these items were used in the operation of its legitimate
business; and that their seizure will jeopardize its business interests.
On 5 June 2003, the RTC issued two Orders, one of which denied the
petitioners Motion to Quash Search Warrants No. 2-2003 and No. 3-2003,
and the other one also denied the Motion for the Return of Motor
Compressor and LPG Refilling Machine of MASAGANA, for lack of merit. 16
With respect to the Order denying the petitioners motion to quash Search
Warrants No. 2-2003 and No. 3-2003, the RTC held that based on the
testimonies of Oblanca and Alajar, as well as the documentary evidence
consisting of receipts, photographs, intellectual property and corporate
registration papers, there is probable cause to believe that petitioners are
engaged in the business of refilling or using cylinders which bear the
trademarks or devices of Petron and Pilipinas Shell in the place sought to
be searched and that such activity is probably in violation of Section 155
in relation to Section 170 of Republic Act No. 8293.
It also ruled that Oblanca and Alajar had personal knowledge of the acts
complained of since they were the ones who monitored the activities of
and conducted test-buys on MASAGANA; that the search warrants in
question are not general warrants because the compound searched are
solely used and occupied by MASAGANA, and as such, there was no need
to particularize the areas within the compound that would be searched;
and that the items to be seized in the subject search warrants were

sufficiently described with particularity as the same was limited to

cylinder tanks bearing the trademarks GASUL and SHELLANE.
As regards the Order denying the motion of MASAGANA for the return of
its motor compressor and LPG refilling machine, the RTC resolved that
MASAGANA cannot be considered a third party claimant whose rights
were violated as a result of the seizure since the evidence disclosed that
petitioners are stockholders of MASAGANA and that they conduct their
business through the same juridical entity. It maintained that to rule
otherwise would result in the misapplication and debasement of the veil
of corporate fiction. It also stated that the veil of corporate fiction cannot
be used as a refuge from liability.
Further, the RTC ratiocinated that ownership by another person or entity
of the seized items is not a ground to order its return; that in seizures
pursuant to a search warrant, what is important is that the seized items
were used or intended to be used as means of committing the offense
complained of; that by its very nature, the properties sought to be
returned in the instant case appear to be related to and intended for the
illegal activity for which the search warrants were applied for; and that
the items seized are instruments of an offense.
Petitioners filed Motions for Reconsideration of the assailed Orders, 17 but
these were denied by the RTC in its Order dated 21 July 2003 for lack of
compelling reasons.18
Subsequently, petitioners appealed the two Orders of the RTC to the Court
of Appeals via a special civil action for certiorari under Rule 65 of the
Rules of Court.19 On 30 September 2004, the Court of Appeals
promulgated its Decision affirming the Orders of the RTC.20 It adopted in
essence the bases and reasons of the RTC in its two Orders. The decretal
portion thereof reads:
Based on the foregoing, this Court finds no reason to disturb the assailed
Orders of the respondent judge. Grave abuse of discretion has not been
proven to exist in this case.
WHEREFORE, the petition is hereby DISMISSED for lack of merit. The
assailed orders both dated June 5, 2003 are hereby AFFIRMED.
Petitioners filed a Motion for Reconsideration21 of the Decision of the Court
of Appeals, but this was denied in its Resolution dated 1 June 2005 for
lack of merit.22
Petitioners filed the instant petition on the following grounds:
I.

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE

PRESIDING JUDGE OF RTC CAVITE CITY HAD SUFFICIENT BASIS IN
DECLARING THE EXISTENCE OF PROBABLE CAUSE;
II.
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT NBI AGENT
(RITCHIE OBLANCA) CAN APPLY FOR THE SEARCH WARRANTS
NOTHWITHSTANDING HIS LACK OF AUTHORITY;
III.
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE
REQUIREMENT OF GIVING A PARTICULAR DESCRIPTION OF THE PLACE TO
BE SEARCHED WAS COMPLIED WITH;
IV.
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE
APPLICATIONS AND THE SEARCH WARRANTS THEMSELVES SHOW NO
AMBIGUITY OF THE ITEMS TO BE SEIZED;
V.
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE
COMPLAINT IS DIRECTED AGAINST MASAGANA GAS CORPORATION,
ACTING THROUGH ITS OFFICERS AND DIRECTORS, HENCE MASAGANA
GAS CORPORATION MAY NOT BE CONSIDERED AS THIRD PARTY CLAIMANT
WHOSE RIGHTS WERE VIOLATED AS A RESULT OF THE SEIZURE. 23
Apropos the first issue, petitioners allege that Oblanca and Alajar had no
personal knowledge of the matters on which they testified; that Oblanca
and Alajar lied to Judge Sadang when they stated under oath that they
were the ones who conducted the test-buys on two different occasions;
that the truth of the matter is that Oblanca and Alajar never made the
purchases personally; that the transactions were undertaken by other
persons namely, Nikko Javier and G. Villanueva as shown in the Entry/Exit
Slips of MASAGANA; and that even if it were true that Oblanca and Alajar
asked Nikko Javier and G. Villanueva to conduct the test-buys, the
information relayed by the latter two to the former was mere hearsay. 24
Petitioners also contend that if Oblanca and Alajar had indeed used
different names in purchasing the LPG cylinders, they should have
mentioned it in their applications for search warrants and in their
testimonies during the preliminary examination; that it was only after the
petitioners had submitted to the RTC the entry/exit slips showing different

CORPO 45

personalities who made the purchases that Oblanca and Alajar explained
that they had to use different names in order to avoid detection; that
Alajar is not connected with either of the private respondents; that Alajar
was not in a position to inform the RTC as to the distinguishing
trademarks of SHELLANE and GASUL; that Oblanca was not also
competent to testify on the marks allegedly infringed by petitioners; that
Judge Sadang failed to ask probing questions on the distinguishing marks
of SHELLANE and GASUL; that the findings of the Brand Protection
Committee of Pilipinas Shell were not submitted nor presented to the RTC;
that although Judge Sadang examined Oblanca and Alajar, the former did
not ask exhaustive questions; and that the questions Judge Sadang asked
were merely rehash of the contents of the affidavits of Oblanca and
Alajar.25

The facts and circumstances being referred thereto pertain to facts, data
or information personally known to the applicant and the witnesses he
may present.27 The applicant or his witnesses must have personal
knowledge of the circumstances surrounding the commission of the
offense being complained of. "Reliable information" is insufficient. Mere
affidavits are not enough, and the judge must depose in writing the
complainant and his witnesses.28

These contentions are devoid of merit.

155.1. Use in commerce any reproduction, counterfeit, copy, or colorable

imitation of a registered mark or the same container or a dominant
feature thereof in connection with the sale, offering for sale, distribution,
advertising of any goods or services including other preparatory steps
necessary to carry out the sale of any goods or services on or in
connection with which such use is likely to cause confusion, or to cause
mistake, or to deceive; or

Article III, Section 2, of the present Constitution states the requirements

before a search warrant may be validly issued, to wit:
Section 2. The right of the people to be secure in their persons, houses,
papers, and effects against unreasonable searches and seizures of
whatever nature and for any purpose shall be inviolable, and no search
warrant or warrant of arrest shall issue except upon probable cause to be
determined personally by the judge after examination under oath or
affirmation of the complainant and the witnesses he may produce, and
particularly describing the place to be searched and the persons or things
to be seized. (emphasis supplied).
Section 4 of Rule 126 of the Revised Rules on Criminal Procedure,
provides with more particularity the requisites in issuing a search warrant,
viz:
SEC. 4. Requisites for issuing search warrant. A search warrant shall not
issue except upon probable cause in connection with one specific offense
to be determined personally by the judge after examination under oath or
affirmation of the complainant and the witnesses he may produce, and
particularly describing the place to be searched and the things to be
seized which may be anywhere in the Philippines.
According to the foregoing provisions, a search warrant can be issued
only upon a finding of probable cause. Probable cause for search warrant
means such facts and circumstances which would lead a reasonably
discreet and prudent man to believe that an offense has been committed
and that the objects sought in connection with the offense are in the
place to be searched.26

46 CORPO

Section 155 of Republic Act No. 8293 identifies the acts constituting
trademark infringement, thus:
SEC. 155. Remedies; Infringement. Any person who shall, without the
consent of the owner of the registered mark:

