G.R. No.

L-33172 October 18, 1979

ERNESTO CEASE, CECILIA CEASE, MARION CEASE, TERESA CEASE-LACEBAL and the F.L. CEASE PLANTATION CO., INC. as Trustee of
properties of the defunct TIAONG MILLING & PLANTATION CO., petitioners, vs.
HONORABLE COURT OF APPEALS, (Special Seventh Division), HON. MANOLO L. MADDELA, Presiding Judge, Court of First Instance
of Quezon, BENJAMIN CEASE and FLORENCE CEASE, respondents.
GUERRERO, J:
Appeal by certiorari from the decision of the Court of Appeals in CA-G.R. No. 45474, entitled "Ernesto Cease, et al. vs. Hon. Manolo
L. Maddela, Judge of the Court of First Instance of Quezon, et al." 1 which dismissed the petition for certiorari, mandamus, and
prohibition instituted by the petitioners against the respondent judge and the private respondents.
The antecedents of the case, as found by the appellate court, are as follows:
IT RESULTING: That the antecedents are not difficult to understand; sometime in June 1908, one Forrest L. Cease common
predecessor in interest of the parties together with five (5) other American citizens organized the Tiaong Milling and Plantation
Company and in the course of its corporate existence the company acquired various properties but at the same time all the other
original incorporators were bought out by Forrest L. Cease together with his children namely Ernest, Cecilia, Teresita, Benjamin,
Florence and one Bonifacia Tirante also considered a member of the family; the charter of the company lapsed in June 1958; but
whether there were steps to liquidate it, the record is silent; on 13 August 1959, Forrest L. Cease died and by extrajudicial partition
of his shares, among the children, this was disposed of on 19 October 1959; it was here where the trouble among them came to
arise because it would appear that Benjamin and Florence wanted an actual division while the other children wanted
reincorporation; and proceeding on that, these other children Ernesto, Teresita and Cecilia and aforementioned other stockholder
Bonifacia Tirante proceeded to incorporate themselves into the F.L. Cease Plantation Company and registered it with the Securities
and Exchange Commission on 9 December, 1959; apparently in view of that, Benjamin and Florence for their part initiated a Special
Proceeding No. 3893 of the Court of First Instance of Tayabas for the settlement of the estate of Forest L. Cease on 21 April, 1960
and one month afterwards on 19 May 1960 they filed Civil Case No. 6326 against Ernesto, Teresita and Cecilia Cease together with
Bonifacia Tirante asking that the Tiaong Milling and Plantation Corporation be declared Identical to F.L. Cease and that its properties
be divided among his children as his intestate heirs; this Civil Case was resisted by aforestated defendants and notwithstanding
efforts of the plaintiffs to have the properties placed under receivership, they were not able to succeed because defendants filed a
bond to remain as they have remained in possession; after that and already, during the pendency of Civil Case No. 6326 specifically
on 21 May, 1961 apparently on the eve of the expiry of the three (3) year period provided by the law for the liquidation of
corporations, the board of liquidators of Tiaong Milling executed an assignment and conveyance of properties and trust agreement
in favor of F.L. Cease Plantation Co. Inc. as trustee of the Tiaong Milling and Plantation Co. so Chat upon motion of the plaintiffs trial
Judge ordered that this alleged trustee be also included as party defendant; now this being the situation, it will be remembered that
there were thus two (2) proceedings pending in the Court of First Instance of Quezon namely Civil Case No. 6326 and Special
Proceeding No. 3893 but both of these were assigned to the Honorable Respondent Judge Manolo L. Maddela p. 43 and the case
was finally heard and submitted upon stipulation of facts pp, 34-110, rollo; and trial Judge by decision dated 27 December 1969 held
for the plaintiffs Benjamin and Florence, the decision containing the following dispositive part:
VIEWED IN THE LIGHT OF ALL THE FOREGOING, judgment is hereby rendered in favor of plaintiffs and against the defendants
declaring that:
1) The assets or properties of the defunct Tiaong Milling and Plantation Company now appearing under the name of F.L. Cease
Plantation Company as Trustee, is the estate also of the deceased Forrest L. Cease and ordered divided, share and share alike,
among his six children the plaintiffs and the defendants in accordance with Rule 69, Rules of Court;
2) The Resolution to Sell dated October 12, 1959 and the Transfer and Conveyance with Trust Agreement is hereby set aside as
improper and illegal for the purposes and effect that it was intended and, therefore, null and void;
3) That F.L. Cease Plantation Company is removed as 'Trustee for interest against the estate and essential to the protection of
plaintiffs' rights and is hereby ordered to deliver and convey all the properties and assets of the defunct Tiaong Milling now under its
name, custody and control to whomsoever be appointed as Receiver - disqualifying and of the parties herein - the latter to act
accordingly upon proper assumption of office; and
4) Special Proceedings No. 3893 for administration is terminated and dismissed; the instant case to proceed but on issues of
damages only and for such action inherently essential for partition.
SO ORDERED.
Lucena City, December 27, 1969., pp. 122-a-123, rollo.
upon receipt of that, defendants there filled a notice of appeal p. 129, rollo together with an appeal bond and a record on appeal
but the plaintiffs moved to dismiss the appeal on the ground that the judgment was in fact interlocutory and not appealable p. 168
rollo and this position of defendants was sustained by trial Judge, His Honor ruling that
IN VIEW OF THE FOREGOING, the appeal interposed by plaintiffs is hereby dismissed as premature and the Record on Appeal is
necessarily disapproved as improper at this stage of the proceedings.
SO ORDERED.
Lucena City, April 27, 1970.
and so it was said defendants brought the matter first to the Supreme Court, on mandamus on 20 May, 1970 to compel the appeal
and certiorari and prohibition to annul the order of 27 April, 1970 on the ground that the decision was "patently erroneous" p. 16,
rollo; but the Supreme Court remanded the case to this Court of Appeals by resolution of 27 May 1970, p. 173, and this Court of
Appeals on 1 July 1970 p. 175 dismissed the petition so far as the mandamus was concerned taking the view that the decision sought
to be appealed dated 27 December, 1969 was interlocutory and not appealable but on motion for reconsideration of petitioners and
since there was possible merit so far as its prayer for certiorari and prohibition was concerned, by resolution of the Court on 19
August, 1970, p. 232, the petition was permitted to go ahead in that capacity; and it is the position of petitioners that the decision of
27 December, 1969 as well as the order of 27 April, 1970 suffered of certain fatal defects, which respondents deny and on their part
raise the preliminary point that this Court of Appeals has no authority to give relief to petitioners because not
in aid of its appellate jurisdiction,
and that the questions presented cannot be raised for the first time before this Court of Appeals;
Respondent Court of Appeals in its decision promulgated December 9, 1970 dismissed the petition with costs against petitioners,
hence the present petition to this Court on the following assignment of errors:
THE COURT OF APPEALS ERRED -
I. IN SANCTIONING THE WRONGFUL EXERCISE OF JURISDICTION BEYOND THE LIMITS OF AUTHORITY CONFERRED BY LAW UPON THE
LOWER COURT, WHEN IT PROCEEDED TO HEAR, ADJUDGE AND ADJUDICATE -
(a) Special Proceedings No. 3893 for the settlement of the Estate of Forrest L. Cease, simultaneously and concurrently with -
(b) Civil Case No. 6326, wherein the lower Court ordered Partition under Rule 69, Rules of Court -
THE ISSUE OF LEGAL OWNERSHIP OF THE PROPERTIES COMMONLY INVOLVED IN BOTH ACTIONS HAVING BEEN RAISED AT THE
OUTSET BY THE TIAONG MILLING AND PLANTATION COMPANY, AS THE REGISTERED OWNER OF SUCH PROPERTIES UNDER ACT 496.
II. IN AFFIRMING - UNSUPPORTED BY ANY EVIDENCE WHATSOEVER NOR CITATION OF ANY LAW TO JUSTIFY - THE UNWARRANTED
CONCLUSION THAT SUBJECT PROPERTIES, FOUND BY THE LOWER COURT AND THE COURT OF APPEALS AS ACTUALLY REGISTERED IN
THE NAME OF PETITIONER CORPORATION AND/OR ITS PREDECESSOR IN INTEREST, THE TIAONG MILLING AND PLANTATION
COMPANY, DURING ALL THE 50 YEARS OF ITS CORPORATE EXISTENCE "ARE ALSO PROPERTIES OF THE ESTATE OF FOREST L. CEASE."
III. IN AFFIRMING THE ARBITRARY CONCLUSION OF THE LOWER COURT THAT ITS DECISION OF DECEMBER 27,1969 IS AN
"INTERLUCUTORY DECISION." IN DISMISSED NG THE PETITION FOR WRIT OF MANDAMUS, AND IN AFFIRMING THE MANIFESTLY
UNJUST JUDGMENT RENDERED WHICH CONTRADICTS THE FINDINGS OF ULTIMATE FACTS THEREIN CONTAINED.
During the period that ensued after the filing in this Court of the respective briefs and the subsequent submission of the case for
decision, some incidents had transpired, the summary of which may be stated as follows:
1. Separate from this present appeal, petitioners filed a petition for certiorari and prohibition in this Court, docketed as G.R. No. L-
35629 (Ernesto Cease, et al. vs. Hon. Manolo L. Maddela, et al.) which challenged the order of respondent judge dated September
27, 1972 appointing his Branch Clerk of Court, Mr. Eleno M. Joyas, as receiver of the properties subject of the appealed civil case,
which order, petitioners saw as a virtual execution of the lower court's judgment (p. 92, rollo). In Our resolution of November 13,
1972, issued in G.R. No. L-35629, the petition was denied since respondent judge merely appointed an auxilliary receiver for the
preservation of the properties as well as for the protection of the interests of all parties in Civil Case No. 6326; but at the same time,
We expressed Our displeasure in the appointment of the branch clerk of court or any other court personnel for that matter as
receiver. (p. 102, rollo).
2. Meanwhile, sensing that the appointed receiver was making some attempts to take possession of the properties, petitioners filed
in this present appeal an urgent petition to restrain proceedings in the lower court. We resolved the petition on January 29, 1975 by
issuing a corresponding temporary restraining order enjoining the court a quo from implementing its decision of December 27, 1969,
more particularly, the taking over by a receiver of the properties subject of the litigation, and private respondents Benjamin and
Florence Cease from proceeding or taking any action on the matter until further orders from this Court (pp. 99-100, rollo). Private
respondents filed a motion for reconsideration of Our resolution of January 29, 1975. After weighing the arguments of the parties
and taking note of Our resolution in G.R. No. L-35629 which upheld the appointment of a receiver, We issued another resolution
dated April 11, 1975 lifting effective immediately Our previous temporary restraining order which enforced the earlier resolution of
January 29, 1975 (pp. 140-141, rollo).
3. On February 6, 1976, private respondents filed an urgent petition to restrain proceedings below in view of the precipitate
replacement of the court appointed receiver Mayor Francisco Escueta (vice Mr. Eleno M. Joyas) and the appointment of Mr.
Guillermo Lagrosa on the eve of respondent Judge Maddela's retirement (p. 166, rollo). The urgent petition was denied in Our
resolution of February 18, 1976 (p. 176, rollo).
4. Several attempts at a compromise agreement failed to materialize. A Tentative Compromise Agreement dated July 30, 1975 was
presented to the Court on August 6, 1976 for the signature of the parties, but respondents "unceremoniously" repudiated the same
by leaving the courtroom without the permission of the court (Court of First Instance of Quezon, Branch 11) as a result of which
respondents and their counsel were cited for contempt (p. 195, 197, rollo) that respondents' reason for the repudiation appears to
be petitioners' failure to render an audited account of their administration covering the period from May 31, 1961 up to January 29,
1974, plus the inclusion of a provision on waiver and relinquishment by respondents of whatever rights that may have accrued to
their favor by virtue of the lower court's decision and the affirmative decision of the appellate court.
We go now to the alleged errors committed by the respondent Court of Appeals.
As can be gleaned from petitioners' brief and the petition itself, two contentions underlie the first assigned error. First, petitioners
argue that there was an irregular and arbitrarte termination and dismissal of the special proceedings for judicial administration
simultaneously ordered in the lower court . s decision in Civil Case No. 6326 adjudicating the partition of the estate, without
categorically, reasoning the opposition to the petition for administration Second, that the issue of ownership had been raised in the
lower court when Tiaong Milling asserted title over the properties registered in its corporate name adverse to Forrest L. Cease or his
estate, and that the said issue was erroneously disposed of by the trial court in the partition proceedings when it concluded that the
assets or properties of the defunct company is also the estate of the deceased proprietor.
The propriety of the dismissal and termination of the special proceedings for judicial administration must be affirmed in spite of its
rendition in another related case in view of the established jurisprudence which favors partition when judicial administration
become, unnecessary. As observed by the Court of Appeals, the dismissal at first glance is wrong, for the reason that what was
actually heard was Civil Case No. 6326. The technical consistency, however, it is far less importance than the reason behind the
doctrinal rule against placing an estate under administration. Judicial rulings consistently hold the view that where partition is
possible, either judicial or extrajudicial, the estate should not be burdened with an administration proceeding without good and
compelling reason. When the estate has no creditors or pending obligations to be paid, the beneficiaries in interest are not bound to
submit the property to judicial administration which is always long and costly, or to apply for the appointment of an administrator
by the court, especially when judicial administration is unnecessary and superfluous. Thus -
When a person dies without leaving pending obligations to be paid, his heirs, whether of age or not, are bound to submit the
property to a judicial administration, which is always long and costly, or to apply for the appointment of an administrator by the
court. It has been uniformly held that in such case the judicial administration and the appointment of an administrator are
superfluous and unnecessary proceedings (Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil, 434; Bondad vs.
Bondad, 34 Phil., 232; Baldemor vs. Malangyaon, 34 Phil., 367; Fule vs. Fule, 46 Phil., 317). Syllabus, Intestate estate of the deceased
Luz Garcia. Pablo G. Utulo vs. Leona Pasion Viuda de Garcia, 66 Phil. 302.
Where the estate has no debts, recourse may be had to an administration proceeding only if the heirs have good reasons for not
resorting to an action for partition. Where partition is possible, either in or out of court, the estate should not be burdened with an
administration proceeding without good and compelling reasons. (Intestate Estate of Mercado vs. Magtibay, 96 Phil. 383)
In the records of this case, We find no indication of any indebtedness of the estate. No creditor has come up to charge the estate
within the two-year period after the death of Forrest L. Cease, hence, the presumption under Section 1, Rule 74 that the estate is
free from creditors must apply. Neither has the status of the parties as legal heirs, much less that of respondents, been raised as an
issue. Besides, extant in the records is the stipulation of the parties to submit the pleadings and contents of the administration
proceedings for the cognizance of the trial judge in adjudicating the civil case for partition (Respondents' Brief, p, 20, rollo). As
respondents observe, the parties in both cases are the same, so are the properties involved; that actual division is the primary
objective in both actions; the theory and defense of the respective parties are likewise common; and that both cases have been
assigned to the same respondent judge. We feel that the unifying effect of the foregoing circumstances invites the wholesome
exception to the structures of procedural rule, thus allowing, instead, room for judicial flexibility. Respondent judge's dismissal of
the administration proceedings then, is a judicious move, appreciable in today's need for effective and speedy administration of
justice. There being ample reason to support the dismissal of the special proceedings in this appealed case, We cannot see in the
records any compelling reason why it may not be dismissed just the same even if considered in a separate action. This is inevitably
certain specially when the subject property has already been found appropriate for partition, thus reducing the petition for
administration to a mere unnecessary solicitation.
The second point raised by petitioners in their first assigned error is equally untenable. In effect, petitioners argue that the action for
partition should not have prospered in view of the repudiation of the co-ownership by Tiaong Milling and Plantation Company when,
as early in the trial court, it already asserted ownership and corporate title over the properties adverse to the right of ownership of
Forrest L. Cease or his estate. We are not unmindful of the doctrine relied upon by petitioners in Rodriguez vs. Ravilan, 17 Phil. 63
wherein this Court held that in an action for partition, it is assumed that the parties by whom it is prosecuted are all co-owners or
co-proprietors of the property to be divided, and that the question of common ownership is not to be argued, not the fact as to
whether the intended parties are or are not the owners of the property in question, but only as to how and in what manner and
proportion the said property of common ownership shall be distributed among the interested parties by order of the Court.
Consistent with this dictum, it has been field that if any party to a suit for partition denies the pro-indivisocharacter of the estate
whose partition is sought, and claims instead, exclusive title thereto the action becomes one for recovery of property cognizable in
the courts of ordinary jurisdiction. 2
Petitioners' argument has only theoretical persuasion, to say the least, rather apparent than real. It must be remembered that when
Tiaong Milling adduced its defense and raised the issue of ownership, its corporate existence already terminated through the
expiration of its charter. It is clear in Section 77 of Act No. 1459 (Corporation Law) that upon the expiration of the charter period, the
corporation ceases to exist and is dissolved ipso facto except for purposes connected with the winding up and liquidation. The
provision allows a three year, period from expiration of the charter within which the entity gradually settles and closes its affairs,
disposes and convey its property and to divide its capital stock, but not for the purpose of continuing the business for which it was
established. At this terminal stage of its existence, Tiaong Milling may no longer persist to maintain adverse title and ownership of
the corporate assets as against the prospective distributees when at this time it merely holds the property in trust, its assertion of
ownership is not only a legal contradiction, but more so, to allow it to maintain adverse interest would certainly thwart the very
purpose of liquidation and the final distribute loll of the assets to the proper, parties.
We agree with the Court of Appeals in its reasoning that substance is more important than form when it sustained the dismissal of
Special Proceedings No. 3893, thus -
a) As to the dismissal of Special Proceedings No. 3893, of course, at first glance, this was wrong, for the reason that the case trial had
been heard was Civil Case No. 6326; but what should not be overlooked either is Chat respondent Judge was the same Judge that
had before him in his own sala, said Special Proceedings No. 3893, p. 43 rollo, and the parties to the present Civil Case No. 6326 had
themselves asked respondent Judge to take judicial notice of the same and its contents page 34, rollo; it is not difficult to see that
when respondent Judge in par. 4 of the dispositive part of his decision complained of, ordered that,
4) Special Proceedings No. 3893 for administration is terminated and dismissed; the instant case to proceed but on issues of
damages only and for such action inherently essential or partition. p. 123, rollo,
in truth and in fact, His Honor was issuing that order also within Civil Case No. 632 but in connection with Special Proceedings No.
389:3: for substance is more important Chan form, the contending par ties in both proceedings being exactly the same, but not only
this, let it not be forgotten that when His Honor dismissed Special Proceedings No. 3893, that dismissal precisely was a dismissal that
petitioners herein had themselves sought and solicited from respondent Judge as petitioners themselves are in their present
petition pp. 5-6, rollo; this Court must find difficulty in reconciling petitioners' attack with the fact that it was they themselves that
had insisted on that dismissal; on the principle that not he who is favored but he who is hurt by a judicial order is he only who should
be heard to complain and especially since extraordinary legal remedies are remedies in extermies granted to parties ' who have
been the victims not merely of errors but of grave wrongs, and it cannot be seen how one who got what he had asked could be
heard to claim that he had been the victim of a wrong, petitioners should not now complain of an order they had themselves asked
in order to attack such an order afterwards; if at all, perhaps, third parties, creditors, the Bureau of Internal Revenue, might have
been prejudiced, and could have had the personality to attack that dismissal of Special Proceedings No. 3893, but not petitioners
herein, and it is not now for this Court of Appeals to protect said third persons who have not come to the Court below or sought to
intervene herein;
On the second assigned error, petitioners argue that no evidence has been found to support the conclusion that the registered
properties of Tiaong Milling are also properties of the estate of Forrest L. Cease; that on the contrary, said properties are registered
under Act No. 496 in the name of Tiaong Milling as lawful owner and possessor for the last 50 years of its corporate existence.
We do not agree. In reposing ownership to the estate of Forrest L. Cease, the trial court indeed found strong support, one that is
based on a well-entrenched principle of law. In sustaining respondents' theory of "merger of Forrest L. Cease and The Tiaong Milling
as one personality", or that "the company is only the business conduit and alter ego of the deceased Forrest L. Cease and the
registered properties of Tiaong Milling are actually properties of Forrest L. Cease and should be divided equally, share and share
alike among his six children, ... ", the trial court did aptly apply the familiar exception to the general rule by disregarding the legal
fiction of distinct and separate corporate personality and regarding the corporation and the individual member one and the same. In
shredding the fictitious corporate veil, the trial judge narrated the undisputed factual premise, thus:
While the records showed that originally its incorporators were aliens, friends or third-parties in relation of one to another, in the
course of its existence, it developed into a close family corporation. The Board of Directors and stockholders belong to one family
the head of which Forrest L. Cease always retained the majority stocks and hence the control and management of its affairs. In fact,
during the reconstruction of its records in 1947 before the Security and Exchange Commission only 9 nominal shares out of 300
appears in the name of his 3 eldest children then and another person close to them. It is likewise noteworthy to observe that as his
children increase or perhaps become of age, he continued distributing his shares among them adding Florence, Teresa and Marion
until at the time of his death only 190 were left to his name. Definitely, only the members of his family benefited from the
Corporation.
The accounts of the corporation and therefore its operation, as well as that of the family appears to be indistinguishable and
apparently joined together. As admitted by the defendants (Manifestation of Compliance with Order of March 7, 1963 [Exhibit "21"]
the corporation 'never' had any account with any banking institution or if any account was carried in a bank on its behalf, it was in
the name of Mr. Forrest L. Cease. In brief, the operation of the Corporation is merged with those of the majority stockholders, the
latter using the former as his instrumentality and for the exclusive benefits of all his family. From the foregoing indication, therefore,
there is truth in plaintiff's allegation that the corporation is only a business conduit of his father and an extension of his personality,
they are one and the same thing. Thus, the assets of the corporation are also the estate of Forrest L. Cease, the father of the parties
herein who are all legitimate children of full blood.
A rich store of jurisprudence has established the rule known as the doctrine of disregarding or piercing the veil of corporate fiction.
Generally, a corporation is invested by law with a personality separate and distinct from that of the persons composing it as well as
from that of any other legal entity to which it may be related. By virtue of this attribute, a corporation may not, generally, be made
to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected, and vice versa. This
separate and distinct personality is, however, merely a fiction created by law for convenience and to promote the ends of justice
(Laguna Transportation Company vs. Social Security System, L-14606, April 28, 1960; La Campana Coffee Factory, Inc. vs. Kaisahan ng
mga Manggagawa sa La Campana, L-5677, May 25, 1953). For this reason, it may not be used or invoked for ends subversive of the
policy and purpose behind its creation (Emiliano Cano Enterprises, Inc. vs. CIR, L-20502, Feb. 26, 1965) or which could not have been
intended by law to which it owes its being McConnel vs. Court of Appeals, L- 10510, March 17, 1961, 1 SCRA 722). This is particularly
true where the fiction is used to defeat public convenience, justify wrong, protect fraud, defend crime (Yutivo Sons Hardware
Company vs. Court of Tax Appeals, L-13203, Jan. 28, 1961, 1 SCRA 160), confuse legitimate legal or judicial issues (R. F. Sugay & Co.
vs. Reyes, L-20451, Dec. 28, 1964), perpetrate deception or otherwise circumvent the law (Gregorio Araneta, Inc. vs. reason de
Paterno, L-2886, Aug. 22, 1952, 49 O.G. 721). This is likewise true 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 (McConnel vs. Court of Appeals, supra;
Commissioner of Internal Revenue vs. Norton Harrison Co., L-7618, Aug. 31, 1964).
In any of these cases, the notion of corporate entity will be pierced or disregarded, and the corporation will be treated merely as an
association of persons or, where there are two corporations, they will be merged as one, the one being merely regarded as part or
the instrumentality of the otter (Koppel [Phil.] Inc. vs. Yatco, 77 Phil. 496, Yutivo Sons Hardware Company vs. Court of Tax
Appeals, supra).
So must the case at bar add to this jurisprudence. An indubitable deduction from the findings of the trial court cannot but lead to
the conclusion that the business of the corporation is largely, if not wholly, the personal venture of Forrest L. Cease. There is not
even a shadow of a showing that his children were subscribers or purchasers of the stocks they own. Their participation as nominal
shareholders emanated solely from Forrest L. Cease's gratuitous dole out of his own shares to the benefit of his children and
ultimately his family.
Were we sustain the theory of petitioners that the trial court acted in excess of jurisdiction or abuse of discretion amounting to lack
of jurisdiction in deciding Civil Case No. 6326 as a case for partition when the defendant therein, Tiaong Milling and Plantation
Company, Inc. as registered owner asserted ownership of the assets and properties involved in the litigation, which theory must
necessarily be based on the assumption that said assets and properties of Tiaong Milling and Plantation Company, Inc. now
appearing under the name of F. L. Cease Plantation Company as Trustee are distinct and separate from the estate of Forrest L. Cease
to which petitioners and respondents as legal heirs of said Forrest L. Cease are equally entitled share and share alike, then that legal
fiction of separate corporate personality shall have been used to delay and ultimately deprive and defraud the respondents of their
successional rights to the estate of their deceased father. For Tiaong Milling and Plantation Company shall have been able to extend
its corporate existence beyond the period of its charter which lapsed in June, 1958 under the guise and cover of F. L, Cease
Plantation Company, Inc. as Trustee which would be against the law, and as Trustee shall have been able to use the assets and
properties for the benefit of the petitioners, to the great prejudice and defraudation. of private respondents. Hence, it becomes
necessary and imperative to pierce that corporate veil.
Under the third assigned error, petitioners claim that the decision of the lower court in the partition case is not interlocutory but
rather final for it consists of final and determinative dispositions of the contentions of the parties. We find no merit in petitioners'
stand.
Under the 1961 pronouncement and ruling of the Supreme Court in Vda. de Zaldarriaga vs. Enriquez, 1 SCRA 1188 (and the sequel
case of Vda. de Zaldarriaga vs. Zaldarriaga, 2 SCRA 356), the lower court's dismissal of petitioners' proposed appeal from its
December 27, 1969 judgment as affirmed by the Court of Appeals on the ground of prematurity in that the judgment was not final
but interlocutory was in order. As was said in said case:
It is true that in Africa vs. Africa, 42 Phil. 934 and other cases it was held - contrary to the rule laid down in Ron vs. Mojica, 8 Phil.
328; Rodriguez vs. Ravilan, 17 Phil. 63 - that in a partition case where defendant relies on the defense of exclusive ownership, the
action becomes one for title and the decision or order directing partition is final, but the ruling to this effect has been expressly
reversed in the Fuentebella case which, in our opinion, expresses the correct view, considering that a decision or order directing
partition is not final because it leaves something more to be done in the trial court for the complete disposition of the case, namely,
the appointment of commissioners, the proceedings to be had before them, the submission of their report which, according to law,
must be set for hearing. In fact, it is only after said hearing that the court may render a final judgment finally disposing of the action
(Rule 71, section 7, Rules of Court). (1 SCRA at page 1193).
It should be noted, however, that the said ruling in Zaldarriaga as based on Fuentebella vs. Carrascoso, XIV Lawyers Journal 305 (May
27, 1942), has been expressly abandoned by the Court in Miranda vs. Court of Appeals, 71 SCRA 295; 331-333 (June 18, 1976)
wherein Mr. Justice Teehankee, speaking for the Court, laid down the following doctrine:
The Court, however, deems it proper for the guidance of the bench and bar to now declare as is clearly indicated from the
compelling reasons and considerations hereinabove stated:
- that the Court considers the better rule to be that stated in H. E. Heacock Co. vs. American Trading Co., to wit, that where the
primary purpose of a case is to ascertain and determine who between plaintiff and defendant is the true owner and entitled to the
exclusive use of the disputed property, "the judgment . . . rendered by the lower court [is] a judgment on the merits as to those
questions, and [that] the order of the court for an accounting was based upon, and is incidental to the judgment on the merits. That
is to say, that the judgment . . . [is] a final judgment ... that in this kind of a case an accounting is a mere incident to the judgment;
that an appeal lies from the rendition of the judgment as rendered ... "(as is widely held by a great number of judges and members
of the bar, as shown by the cases so decided and filed and still pending with the Court) for the fundamental reasons therein stated
that "this is more in harmony with the administration of justice and the spirit and intent of the [Rules]. If on appeal the judgment of
the lower court is affirmed, it would not in the least work an injustice to any of the legal rights of [appellee]. On the other hand, if for
any reason this court should reverse the judgment of the lower court, the accounting would be a waste of time and money, and
might work a material injury to the [appellant]; and
- that accordingly, the contrary ruling in Fuentebella vs. Carrascoso which expressly reversed the Heacock case and a line of similar
decisions and ruled that such a decision for recovery of property with accounting "is not final but merely interlocutory and therefore
not appealable" and subsequent cases adhering to the same must be now in turn abandoned and set aside.
Fuentebella adopted instead the opposite line of conflicting decisions mostly in partition proceedings and exemplified by Ron vs.
Mojica 8 Phil. 928 (under the old Code of Civil Procedure) that an order for partition of real property is not final and appealable until
after the actual partition of the property as reported by the court appointed commissioners and approved by the court in
its judgment accepting the report. lt must be especially noted that such rule governing partitions is now so expressly provided and
spelled out in Rule 69 of the Rules of Court, with special reference to Sections 1, 2, 3, 6, 7 and 11, to wit, that there must first be a
preliminar, order for partition of the real estate (section 2) and where the parties-co-owners cannot agree, the court appointed
commissioners make a plan of actual partition which must first be passed upon and accepted by the trial court and embodied in a
judgment to be rendered by it (sections 6 and 11). In partition cases, it must be further borne in mind that Rule 69, section 1 refers
to "a person having the right to compel the partition of real estate," so that the general rule of partition that an appeal will not lie
until the partition or distribution proceedings are terminated will not apply where appellant claims exclusive ownership of the whole
property and denies the adverse party's right to any partition, as was the ruling in Villanueva vs. Capistrano and Africa vs .Africa,
supra, Fuentebellas express rehearsal of these cases must likewise be deemed now also abandoned in view of the Court's expressed
preference for the rationale of the Heacock case.
The Court's considered opinion is that imperative considerations of public policy and of sound practice in the courts and adherence
to the constitutional mandate of simplified, just, speedy and inexpensive determination of every action call for considering such
judgments for recovery of property with accounting as final judgments which are duly appealable (and would therefore become
final and executory if not appealed within the reglementary period) with the accounting as a mere incident of the judgment to be
rendered during the course of the appeal as provided in Rule 39, section 4 or to be implemented at the execution stage upon final
affirmance on appeal of the judgment (as in Court of Industrial Relations unfair labor practice cases ordering the reinstatement of
the worker with accounting, computation and payment of his backwages less earnings elsewhere during his layoff) and that the only
reason given in Fuentebelia for the contrary ruling, viz, "the general harm that would follow from throwing the door open to
multiplicity of appeals in a single case" of lesser import and consequence. (Emphasis copied).
The miranda ruling has since then been applied as the new rule by a unanimous Court in Valdez vs. Bagasao, 82 SCRA 22 (March 8,
1978).
If there were a valid genuine claim of Exclusive ownership of the inherited properties on the part of petitioners to respondents'
action for partition, then under the Miranda ruling, petitioners would be sustained, for as expressly held therein " the general rule of
partition that an appeal will not lie until the partition or distribution proceedings are terminated will not apply where appellant
claims exclusive ownership of the whole property and denies the adverse party's right to any partition."
But this question has now been rendered moot and academic for the very issue of exclusive ownership claimed by petitioners to
deny and defeat respondents' right to partition - which is the very core of their rejected appeal - has been squarely resolved herein
against them, as if the appeal had been given due course. The Court has herein expressly sustained the trial court's findings, as
affirmed by the Court of Appeals, that the assets or properties of the defunct company constitute the estate of the deceased
proprietor (supra at page 7) and the defunct company's assertion of ownership of the properties is a legal contradiction and would
but thwart the liquidation and final distribution and partition of the properties among the parties hereof as children of their
deceased father Forrest L. Cease. There is therefore no further hindrance to effect the partition of the properties among the parties
in implementation of the appealed judgment.
One last consideration. Parties are brothers and sisters, legal heirs of their deceased father, Forrest L. Cease. By all rights in law and
jurisprudence, each is entitled to share and share alike in the estate, which the trial court correctly ordained and sustained by the
appellate court. Almost 20 years have lapsed since the filing of Special Proceedings No. 3893 for the administration of the Estate of
Forrest L. Cease and Civil Case No. 6326 for liquidation and partition of the assets of the defunct Tiaong Milling and Plantation Co.,
Inc. A succession of receivers were appointed by the court to take, keep in possession, preserve and manage properties of the
corporation which at one time showed an income of P386,152.90 and expenses of P308,405.01 for the period covering January 1,
1960 to August 31, 1967 as per Summary of Operations of Commissioner for Finance appointed by the Court (Brief for Respondents,
p. 38). In the meantime, ejectment cases were filed by and against the heirs in connection with the properties involved, aggravating
the already strained relations of the parties. A prudent and practical realization of these circumstances ought and must constrain the
parties to give each one his due in law and with fairness and dispatch that their basic rights be enjoyed. And by remanding this case
to the court a quo for the actual partition of the properties, the substantial rights of everyone of the heirs have not been impaired,
for in fact, they have been preserved and maintained.
WHEREFORE, IN VIEW OF THE FOREGOING, the judgment appealed from is hereby AFFIRMED with costs against the petitioners.
SO ORDERED.
Teehankee, Actg. C.J., (Chairman), Makasiar, Fernandez, De Castro and Melencio-Herrera, JJ., concur.
PROFESSIONAL SERVICES, INC., G.R. No. 126297
Petitioner,