155.2. Reproduce, counterfeit, copy or colorably imitate a registered mark

or a dominant feature thereof and apply such reproduction, counterfeit,
copy or colorable imitation to labels, signs, prints, packages, wrappers,
receptacles or advertisements intended to be used in commerce upon or
in connection with the sale, offering for sale, distribution, or advertising of
goods or services on or in connection with which such use is likely to
cause confusion, or to cause mistake, or to deceive, shall be liable in a
civil action for infringement by the registrant for the remedies hereinafter
set forth: Provided, That the infringement takes place at the moment any
of the acts stated in Subsection 155.1 or this subsection are committed
regardless of whether there is actual sale of goods or services using the
infringing material.
As can be gleaned in Section 155.1, mere unauthorized use of a container
bearing a registered trademark in connection with the sale, distribution or
advertising of goods or services which is likely to cause confusion,
mistake or deception among the buyers/consumers can be considered as
trademark infringement.
In his sworn affidavits,29 Oblanca stated that before conducting an
investigation on the alleged illegal activities of MASAGANA, he reviewed
the certificates of trademark registrations issued by the Philippine
Intellectual Property Office in favor of Petron and Pilipinas Shell; that he
confirmed from Petron and Pilipinas Shell that MASAGANA is not
authorized to sell, use, refill or distribute GASUL and SHELLANE LPG

cylinder containers; that he and Alajar monitored the activities of

MASAGANA in its refilling plant station located within its compound at
Governors Drive, Barangay Lapidario, Trece Martires, Cavite City; that,
using different names, they conducted two test-buys therein where they
purchased LPG cylinders bearing the trademarks GASUL and SHELLANE;
that the said GASUL and SHELLANE LPG cylinders were refilled in their
presence by the MASAGANA employees; that while they were inside the
MASAGANA compound, he noticed stock piles of multi-branded cylinders
including GASUL and SHELLANE LPG cylinders; and that they observed
delivery trucks loaded with GASUL and SHELLANE LPG cylinders coming in
and out of the MASAGANA compound and making deliveries to various
retail outlets. These allegations were corroborated by Alajar in his
separate affidavits.

11. Certified true copy of the latest General Information Sheet of

Masagana on file with the Securities and Exchange Commission;

In support of the foregoing statements, Oblanca also submitted the

following documentary and object evidence:

15. Cash Invoice No. 56398 dated 27 February 2003 issued by Masagana
for the Gasul and Shellane LPG purchased by Agent Oblanca and witness
Alajar; and

1. Certified true copy of the Certificate of Registration No. 44046 for

"SHELL (DEVICE)" in the name of Shell International;
2. Certified true copy of the Certificate of Registration No. 41789 for
"SHELL (DEVICE) in the name of Shell International;
3. Certified true copy of the Certificate of Registration No. 37525 for
"SHELL (DEVICE) in the name of Shell International;
4. Certified true copy of the Certificate of Registration No. R-2813 for
"SHELL" in the name of Shell International;
5. Certified true copy of the Certificate of Registration No. 31443 for
"SHELLANE" in the name of Shell International;
6. Certified true copy of the Certificate of Registration No. 57945 for the
mark "GASUL" in the name of Petron;
7. Certified true copy of the Certificate of Registration No. C-147 for
"GASUL CYLINDER CONTAINING LIQUEFIED PETROLEUM GAS" in the name
of Petron;
8. Certified true copy of the Certificate of Registration No. 61920 for the
mark "GASUL AND DEVICE" in the name of Petron;
9. Certified true copy of the Articles of Incorporation of Masagana;
10. Certified true copy of the By-laws of Masagana;

12. Pictures of delivery trucks coming in and out of Masagana while it

delivered Gasul and Shellane LPG;
13. Cash Invoice No. 56210 dated 13 February 2003 issued by Masagana
for the Gasul and Shellane LPG purchased by Agent Oblanca and witness
Alajar;
14. Pictures of the Shellane and Gasul LPGs covered by Cash Invoice No.
56210 purchased from Masagana by Agent Oblanca and witness Alajar;

16. Pictures of the Shellane and Gasul LPGs covered by Cash Invoice No.
56398 purchased from Masagana by Agent Oblanca and witness Alajar. 30
Extant from the foregoing testimonial, documentary and object evidence
is that Oblanca and Alajar have personal knowledge of the fact that
petitioners, through MASAGANA, have been using the LPG cylinders
bearing the marks GASUL and SHELLANE without permission from Petron
and Pilipinas Shell, a probable cause for trademark infringement. Both
Oblanca and Alajar were clear and insistent that they were the very same
persons who monitored the activities of MASAGANA; that they conducted
test-buys thereon; and that in order to avoid suspicion, they used
different names during the test-buys. They also personally witnessed the
refilling of LPG cylinders bearing the marks GASUL and SHELLANE inside
the MASAGANA refilling plant station and the deliveries of these refilled
containers to some outlets using mini-trucks.
Indeed, the aforesaid facts and circumstances are sufficient to establish
probable cause. It should be borne in mind that the determination of
probable cause does not call for the application of the rules and standards
of proof that a judgment of conviction requires after trial on the merits. As
the term implies, "probable cause" is concerned with probability, not
absolute or even moral certainty. The standards of judgment are those of
a reasonably prudent man, not the exacting calibrations of a judge after a
full blown trial.31
The fact that Oblanca and Alajar used different names in the purchase
receipts do not negate personal knowledge on their part. It is a common
practice of the law enforcers such as NBI agents during covert
investigations to use different names in order to conceal their true
identities. This is reasonable and understandable so as not to endanger

CORPO 47

the life of the undercover agents and to facilitate the lawful arrest or
apprehension of suspected violators of the law.
Petitioners contention that Oblanca and Alajar should have mentioned
the fact that they used different names in their respective affidavits and
during the preliminary examination is puerile. The argument is too
vacuous to merit serious consideration. There is nothing in the provisions
of law concerning the issuance of a search warrant which directly or
indirectly mandates that the applicant of the search warrant or his
witnesses should state in their affidavits the fact that they used different
names while conducting undercover investigations, or to divulge such fact
during the preliminary examination. In the light of other more material
facts which needed to be established for a finding of probable cause, it is
not difficult to believe that Oblanca and Alajar failed to mention that they
used aliases in entering the MASAGANA compound due to mere oversight.
It cannot be gainfully said that Oblanca and Alajar are not competent to
testify on the trademarks infringed by the petitioners. As earlier
discussed, Oblanca declared under oath that before conducting an
investigation on the alleged illegal activities of MASAGANA, he reviewed
the certificates of trademark registrations issued by the Philippine
Intellectual Property Office in favor of Petron and Pilipinas Shell. These
certifications of trademark registrations were attached by Oblanca in his
applications for the search warrants. Alajar, on the other hand, works as a
private investigator and, in fact, owns a private investigation and
research/consultation firm. His firm was hired and authorized, pursuant to
the Brand Protection Program of Petron and Pilipinas Shell, to verify
reports that MASAGANA is involved in the illegal sale and refill of GASUL
and SHELLANE LPG cylinders.32 As part of the job, he studied and
familiarized himself with the registered trademarks of GASUL and
SHELLANE, and the distinct features of the LPG cylinders bearing the
same trademarks before conducting surveillance and test-buys on
MASAGANA.33 He also submitted to Oblanca several copies of the same
registered trademark registrations and accompanied Oblanca during the
surveillance and test-buys.
As to whether the form and manner of questioning made by Judge Sadang
complies with the requirements of law, Section 5 of Rule 126 of the
Revised Rules on Criminal Procedure, prescribes the rules in the
examination of the complainant and his witnesses when applying for
search warrant, to wit:
SEC. 5. Examination of complainant; record.- The judge must, before
issuing the warrant, personally examine in the form of searching
questions and answers, in writing under oath, the complainant and the
witnesses he may produce on facts personally known to them and attach
to the record their sworn statements, together with the affidavits
submitted.