- versus -

NATIVIDAD and ENRIQUE AGANA,

Respondents.
x-----------------------x
NATIVIDAD (Substituted by her children
MARCELINO AGANA III, ENRIQUE AGANA, JR.,
EMMA AGANA ANDAYA, JESUS AGANA, and G.R. No. 126467
RAYMUND AGANA) and ENRIQUE AGANA,
Petitioners,

- versus -

JUAN FUENTES,
Respondent.
x- - - - - - - - - - - - - - - - - - - -- - - - x
MIGUEL AMPIL,
Petitioner,

- versus -

G.R. No. 127590

Present:
NATIVIDAD AGANA and ENRIQUEAGANA,
Respondents. PUNO, C.J., Chairperson
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
*
GARCIA, JJ.

Promulgated:

January 31, 2007

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

DECISION
SANDOVAL-GUTIERREZ, J.:

Hospitals, having undertaken one of mankinds most important and delicate endeavors, must assume the grave responsibility of
pursuing it with appropriate care. The care and service dispensed through this high trust, however technical, complex and esoteric
its character may be, must meet standards of responsibility commensurate with the undertaking to preserve and protect the health,
and indeed, the very lives of those placed in the hospitals keeping.[1]
Assailed in these three consolidated petitions for review on certiorari is the Court of Appeals Decision[2] dated September 6, 1996 in
CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198 affirming with modification the Decision [3] dated March 17, 1993 of the Regional
Trial Court (RTC), Branch 96, Quezon City in Civil Case No. Q-43322 and nullifying its Order dated September 21, 1993.
The facts, as culled from the records, are:
On April 4, 1984, Natividad Agana was rushed to the Medical City General Hospital (Medical City Hospital) because of difficulty of
bowel movement and bloody anal discharge. After a series of medical examinations, Dr. Miguel Ampil, petitioner in G.R. No. 127590,
diagnosed her to be suffering from cancer of the sigmoid.
On April 11, 1984, Dr. Ampil, assisted by the medical staff[4] of the Medical City Hospital, performed an anterior resection surgery on
Natividad. He found that the malignancy in her sigmoid area had spread on her left ovary, necessitating the removal of certain
portions of it. Thus, Dr. Ampil obtained the consent of Natividads husband, Enrique Agana, to permit Dr. Juan Fuentes, respondent in
G.R. No. 126467, to perform hysterectomy on her.
After Dr. Fuentes had completed the hysterectomy, Dr. Ampil took over, completed the operation and closed the incision.
However, the operation appeared to be flawed. In the corresponding Record of Operation dated April 11, 1984, the attending nurses
entered these remarks:
sponge count lacking 2 announced to surgeon searched (sic) done but to no avail continue for closure.
On April 24, 1984, Natividad was released from the hospital. Her hospital and medical bills, including the doctors fees, amounted
to P60,000.00.
After a couple of days, Natividad complained of excruciating pain in her anal region. She consulted both Dr. Ampil and Dr. Fuentes
about it. They told her that the pain was the natural consequence of the surgery. Dr. Ampil then recommended that she consult an
oncologist to examine the cancerous nodes which were not removed during the operation.
On May 9, 1984, Natividad, accompanied by her husband, went to the United States to seek further treatment. After four months of
consultations and laboratory examinations, Natividad was told she was free of cancer. Hence, she was advised to return to
the Philippines.
On August 31, 1984, Natividad flew back to the Philippines, still suffering from pains. Two weeks thereafter, her daughter found a
piece of gauze protruding from her vagina. Upon being informed about it, Dr. Ampil proceeded to her house where he managed to
extract by hand a piece of gauze measuring 1.5 inches in width. He then assured her that the pains would soon vanish.
Dr. Ampils assurance did not come true. Instead, the pains intensified, prompting Natividad to seek treatment at the Polymedic
General Hospital. While confined there, Dr. Ramon Gutierrez detected the presence of another foreign object in her vagina -- a foul-
smelling gauze measuring 1.5 inches in width which badly infected her vaginal vault. A recto-vaginal fistula had formed in her
reproductive organs which forced stool to excrete through the vagina. Another surgical operation was needed to remedy the
damage. Thus, in October 1984, Natividad underwent another surgery.
On November 12, 1984, Natividad and her husband filed with the RTC, Branch 96, Quezon City a complaint for damages against the
Professional Services, Inc. (PSI), owner of the Medical City Hospital, Dr. Ampil, and Dr. Fuentes, docketed as Civil Case No. Q-43322.
They alleged that the latter are liable for negligence for leaving two pieces of gauze inside Natividads body and malpractice for
concealing their acts of negligence.
Meanwhile, Enrique Agana also filed with the Professional Regulation Commission (PRC) an administrative complaint for gross
negligence and malpractice against Dr. Ampil and Dr. Fuentes, docketed as Administrative Case No. 1690. The PRC Board of
Medicine heard the case only with respect to Dr. Fuentes because it failed to acquire jurisdiction over Dr. Ampil who was then in
the United States.
On February 16, 1986, pending the outcome of the above cases, Natividad died and was duly substituted by her above-named
children (the Aganas).
On March 17, 1993, the RTC rendered its Decision in favor of the Aganas, finding PSI, Dr. Ampil and Dr. Fuentes liable for negligence
and malpractice, the decretal part of which reads:
WHEREFORE, judgment is hereby rendered for the plaintiffs ordering the defendants PROFESSIONAL SERVICES, INC., DR. MIGUEL
AMPIL and DR. JUAN FUENTES to pay to the plaintiffs, jointly and severally, except in respect of the award for exemplary damages
and the interest thereon which are the liabilities of defendants Dr. Ampil and Dr. Fuentes only, as follows:
1. As actual damages, the following amounts:
a. The equivalent in Philippine Currency of the total of US$19,900.00 at the rate of P21.60-US$1.00, as reimbursement of actual
expenses incurred in the United States of America;
b. The sum of P4,800.00 as travel taxes of plaintiffs and their physician daughter;
c. The total sum of P45,802.50, representing the cost of hospitalization at Polymedic Hospital, medical fees, and cost of the
saline solution;
2. As moral damages, the sum of P2,000,000.00;
3. As exemplary damages, the sum of P300,000.00;
4. As attorneys fees, the sum of P250,000.00;
5. Legal interest on items 1 (a), (b), and (c); 2; and 3 hereinabove, from date of filing of the complaint until full payment; and
6. Costs of suit.
SO ORDERED.
Aggrieved, PSI, Dr. Fuentes and Dr. Ampil interposed an appeal to the Court of Appeals, docketed as CA-G.R. CV No. 42062.
Incidentally, on April 3, 1993, the Aganas filed with the RTC a motion for a partial execution of its Decision, which was granted in an
Order dated May 11, 1993. Thereafter, the sheriff levied upon certain properties of Dr. Ampil and sold them for P451,275.00 and
delivered the amount to the Aganas.
Following their receipt of the money, the Aganas entered into an agreement with PSI and Dr. Fuentes to indefinitely suspend any
further execution of the RTC Decision. However, not long thereafter, the Aganas again filed a motion for an alias writ of execution
against the properties of PSI and Dr. Fuentes. On September 21, 1993, the RTC granted the motion and issued the corresponding
writ, prompting Dr. Fuentes to file with the Court of Appeals a petition for certiorari and prohibition, with prayer for preliminary
injunction, docketed as CA-G.R. SP No. 32198. During its pendency, the Court of Appeals issued a Resolution [5] dated October 29,
1993 granting Dr. Fuentes prayer for injunctive relief.
On January 24, 1994, CA-G.R. SP No. 32198 was consolidated with CA-G.R. CV No. 42062.
Meanwhile, on January 23, 1995, the PRC Board of Medicine rendered its Decision [6] in Administrative Case No. 1690 dismissing the
case against Dr. Fuentes. The Board held that the prosecution failed to show that Dr. Fuentes was the one who left the two pieces of
gauze inside Natividads body; and that he concealed such fact from Natividad.
On September 6, 1996, the Court of Appeals rendered its Decision jointly disposing of CA-G.R. CV No. 42062 and CA-G.R. SP No.
32198, thus:
WHEREFORE, except for the modification that the case against defendant-appellant Dr. Juan Fuentes is hereby DISMISSED, and with
the pronouncement that defendant-appellant Dr. Miguel Ampil is liable to reimburse defendant-appellant Professional Services,
Inc., whatever amount the latter will pay or had paid to the plaintiffs-appellees, the decision appealed from is hereby AFFIRMED and
the instant appeal DISMISSED.
Concomitant with the above, the petition for certiorari and prohibition filed by herein defendant-appellant Dr. Juan Fuentes in CA-
G.R. SP No. 32198 is hereby GRANTED and the challenged order of the respondent judge dated September 21, 1993, as well as the
alias writ of execution issued pursuant thereto are hereby NULLIFIED and SET ASIDE. The bond posted by the petitioner in
connection with the writ of preliminary injunction issued by this Court on November 29, 1993 is hereby cancelled.
Costs against defendants-appellants Dr. Miguel Ampil and Professional Services, Inc.
SO ORDERED.
Only Dr. Ampil filed a motion for reconsideration, but it was denied in a Resolution [7] dated December 19, 1996.
Hence, the instant consolidated petitions.
In G.R. No. 126297, PSI alleged in its petition that the Court of Appeals erred in holding that: (1) it is estopped from raising the
defense that Dr. Ampil is not its employee; (2) it is solidarily liable with Dr. Ampil; and (3) it is not entitled to its counterclaim against
the Aganas. PSI contends that Dr. Ampil is not its employee, but a mere consultant or independent contractor. As such, he alone
should answer for his negligence.
In G.R. No. 126467, the Aganas maintain that the Court of Appeals erred in finding that Dr. Fuentes is not guilty of negligence or
medical malpractice, invoking the doctrine of res ipsa loquitur. They contend that the pieces of gauze are prima facie proofs that the
operating surgeons have been negligent.
Finally, in G.R. No. 127590, Dr. Ampil asserts that the Court of Appeals erred in finding him liable for negligence and
malpractice sans evidence that he left the two pieces of gauze in Natividads vagina. He pointed to other probable causes, such
as: (1) it was Dr. Fuentes who used gauzes in performing the hysterectomy; (2) the attending nurses failure to properly count the
gauzes used during surgery; and (3) the medical intervention of the American doctors who examined Natividad in the United States
of America.
For our resolution are these three vital issues: first, whether the Court of Appeals erred in holding Dr. Ampil liable for negligence and
malpractice; second, whether the Court of Appeals erred in absolving Dr. Fuentes of any liability; and third, whether PSI may be held
solidarily liable for the negligence of Dr. Ampil.
I - G.R. No. 127590
Whether the Court of Appeals Erred in Holding Dr. Ampil Liable for Negligence and Malpractice.
Dr. Ampil, in an attempt to absolve himself, gears the Courts attention to other possible causes of Natividads detriment. He argues
that the Court should not discount either of the following possibilities: first, Dr. Fuentes left the gauzes in Natividads body after
performing hysterectomy; second, the attending nurses erred in counting the gauzes; and third,the American doctors were the ones
who placed the gauzes in Natividads body.
Dr. Ampils arguments are purely conjectural and without basis. Records show that he did not present any evidence to prove that the
American doctors were the ones who put or left the gauzes in Natividads body. Neither did he submit evidence to rebut the
correctness of the record of operation, particularly the number of gauzes used. As to the alleged negligence of Dr. Fuentes, we are
mindful that Dr. Ampil examined his (Dr. Fuentes) work and found it in order.
The glaring truth is that all the major circumstances, taken together, as specified by the Court of Appeals, directly point to Dr. Ampil
as the negligent party, thus:
First, it is not disputed that the surgeons used gauzes as sponges to control the bleeding of the patient during the surgical operation.
Second, immediately after the operation, the nurses who assisted in the surgery noted in their report that the sponge count (was)
lacking 2; that such anomaly was announced to surgeon and that a search was done but to no avail prompting Dr. Ampil to
continue for closure x x x.
Third, after the operation, two (2) gauzes were extracted from the same spot of the body of Mrs. Agana where the surgery was
performed.
An operation requiring the placing of sponges in the incision is not complete until the sponges are properly removed, and it is settled
that the leaving of sponges or other foreign substances in the wound after the incision has been closed is at
least prima facie negligence by the operating surgeon.[8] To put it simply, such act is considered so inconsistent with due care as to
raise an inference of negligence. There are even legions of authorities to the effect that such act is negligence per se.[9]
Of course, the Court is not blind to the reality that there are times when danger to a patients life precludes a surgeon from further
searching missing sponges or foreign objects left in the body. But this does not leave him free from any obligation. Even if it has
been shown that a surgeon was required by the urgent necessities of the case to leave a sponge in his patients abdomen, because of
the dangers attendant upon delay, still, it is his legal duty to so inform his patient within a reasonable time thereafter by advising
her of what he had been compelled to do. This is in order that she might seek relief from the effects of the foreign object left in her
body as her condition might permit. The ruling in Smith v. Zeagler[10] is explicit, thus:

The removal of all sponges used is part of a surgical operation, and when a physician or surgeon fails to remove a sponge he has
placed in his patients body that should be removed as part of the operation, he thereby leaves his operation uncompleted
and creates a new condition which imposes upon him the legal duty of calling the new condition to his patients attention, and
endeavoring with the means he has at hand to minimize and avoid untoward results likely to ensue therefrom.
Here, Dr. Ampil did not inform Natividad about the missing two pieces of gauze. Worse, he even misled her that the pain she was
experiencing was the ordinary consequence of her operation. Had he been more candid, Natividad could have taken the immediate
and appropriate medical remedy to remove the gauzes from her body. To our mind, what was initially an act of negligence by Dr.
Ampil has ripened into a deliberate wrongful act of deceiving his patient.
This is a clear case of medical malpractice or more appropriately, medical negligence. To successfully pursue this kind of case, a
patient must only prove that a health care provider either failed to do something which a reasonably prudent health care provider
would have done, or that he did something that a reasonably prudent provider would not have done; and that failure or action
caused injury to the patient.[11] Simply put, the elements are duty, breach, injury and proximate causation. Dr, Ampil, as the lead
surgeon, had the duty to remove all foreign objects, such as gauzes, from Natividads body before closure of the incision. When he
failed to do so, it was his duty to inform Natividad about it. Dr. Ampil breached both duties. Such breach caused injury to Natividad,
necessitating her further examination by American doctors and another surgery. That Dr. Ampils negligence is the proximate
cause[12] of Natividads injury could be traced from his act of closing the incision despite the information given by the attending
nurses that two pieces of gauze were still missing. That they were later on extracted from Natividads vagina established the causal
link between Dr. Ampils negligence and the injury. And what further aggravated such injury was his deliberate concealment of the
missing gauzes from the knowledge of Natividad and her family.
II - G.R. No. 126467
Whether the Court of Appeals Erred in Absolving Dr. Fuentes of any Liability
The Aganas assailed the dismissal by the trial court of the case against Dr. Fuentes on the ground that it is contrary to the doctrine
of res ipsa loquitur. According to them, the fact that the two pieces of gauze were left inside Natividads body is a prima
facie evidence of Dr. Fuentes negligence.
We are not convinced.
Literally, res ipsa loquitur means the thing speaks for itself. It is the rule that the fact of the occurrence of an injury, taken with the
surrounding circumstances, may permit an inference or raise a presumption of negligence, or make out a plaintiffs prima facie case,
and present a question of fact for defendant to meet with an explanation. [13] Stated differently, where the thing which caused the
injury, without the fault of the injured, is under the exclusive control of the defendant and the injury is such that it should not have
occurred if he, having such control used proper care, it affords reasonable evidence, in the absence of explanation that the injury
arose from the defendants want of care, and the burden of proof is shifted to him to establish that he has observed due care and
diligence.[14]
From the foregoing statements of the rule, the requisites for the applicability of the doctrine of res ipsa loquitur are: (1) the
occurrence of an injury; (2) the thing which caused the injury was under the control and management of the defendant; (3) the
occurrence was such that in the ordinary course of things, would not have happened if those who had control or management used
proper care; and (4) the absence of explanation by the defendant. Of the foregoing requisites, the most instrumental is the control
and management of the thing which caused the injury.[15]
We find the element of control and management of the thing which caused the injury to be wanting. Hence, the doctrine of res ipsa
loquitur will not lie.
It was duly established that Dr. Ampil was the lead surgeon during the operation of Natividad. He requested the assistance of Dr.
Fuentes only to perform hysterectomy when he (Dr. Ampil) found that the malignancy in her sigmoid area had spread to her left
ovary. Dr. Fuentes performed the surgery and thereafter reported and showed his work to Dr. Ampil. The latter examined it and
finding everything to be in order, allowed Dr. Fuentes to leave the operating room. Dr. Ampil then resumed operating on
Natividad. He was about to finish the procedure when the attending nurses informed him that two pieces of gauze were missing. A
diligent search was conducted, but the misplaced gauzes were not found. Dr. Ampil then directed that the incision be
closed. During this entire period, Dr. Fuentes was no longer in the operating room and had, in fact, left the hospital.
Under the Captain of the Ship rule, the operating surgeon is the person in complete charge of the surgery room and all personnel
connected with the operation. Their duty is to obey his orders.[16] As stated before, Dr. Ampil was the lead surgeon. In other words,
he was the Captain of the Ship. That he discharged such role is evident from his following conduct: (1) calling Dr. Fuentes to perform
a hysterectomy; (2) examining the work of Dr. Fuentes and finding it in order; (3) granting Dr. Fuentes permission to leave;
and (4) ordering the closure of the incision. To our mind, it was this act of ordering the closure of the incision notwithstanding that
two pieces of gauze remained unaccounted for, that caused injury to Natividads body. Clearly, the control and management of the
thing which caused the injury was in the hands of Dr. Ampil, not Dr. Fuentes.
In this jurisdiction, res ipsa loquitur is not a rule of substantive law, hence, does not per se create or constitute an independent or
separate ground of liability, being a mere evidentiary rule. [17] In other words, mere invocation and application of the doctrine does
not dispense with the requirement of proof of negligence. Here, the negligence was proven to have been committed by Dr. Ampil
and not by Dr. Fuentes.
III - G.R. No. 126297 Whether PSI Is Liable for the Negligence of Dr. Ampil
The third issue necessitates a glimpse at the historical development of hospitals and the resulting theories concerning their liability
for the negligence of physicians.
Until the mid-nineteenth century, hospitals were generally charitable institutions, providing medical services to the lowest classes of
society, without regard for a patients ability to pay.[18] Those who could afford medical treatment were usually treated at home by
their doctors.[19] However, the days of house calls and philanthropic health care are over. The modern health care industry continues
to distance itself from its charitable past and has experienced a significant conversion from a not-for-profit health care to for-profit
hospital businesses. Consequently, significant changes in health law have accompanied the business-related changes in the hospital
industry. One important legal change is an increase in hospital liability for medical malpractice. Many courts now allow claims for
hospital vicarious liability under the theories of respondeat superior, apparent authority, ostensible authority, or agency by
estoppel. [20]
In this jurisdiction, the statute governing liability for negligent acts is Article 2176 of the Civil Code, which reads:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.
A derivative of this provision is Article 2180, the rule governing vicarious liability under the doctrine of respondeat superior, thus:
ART. 2180. The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but also for those of
persons for whom one is responsible.
xxxxxx
The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the
service of the branches in which the latter are employed or on the occasion of their functions.
Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their
assigned tasks even though the former are not engaged in any business or industry.
xxxxxx
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence
of a good father of a family to prevent damage.
A prominent civilist commented that professionals engaged by an employer, such as physicians, dentists, and pharmacists, are not
employees under this article because the manner in which they perform their work is not within the control of the latter
(employer). In other words, professionals are considered personally liable for the fault or negligence they commit in the discharge
of their duties, and their employer cannot be held liable for such fault or negligence. In the context of the present case, a hospital
cannot be held liable for the fault or negligence of a physician or surgeon in the treatment or operation of patients. [21]
The foregoing view is grounded on the traditional notion that the professional status and the very nature of the physicians calling
preclude him from being classed as an agent or employee of a hospital, whenever he acts in a professional capacity.[22] It has been
said that medical practice strictly involves highly developed and specialized knowledge, [23]such that physicians are generally free to
exercise their own skill and judgment in rendering medical services sans interference.[24] Hence, when a doctor practices medicine in
a hospital setting, the hospital and its employees are deemed to subserve him in his ministrations to the patient and his actions are
of his own responsibility.[25]
The case of Schloendorff v. Society of New York Hospital[26] was then considered an authority for this view. The Schloendorff doctrine
regards a physician, even if employed by a hospital, as an independent contractor because of the skill he exercises and the lack of
control exerted over his work. Under this doctrine, hospitals are exempt from the application of the respondeat superior principle
for fault or negligence committed by physicians in the discharge of their profession.
However, the efficacy of the foregoing doctrine has weakened with the significant developments in medical care. Courts came to
realize that modern hospitals are increasingly taking active role in supplying and regulating medical care to patients. No longer were
a hospitals functions limited to furnishing room, food, facilities for treatment and operation, and attendants for its patients. Thus,
in Bing v. Thunig,[27] the New York Court of Appeals deviated from the Schloendorff doctrine, noting that modern hospitals actually
do far more than provide facilities for treatment. Rather, they regularly employ, on a salaried basis, a large staff of physicians,
interns, nurses, administrative and manual workers. They charge patients for medical care and treatment, even collecting for such
services through legal action, if necessary. The court then concluded that there is no reason to exempt hospitals from the universal
rule of respondeat superior.
In our shores, the nature of the relationship between the hospital and the physicians is rendered inconsequential in view of our
categorical pronouncement in Ramos v. Court of Appeals[28] that for purposes of apportioning responsibility in medical negligence
cases, an employer-employee relationship in effect exists between hospitals and their attending and visiting physicians. This Court
held:
We now discuss the responsibility of the hospital in this particular incident. The unique practice (among private hospitals) of filling
up specialist staff with attending and visiting consultants, who are allegedly not hospital employees, presents problems in
apportioning responsibility for negligence in medical malpractice cases. However, the difficulty is more apparent than real.
In the first place, hospitals exercise significant control in the hiring and firing of consultants and in the conduct of their work
within the hospital premises. Doctors who apply for consultant slots, visiting or attending, are required to submit proof of
completion of residency, their educational qualifications, generally, evidence of accreditation by the appropriate board
(diplomate), evidence of fellowship in most cases, and references. These requirements are carefully scrutinized by members of
the hospital administration or by a review committee set up by the hospital who either accept or reject the application. x x x.
After a physician is accepted, either as a visiting or attending consultant, he is normally required to attend clinico-pathological
conferences, conduct bedside rounds for clerks, interns and residents, moderate grand rounds and patient audits and perform
other tasks and responsibilities, for the privilege of being able to maintain a clinic in the hospital, and/or for the privilege of
admitting patients into the hospital. In addition to these, the physicians performance as a specialist is generally evaluated by a peer
review committee on the basis of mortality and morbidity statistics, and feedback from patients, nurses, interns and residents. A
consultant remiss in his duties, or a consultant who regularly falls short of the minimum standards acceptable to the hospital or
its peer review committee, is normally politely terminated.
In other words, private hospitals, hire, fire and exercise real control over their attending and visiting consultant staff. While
consultants are not, technically employees, x x x, the control exercised, the hiring, and the right to terminate consultants all fulfill
the important hallmarks of an employer-employee relationship, with the exception of the payment of wages. In assessing
whether such a relationship in fact exists, the control test is determining. Accordingly, on the basis of the foregoing, we rule that for
the purpose of allocating responsibility in medical negligence cases, an employer-employee relationship in effect exists between
hospitals and their attending and visiting physicians.
But the Ramos pronouncement is not our only basis in sustaining PSIs liability. Its liability is also anchored upon the agency principle
of apparent authority or agency by estoppel and the doctrine of corporate negligence which have gained acceptance in the
determination of a hospitals liability for negligent acts of health professionals. The present case serves as a perfect platform to test
the applicability of these doctrines, thus, enriching our jurisprudence.
Apparent authority, or what is sometimes referred to as the holding
out theory, or doctrine of ostensible agency or agency by estoppel,[29] has its origin from the law of agency. It imposes liability, not
as the result of the reality of a contractual relationship, but rather because of the actions of a principal or an employer in somehow
misleading the public into believing that the relationship or the authority exists. [30] The concept is essentially one of estoppel and has
been explained in this manner:
The principal is bound by the acts of his agent with the apparent authority which he knowingly permits the agent to assume, or
which he holds the agent out to the public as possessing. The question in every case is whether the principal has by his voluntary act
placed the agent in such a situation that a person of ordinary prudence, conversant with business usages and the nature of the
particular business, is justified in presuming that such agent has authority to perform the particular act in question.[31]
The applicability of apparent authority in the field of hospital liability was upheld long time ago in Irving v. Doctor Hospital of Lake
Worth, Inc.[32] There, it was explicitly stated that there does not appear to be any rational basis for excluding the concept of
apparent authority from the field of hospital liability. Thus, in cases where it can be shown that a hospital, by its actions, has held
out a particular physician as its agent and/or employee and that a patient has accepted treatment from that physician in the
reasonable belief that it is being rendered in behalf of the hospital, then the hospital will be liable for the physicians negligence.
Our jurisdiction recognizes the concept of an agency by implication or estoppel. Article 1869 of the Civil Code reads:
ART. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his behalf without authority.
In this case, PSI publicly displays in the lobby of the Medical City Hospital the names and specializations of the physicians associated
or accredited by it, including those of Dr. Ampil and Dr. Fuentes. We concur with the Court of Appeals conclusion that it is now
estopped from passing all the blame to the physicians whose names it proudly paraded in the public directory leading the public
to believe that it vouched for their skill and competence. Indeed, PSIs act is tantamount to holding out to the public
that Medical City Hospital, through its accredited physicians, offers quality health care services. By accrediting Dr. Ampil and Dr.
Fuentes and publicly advertising their qualifications, the hospital created the impression that they were its agents, authorized to
perform medical or surgical services for its patients. As expected, these patients, Natividad being one of them, accepted the services
on the reasonable belief that such were being rendered by the hospital or its employees, agents, or servants. The trial court
correctly pointed out:
x x x regardless of the education and status in life of the patient, he ought not be burdened with the defense of absence of
employer-employee relationship between the hospital and the independent physician whose name and competence are certainly
certified to the general public by the hospitals act of listing him and his specialty in its lobby directory, as in the case herein. The
high costs of todays medical and health care should at least exact on the hospital greater, if not broader, legal responsibility for
the conduct of treatment and surgery within its facility by its accredited physician or surgeon, regardless of whether he is
independent or employed.[33]
The wisdom of the foregoing ratiocination is easy to discern. Corporate entities, like PSI, are capable of acting only through other
individuals, such as physicians. If these accredited physicians do their job well, the hospital succeeds in its mission of offering quality
medical services and thus profits financially. Logically, where negligence mars the quality of its services, the hospital should not be
allowed to escape liability for the acts of its ostensible agents.
We now proceed to the doctrine of corporate negligence or corporate responsibility.
One allegation in the complaint in Civil Case No. Q-43332 for negligence and malpractice is that PSI as owner, operator and manager
of Medical City Hospital, did not perform the necessary supervision nor exercise diligent efforts in the supervision of Drs. Ampil
and Fuentes and its nursing staff, resident doctors, and medical interns who assisted Drs. Ampil and Fuentes in the performance
of their duties as surgeons.[34] Premised on the doctrine of corporate negligence, the trial court held that PSI is directly liable for
such breach of duty.
We agree with the trial court.
Recent years have seen the doctrine of corporate negligence as the judicial answer to the problem of allocating hospitals liability for
the negligent acts of health practitioners, absent facts to support the application of respondeat superior or apparent authority. Its
formulation proceeds from the judiciarys acknowledgment that in these modern times, the duty of providing quality medical service
is no longer the sole prerogative and responsibility of the physician. The modern hospitals have changed structure. Hospitals now
tend to organize a highly professional medical staff whose competence and performance need to be monitored by the hospitals
commensurate with their inherent responsibility to provide quality medical care. [35]
The doctrine has its genesis in Darling v. Charleston Community Hospital.[36] There, the Supreme Court of Illinois held that the jury
could have found a hospital negligent, inter alia, in failing to have a sufficient number of trained nurses attending the patient;
failing to require a consultation with or examination by members of the hospital staff; and failing to review the treatment
rendered to the patient. On the basis of Darling, other jurisdictions held that a hospitals corporate negligence extends to
permitting a physician known to be incompetent to practice at the hospital.[37] With the passage of time, more duties were
expected from hospitals, among them: (1) the use of reasonable care in the maintenance of safe and adequate facilities and
equipment; (2) the selection and retention of competent physicians; (3) the overseeing or supervision of all persons who practice
medicine within its walls; and (4) the formulation, adoption and enforcement of adequate rules and policies that ensure quality care
for its patients.[38] Thus, in Tucson Medical Center, Inc. v. Misevich,[39] it was held that a hospital, following the doctrine of corporate
responsibility, has the duty to see that it meets the standards of responsibilities for the care of patients. Such duty includes the
proper supervision of the members of its medical staff. And in Bost v. Riley,[40] the court concluded that a patient who enters a
hospital does so with the reasonable expectation that it will attempt to cure him. The hospital accordingly has the duty to make a
reasonable effort to monitor and oversee the treatment prescribed and administered by the physicians practicing in its premises.
In the present case, it was duly established that PSI operates the Medical City Hospital for the purpose and under the concept of
providing comprehensive medical services to the public. Accordingly, it has the duty to exercise reasonable care to protect from
harm all patients admitted into its facility for medical treatment. Unfortunately, PSI failed to perform such duty. The findings of the
trial court are convincing, thus:
x x x PSIs liability is traceable to its failure to conduct an investigation of the matter reported in the nota bene of the count nurse.
Such failure established PSIs part in the dark conspiracy of silence and concealment about the gauzes. Ethical considerations, if not
also legal, dictated the holding of an immediate inquiry into the events, if not for the benefit of the patient to whom the duty is
primarily owed, then in the interest of arriving at the truth. The Court cannot accept that the medical and the healing professions,
through their members like defendant surgeons, and their institutions like PSIs hospital facility, can callously turn their backs on and
disregard even a mere probability of mistake or negligence by refusing or failing to investigate a report of such seriousness as the
one in Natividads case.
It is worthy to note that Dr. Ampil and Dr. Fuentes operated on Natividad with the assistance of the Medical City Hospitals staff,
composed of resident doctors, nurses, and interns. As such, it is reasonable to conclude that PSI, as the operator of the hospital,
has actual or constructive knowledge of the procedures carried out, particularly the report of the attending nurses that the two
pieces of gauze were missing. In Fridena v. Evans,[41] it was held that a corporation is bound by the knowledge acquired by or notice
given to its agents or officers within the scope of their authority and in reference to a matter to which their authority extends. This
means that the knowledge of any of the staff of Medical City Hospital constitutes knowledge of PSI. Now, the failure of PSI, despite
the attending nurses report, to investigate and inform Natividad regarding the missing gauzes amounts to callous negligence. Not
only did PSI breach its duties to oversee or supervise all persons who practice medicine within its walls, it also failed to take an
active step in fixing the negligence committed. This renders PSI, not only vicariously liable for the negligence of Dr. Ampil under
Article 2180 of the Civil Code, but also directly liable for its own negligence under Article 2176. In Fridena, the Supreme Court of
Arizona held:
x x x In recent years, however, the duty of care owed to the patient by the hospital has expanded. The emerging trend is to hold the
hospital responsible where the hospital has failed to monitor and review medical services being provided within its
walls. See Kahn Hospital Malpractice Prevention, 27 De Paul . Rev. 23 (1977).
Among the cases indicative of the emerging trend is Purcell v. Zimbelman, 18 Ariz. App. 75,500 P. 2d 335 (1972). In Purcell, the
hospital argued that it could not be held liable for the malpractice of a medical practitioner because he was an independent
contractor within the hospital. The Court of Appeals pointed out that the hospital had created a professional staff whose
competence and performance was to be monitored and reviewed by the governing body of the hospital, and the court held that a
hospital would be negligent where it had knowledge or reason to believe that a doctor using the facilities was employing a
method of treatment or care which fell below the recognized standard of care.
Subsequent to the Purcell decision, the Arizona Court of Appeals held that a hospital has certain inherent responsibilities
regarding the quality of medical care furnished to patients within its walls and it must meet the standards of responsibility
commensurate with this undertaking. Beeck v. Tucson General Hospital, 18 Ariz. App. 165, 500 P. 2d 1153 (1972). This court has
confirmed the rulings of the Court of Appeals that a hospital has the duty of supervising the competence of the doctors on its staff. x
x x.
xxxxxx
In the amended complaint, the plaintiffs did plead that the operation was performed at the hospital with its knowledge, aid, and
assistance, and that the negligence of the defendants was the proximate cause of the patients injuries. We find that such general
allegations of negligence, along with the evidence produced at the trial of this case, are sufficient to support the hospitals liability
based on the theory of negligent supervision.
Anent the corollary issue of whether PSI is solidarily liable with Dr. Ampil for damages, let it be emphasized that PSI, apart from a
general denial of its responsibility, failed to adduce evidence showing that it exercised the diligence of a good father of a family in
the accreditation and supervision of the latter. In neglecting to offer such proof, PSI failed to discharge its burden under the last
paragraph of Article 2180 cited earlier, and, therefore, must be adjudged solidarily liable with Dr. Ampil. Moreover, as we have
discussed, PSI is also directly liable to the Aganas.
One final word. Once a physician undertakes the treatment and care of a patient, the law imposes on him certain obligations. In
order to escape liability, he must possess that reasonable degree of learning, skill and experience required by his profession. At the
same time, he must apply reasonable care and diligence in the exercise of his skill and the application of his knowledge, and exert his
best judgment.
WHEREFORE, we DENY all the petitions and AFFIRM the challenged Decision of the Court of Appeals in CA-G.R. CV No. 42062 and
CA-G.R. SP No. 32198.
Costs against petitioners PSI and Dr. Miguel Ampil.
G.R. No. L-32562 June 29, 1979
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. AURELIO CRISTOBAL, JR. Y SARMIENTO, VICENTE DUNCIL Y MACALINO, and
FLORENTINO VALERIO, JR. Y LAZARO, defendants-appellants.
Luis A. L. Javellana (Counsel de Oficio) for appellants.
Office of the Solicitor General for appellee.