48 CORPO

The searching questions propounded to the applicant and the witnesses

depend largely on the discretion of the judge. Although there is no hardandfast rule governing how a judge should conduct his investigation, it is
axiomatic that the examination must be probing and exhaustive, not
merely routinary, general, peripheral, perfunctory or pro forma. The judge
must not simply rehash the contents of the affidavit but must make his
own inquiry on the intent and justification of the application. 34
After perusing the Transcript of Stenographic Notes of the preliminary
examination, we found the questions of Judge Sadang to be sufficiently
probing, not at all superficial and perfunctory. 35 The testimonies of
Oblanca and Alajar were consistent with each other and their narration of
facts was credible. As correctly found by the Court of Appeals:
This Court is likewise not convinced that respondent Judge failed to ask
probing questions in his determination of the existence of probable cause.
This Court has thoroughly examined the Transcript of Stenographic Notes
taken during the investigation conducted by the respondent Judge and
found that respondent Judge lengthily inquired into the circumstances of
the case. For instance, he required the NBI agent to confirm the contents
of his affidavit, inquired as to where the "test-buys" were conducted and
by whom, verified whether PSPC and PETRON have registered trademarks
or tradenames, required the NBI witness to explain how the "test-buys"
were conducted and to describe the LPG cylinders purchased from
Masagana Gas Corporation, inquired why the applications for Search
Warrant were filed in Cavite City considering that Masagana Gas
Corporation was located in Trece Martires, Cavite, inquired whether the
NBI Agent has a sketch of the place and if there was any distinguishing
sign to identify the place to be searched, and inquired about their alleged
tailing and monitoring of the delivery trucks. x x x.36
Since probable cause is dependent largely on the opinion and findings of
the judge who conducted the examination and who had the opportunity
to question the applicant and his witnesses, the findings of the judge
deserves great weight. The reviewing court can overturn such findings
only upon proof that the judge disregarded the facts before him or
ignored the clear dictates of reason.37 We find no compelling reason to
disturb Judge Sadangs findings herein.
Anent the second issue, petitioners argue that Judge Sadang failed to
require Oblanca to show his authority to apply for search warrants; that
Oblanca is a member of the Anti-Organized Crime and not that of the
Intellectual Property Division of the NBI; that all complaints for
infringement should be investigated by the Intellectual Property Division
of the NBI; that it is highly irregular that an agent not assigned to the
Intellectual Property Division would apply for a search warrant and
without authority from the NBI Director; that the alleged letter-complaint
of Atty. Bienvenido Somera, Jr. of Villaraza and Angangco Law Office was

not produced in court; that Judge Sadang did not require Oblanca to
produce the alleged letter-complaint which is material and relevant to the
determination of the existence of probable cause; and that Petron and
Pilipinas Shell, being two different corporations, should have issued a
board resolution authorizing the Villaraza and Angangco Law Office to
apply for search warrant in their behalf.38
We reject these protestations.
The authority of Oblanca to apply for the search warrants in question is
clearly discussed and explained in his affidavit, viz:
[That] on 11 February 2003, the National Bureau of Investigation (NBI)
received a letter-complaint from Atty. Bienvenido I. Somera, Jr. of Villaraza
and Angangco, on behalf of among others, Petron Corporation (PETRON)
[and Pilipinas Shell Petroleum Corporation (PSPC), the authorized
representative of Shell International Petroleum Company Limited (SHELL
INTERNATIONAL)] requesting assistance in the investigation and, if
warranted, apprehension and prosecution of certain persons and/or
establishments suspected of violating the intellectual property rights of
PETRON [and of PSPC and Shell International.]
11. [That] on the basis of the letter-complaint, I, together with Agent
Angelo Zarzoso, was assigned as the NBI agent on the case.39
The fact that Oblanca is a member of the Anti-Organized Crime Division
and not that of the Intellectual Property Division does not abrogate his
authority to apply for search warrant. As aptly stated by the RTC and the
Court of Appeals, there is nothing in the provisions on search warrant
under Rule 126 of the Revised Rules on Criminal Procedure, which
specifically commands that the applicant law enforcer must be a member
of a division that is assigned or related to the subject crime or offense
before the application for search warrant may be acted upon. The
petitioners did not also cite any law, rule or regulation mandating such
requirement. At most, petitioners may only be referring to the
administrative organization and/or internal rule or practice of the NBI.
However, not only did petitioners failed to establish the existence thereof,
but they also did not prove that such administrative organization and/or
internal rule or practice are inviolable.
Neither is the presentation of the letter-complaint of Atty. Somera and
board resolutions from Petron and Pilipinas Shell required or necessary in
determining probable cause. As heretofore discussed, the affidavits of
Oblanca and Alajar, coupled with the object and documentary evidence
they presented, are sufficient to establish probable cause. It can also be
presumed that Oblanca, as an NBI agent, is a public officer who had
regularly performed his official duty.40 He would not have initiated an

investigation on MASAGANA without a proper complaint. Furthermore,

Atty. Somera did not step up to deny his letter-complaint.
Regarding the third issue, petitioners posit that the applications for search
warrants of Oblanca did not specify the particular area to be searched,
hence, giving the raiding team wide latitude in determining what areas
they can search. They aver that the search warrants were general
warrants, and are therefore violative of the Constitution. Petitioners also
assert that since the MASAGANA compound is about 10,000.00 square
meters with several structures erected on the lot, the search warrants
should have defined the areas to be searched.
The long standing rule is that a description of the place to be searched is
sufficient if the officer with the warrant can, with reasonable effort,
ascertain and identify the place intended and distinguish it from other
places in the community. Any designation or description known to the
locality that points out the place to the exclusion of all others, and on
inquiry leads the officers unerringly to it, satisfies the constitutional
requirement.41
Moreover, in the determination of whether a search warrant describes the
premises to be searched with sufficient particularity, it has been held that
the executing officers prior knowledge as to the place intended in the
warrant is relevant. This would seem to be especially true where the
executing officer is the affiant on whose affidavit the warrant had been
issued, and when he knows that the judge who issued the warrant
intended the compound described in the affidavit. 42
The search warrants in question commanded any peace officer to make
an immediate search on MASAGANA compound located at Governors
Drive, Barangay Lapidario, Trece Martires, Cavite City. It appears that the
raiding team had ascertained and reached MASAGANA compound without
difficulty since MASAGANA does not have any other offices/plants in Trece
Martires, Cavite City. Moreover, Oblanca, who was with the raiding team,
was already familiar with the MASAGANA compound as he and Alajar had
monitored and conducted test-buys thereat.
Even if there are several structures inside the MASAGANA compound,
there was no need to particularize the areas to be searched because, as
correctly stated by Petron and Pilipinas Shell, these structures constitute
the essential and necessary components of the petitioners business and
cannot be treated separately as they form part of one entire compound.
The compound is owned and used solely by MASAGANA. What the case
law merely requires is that, the place to be searched can be distinguished
in relation to the other places in the community. Indubitably, this requisite
was complied with in the instant case.

CORPO 49

As to the fourth issue, petitioners asseverate that the search warrants did
not indicate with particularity the items to be seized since the search
warrants merely described the items to be seized as LPG cylinders
bearing the trademarks GASUL and SHELLANE without specifying their
sizes.
A search warrant may be said to particularly describe the things to be
seized when the description therein is as specific as the circumstances
will ordinarily allow; or when the description expresses a conclusion of
fact not of law by which the warrant officer may be guided in making the
search and seizure; or when the things described are limited to those
which bear direct relation to the offense for which the warrant is being
issued.43
While it is true that the property to be seized under a warrant must be
particularly described therein and no other property can be taken
thereunder, yet the description is required to be specific only in so far as
the circumstances will ordinarily allow. The law does not require that the
things to be seized must be described in precise and minute details as to
leave no room for doubt on the part of the searching authorities;
otherwise it would be virtually impossible for the applicants to obtain a
search warrant as they would not know exactly what kind of things they
are looking for. Once described, however, the articles subject of the
search and seizure need not be so invariant as to require absolute
concordance, in our view, between those seized and those described in
the warrant. Substantial similarity of those articles described as a class or
specie would suffice.44
Measured against this standard, we find that the items to be seized under
the search warrants in question were sufficiently described with
particularity. The articles to be confiscated were restricted to the
following: (1) LPG cylinders bearing the trademarks GASUL and
SHELLANE; (2) Machines and equipments used or intended to be used in
the illegal refilling of GASUL and SHELLANE cylinders. These machines
were also specifically enumerated and listed in the search warrants; (3)
Documents which pertain only to the production, sale and distribution of
the GASUL and SHELLANE LPG cylinders; and (4) Delivery trucks bearing
Plate Nos. WTE-527, XAM-970 and WFC-603, hauling trucks, and/or other
delivery trucks or vehicles or conveyances being used or intended to be
used for the purpose of selling and/or distributing GASUL and SHELLANE
LPG cylinders.45
Additionally, since the described items are clearly limited only to those
which bear direct relation to the offense, i.e., violation of section 155 of
Republic Act No. 8293, for which the warrant was issued, the requirement
of particularity of description is satisfied.