MELENCIO-HERRERA, J.:
This is an automatic review of the Decision of the Circuit Criminal Court (Manila) in CCC-VI-628 imposing the death penalty on the
accused Aurelio Cristobal, Jr., Vicente Duncil and Florentino Valerio, Jr., who were found guilty of the crime of Robbery with
Homicide with the aggravating circumstances of nighttime, abuse of superior strength and craft, without any mitigating
circumstances to offset the same.
It has been established that on December 23, 1969, at about 1:00 o'clock in the morning, a hold-up occurred inside a passenger
jeepney driven by Melquiades San Jose. The jeepney was on its way from Malabon to Sta, Cruz, via Rizal Avenue. On the occasion of
the robbery, Dominador Villanueva, a special police officer of the Bureau of Customs, was stabbed and killed. The other victim,
Mario Fernandez, survived with a "punctured" wound on the chest.
One of the jeepney passengers, Mario Fernandez, narrated the incident in this manner: He boarded the passenger jeepney, which
had one passenger, Dominador Villanueva, at Pulong Duhat, Malabon, Rizal. Four passengers, namely, the accused Aurelio Cristobal,
Jr., Vicente Duncil, and Florentino Valerio, Jr., together with Canuto Pagaduan, boarded the jeepney near the Venus Hotel on Rizal
Avenue Extension. Then another passenger boarded the jeepney. The position of the occupants inside the jeepney was as follows:
an unidentified passenger and Valerio sat in the front seat beside the driver with Valerio sitting on the extreme right; on the left side
of the jeepney, behind the driver, were Pagaduan and the witness, Fernandez, and opposite them on the right side of the jeepney,
and behind Valerio, were Villanueva, Cristobal and Duncil, Villanueva being seated directly behind Valerio (Exhs. "I" and "M"). As the
jeepney passed the traffic light at the intersection of Aurora Blvd. and Rizal Avenue Extension, witness Fernandez was attracted by a
commotion inside the jeepney when the victim, Villanueva, transferred to the opposite seat directly behind the driver, because of an
attempt made by Duncil to grab his (Villanueva's) watch. Then, he saw Cristobal pulling a knife from the lower portion of the body of
Villanueva and, at the same time, Fernandez's watch was grabbed by Pagaduan. Cristobal likewise stabbed witness Fernandez on the
chest after which all the accused, together with Pagaduan, fled. Villanueva then moved in front of Fernandez and fired two shots at
the fleeing men. Villanueva asked to be brought to the hospital but he expired before they could reach the Jose R. Reyes Memorial
Hospital (JRRMH).
The foregoing testimony was corroborated in its essential details by the driver of the passenger jeepney, Melquiades San Jose. In
addition, the driver stated that after the jeepney had passed the Victory Liner Station in Rizal Avenue Ext., Valerio leaned outside
and kept looking towards the rear and he noticed the passengers at the back, who boarded together with Valerio, elbowing one
another. As the jeepney reached the intersection of Rizal Avenue and Samal Sts., Valerio told him to stop, and as the jeepney was
slowing down, Valerio stood on the running board, hung himself on the side of the jeepney and grabbed Villanueva, the passenger
seated behind him, by the waist. Villanueva immediately transferred to the opposite seat directly behind the driver, San Jose. As
Villanueva rested his left hand on the iron railing behind the front seat, Valerio reached for Villanueva's left hand, and another hand
grabbed Villanueva's wrist watch. The driver sped away and after the jeepney had traveled some six meters, Valerio and his
companions jumped out and ran away. He stepped on the brakes upon seeing Villanueva with blood on his chest. Villanueva then
drew his gun and fired two shots at the fleeing Valerio and his companions.
It appears that the security guard at the Jose R. Reyes Memorial Hospital reported the incident to the police. Upon being informed of
the incident, Patrolmen Cesar Arsaga, Rolando Macabejo and R. Casupanan proceeded to Rizal Avenue Extension. Upon reaching the
intersection of Abad Santos and Corregidor Sts., they spotted four persons trying to hide whenever a vehicle would pass. They
accosted the suspicious-looking persons. Arsaga was able to take hold of Duncil and Macabejo took hold of Pagaduan, while
Casupanan chased the other two but failed to apprehend them. Duncil was wearing a yellowish polo shirt with bloodstains. They
frisked both Duncil and Pagaduan and found in the possession of Pagaduan an Omega wrist watch with a broken bracelet. They
proceeded to the corner of Aurora Blvd. where the crime reportedly took place, which was three or four blocks away from the place
of apprehension. As no one present there could give any information about the incident, they proceeded to the JRRMH to interview
Fernandez. Fernandez failed to Identify Duncil and Pagaduan but claimed as his the wrist watch taken by the police from Pagaduan.
Duncil and Pagaduan were then brought to the police headquarters for investigation. At the investigation, Duncil and Pagaduan
Identified Cristobal and Valerio as their companions and informed the police of their whereabouts. Cristobal was thus apprehended
at about 5:00 o'clock in the morning of December 23, 1969 at No. 2981 Bagag, Corner Morong, Manuguit Subdivision, Tondo,
Manila. Cristobal readily admitted his participation in the crime and a Seiko watch was found in a pocket of his pants. From
Cristobal's abode, the police proceeded to Valerio's place at the squatter's area at the back of Greenfield Motel on Abad Santos,
Tondo, Manila. Valerio voluntarily went with them. Cristobal and Valerio were then brought to police headquarters for investigation.
At the investigation conducted by Cpl. Brigido de Leos, the four accused gave statements essentially as follows:
1. Vicente Duncil — that at about l:00 o'clock in the morning of December 23, 1969, he, Junior Canuto (Canuto Pagaduan), Nestor
Bangkala (Aurelio Cristobal), and Junior Valerio boarded a passenger jeepney at 3rd Avenue, Grace Park, Caloocan City, on their way
home to Manuguit, after a drinking session at International Cabaret. Suddenly, a commotion took place inside the jeepney and he
immediately jumped out and ran towards Abad Santos St. where he was apprehended by the police. Before his apprehension, he
saw Junior Canuto, Nestor Bangkala and Junior Valerio running after him. He noticed Nestor Bangkala (Aurelio Cristobal) holding a
knife with blood on it, who told him that he (Cristobal) had stabbed someone. He also saw Junior Canuto (Canuto Pagaduan) holding
a watch. (EXH "H")
2. Canuto Pagaduan — that at about 1:00 o'clock in the morning of December 23, 1969, he saw one Nestor (Aurelio Cristobal) at 3rd
Avenue, Grace Park, Caloocan. He was asked by Nestor to join him and his two companions, whom he (Pagaduan) did not know, in
their plan to stage a hold-up. They boarded a passenger jeepney and at the intersection of Rizal Avenue and Samal Sts., they asked
the driver to stop the vehicle and he grabbed an Omega wrist watch of a passenger seated in front of him and he immediately
thereafter jumped out and ran away. He met his companions at the corner of Abad Santos and Corregidor Sts. When he saw
policemen chasing them, he threw the watch to the ground. He did not know about the stabbing incident inside the jeepney. (Exh.
"I")
3. Aurelio Cristobal, Jr. — that on Monday evening, he, Junior Valerio, Junior Canuto and Enteng planned on robbing jeepney
passengers of their wrist watches. They boarded a jeepney and at the intersection of Rizal Avenue and Samal Sts., Valerio told the
driver to stop the vehicle. He snatched a Seiko wrist watch from one of the passengers and stabbed him when the latter kicked him
on his right thigh. Junior Canuto likewise snatched a wrist watch from another passenger, whom he (Cristobal) also stabbed. The
knife used by him in stabbing was a knife used for cutting. He threw the knife at Samal Street. The police recovered the wrist watch
snatched by him from the left pocket of his pants. (Exh. "F")
4. Florentino Valerio, Jr. — that Nestor Bangkala alias Aurelio Cristobal, suggested to him, Junior Kulot (Canuto Pagaduan) and
Vicente Duncil that they ride a passenger jeepney and stage a hold- up. They boarded a jeepney at 3rd Avenue, Grace Park. He sat in
front, Nestor sat at the right rear side, while Junior Kulot (Canuto Pagaduan) and Duncil sat at the left rear side. Nestor had with him
a knife. Junior Kulot snatched the wrist watch of a passenger. Another passenger resisted and was stabbed by Nestor (Cristobal).
After the stabbing, all of them ran away. The incident occurred at 1:00 o'clock in the morning of December 23, 1969. He Identified
the Seiko and Omega watches as the ones snatched by them from the passengers. (Exh. "G")
Accordingly, Cristobal, Duncil Valerio and Pagaduan were charged with the crimes of 1) Robbery, docketed as CCC-VL627, for having
allegedly conspired together in taking away an Omega wrist watch valued at P600.00 by the use of violence upon the person of
Mario Fernandez, and 2) Robbery with Homicide, docketed as CCC-VI-628, for having allegedly conspired together in taking away a
Seiko wrist watch valued at P180.00 belong to Dominador Villanueva and, on the occasion of said robbery, for having stabbed the
latter on the chest with a "balisong" knife causing his death.
Before the trial of the two cases started, Pagaduan withdrew his previous plea of not guilty to the crime of Robbery in CCC-VI-627,
and substituted it with a plea of guilty. The imposition of the sentence upon Pagaduan in said case was, however, deferred until
after joint trial on the merits of the two cases.
Each of the accused testified in his own defense as follows:
1. Canuto Pagaduan, Jr. — that at about 10:00 o'clock in the evening of December 23 (should be 22) 1969, he was alone in front of
the old Avenue Dancing School between 3rd and 4th Avenue, Caloocan City, thinking of grabbing a watch from somebody; that at
about midnight, he boarded a jeepney; that on 3rd Avenue, the other three accused, whom he did not know, boarded the jeepney;
that he grabbed the watch of Mario Fernandez, a passenger in the jeepney, after which he immediately jumped out of the jeepney
and ran; that he did not know of any commotion inside the jeepney; that he ran towards Abad Santos Street; that after running a
distance of two electric posts, he heard two shots and when he looked back he saw persons, whom he thought were chasing him, so
he ran faster; that after running halfway through Abad Santos Street, he let the persons running behind him pass and he crossed the
street; that a police mobile car passed and he was arrested by a policeman; that he threw the watch he grabbed from Fernandez to
the ground; that another person whom he did not know was likewise arrested by the police; and that he knew nothing about his
alleged statement, Exhibit "1", which he signed only when he could no longer endure the bodily harm inflicted on him by the police.
He admitted having tatoo marks "Sigue-Sigue Sputnik" on his right hip. 1
2. Vicente Duncil — that at about 10:00 o'clock in the evening of December 22, 1969, he and his co-accused Florentino Valerio, Jr.
went to the International Cabaret where they stayed for two hours; that at about midnight, they boarded a jeepney at the corner of
Rizal Avenue Extension and 3rd Avenue; that there were five passengers inside the jeepney; that he sat at the back while Valerio sat
in front; that when the jeepney reached Aurora Boulevard, a commotion occurred inside the j jeepney and he immediately got out
of the jeepney and ran towards Abad Santos Street; that upon reaching the corner of Abad Santos and Corregidor Streets, a mobile
patrol car passed by and he was stopped by two policemen; that he was brought to Precinct No. 1 where he was investigated; that
the answers appearing in his statement (Exh. "H") were not given by him but were prepared by the police who forced him to sign the
same; that he did not grab the watch of Villanueva as, in fact, nothing was recovered from him by the police; that no blood stains
were found on his shirt when he was apprehended; and that he does not know his co-accused Cristobal and Pagaduan. He admitted
having tatoo marks "Sigue-Sigue Sputnik" on his right thigh. 2
3. Florentino Valerio — corroborated the testimony of Duncil stating that when he noticed a commotion inside the jeepney, he
likewise got out and ran towards Pampanga Street; that he was apprehended by the police at his residence in the early morning of
December 23, 1969 and was brought to Precinct No. 1 where he was maltreated; that he had nothing to do with his alleged
statement, Exh. "G", which he was made to sign; that he did not ask the jeepney driver to stop his vehicle before reaching the traffic
signal lights at Aurora Boulevard; and that he did not stand on the running board to grab Villanueva by the waist. He admitted
having tatoo marks "Sigue-Sigue Sputnik" on his lower back torso. 3
4. Aurelio Cristobal, Jr. — denied having given a voluntary statement (Exh. "F") to Pat. Brigido de Leos stating that the police
investigators were the ones who supplied the names of Valerio, Duncil and Canuto and claimed that no knife was found in his
possession upon his apprehension by the police. He admitted having on his right knee tatoo marks "Sigue-Sigue Sputnik." 4
On May 30, 1970, the Circuit Criminal Court rendered judgment, dispositively stating:
WHEREFORE, judgment is hereby rendered as follows:
A. IN CCC-VI-627:
(1) Finding accused Canuto Pagaduan, Jr y Sueco guilty beyond reasonable doubt as principal of the crime of robbery, and there
being proved the mitigating circumstance of plea of guilty, without any aggravating circumstance of plea of guilty, without any
aggravating circumstance to offset the same, the court sentences him to an indeterminate penalty ranging from one (1) year and
one (1) day of prision correccional as minimum to five (5) years and one (1) day of prision correccional as maximum;
(2) Finding accused Aurelio Cristobal, Jr. y Sarmiento guilty beyond reasonable doubt as principal of the crime of robbery and there
being proved the aggravating circumstances of nighttime and craft without any mitigating circumstance to offset the same, the court
sentences him to an indeterminate penalty ranging from four (4) years and two (2) months of prision correccional as minimum to
ten (10) years of prision mayor as maximum;
(3) Acquitting Florentino Valerio, Jr. y Lazaro and Vicente Duncil of the crime of robbery for failure of the prosecution to prove their
guilt beyond reasonable doubt, with costs de oficio;
(4) No pronouncement as to the civil liability it appearing that the watch (Exhibit 'E') had been recovered which is hereby ordered
returned to the victim, Mario Fernandez; and
(5) Accused Canuto Pagaduan, Jr. and Aurelio Cristobal, Jr. to pay proportionately the costs.
B. IN CCC-VI-628:
(1) Finding accused Aurelio Cristobal, Jr. y Sarmiento, Vicente Duncil and Florentino Valerio, Jr., guilty beyond reasonable doubt as
principals of the crime of robbery with homicide and there being proved the aggravating circumstances of nighttime, abuse of
superior strength and craft without any mitigating circumstance to offset the same, the court sentences each one of them to DEATH,
to jointly and severally indemnify the heirs of the deceased Dominador Villanueva the sum of P12,000.00 for the death of the
deceased; the sum of P10,000.00 for moral damages and P10,000.00 for exemplary damages;
(2) Acquitting Canuto Pagaduan, Jr. of the crime of robbery with homicide for failure of the prosecution to prove his guilt beyond
reasonable doubt, with costs de oficio;
(3) No pronouncement as to the civil liability it appearing that the wrist watch (Exhibit 'F-l') had been recovered which is hereby