50 CORPO

Given the foregoing, the indication of the accurate sizes of the GASUL and
SHELLANE LPG cylinders or tanks would be unnecessary.
Finally, petitioners claim that MASAGANA has the right to intervene and to
move for the return of the seized items; that the items seized by the
raiding team were being used in the legitimate business of MASAGANA;
that the raiding team had no right to seize them under the guise that the
same were being used in refilling GASUL and SHELLANE LPG cylinders;
and that there being no action for infringement filed against them and/or
MASAGANA from the seizure of the items up to the present, it is only fair
that the seized articles be returned to the lawful owner in accordance
with Section 20 of A.M. No. 02-1-06-SC.
It is an elementary and fundamental principle of corporation law that a
corporation is an entity separate and distinct from its stockholders,
directors or officers. However, when the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime,
the law will regard the corporation as an association of persons, or in the
case of two corporations merge them into one.46 In other words, the law
will not recognize the separate corporate existence if the corporation is
being used pursuant to the foregoing unlawful objectives. This nonrecognition is sometimes referred to as the doctrine of piercing the veil of
corporate entity or disregarding the fiction of corporate entity. Where the
separate corporate entity is disregarded, the corporation will be treated
merely as an association of persons and the stockholders or members will
be considered as the corporation, that is, liability will attach personally or
directly to the officers and stockholders.47
As we now find, the petitioners, as directors/officers of MASAGANA, are
utilizing the latter in violating the intellectual property rights of Petron
and Pilipinas Shell. Thus, petitioners collectively and MASAGANA should
be considered as one and the same person for liability purposes.
Consequently, MASAGANAs third party claim serves no refuge for
petitioners.
Even if we were to sustain the separate personality of MASAGANA from
that of the petitioners, the effect will be the same. The law does not
require that the property to be seized should be owned by the person
against whom the search warrants is directed. Ownership, therefore, is of
no consequence, and it is sufficient that the person against whom the
warrant is directed has control or possession of the property sought to be
seized.48 Hence, even if, as petitioners claimed, the properties seized
belong to MASAGANA as a separate entity, their seizure pursuant to the
search warrants is still valid.
Further, it is apparent that the motor compressor, LPG refilling machine
and the GASUL and SHELL LPG cylinders seized were the corpus delicti,

the body or substance of the crime, or the evidence of the commission of

trademark infringement. These were the very instruments used or
intended to be used by the petitioners in trademark infringement. It is
possible that, if returned to MASAGANA, these items will be used again in
violating the intellectual property rights of Petron and Pilipinas
Shell.49 Thus, the RTC was justified in denying the petitioners motion for
their return so as to prevent the petitioners and/or MASAGANA from using
them again in trademark infringement.
Petitioners reliance on Section 20 of A.M. No. 02-1-06-SC, 50 is not tenable.
As correctly observed by the Solicitor General, A.M. 02-1-06-SC is not
applicable in the present case because it governs only searches and
seizures in civil actions for infringement of intellectual property
rights.51 The offense complained of herein is for criminal violation of
Section 155 in relation to Section 17052 of Republic Act No. 8293.
WHEREFORE, the petition is DENIED. The Decision and Resolution of the
Court of Appeals in CA-G.R. SP No. 79256, dated 30 September 2004 and
1 June 2005, respectively, are hereby AFFIRMED. Costs against
petitioners.
SO ORDERED.

G.R. No. 150416

July 21, 2006

SEVENTH DAY ADVENTIST CONFERENCE CHURCH OF SOUTHERN

PHILIPPINES, INC., and/or represented by MANASSEH C.
ARRANGUEZ, BRIGIDO P. GULAY, FRANCISCO M. LUCENARA,
DIONICES O. TIPGOS, LORESTO C. MURILLON, ISRAEL C. NINAL,
GEORGE G. SOMOSOT, JESSIE T. ORBISO, LORETO PAEL and JOEL
BACUBAS, petitioners,
vs.
NORTHEASTERN MINDANAO MISSION OF SEVENTH DAY
ADVENTIST, INC., and/or represented by JOSUE A. LAYON,
WENDELL M. SERRANO, FLORANTE P. TY and JETHRO CALAHAT
and/or SEVENTH DAY ADVENTIST CHURCH [OF] NORTHEASTERN
MINDANAO MISSION,* Respondents.
DECISION
CORONA, J.:
This petition for review on certiorari assails the Court of Appeals (CA)
decision1 and resolution2 in CA-G.R. CV No. 41966 affirming, with
modification, the decision of the Regional Trial Court (RTC) of Bayugan,
Agusan del Sur, Branch 7 in Civil Case No. 63.
This case involves a 1,069 sq. m. lot covered by Transfer Certificate of
Title (TCT) No. 4468 in Bayugan, Agusan del Sur originally owned by Felix
Cosio and his wife, Felisa Cuysona.
On April 21, 1959, the spouses Cosio donated the land to the South
Philippine Union Mission of Seventh Day Adventist Church of Bayugan
Esperanza, Agusan (SPUM-SDA Bayugan).3 Part of the deed of donation
read:
KNOW ALL MEN BY THESE PRESENTS:
That we Felix Cosio[,] 49 years of age[,] and Felisa Cuysona[,] 40 years of
age, [h]usband and wife, both are citizen[s] of the Philippines, and
resident[s] with post office address in the Barrio of Bayugan, Municipality
of Esperanza, Province of Agusan, Philippines, do hereby grant, convey
and forever quit claim by way of Donation or gift unto the South Philippine
[Union] Mission of Seventh Day Adventist Church of Bayugan, Esperanza,
Agusan, all the rights, title, interest, claim and demand both at law and as
well in possession as in expectancy of in and to all the place of land and
portion situated in the Barrio of Bayugan, Municipality of Esperanza,
Province of Agusan, Philippines, more particularly and bounded as follows,
to wit:

CORPO 51

1. a parcel of land for Church Site purposes only.

2. situated [in Barrio Bayugan, Esperanza].
3. Area: 30 meters wide and 30 meters length or 900 square meters.
4. Lot No. 822-Pls-225. Homestead Application No. V-36704, Title No. P285.
5. Bounded Areas
North by National High Way; East by Bricio Gerona; South by Serapio
Abijaron and West by Feliz Cosio xxx. 4
The donation was allegedly accepted by one Liberato Rayos, an elder of
the Seventh Day Adventist Church, on behalf of the donee.

The controversy between petitioners and respondents involves two

supposed transfers of the lot previously owned by the spouses Cosio: (1)
a donation to petitioners alleged predecessors-in-interest in 1959 and (2)
a sale to respondents in 1980.
Donation is undeniably one of the modes of acquiring ownership of real
property. Likewise, ownership of a property may be transferred by
tradition as a consequence of a sale.
Petitioners contend that the appellate court should not have ruled on the
validity of the donation since it was not among the issues raised on
appeal. This is not correct because an appeal generally opens the entire
case for review.
We agree with the appellate court that the alleged donation to petitioners
was void.

Twenty-one years later, however, on February 28, 1980, the same parcel
of land was sold by the spouses Cosio to the Seventh Day Adventist
Church of Northeastern Mindanao Mission (SDA-NEMM).5 TCT No. 4468
was thereafter issued in the name of SDA-NEMM.6

Donation is an act of liberality whereby a person disposes gratuitously of

a thing or right in favor of another personwho accepts it. The donation
could not have been made in favor of an entity yet inexistent at the time
it was made. Nor could it have been accepted as there was yet no one to
accept it.

Claiming to be the alleged donees successors-in-interest, petitioners

asserted ownership over the property. This was opposed by respondents
who argued that at the time of the donation, SPUM-SDA Bayugan could
not legally be a donee

The deed of donation was not in favor of any informal group of SDA
members but a supposed SPUM-SDA Bayugan (the local church) which, at
the time, had neither juridical personality nor capacity to accept such gift.

because, not having been incorporated yet, it had no juridical personality.

Neither were petitioners members of the local church then, hence, the
donation could not have been made particularly to them.
On September 28, 1987, petitioners filed a case, docketed as Civil Case
No. 63 (a suit for cancellation of title, quieting of ownership and
possession, declaratory relief and reconveyance with prayer for
preliminary injunction and damages), in the RTC of Bayugan, Agusan del
Sur. After trial, the trial court rendered a decision 7 on November 20, 1992
upholding the sale in favor of respondents.

Declaring themselves a de facto corporation, petitioners allege that they

should benefit from the donation.
But there are stringent requirements before one can qualify as a de
facto corporation:
(a) the existence of a valid law under which it may be incorporated;
(b) an attempt in good faith to incorporate; and
(c) assumption of corporate powers.10

On appeal, the CA affirmed the RTC decision but deleted the award of
moral damages and attorneys fees.8Petitioners motion for
reconsideration was likewise denied. Thus, this petition.
The issue in this petition is simple: should SDA-NEMMs ownership of the
lot covered by TCT No. 4468 be upheld?9We answer in the affirmative.