ordered returned to the heirs of the deceased Dominador Villanueva; and
(4) Accused Aurelio Cristobal, Jr., Vicente Duncil and Florentino Valerio, Jr. to proportionately pay the costs.
Atty. Amado de la Merced is hereby awarded an attorney's fees of P500.60 in the two cases as counsel de oficio for accused Canuto
Pagaduan, Jr.
SO ORDERED.5
Before us, Cristobal, Duncil and Valerio, in Criminal Case No. CCC-VI-628 have come forth with these
ASSIGNMENTS OF ERROR:
The lower court erred in —
1. Finding that the Seiko watch (Exh. F-1) was the watch that was snatched from the deceased Dominador Villanueva.
2. Finding that the accused-appellant Vicente Duncil robbed the deceased Dominador Villanueva of his (Villanueva's) watch.
3. Finding that the accused-appellant Aurelio Cristobal jr. stabbed the deceased Dominador Villanueva.
4. Admitting the alleged confessions of the accused-appellants (Exhibits F, G, and H) and giving them undue weight.
5. Finding the accused-appellants guilty of robbery with homicide beyond reasonable doubt.
6. Finding that the aggravating circumstances of nighttime and abuse of superior strength attended the commission of the offense.
7. Finding that the accused-appellants had intimidated the witnesses Mario Fernandez and Melquiades San Jose.
We shall discuss the assigned errors in seriatim.
1. The accused claim that no evidence was presented by the prosecution to the effect that the Seiko watch (Exh. "F-1"), found in the
possession of Cristobal when he was apprehended, belonged to and was snatched from Dominador Villanueva.
The same is without merit. Melquiades San Jose, the jeepney driver, testified that after Villanueva changed seats, Valerio held
Villanueva's left hand which was resting on the iron railing behind the front seat, and that another hand snatched Villanueva's wrist
watch.' Moreover, in his extrajudicial confession (Exh. "F"), Cristobal Identified the Seiko watch as the one which he had grabbed
from a passenger in the jeepney. While it may be that Cristobal assails the validity of his extra-judicial confession on the ground that
the same was not given voluntarily, however, he did not deny the fact that a Seiko watch was recovered from him at the time of his
apprehension.
But the accused would further impugn the testimonies of the eye-witnesses, Melquiades San Jose and Mario Fernandez, in that San
Jose could not have seen definitive about the actuations of Valerio as he (San Jose) was driving the jeepney and his eyes must have
been fully focused to the front, and considering that the actuation of Valeriano in stepping on the running board of the jeep and at
the same time grabbing the waist of Villanueva was apparently not noticed by Fernandez.
We attach no significance to the foregoing. Proof that the Seiko watch belonged to Villanueva is shown by the Identification made by
accused Cristobal and Valerio, in their confession, (Exhs. "F" and "G") of the Seiko watch which was snatched by them from a
passenger in the jeepney. This was corroborated by San Jose and Fernandez who testified that the deceased Villanueva had a watch
on his left wrist and which was snatched from him. That Fernandez did not notice the actuations of Valerio prior to the actual
snatching must have been due to the fact that he was not then looking in the direction of Valerio as he noticed the commotion only
when Villanueva changed seats. 7 On the other hand, San Jose could have easily observed the actuations of Valerio as the latter was
seated in front, so that when Valeriano leaned outward and looked at his companions seated at the back and who elbowed one
another, he (San Jose) already became suspicious. 8 Having become suspicious of Valerio and his companions, San Jose must have
then been silently observing their actuations, which must not have been noticed by Fernandez, who was seated on the extreme left
rear side.
2. The accused claim that the trial Court resorted to inference unsupported by evidence when it concluded that Duncil was the one
who grabbed the watch of Villanueva considering the following:
a) Melquiades San Jose merely testified that he saw a hand snatch Villanueva's wrist watch but did not Identify it to be the hand of
Duncil b) Mario Fernandez only witnessed the attempt made by Duncil to grab the watch of Villanueva but not the actual taking of
said watch; (c) as appearing in the sketch showing the seating arrangement of the passengers in the jeepney (Exhs. "M" & "I"), Duncil
was seated at the extreme rear on the right side of the jeepney so that for him to have grabbed the watch of Villanueva after the
latter transferred to the left side of the jeep immediately behind the driver, required that he reach across the full length of the
jeepney; (d) the watch was not recovered from Duncil although he was apprehended almost immediately after the incident; (e)
Cristobal, whose statement (Exh. "F") was given full credence by the trial Court, declared that he was the one who snatched the
watch of Villanueva; and (F) Fernandez was not able to Identify Duncil when the latter was brought before him for confrontation at
the hospital nor was he able to pinpoint Duncil as the one who grabbed the watch of Villanueva in his statement given, to the police
(Exh. "E") only a few hours after the incident.
As found by the trial Court, however, there was conspiracy among Cristobal, Duncil and Valerio to rob Villanueva. It is a cardinal
principle that where there is conspiracy, the act of one is the act of all It then makes no difference as to who among the three
accused did the actual grabbing of the watch of Villanueva. The fact that Duncil was seated farthest from Villanueva could not have
prevented the former from grabbing the latter's watch as he (Duncil) could have moved directly in front or by the side of Villanueva.
Likewise, the, fact that the police was not able to recover the watch from Duncil upon his apprehension could have only meant that
he had passed the same to Cristobal, from whom the watch was ultimately recovered. Anent the alleged failure of witness
Fernandez to identify Duncil in the hospital, this could be attributed to the fact that Fernandez was in pain because of the wound he
had received on his chest, although Fernandez did identify Duncil in open Court. 9
3. The accused assail the findings or the trial Court that Villanueva was stabbed by Cristobal on the basis of the testimony of witness
Fernandez which, they claim, was replete with inconsistencies and uncertainties in substantial matters as to be unworthy of
credence, to wit: (a) Fernandez testified that he saw Cristobal in the act of pulling out a knife from the lower part of the body of
Villanueva, somewhere in the abdomen, when the death certificate shows that Villanueva sustained a stab wound on the chest (Exh.
"C") (b) Fernandez declared in his statement (Exh. "J") that the person who took his watch was also the one who stabbed him,
meaning Cristobal, whereas at the trial, he stated that the one who grabbed his watch was Canuto Pagaduan and his allegation that
he made the statement during the investigation because he was confused and he wanted to go home already; (c) Fernandez
declared that Cristobal, together with Duncil was presented to him at the hospital for Identification when the truth is that it was
Pagaduan, together with Duncil who was brought by the police to the hospital.
Again, we find no merit in the foregoing contention. The fact that Fernandez was mistaken with regard to the part of the body where
Villanueva was stabbed does not affect his main testimony to the effect that Villanueva was stabbed by Cristobal, considering that
the incident was a startling one and must have transpired very fast. Moreover, Cristobal did not deny the imputations made by
Fernandez in his regard but merely claimed that his statement (Exh. "F") was not given by him voluntarily and that it was the police
who supplied the names of Valerio, Duncil and Canuto appearing therein. 10 Regarding Fernandez' statement as to the Identity of the
person who grabbed his watch, he explained that he thought that the person (Cristobal) who stabbed him was also the one who
grabbed his watch because his attention was on the knife and that the stabbing and grabbing took place almost at the same
time. 11 Besides, considering the conspiracy among the accused, the exact participation of each becomes of minimal importance.
The error of Fernandez in stating that Cristobal, together with Duncil was brought by the police to the hospital whereas Pat. Arsaga
declared that it was Pagaduan, together with Duncil whom they brought to the hospital for Fernandez to identify them, is not such
as to destroy the credibility of Fernandez' testimony in respect of the robbery itself.
4. In support of their argument that their confessions (Exhs. "F", "G", and "H") were not voluntarily given, the accused capitalize on
the statement in the police report (Exh. "K") that Duncil and Pagaduan were subjected to "relentless questioning," as, in fact, their
statements were taken several hours after their apprehension, and the failure of Pat. Brigido de Leos to properly state the order in
which the accused and witness Fernandez were investigated. However, the fact that the investigation of the accused was conducted
in a relentless manner in no wise implies the employment of coercion or improper methods on them as to make their confessions
involuntary. Moreover, while the accused insist that these statements were prepared by the police investigators and that they were
forced to sign the same, yet, they did not explain the nature of the maltreatment suffered by them in the hands of the police
investigators other than Valerio's allegation that he was boxed by a corporal who was a big man. 12Thus, the trial Court correctly
observed:
Valerio, Cristobal and Duncil likewise denied that their respective statements were voluntarily given. As has been said before,
however, their testimonies on this score, were given in a timid and hesitant manner which do not generate any belief at all
Furthermore, had it been the intention of the police to implicate all these three accused in this heinous crime of robbery with
homicide, then the statement of Duncil (Exhibit 'H') would also contain admission of his participation. But the fact that Duncil did not
like to give a statement inculpatory to him but allowed to give a statement negating his liability shows that it is not the desire of the
police to get statements from the accused thru force or intimidation. It is also worthwhile to note that the statement of Cristobal
contained details which could have been known to him alone and for which the police could not be much interested like for
example, the breaking into three pieces of the bracelet of the watch; the throwing of the knife at Samal Street; that the knife is used
for cutting; that the watch was taken from his pants and that one of those persons whom he robbed kicked him on his hip which
caught him by surprise and that is the reason why he stabbed him. The statement of Valerio likewise contained details that he
decided to stay in the front seat; that Nestor was the one who carried a bladed instrument and that one passenger fought back, and,
therefore, stabbed by Nestor and they all ran away. Settled is the rule that where the confession is rich in details about which the
police authorities could not be much interested and which could have been known to the declarant alone, the conclusion is that no
pressure was brought to bear on the appellants and their admissions were voluntary (People vs.Baquiño alias Mirong, G.R. No. L-
390, Phil. March 5, 1961 ).
As to the failure of Pat. de Leos to correctly state the order in which the accused were investigated, the same does not imply
involuntariness on the part of the accused, nor is it of crucial importance. Said police officer could not be expected to remember
such a minor detail after more than a month from investigation.
5. In finding the accused guilty of the crime of Robbery with Homicide, the trial Court made the following observations:
... From the testimony of Fernandez and San Jose, it is clear that the persons who helped one another in robbing Villanueva were
Cristobal Duncil and Valerio. Apparently, to rob Villanueva, the intention of Valerio was to pin him down first in his seat, hence, he
grabbed his waist, but he failed, as Villanueva was able to transfer to the opposite seat. Valerio still grabbed Villanueva's hand but
failed again, At this precise moment, Duncil grabbed the wrist of Villanueva and that was the hand seen by San Jose in midair with a
bracelet. But since Villanueva was offering resistance Cristobal stabbed him. The aforesaid concerted actions of these said three
accused in robbing Villanueva show that there was conspiracy among the three persons to rob him. The fact that these three
accused boarded the jeepney together and ran away together after the happening of the incident with one Canuto Pagaduan
strengthen again the conclusion that there was conspiracy among them. Besides, the statements (Exhibits 'F' and 'G') of the two
accused, Valerio and Cristobal, show that they conspired to rob and that they actually participated in robbing Villanueva. The fact
that Cristobal, Valerio and Duncil are an members of the 'Sigue-Sigue Sputnik' as shown by the tatoo on their bodies gives additional
weight to the conclusion that there was conspiracy among them. 13
Indeed, the infallible earmarks of a conspiracy are present. All the accused were together in the evening of December 22, 1969,
having a drinking session at the International Cabaret on 3rd Avenue, Grace Park, Caloocan City. On their way home at about one
o'clock in the morning of the following day, they decided to stage a hold-up. They hoarded a passenger jeepney at the same time.
Valerio, who sat in front, leaned outside and kept looking at his companions who were seated at the back. After Villanueva
transferred seats and rested his left hand on the iron railing behind the front seat, Valerio reached for Villanueva's hand, whereupon
Duncil grabbed Villanueva's wrist watch and Cristobal stabbed Villanueva. Immediately thereafter, they all jumped out of the
jeepney and ran. They were still together when spotted by policeman trying to hide whenever a vehicle would pass, at the
intersection of Abad Santos and Corregidor Sts., about three or four blocks away from the scene of the crime. Significant is it also to
recall that it was information furnished to the police by Pagaduan and Duncil themselves that led to the apprehension of Valerio and
Cristobal. In other words, the conduct of the accused before, during and after the commission of the crime clearly shows that they
acted in concert. 14 Moreover, the fact that all three accused are members of the "Sigue-Sigue Sputnik" gang, as evidenced by tatoo
marks on their bodies, strengthens a finding of community of design among them The trial Court, therefore, correctly rejected the
claim of Duncil and Valerio denying participation in the robbing of Villanueva alleging that they immediately got out of the jeepney
and ran away when a commotion broke out inside the jeepney.
The accused, Valerio and Duncil further urge that inasmuch as the stabbing of Villanueva a was not part of the conspiracy to rob him,
they can not be held to answer for the death of Villanueva, citing People vs. Pelagio, 15wherein it was held that "where the appellant
conspired to commit robbery and he acted as lookout during the commission of the robbery, but after the robbery was
consummated and as the other conspirators were leaving the scene of the crime (and the lookout himself had fled they encountered
a policeman, whom they killed, the lookout is guilty only of robbery with intimidation and not of robbery with homicide."
It is apparent, however, that the factual situation therein described is essentially dissimilar from the case at bar. Herein, both Valerio
and Duncil were still inside the jeepney when Cristobal stabbed Villanueva, who resisted the grabbing of his watch by Duncil as his
(Villanueva's) left hand was held by Valerio. Applicable to the accused, therefore, is the rule that where the conspiracy to commit
robbery is conclusively shown by the concurrent and coordinate acts of the accused, and homicide is committed as a consequence
or on the occasion of the robbery, all of the accused are guilty of robo con homicidio, whether or not they actually participated in the
killing, 16 unless it appears that they endeavored to prevent the homicide. 17 As the homicide was committed by reason or on the
occasion of the robbery, and there being conspiracy among the accused, each one of them is liable for the crime committed by
anyone of them, regardless of the degree of their respective participation in the execution of the act. 18
In order to determine the existence of the crime of robbery with homicide, it is enough that a homicide would result by reason or on
the occasion of the robbery and it is immaterial that the death would supervene by mere accident provided that the homicide be
produced by reason or on occasion of the robbery inasmuch as it is only the result obtained, without reference or distinction as to
the circumstances, causes, modes or persons intervening in the commission of the crime, that has to be taken into consideration. 19
6. We agree with the accused that the trial Court erred in considering nighttime as an aggravating circumstance inasmuch as the
conspiracy to commit robbery was conceived only shortly before its commission. 20 It appears from the extrajudicial statements of
the accused that they decided on the commission of the robbery only when they were on their way home at about one o'clock in the
morning after a drinking session at International Cabaret at 3rd Avenue, Grace Park, Caloocan It is thus clear that nighttime was not
especially sought for, considering further the fact that the jeepney, where the robbery took place was wellighted. 21 The fact that the
offense was commited at night will not suffice to establish "nocturnidad." 22
Neither do we find that the accused took advantage of superior strength. For, to do so means "to use purposely excessive force out
of proportion to the means of defense available to the person attacked (Albert)." 23 This essential element is absent herein. The
stabbing of Villanueva by Cristobal was precipitated only because Villanueva kicked Cristobal and resisted the hold-up. In the
stabbing, the accused did not cooperate in such a way as to secure advantage from their combined strength. While in the
commission of the robbery, it was not superior strength that the accused took advantage of but dexterity and speed. The mere fact
of superiority of numbers is neither sufficient to bring the case within this provision. 24 The accused must take advantage of it.
The aggravating circumstance of craft, however, must be held to be present as the accused pretended to be bona fide passengers of
the jeepney order not to arouse the suspicion of the other passengers. 25
7. Anent the statement of the trial Court regarding the alleged intimidation by the accused on witnesses Fernandez and San Jose,
suffice it to say that said circumstance had nothing to do with their conviction. The guilt of the accused beyond reasonable doubt
has been proven independently of such circumstance.
The penalty for the crime of Robbery with Homicide is reclusion perpetua to death under Article 294(l) of the Revised Penal Code.
The commission of the offense was attended by the aggravating circumstance of craft which is not offset by any mitigating
circumstance. In consonance with Article 63(l) of the same Code, the accused should be sentenced to the capital punishment.
However, as the required number of votes for the imposition of the capital penalty has not been obtained in this case, the penalty to
be imposed is the next lower in degree or reclusion perpetua. 26
WHEREFORE, as thus modified, the judgment appealed from, in Criminal Case No. CCC-VI-628, being in accordance with law and the
evidence, is hereby affirmed.
Costs against accused-appellants.
SO ORDERED.
G.R. No. 163437
ERNESTO PIDELI, Petitioner, - versus - PEOPLE OF PHILIPPINES,
Respondent. February 13, 2008
DECISION
REYES, R.T., J.:
ON appeal via petition for review on certiorari under Rule 45 is the Decision[1] of the Court of Appeals (CA), affirming that[2] of the
Regional Trial Court (RTC) in BaguioCity, convicting petitioner Ernesto Pideli of theft in the amount of P49,500.00 belonging to his
brothers business partner. The appeal zeroes in on the questions of ownership, unlawful taking and intent to gain. In short, is
it estafa or theft?
The Facts
Sometime in March 1997, Placido Cancio (Placido) and Wilson Pideli (Wilson) entered into a verbal partnership agreement to
subcontract a rip-rapping and spillway project at Tongcalong, Tinongdan Dalupirip Road, Itogon, Benguet. Placido and Wilson agreed
to undertake the project in favor of ACL Construction (ACL), the contractor awarded the development project by the Department of
Public Works and Highways.[3]
Petitioner Ernesto Pideli (petitioner), brother to Wilson and neighbor and friend to Placido, offered the duo the use of his credit line
with the Mt. Trail Farm Supply and Hardware (MTFSH) in La Trinidad, Benguet. Petitioner was an employee of the Provincial Planning
and Development Office of Benguet, likewise based in La Trinidad. With the said arrangement, Wilson and Placido, with the
assistance of petitioner, were able to secure an assortment of construction materials for the rip-rap and spillway contract.[4]
On November 17, 1997, after the completion of the project, ACL summoned all its subcontractors to a meeting. Placido, Wilson and
petitioner were in attendance. At the meeting, ACL management informed Placido and Wilson that the final payment for the work
that they have done would be withheld. It was learned that they failed to settle their accountabilities with the MTFSH. [5]
Placido, Wilson and petitioner made representations with the accountable ACL personnel, a certain Boy Candido, to facilitate the
release of their payment. They assured Boy that the matter of the unpaid obligations to MTFSH has been resolved. Boy acceded to
the request and proceeded to release the final payment due to Placido and Wilson, amounting to P222,732.00.[6]
Consequently, Placido, Wilson and petitioner computed their expenses and arrived at a net income of P130,000.00. Placido, as
partner, claimed one-half (1/2) or P65,000.00 of the net amount as his share in the project. Petitioner, however, advised the two to
first settle their accountabilities for the construction materials taken from the hardware store.Placido and Wilson did as told and
entrusted the full amount to petitioner, with express instructions to pay MTFSH and deliver the remaining balance to them.[7]
The following day, or on November 18, 1997, Placido attempted but failed to contact petitioner. He had hoped to obtain his share of
the partnership income. Placido got hold of petitioner the next morning. Unexpectedly, petitioner informed Placido that nothing was
left of the proceeds after paying off the supplier.[8] Despite repeated demands, petitioner refused to give Placido his share in the net
income of the contract.[9]
Alarmed over the sudden turn of events, Placido lodged a complaint for theft against petitioner Ernesto Pideli. Eventually, an
Information bearing the following allegations was instituted against petitioner:
The undersigned accuses ERNESTO PIDELE (sic) of the crime of THEFT, committed as follows:
That on or about the 17th day of November, 1977, in the City of Baguio, Philippines, and within the jurisdiction of this Honorable
Court, the above-named accused, with intent of gain (sic) and without the knowledge and consent of the owner thereof, did then
and there willfully, unlawfully and feloniously take, steal and carry away, cash money in the amount of P65,000.00, belonging to
PLACIDO CANSIO (sic) y TALUKTOK, to the damage and prejudice of the owner thereof in the
aforementioned amount of SIXTY-FIVE THOUSAND PESOS (P65,000.00), Philippine Currency.
CONTRARY TO LAW.[10]
Upon arraignment, petitioner pleaded not guilty to the charge. Then, trial on the merits ensued.
The evidence for the People portraying the foregoing facts was supplied by private complainant Placido, the lone prosecution
witness.
Petitioners defense founded on denial is summarized by the trial court as follows:
Ernesto Pideli, 43 years old, married, government employee and a resident of Km. 4, La Trinidad, Benguet. He is a government
employee at the Provincial Planning and Development Office, Capitol, La Trinidad, Benguet. He was first employed at the Provincial
Engineers Office on April 11, 1978. Sometime in 1980, he was appointed as Project Development Officer of the Provincial Planning
and Development Office and continuously up to the present.
Wilson Pideli is his brother. In 1997, his brother Wilson had a construction project along Tinongdan, Itogon, Benguet. His brother
asked him if he knows of a hardware which can extend him credit for construction materials. He approached the manager of Mt.
Trail Farm Supply and Hardware, Mrs. Editha Paayas, who then said that they could extend credit to his brother. As of 1997, his
brother owed the hardware the amount of P279,000.00 for the construction materials supplied by the hardware, namely:
reinforcement bars, cement, tire wires and other construction materials. This amount was paid to the hardware by installment. The
first installment was paid in June 1997 when the main contractor paid his brother. His brother gave him P179,000.00 at his residence
and he was the one who paid the hardware which issued him a receipt (Exhibit 1-C). After the project was completed, his brother
gave him P100,000.00 on November 18, 1997 while he, his brother and Placido Cancio were at the Rose Bowl Restaurant. He went
to the hardware but the manager was not there. One of the staff then informed him that the manager will still have to compute the
interest of their loan credit and so he deposited P75,000.00 which was covered by a receipt (Exhibit 1-B). Their account was finally
computed in December 1997 and so he paid their balance of P25,000.00. All in all, he paid the hardware the amount of P279,000.00.
When his brother tendered to him the P100,000.00 at the Rose Bowl Restaurant, Placido Cancio was also there discussing the
expenses. The money which his brother got from the main contractor, Boy Cupido, the partner of the late Engineer Lestino, was
being held by his brother and not Placido Cancio.
The total cost of the materials taken by his brother from the Mt. Trail Farm Supply is P279,000.00. On June 10, 1997, he paid the
initial payment of P179,000.00 covered by Exhibit 1-C issued by the sales boy Cris. The second partial payment was made
on November 18, 1997 in the amount of P75,000.00 covered by Exhibit 1-B issued by Mrs. Editha Paayas. The last time that he paid
was on December 18, 1997 in the amount of P25,000.00. This was not yet the full payment because according to Mrs. Paayas she
still has to compute for the interest. (TSN, May 2, 2000, pp. 19-20). Aside from the amount of P279,000.00 representing the
materials taken by his brother, he still has an outstanding account with Mt. Trail Farm Supply charged in his name. This is the reason
why in the receipt it was noted as part payment (TSN, May 2, 2000, p. 21).
On cross-examination, Ernesto Pideli said that he was never a partner of his brother. It was only in 1997 that his brother sought his
assistance to look for a hardware where he can buy construction materials on credit. All materials ordered by Wilson for the project
were placed in his account because it was easier for the hardware to contact him at their office which is nearer.After the project in
Itogon, Wilson stopped his construction project. He denies having taken the P65,000.00. He does not also know where the amount
went (TSN, May 2, 2000, p. 18).
On redirect, he said that when he tendered the first payment of P179,000.00, a statement of account was prepared by the salesboy
of Mt. Trail Farm Supply and Hardware (Exhibit 1-D). He was furnished a copy of the statement of account. After the first and second
payment, other materials were obtained by his brother, this is the reason why they still have a balance of P20,000.00 to be settled
within the hardware.[11] (Underscoring supplied)
RTC and CA Dispositions
On March 13, 2001, the RTC handed down a judgment of conviction, disposing in this wise:
WHEREFORE, the guilt of the accused having been proven beyond reasonable doubt, judgment is hereby rendered CONVICTING the
accused of the crime of theft and hereby sentences him after applying the Indeterminate Sentence Law, to suffer imprisonment
from 4 years of prision correccional medium as minimum, to 12 years of prision mayor maximum as maximum (applying Art. 309(1)
of the Revised Penal Code) and to reimburse the private complainant the amount of P49,500.00 plus interest thereon at the rate of
6% per annum from date of filing of the complaint up to the time it is actually paid.
Costs against the accused.
SO ORDERED.[12]
In convicting petitioner of theft, the trial court ratiocinated:
x x x Upon evaluation of the testimonies of the witnesses, the court finds the lone testimony of the private complainant more
credible than the testimony of the defense witnesses. The testimony of the private complainant is positive and credible, sufficient to
sustain a conviction even in the absence of corroboration. The testimony of defense witness Wilson Pideli was glaringly inconsistent
and contradictory on material points. At the initial stages of his (Wilson Pideli) testimony on direct examination, he categorically
stated that it was he and his laborers who implemented the project (rip rap project along Dalupirip Road, Itogon, Benguet) awarded
to him by ACL Construction. The private complainant had no participation in the project (TSN, October 18, 1999, pp. 9-10). Later, in
his narration of what actually transpired between him, his brother Ernesto Pideli and private complainant at the Rose Bowl
Restaurant on November 17, 1997, he said that after computing their expenses, he entrusted to the private complainant the
following amounts: 1. P15,000.00 to be given by the private complainant to the laborers who excavated for the project; 2. P500.00
to be given by the private complainant to Mr. Apse as payment for the cement test; 3. P10,500.00 because he (private complainant)
was pestering him (TSN, October 18, 1999, pp. 14-16). The question is, if the private complainant had no real participation in the
project subject of this case, why would Wilson Pideli be entrusting such amounts to the former. If really private complainant has no
involvement whatsoever in the project, why was he present at the: 1. Mido Restaurant where Josephine Bentres was disbursing final
payments to the subcontractors of the project, and 2. At the Rose Bowl Restaurant when the Pideli brothers were computing the
expenses incurred in the project and also presenting his list of expenses (Exhibit B, Exhibit 2). Later, in his testimony on direct,
Wilson Pideli said that when he started the project, private complainant asked him to join him and he (Wilson Pideli) agreed
provided the private complainant share in the expenses. Private complainant did not, however, share in the expenses nor did he
provide any equipment (TSN, October 18, 1999; p. 13) yet he entrusted the aforementioned amounts to Cancio. On cross-