52 CORPO

While there existed the old Corporation Law (Act 1459),11 a law under
which SPUM-SDA Bayugan could have been organized, there is no proof
that there was an attempt to incorporate at that time.
The filing of articles of incorporation and the issuance of the certificate of
incorporation are essential for the existence of a de
facto corporation.12 We have held that an organization not registered with

the Securities and Exchange Commission (SEC) cannot be considered a

corporation in any concept, not even as a corporation de
facto.13 Petitioners themselves admitted that at the time of the donation,
they were not registered with the SEC, nor did they even attempt to
organize14 to comply with legal requirements.
Corporate existence begins only from the moment a certificate of
incorporation is issued. No such certificate was ever issued to petitioners
or their supposed predecessor-in-interest at the time of the donation.
Petitioners obviously could not have claimed succession to an entity that
never came to exist. Neither could the principle of separate juridical
personality apply since there was never any corporation15 to speak of.
And, as already stated, some of the representatives of petitioner Seventh
Day Adventist Conference Church of Southern Philippines, Inc. were not
even members of the local church then, thus, they could not even claim
that the donation was particularly for them.16
"The de facto doctrine thus effects a compromise between two conflicting
public interest[s]the one opposed to an unauthorized assumption of
corporate privileges; the other in favor of doing justice to the parties and
of establishing a general assurance of security in business dealing with
corporations."17
Generally, the doctrine exists to protect the public dealing with supposed
corporate entities, not to favor the defective or non-existent corporation. 18
In view of the foregoing, petitioners arguments anchored on their
supposed de facto status hold no water. We are convinced that there was
no donation to petitioners or their supposed predecessor-in-interest.
On the other hand, there is sufficient basis to affirm the title of SDANEMM. The factual findings of the trial court in this regard were not
convincingly disputed. This Court is not a trier of facts. Only questions of
law are the proper subject of a petition for review on certiorari. 19
Sustaining the validity of respondents title as well as their right of
ownership over the property, the trial court stated:
[W]hen Felix Cosio was shown the Absolute Deed of Sale during the
hearing xxx he acknowledged that the same was his xxx but that it was
not his intention to sell the controverted property because he had
previously donated the same lot to the South Philippine Union Mission of
SDA Church of Bayugan-Esperanza. Cosio avouched that had it been his
intendment to sell, he would not have disposed of it for a mere P2,000.00
in two installments but for P50,000.00 or P60,000.00. According to him,
the P2,000.00 was not a consideration of the sale but only a form of help
extended.

A thorough analysis and perusal, nonetheless, of the Deed of

Absolute Sale disclosed that it has the essential requisites of
contracts pursuant to xxx Article 1318 of the Civil Code, except
that the consideration of P2,000.00 is somewhat insufficient for a [1,069square meter] land. Would then this inadequacy of the consideration
render the contract invalid?
Article 1355 of the Civil Code provides:
Except in cases specified by law, lesion or inadequacy of cause shall not
invalidate a contract, unless there has been fraud, mistake or undue
influence.
No evidence [of fraud, mistake or undue influence] was adduced
by [petitioners].
xxx
Well-entrenched is the rule that a Certificate of Title is generally a
conclusive evidence of [ownership] of the land. There is that strong
and solid presumption that titles were legally issued and that they are
valid. It is irrevocable and indefeasible and the duty of the Court is to see
to it that the title is maintained and respected unless challenged in a
direct proceeding. xxx The title shall be received as evidence in all the
Courts and shall be conclusive as to all matters contained therein.
[This action was instituted almost seven years after the certificate of title
in respondents name was issued in 1980.]20
According to Art. 1477 of the Civil Code, the ownership of the thing sold
shall be transferred to the vendee upon the actual or constructive
delivery thereof. On this, the noted author Arturo Tolentino had this to
say:
The execution of [a] public instrument xxx transfers the ownership from
the vendor to the vendee who may thereafter exercise the rights of an
owner over the same21
Here, transfer of ownership from the spouses Cosio to SDA-NEMM was
made upon constructive delivery of the property on February 28, 1980
when the sale was made through a public instrument.22 TCT No. 4468 was
thereafter issued and it remains in the name of SDA-NEMM.
WHEREFORE, the petition is hereby DENIED.
Costs against petitioners.

CORPO 53

SO ORDERED.
G.R. No. 136448 November 3, 1999
LIM TONG LIM, petitioner,
vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to
borrow money to pursue a business and to divide the profits or losses that
may arise therefrom, even if it is shown that they have not contributed
any capital of their own to a "common fund." Their contribution may be in
the form of credit or industry, not necessarily cash or fixed assets. Being
partner, they are all liable for debts incurred by or on behalf of the
partnership. The liability for a contract entered into on behalf of an
unincorporated association or ostensible corporation may lie in a person
who may not have directly transacted on its behalf, but reaped benefits
from that contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the
November 26, 1998 Decision of the Court of Appeals in CA-GR CV
41477, 1 which disposed as follows:
WHEREFORE, [there being] no reversible error in the
appealed decision, the same is hereby affirmed. 2
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling,
which was affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary
attachment issued by this Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the
following amounts, subject to the modifications as
hereinafter made by reason of the special and unique facts
and circumstances and the proceedings that transpired
during the trial of this case;
a. P532,045.00 representing [the] unpaid
purchase price of the fishing nets covered by
the Agreement plus P68,000.00 representing
the unpaid price of the floats not covered by
said Agreement;
b. 12% interest per annum counted from
date of plaintiff's invoices and computed on
their respective amounts as follows:

54 CORPO

i. Accrued interest of
P73,221.00 on Invoice No.
14407 for P385,377.80 dated
February 9, 1990;

attachment bond filed by plaintiff to guaranty

damages to defendants to be cancelled and for the
P900,000.00 cash bidded and paid for by plaintiff to
serve as its bond in favor of defendants.

ii. Accrued interest for

P27,904.02 on Invoice No.
14413 for P146,868.00 dated
February 13, 1990;

From the foregoing, it would appear therefore that

whatever judgment the plaintiff may be entitled to
in this case will have to be satisfied from the
amount of P900,000.00 as this amount replaced the
attached nets and floats. Considering, however, that
the total judgment obligation as computed above
would amount to only P840,216.92, it would be
inequitable, unfair and unjust to award the excess to
the defendants who are not entitled to damages and
who did not put up a single centavo to raise the
amount of P900,000.00 aside from the fact that they
are not the owners of the nets and floats. For this
reason, the defendants are hereby relieved from any
and all liabilities arising from the monetary
judgment obligation enumerated above and for
plaintiff to retain possession and ownership of the
nets and floats and for the reimbursement of the
P900,000.00 deposited by it with the Clerk of Court.

iii. Accrued interest of

P12,920.00 on Invoice No.
14426 for P68,000.00 dated
February 19, 1990;
c. P50,000.00 as and for attorney's fees, plus
P8,500.00 representing P500.00 per
appearance in court;
d. P65,000.00 representing P5,000.00
monthly rental for storage charges on the
nets counted from September 20, 1990 (date
of attachment) to September 12, 1991 (date
of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for
the principal obligation or for the unpaid price of
nets and floats in the amount of P532,045.00 and
P68,000.00, respectively, or for the total amount
P600,045.00, this Court noted that these items were
attached to guarantee any judgment that may be
rendered in favor of the plaintiff but, upon
agreement of the parties, and, to avoid further
deterioration of the nets during the pendency of this
case, it was ordered sold at public auction for not
less than P900,000.00 for which the plaintiff was the
sole and winning bidder. The proceeds of the sale
paid for by plaintiff was deposited in court. In effect,
the amount of P900,000.00 replaced the attached
property as a guaranty for any judgment that
plaintiff may be able to secure in this case with the
ownership and possession of the nets and floats
awarded and delivered by the sheriff to plaintiff as
the highest bidder in the public auction sale. It has
also been noted that ownership of the nets [was]
retained by the plaintiff until full payment [was]
made as stipulated in the invoices; hence, in effect,
the plaintiff attached its own properties. It [was] for
this reason also that this Court earlier ordered the

SO ORDERED.

The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter
Yao entered into a Contract dated February 7, 1990, for the purchase of
fishing nets of various sizes from the Philippine Fishing Gear Industries,
Inc. (herein respondent). They claimed that they were engaged in a
business venture with Petitioner Lim Tong Lim, who however was not a
signatory to the agreement. The total price of the nets amounted to
P532,045. Four hundred pieces of floats worth P68,000 were also sold to
the Corporation. 4
The buyers, however, failed to pay for the fishing nets and the floats;
hence, private respondents filed a collection suit against Chua, Yao and
Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment.
The suit was brought against the three in their capacities as general
partners, on the allegation that "Ocean Quest Fishing Corporation" was a
nonexistent corporation as shown by a Certification from the Securities
and Exchange Commission. 5 On September 20, 1990, the lower court
issued a Writ of Preliminary Attachment, which the sheriff enforced by
attaching the fishing nets on board F/B Lourdes which was then docked at
the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting
his liability and requesting a reasonable time within which to pay. He also
turned over to respondent some of the nets which were in his possession.

CORPO 55

Peter Yao filed an Answer, after which he was deemed to have waived his
right to cross-examine witnesses and to present evidence on his behalf,
because of his failure to appear in subsequent hearings. Lim Tong Lim, on
the other hand, filed an Answer with Counterclaim and Crossclaim and
moved for the lifting of the Writ of Attachment. 6 The trial court
maintained the Writ, and upon motion of private respondent, ordered the
sale of the fishing nets at a public auction. Philippine Fishing Gear
Industries won the bidding and deposited with the said court the sales
proceeds of P900,000. 7
On November 18, 1992, the trial court rendered its Decision, ruling that
Philippine Fishing Gear Industries was entitled to the Writ of Attachment
and that Chua, Yao and Lim, as general partners, were jointly liable to pay
respondent. 8
The trial court ruled that a partnership among Lim, Chua and Yao existed
based (1) on the testimonies of the witnesses presented and (2) on a
Compromise Agreement executed by the three 9 in Civil Case No. 1492MN which Chua and Yao had brought against Lim in the RTC of Malabon,
Branch 72, for (a) a declaration of nullity of commercial documents; (b) a
reformation of contracts; (c) a declaration of ownership of fishing boats;
(d) an injunction and (e) damages. 10 The Compromise Agreement
provided:
a) That the parties plaintiffs & Lim Tong Lim
agree to have the four (4) vessels sold in the
amount of P5,750,000.00 including the
fishing net. This P5,750,000.00 shall be
applied as full payment for P3,250,000.00 in
favor of JL Holdings Corporation and/or Lim
Tong Lim;
b) If the four (4) vessel[s] and the fishing net
will be sold at a higher price than
P5,750,000.00 whatever will be the excess
will be divided into 3: 1/3 Lim Tong Lim; 1/3
Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will
be less than P5,750,000.00 whatever the
deficiency shall be shouldered and paid to JL
Holding Corporation by 1/3 Lim Tong Lim; 1/3
Antonio Chua; 1/3 Peter Yao. 11
The trial court noted that the Compromise Agreement was silent as to the
nature of their obligations, but that joint liability could be presumed from
the equal distribution of the profit and loss. 21
Lim appealed to the Court of Appeals (CA) which, as already stated,
affirmed the RTC.
Ruling of the Court of Appeals

56 CORPO

In affirming the trial court, the CA held that petitioner was a partner of
Chua and Yao in a fishing business and may thus be held liable as a such
for the fishing nets and floats purchased by and for the use of the
partnership. The appellate court ruled:
The evidence establishes that all the defendants including
herein appellant Lim Tong Lim undertook a partnership for a
specific undertaking, that is for commercial fishing . . . .
Oviously, the ultimate undertaking of the defendants was
to divide the profits among themselves which is what a
partnership essentially is . . . . By a contract of partnership,
two or more persons bind themselves to contribute money,
property or industry to a common fund with the intention of
dividing the profits among themselves (Article 1767, New
Civil Code). 13
Hence, petitioner brought this recourse before this Court.

14

The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the
assailed Decision on the following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A
COMPROMISE AGREEMENT THAT CHUA, YAO AND
PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT
A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE
WAS ACTING FOR OCEAN QUEST FISHING CORPORATION
WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING,
THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING
LIABILITY TO PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE
AND ATTACHMENT OF PETITIONER LIM'S GOODS.
In determining whether petitioner may be held liable for the fishing nets
and floats from respondent, the Court must resolve this key issue:
whether by their acts, Lim, Chua and Yao could be deemed to have
entered into a partnership.
This Court's Ruling
The Petition is devoid of merit.
First and Second Issues:
Existence of a Partnership
and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased
from respondent, petitioner controverts the CA finding that a partnership
existed between him, Peter Yao and Antonio Chua. He asserts that the CA

based its finding on the Compromise Agreement alone. Furthermore, he

disclaims any direct participation in the purchase of the nets, alleging that
the negotiations were conducted by Chua and Yao only, and that he has
not even met the representatives of the respondent company. Petitioner
further argues that he was a lessor, not a partner, of Chua and Yao, for
the "Contract of Lease " dated February 1, 1990, showed that he had
merely leased to the two the main asset of the purported partnership
the fishing boat F/B Lourdes. The lease was for six months, with a
monthly rental of P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found
by the two lower courts clearly showed that there existed a partnership
among Chua, Yao and him, pursuant to Article 1767 of the Civil Code
which provides:
Art. 1767 By the contract of partnership, two or more
persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing
the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three
existed based on the following factual findings: 15
(1) That Petitioner Lim Tong Lim requested Peter Yao who
was engaged in commercial fishing to join him, while
Antonio Chua was already Yao's partner;
(2) That after convening for a few times, Lim, Chua, and Yao
verbally agreed to acquire two fishing boats, the FB
Lourdes and the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim,
brother of Petitioner Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing
Corporation, which executed a Deed of Sale over these two
(2) boats in favor of Petitioner Lim Tong Lim only to serve
as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing, reequipping, repairing, dry docking and other expenses for
the boats would be shouldered by Chua and Yao;
(6) That because of the "unavailability of funds," Jesus Lim
again extended a loan to the partnership in the amount of
P1 million secured by a check, because of which, Yao and
Chua entrusted the ownership papers of two other boats,
Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong
Lim.
(7) That in pursuance of the business agreement, Peter Yao
and Antonio Chua bought nets from Respondent Philippine

Fishing Gear, in behalf of "Ocean Quest Fishing

Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in
the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao
against Lim Tong Lim for (a) declaration of nullity of
commercial documents; (b) reformation of contracts; (c)
declaration of ownership of fishing boats; (4) injunction;
and (e) damages.
(9) That the case was amicably settled through a
Compromise Agreement executed between the partieslitigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao
and Lim had decided to engage in a fishing business, which they started
by buying boats worth P3.35 million, financed by a loan secured from
Jesus Lim who was petitioner's brother. In their Compromise Agreement,
they subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among them the
excess or loss. These boats, the purchase and the repair of which were
financed with borrowed money, fell under the term "common fund" under
Article 1767. The contribution to such fund need not be cash or fixed
assets; it could be an intangible like credit or industry. That the parties
agreed that any loss or profit from the sale and operation of the boats
would be divided equally among them also shows that they had indeed
formed a partnership.
Moreover, it is clear that the partnership extended not only to the
purchase of the boat, but also to that of the nets and the floats. The
fishing nets and the floats, both essential to fishing, were obviously
acquired in furtherance of their business. It would have been
inconceivable for Lim to involve himself so much in buying the boat but
not in the acquisition of the aforesaid equipment, without which the
business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner,
Chua and Yao, a partnership engaged in the fishing business. They
purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and
operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present case
should involve only questions of law. Thus, the foregoing factual findings
of the RTC and the CA are binding on this Court, absent any cogent proof
that the present action is embraced by one of the exceptions to the
rule. 16 In assailing the factual findings of the two lower courts, petitioner
effectively goes beyond the bounds of a petition for review under Rule 45.
Compromise Agreement
Not the Sole Basis of Partnership

CORPO 57

Petitioner argues that the appellate court's sole basis for assuming the
existence of a partnership was the Compromise Agreement. He also
claims that the settlement was entered into only to end the dispute
among them, but not to adjudicate their preexisting rights and
obligations. His arguments are baseless. The Agreement was but an
embodiment of the relationship extant among the parties prior to its
execution.
A proper adjudication of claimants' rights mandates that courts must
review and thoroughly appraise all relevant facts. Both lower courts have
done so and have found, correctly, a preexisting partnership among the
parties. In implying that the lower courts have decided on the basis of one
piece of document alone, petitioner fails to appreciate that the CA and
the RTC delved into the history of the document and explored all the
possible consequential combinations in harmony with law, logic and
fairness. Verily, the two lower courts' factual findings mentioned above
nullified petitioner's argument that the existence of a partnership was
based only on the Compromise Agreement.
Petitioner Was a Partner,
Not a Lessor
We are not convinced by petitioner's argument that he was merely the
lessor of the boats to Chua and Yao, not a partner in the fishing venture.
His argument allegedly finds support in the Contract of Lease and the
registration papers showing that he was the owner of the boats,
including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe
that he consented to the sale of his own boats to pay a debt of Chua and
Yao, with the excess of the proceeds to be divided among the three of
them. No lessor would do what petitioner did. Indeed, his consent to the
sale proved that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business
agreement with Chua and Yao, in which debts were undertaken in order to
finance the acquisition and the upgrading of the vessels which would be
used in their fishing business. The sale of the boats, as well as the
division among the three of the balance remaining after the payment of
their loans, proves beyond cavil that F/B Lourdes, though registered in his
name, was not his own property but an asset of the partnership. It is not
uncommon to register the properties acquired from a loan in the name of
the person the lender trusts, who in this case is the petitioner himself.
After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd for petitioner to
sell his property to pay a debt he did not incur, if the relationship among
the three of them was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel

58 CORPO

Petitioner argues that under the doctrine of corporation by estoppel,

liability can be imputed only to Chua and Yao, and not to him. Again, we
disagree.
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. All persons who
assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result
thereof: Provided however, That when any such ostensible
corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall
not be allowed to use as a defense its lack of corporate
personality.
One who assumes an obligation to an ostensible
corporation as such, cannot resist performance thereof on
the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally
nonexistent, a party may be estopped from denying its corporate
existence. "The reason behind this doctrine is obvious an
unincorporated association has no personality and would be incompetent
to act and appropriate for itself the power and attributes of a corporation
as provided by law; it cannot create agents or confer authority on another
to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk.
And as it is an elementary principle of law that a person who acts as an
agent without authority or without a principal is himself regarded as the
principal, possessed of all the right and subject to all the liabilities of a
principal, a person acting or purporting to act on behalf of a corporation
which has no valid existence assumes such privileges and obligations and
becomes personally liable for contracts entered into or for other acts
performed as such agent. 17
The doctrine of corporation by estoppel may apply to the alleged
corporation and to a third party. In the first instance, an unincorporated
association, which represented itself to be a corporation, will be estopped
from denying its corporate capacity in a suit against it by a third person
who relied in good faith on such representation. It cannot allege lack of
personality to be sued to evade its responsibility for a contract it entered
into and by virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence in a
suit brought against the alleged corporation. In such case, all those who
benefited from the transaction made by the ostensible corporation,
despite knowledge of its legal defects, may be held liable for contracts
they impliedly assented to or took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear

Industries, is entitled to be paid for the nets it sold. The only question
here is whether petitioner should be held jointly 18 liable with Chua and
Yao. Petitioner contests such liability, insisting that only those who dealt
in the name of the ostensible corporation should be held liable. Since his
name does not appear on any of the contracts and since he never directly
transacted with the respondent corporation, ergo, he cannot be held
liable.
Unquestionably, petitioner benefited from the use of the nets found
inside F/B Lourdes, the boat which has earlier been proven to be an asset
of the partnership. He in fact questions the attachment of the nets,
because the Writ has effectively stopped his use of the fishing vessel.

partners owed. The nets and the floats were specifically manufactured
and tailor-made according to their own design, and were bought and used
in the fishing venture they agreed upon. Hence, the issuance of the Writ
to assure the payment of the price stipulated in the invoices is proper.
Besides, by specific agreement, ownership of the nets remained with
Respondent Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.
Costs against petitioner.
SO ORDERED.

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao
decided to form a corporation. Although it was never legally formed for
unknown reasons, this fact alone does not preclude the liabilities of the
three as contracting parties in representation of it. Clearly, under the law
on estoppel, those acting on behalf of a corporation and those benefited
by it, knowing it to be without valid existence, are held liable as general
partners.
Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract entered
into by persons with whom he previously had an existing relationship, he
is deemed to be part of said association and is covered by the scope of
the doctrine of corporation by estoppel. We reiterate the ruling of the
Court in Alonso v. Villamor: 19
A litigation is not a game of technicalities in which one,
more deeply schooled and skilled in the subtle art of
movement and position, entraps and destroys the other. It
is, rather, a contest in which each contending party fully
and fairly lays before the court the facts in issue and then,
brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks
that justice be done upon the merits. Lawsuits, unlike
duels, are not to be won by a rapier's thrust. Technicality,
when it deserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves
scant consideration from courts. There should be no vested
rights in technicalities.
Third Issue:
Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly
issued against the nets. We agree with the Court of Appeals that this
issue is now moot and academic. As previously discussed, F/B
Lourdes was an asset of the partnership and that it was placed in the
name of petitioner, only to assure payment of the debt he and his

CORPO 59

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.

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 x9
The dispositive portion of the trial court's decision reads:

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

60 CORPO

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:

CORPO 61

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

62 CORPO

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 bylaws 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.

G.R. No. 141994

January 17, 2005

FILIPINAS BROADCASTING NETWORK, INC., petitioner,

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

CORPO 63

because if they fail in any subject they will repeat their year
level, taking up all subjects including those they have passed
already. Several students had approached me stating that they had
consulted with the DECS which told them that there is no such regulation.
If [there] is no such regulation why is AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical Therapy had
complained that the course is not recognized by DECS. xxx
Third: Students are required to take and pay for the subject even
if the subject does not have an instructor - such greed for money
on the part of AMECs administration. Take the subject Anatomy:
students would pay for the subject upon enrolment because it is offered
by the school. However there would be no instructor for such subject.
Students would be informed that course would be moved to a later date
because the school is still searching for the appropriate instructor.
xxx
It is a public knowledge that the Ago Medical and Educational Center has
survived and has been surviving for the past few years since its inception
because of funds support from foreign foundations. If you will take a look
at the AMEC premises youll find out that the names of the buildings there
are foreign soundings. There is a McDonald Hall. Why not Jose Rizal or
Bonifacio Hall? That is a very concrete and undeniable evidence that the
support of foreign foundations for AMEC is substantial, isnt it? With the
report which is the basis of the expose in DZRC today, it would be very
easy for detractors and enemies of the Ago family to stop the flow of
support of foreign foundations who assist the medical school on the basis
of the latters purpose. But if the purpose of the institution (AMEC) is to
deceive students at cross purpose with its reason for being it is possible
for these foreign foundations to lift or suspend their donations
temporarily.8
xxx
On the other hand, the administrators of AMEC-BCCM, AMEC
Science High School and the AMEC-Institute of Mass
Communication in their effort to minimize expenses in terms of
salary are absorbing or continues to accept "rejects". For example
how many teachers in AMEC are former teachers of Aquinas University
but were removed because of immorality? Does it mean that the present
administration of AMEC have the total definite moral foundation from
catholic administrator of Aquinas University. I will prove to you my friends,
that AMEC is a dumping ground, garbage, not merely of moral and

64 CORPO

physical misfits. Probably they only qualify in terms of intellect. The

Dean of Student Affairs of AMEC is Justita Lola, as the family name
implies. She is too old to work, being an old woman. Is the AMEC
administration exploiting the very [e]nterprising or compromising and
undemanding Lola? Could it be that AMEC is just patiently making use of
Dean Justita Lola were if she is very old. As in atmospheric situation zero
visibility the plane cannot land, meaning she is very old, low pay
follows. By the way, Dean Justita Lola is also the chairman of the
committee on scholarship in AMEC. She had retired from Bicol University
a long time ago but AMEC has patiently made use of her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a dumping ground for moral
and physically misfit people. What does this mean? Immoral and
physically misfits as teachers.
May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is
this, that your are no longer fit to teach. You are too old. As an aviation,
your case is zero visibility. Dont insist.
xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of
the scholarship committee at that. The reason is practical cost saving in
salaries, because an old person is not fastidious, so long as she has
money to buy the ingredient of beetle juice. The elderly can get by
thats why she (Lola) was taken in as Dean.
xxx
xxx On our end our task is to attend to the interests of students. It is likely
that the students would be influenced by evil. When they become
members of society outside of campus will be liabilities rather
than assets. What do you expect from a doctor who while studying at
AMEC is so much burdened with unreasonable imposition? What do you
expect from a student who aside from peculiar problems because not all
students are rich in their struggle to improve their social status are even
more burdened with false regulations. xxx9 (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning
institution. With the supposed exposs, FBNI, Rima and Alegre
"transmitted malicious imputations, and as such, destroyed plaintiffs
(AMEC and Ago) reputation." AMEC and Ago included FBNI as defendant
for allegedly failing to exercise due diligence in the selection and
supervision of its employees, particularly Rima and Alegre.

On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed
an Answer10 alleging that the broadcasts against AMEC were fair and true.
FBNI, Rima and Alegre claimed that they were plainly impelled by a sense
of public duty to report the "goings-on in AMEC, [which is] an institution
imbued with public interest."
Thereafter, trial ensued. During the presentation of the evidence for the
defense, Atty. Edmundo Cea, collaborating counsel of Atty. Lozares, filed a
Motion to Dismiss11 on FBNIs behalf. The trial court denied the motion to
dismiss. Consequently, FBNI filed a separate Answer claiming that it
exercised due diligence in the selection and supervision of Rima and
Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster
should (1) file an application; (2) be interviewed; and (3) undergo an
apprenticeship and training program after passing the interview. FBNI
likewise claimed that it always reminds its broadcasters to "observe truth,
fairness and objectivity in their broadcasts and to refrain from using
libelous and indecent language." Moreover, FBNI requires all broadcasters
to pass the Kapisanan ng mga Brodkaster sa Pilipinas ("KBP")
accreditation test and to secure a KBP permit.
On 14 December 1992, the trial court rendered a 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

CORPO 65

The Court of Appeals held that FBNI failed to exercise due diligence in the
selection and supervision of its employees for allowing Rima and Alegre
to make the radio broadcasts without the proper KBP accreditation. The
Court of Appeals denied Agos claim for damages and attorneys fees
because the libelous remarks were directed against AMEC, and not
against her. The Court of Appeals adjudged FBNI, Rima and Alegre
solidarily liable to pay AMEC moral damages, attorneys fees and costs of
suit.1awphi1.nt
Issues
FBNI raises the following issues for resolution:
I. WHETHER THE BROADCASTS ARE LIBELOUS;
II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;
III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE
FOR PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND COSTS
OF SUIT.
The Courts Ruling
We deny the petition.
This is a civil action for damages as a result of the allegedly defamatory
remarks of Rima and Alegre against AMEC.17 While AMEC did not point out
clearly the legal basis for its complaint, a reading of the complaint reveals
that AMECs cause of action is based on Articles 30 and 33 of the Civil
Code. Article 3018 authorizes a separate civil action to recover civil liability
arising from a criminal offense. On the other hand, Article 33 19 particularly
provides that the injured party may bring a separate civil action for
damages in cases of defamation, fraud, and physical injuries. AMEC also
invokes Article 1920 of the Civil Code to justify its claim for damages.
AMEC cites Articles 217621 and 218022 of the Civil Code to hold FBNI
solidarily liable with Rima and Alegre.
I.
Whether the broadcasts are libelous
A libel23 is a public and malicious imputation of a crime, or of a vice or
defect, real or imaginary, or any act or omission, condition, status, or

66 CORPO

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.l^vvphi1.net So is plaintiffs counsel.

CORPO 67

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 Code35 of the Kapisanan ng mga
Brodkaster sa Pilipinas, Ink. ("Radio Code"). Item I(B) of the Radio Code
provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES
1. x x x
4. Public affairs program shall present public issues free
from personal bias, prejudice 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.

68 CORPO

The public has a right to expect and demand that radio broadcast
practitioners live up to the code of conduct of their profession, just like
other professionals. A professional code of conduct provides the
standards for determining whether a person has acted justly, honestly
and with good faith in the exercise of his rights and performance of his
duties as required by Article 1937 of the Civil Code. A professional code of
conduct also provides the standards for determining whether a person
who willfully causes loss or injury to another has acted in a manner
contrary to morals or good customs under Article 2138 of the Civil Code.
II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a
corporation.39
A juridical person is generally not entitled to moral damages because,
unlike a natural person, it cannot experience physical suffering or such
sentiments as wounded feelings, serious anxiety, mental anguish or
moral shock.40 The Court of Appeals cites Mambulao Lumber Co. v.
PNB, et al.41 to justify the award of moral damages. However, the Courts
statement in Mambulao that "a corporation may have a good reputation
which, if besmirched, may also be a ground for the award of moral
damages" is an obiter dictum.42
Nevertheless, AMECs claim for moral damages falls under item 7 of
Article 221943 of the Civil Code. This provision expressly authorizes the
recovery of moral damages in cases of libel, slander or any other form of
defamation. Article 2219(7) does not qualify whether the plaintiff is a
natural or juridical person. Therefore, a juridical person such as a
corporation can validly complain for libel or any other form of defamation
and claim for moral damages.44
Moreover, where the broadcast is libelous per se, the law implies
damages.45 In such a case, evidence of an honest mistake or the want of
character or reputation of the party libeled goes only in mitigation of
damages.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 220848 of the Civil Code.
The award of attorneys fees is not proper because AMEC failed to justify
satisfactorily its claim for attorneys fees. AMEC did not adduce evidence
to warrant the award of attorneys fees. Moreover, both the trial and
appellate courts failed to explicitly state in their respective decisions the
rationale for the award of attorneys fees.49 In Inter-Asia Investment
Industries, Inc. v. Court of Appeals ,50 we held that:
[I]t is an accepted doctrine that the award thereof as an item of damages
is the exception rather than the rule, and counsels fees are not to be
awarded every time a party wins a suit. The power of the court to
award attorneys fees under Article 2208 of the Civil Code
demands factual, legal and equitable justification, without which
the award is a conclusion without a premise, its basis being
improperly left to speculation and conjecture. In all events, the
court must explicitly state in the text of the decision, and not only in the
decretal portion thereof, the legal reason for the award of attorneys
fees.51 (Emphasis supplied)
While it mentioned about the award of attorneys fees by stating that it
"lies within the discretion of the court and depends upon the
circumstances of each case," the Court of Appeals failed to point out any
circumstance to justify the award.
IV.
Whether FBNI is solidarily liable with Rima and Alegre for moral damages,
attorneys fees and costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the
payment of damages and attorneys fees because it exercised due
diligence in the selection and supervision of its employees, particularly
Rima and Alegre. FBNI maintains that its broadcasters, including Rima
and Alegre, undergo a "very regimented process" before they are allowed
to go on air. "Those who apply for broadcaster are subjected to
interviews, examinations and an apprenticeship program."
FBNI further argues that Alegres age and lack of training are irrelevant to
his competence as a broadcaster. FBNI points out that the "minor
deficiencies in the KBP accreditation of Rima and Alegre do not in any way

prove that FBNI did not exercise the diligence of a good father of a family
in selecting and supervising them." Rimas accreditation lapsed due to his
non-payment of the KBP annual fees while Alegres accreditation card was
delayed allegedly for reasons attributable to the KBP Manila Office. FBNI
claims that membership in the KBP is merely voluntary and not required
by any law or government regulation.
FBNIs arguments do not persuade us.
The basis of the present action is a tort. Joint tort feasors are jointly and
severally liable for the tort which they commit.52 Joint tort feasors are all
the persons who command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of a tort, or who
approve of it after it is done, if done for their benefit.53Thus, AMEC
correctly anchored its cause of action against FBNI on Articles 2176 and
2180 of the Civil Code.1a\^/phi1.net
As operator of DZRC-AM and employer of Rima and Alegre, FBNI is
solidarily liable to pay for damages arising from the libelous broadcasts.
As stated by the Court of Appeals, "recovery for defamatory statements
published by radio or television may be had from the owner of the
station, a licensee, the operator of the station, or a person who
procures, or participates in, the making of the defamatory
statements."54 An employer and employee are solidarily liable for a
defamatory statement by the employee within the course and scope of
his or her employment, at least when the employer authorizes or ratifies
the defamation.55 In this case, Rima and Alegre were clearly performing
their official duties as hosts of FBNIs radio program Expos when they
aired the broadcasts. FBNI neither alleged nor proved that Rima and
Alegre went beyond the scope of their work at that time. There was
likewise no showing that FBNI did not authorize and ratify the defamatory
broadcasts.
Moreover, there is insufficient evidence on record that FBNI exercised due
diligence in the selection andsupervision of its employees, particularly
Rima and Alegre. FBNI merely showed that it exercised diligence in
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.

CORPO 69

FBNI claims that it "has taken all the precaution in the selection of Rima
and Alegre as broadcasters, bearing in mind their qualifications."
However, no clear and convincing evidence shows that Rima and Alegre
underwent FBNIs "regimented process" of application. Furthermore, FBNI
admits that Rima and Alegre had deficiencies in their KBP
accreditation,56 which is one of FBNIs requirements before it hires a
broadcaster. Significantly, membership in the KBP, while voluntary,
indicates the broadcasters strong commitment to observe the broadcast
industrys rules and regulations. Clearly, these circumstances show FBNIs
lack of diligence in selecting andsupervising Rima and Alegre. Hence,
FBNI is solidarily liable to pay damages together with Rima and Alegre.

70 CORPO

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.