examination, Wilson Pideli admitted that he gave private complainant P10,500.00 despite the fact that he did not share in the
expenses for the implementation of the project (TSN, November 22, 1999, pp. 5-6). Such act is abnormal and contrary to human
behavior and experience. The only plausible and logical conclusion is, private complainant and Wilson Pideli were partners in a joint
venture. Just as private complainant did, in fact, stated, he was the one who provided the laborers and some equipments used in the
project. Thus, it is only logical that the money for the payment of the wages and the cement test were entrusted to him because it
was his responsibility/obligation to pay them and not because they were his neighbors as the defense would like this court to
believe. The reason propounded by Wilson Pideli to explain his actuations is too flimsy for this court to believe. Furthermore, Wilson
Pideli admitted on cross that while the case was filed by private complainant against his brother Ernesto Pideli, he submitted an
affidavit with the Office of the City Prosecutor of Baguio City. In Paragraph 1 of the said affidavit which was read into the records of
the case, he (Wilson Pideli) alleged that Placido Cancio was his companion in the project at Dalupirip Road, Itogon, Benguet which he
subcontracted for ACL Construction. When asked by the Public Prosecutor what he meant by his statement, Wilson Pideli
categorically admitted that Placido Cancio (the private complainant) is his partner in the endeavor along Dalupirip Road, Itogon,
Benguet (TSN, November 22, 1999, p. 8). The testimony of Wilson Pideli, instead of being corroborative, in effect, weakened the
cause of the defense. The rule is that witnesses are to be weighed, not numbered. It has not been uncommon to reach a conclusion
of guilt on the basis of the testimony of a single witness (People v. Gondora, 265 SCRA 408). Truth is established not by the number
of witnesses but by the quality of their testimonies (People v. Ferrer, 255 SCRA 190).
It is unfortunate that the evidence on record does not disclose the agreement between the private complainant and Wilson Pideli
with regards to the sharing of the capital (expenses) and profits on the project. Article 1790 of the Civil Code, however, provides:
Unless there is stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership. Paragraph 1 of
Article 1797 of the same code further provides: The losses and profits shall be distributed in conformity with the agreement. If only
the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion. Thus,
it is safe for the court to conclude that as a partner in the joint venture, Placido Cancio is entitled to 1/2 share in the net proceeds,
i.e. P130,000.00 + 2 = P65,000.00.
The accused insists that private complainant and his brother were not partners in the subcontract project. According to him, he
merely acted as guarantor of his brother so the latter can withdraw construction materials on credit from the Mt. Trail Farm Supply
and Hardware. As the guarantor, he was also the one who paid his brothers credit when his brother was able to collect
payment.Thus, denying the charges filed against him. Denial, if unsubstantiated by clear and convincing evidence, is a negative and
self-serving evidence which deserves no weight in law and cannot be given greater evidentiary value over the testimony of credible
witnesses who testify on affirmative matters (People v. Paragua, 257 SCRA 118). Affirmative testimony is stronger than a negative
one. As between positive and categorical testimony which has a ring of truth, on one hand, and a bare denial, on the other hand, the
former is generally held to prevail (People v. Tuvilla, 259 SCRA).
Finding the testimony of the private complainant to be more credible than that of the accused and his witnesses, the court rules that
the presumption of innocence guaranteed by law in favor of the accused has been overturned and must be convicted of the crime
charged.
Article 309(1) of the Revised Penal Code provides: Any person guilty of theft shall be punished by:
The penalty of prision mayor in its minimum and medium periods, if the value of the thing stolen is more than P12,000.00, but does
not exceed P22,000.00; but if the value of the thing stolen exceeds the latter amount, the penalty shall be the maximum period of
the one prescribed in this paragraph, and one year for each additional ten thousand pesos, but the total of the penalty which may be
imposed shall not exceed twenty years. In such cases, and in connection with the accessory penalties which may be imposed and for
the purpose of the other provisions of the code the penalty shall be termed prision mayor or reclusion temporal, as the case may
be. x x x
The penalty imposed upon those guilty of theft depends on the amount stolen. Accused carted away P65,000.00 representing
private complainants share in the next proceeds of the project.Accuseds brother, Wilson Pideli, however, gave the private
complainant and this was admitted by the latter the amount of P10,500.00 when the latter kept on pestering him at the Rose Bowl
Restaurant and P5,000.00 at the initial (first) payment. Thus, the amount of P10,500.00 and P5,000.00 should be deducted from his
net share of P65,000.00 leaving a balance of P49,500.00which is now the basis for the construction of the penalty. [13] (Underscoring
supplied)
Petitioner appealed to the CA. In a decision promulgated on April 30, 2003, the CA affirmed[14] the trial court disposition.
Petitioner moved to reconsider the adverse judgment. The motion was, however, denied with finality through a Resolution
dated March 9, 2004.[15]
Issues
In this petition, petitioner imputes to the CA triple errors, viz.:
I. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN AFFIRMING THE FINDING THAT THE PROPERTY ALLEGEDLY
STOLEN WAS OWNED BY THE PRIVATE COMPLAINANT;
II. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN AFFIRMING THAT THERE WAS AN UNLAWFUL TAKING OF
PERSONAL PROPERTY;
III. III.THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN AFFIRMING THAT THE ALLEGED TAKING BY THE
PETITIONER WAS ATTENDED WITH INTENT TO GAIN.[16] (Underscoring supplied)
Our Ruling
Prefatorily, the thrust of a petition for review on certiorari under Rule 45 is the resolution only of questions of law.[17] Any peripheral
factual question addressed to this Court is beyond the ambit of this mode of review. [18] Indeed, well-entrenched is the general rule
that the jurisdiction of this Court in cases brought before it from the CA is limited to reviewing or revising errors of law.[19]
The petition at bench raises not only questions of law but also of facts. We are asked to recalibrate the evidence adduced by the
parties and to reevaluate the credibility of witnesses. On this ground alone, the petition is dismissible.
We, however, deem it proper to delve into the merits of the present petition considering that an appeal in a criminal case throws
the whole case wide open for review.[20]
Article 308 of the Revised Penal Code provides for the concept of the crime of theft, viz.:
ART. 308. Who are liable for theft. Theft is committed by any person who, with intent to gain but without violence against or
intimidation of persons nor force upon things, shall take personal property of another without the latters consent. x x x
Accordingly, the elements of theft are as follows:
1. That there be taking of personal property;
2. That said property belongs to another;
3. That the taking be done with intent to gain;
4. That the taking be done without the consent of the owner; and
5. That the taking be accomplished without the use of violence against or intimidation of persons or force upon things.[21]
There is, here, a confluence of the elements of theft. Petitioner received the final payment due the partners Placido and Wilson
under the pretext of paying off their obligation with the MTFSH. Under the terms of their agreement, petitioner was to account for
the remaining balance of the said funds and give each of the partners their respective shares. He, however, failed to give private
complainant Placido what was due him under the construction contract.
In an effort to exculpate himself, petitioner posits that he cannot be held liable for theft of the unaccounted funds. The monies
subject matter of the complaint pertain to the partnership. As an agent of partner Wilson, intent to gain cannot be imputed against
petitioner.
The CA correctly debunked petitioners postulation in the following tenor:
We likewise find no merit in appellants contention that the money did not belong to the private complainant as the latter was only
claiming for his share of P65,000.00; that it was owned by the partnership and was for payment of materials obtained from the
supplier. Complainants share in the amount of P65,000.00 manifestly belonged to and was owned by the private complainant.
Appellants argument that since the money belonged to the partnership, hence, cannot be the object of the crime of theft as
between the partners, and that appellant as their agent acted in good faith and without intent to gain, holds no
water. Parenthetically, this argument is inconsistent with the assertion of the defense witnesses that complainant had no
participation at all in the project, and, hence, had no right to a share in its payment. In any case, appellant was not complainants
partner but his brother. As for his alleged acting in good faith and without intent of gain, it is jurisprudentially settled that intent is a
mental state, the existence of which is made manifest by overt acts of the person. The intent to gain is presumed from the taking of
property appertaining to another.
Appellant presented a receipt dated November 18, 1997 allegedly evidencing his payment of P75,000.000 to Mt. Trail Farm Supply
and Hardware store. Granting arguendo that appellant paid P75,000.00 to the Mt. Trail Farm Supply and Hardware (which the trial
court did not grant credence), the same still does not exculpate him from liability. The net income earned and disbursed to the
partnership of private complainant and Wilson Pideli was P130,000.00 and a balance of P55,000.00 still remained despite the alleged
payment, which should be divided into two (2) or P27,000.00 for each of them. However, not a single centavo of this amount was
received by private complainant.
When appellant received the disbursement, he had only physical custody of private complainants money, which was supposed to be
applied to a particular purpose, i.e. settle the account with the supplier. Appellants failure to do so or to return the money to the
private complainant renders him guilty of the crime of theft. This is in line with the rulings of the Supreme Court in the case
of United States vs. De Vera, 43 Phil. 1000 (1929) that the delivery of money to another for a particular purpose is a parting with its
physical custody only, and the failure of the accused to apply the money to its specific purpose and converting it to his own use gives
rise to the crime of theft. The basic principles enunciated in the De Vera case was reiterated in the recent case of People vs. Tan, 323
SCRA 30, an Anti-Carnapping case, where the High Court ruled that the unlawful taking or deprivation may occur after the transfer of
physical possession and, in such a case, the article (is considered as being) taken away, not received, although at the beginning the
article was, in fact, given and received. We agree with the Office of the Solicitor General (OSG) that appellant had but the
material/physical or de facto possession of the money and his act of depriving private complainant not only of the possession but
also the dominion (apoderamiento) of his share of the money such that he (the appellant) could dispose of the money at will
constitutes the element of taking in the crime of theft.[22] (Underscoring supplied)
Although there is misappropriation of funds here, petitioner was correctly found guilty of theft. As early as U.S. v. De Vera,[23] the
Court has consistently ruled that not all misappropriation is estafa. Chief Justice Ramon C. Aquino, in his commentary on the Revised
Penal Code, succinctly opined:
The principal distinction between the two crimes is that in theft the thing is taken while in estafa the accused receives the property
and converts it to his own use or benefit. However, there may be theft even if the accused has possession of the property. If he was
entrusted only with the material or physical (natural) or de facto possession of the thing, his misappropriation of the same
constitutes theft, but if he has the juridical possession of the thing, his conversion of the same constitutes embezzlement
or estafa.[24]
In De Vera, the accused, Nieves de Vera, received from Pepe, an Igorot, a bar of gold weighing 559.7 grams for the purpose of having
a silversmith examine the same, and bank notes amounting to P200.00 to have them exchanged for silver coins. Accused
appropriated the bar of gold and bank notes. The Court ruled that the crime committed was theft and not estafa since the delivery
of the personal property did not have the effect of transferring the juridical possession, thus such possession remained in the owner;
and the act of disposal with gainful intent and lack of owners consent constituted the crime of theft.
In People v. Trinidad,[25] defendant received a finger ring from the offended party for the purpose of pledging it as security for a loan
of P5.00 for the benefit of said offended party. Instead of pledging the ring, the defendant immediately carried it to one of her
neighbors to whom she sold it for P30.00 and appropriated the money to her own use. The Court, citing De Vera, similarly convicted
defendant of theft.
In People v. Locson,[26] this Court considered deposits received by a teller in behalf of a bank as being only in the material possession
of the teller. This interpretation applies with equal force to money received by a bank teller at the beginning of a business day for
the purpose of servicing withdrawals. Such is only material possession. Juridical possession remains with the bank. In line with the
reasoning of the Court in the above-cited cases, beginning with People v. De Vera, if the teller appropriates the money for personal
gain then the felony committed is theft and not estafa. Further, since the teller occupies a position of confidence, and the bank
places money in the tellers possession due to the confidence reposed on the teller, the felony of qualified theft would be
committed.
In People v. Isaac,[27] this Court convicted a jeepney driver of theft and not estafa when he did not return the jeepney to its owner
since the motor vehicle was in the juridical possession of its owner, although physically held by the driver. The Court reasoned that
the accused was not a lessee or hirer of the jeepney because the Public Service Law and its regulations prohibit a motor vehicle
operator from entering into any kind of contract with any person if by the terms thereof it allows the use and operation of all or any
of his equipment under a fixed rental basis. The contract with the accused being under the boundary system, legally, the accused
was not a lessee but only an employee of the owner. Thus, the accuseds possession of the vehicle was only an extension of the
owners.
The doctrine was reiterated in the recent case of Roque v. People.[28]
Now, on the penalty. Article 309 of the Revised Penal Code penalizes theft in the following tenor:
Art. 309. Penalties. Any person guilty of theft shall be punished by:
1. The penalty of prision mayor in its minimum and medium periods, if the value of the thing stolen is more than 12,000 pesos but
does not exceed 22,000 pesos; but if the value of the thing stolen exceed the latter amount, the penalty shall be the maximum
period of the one prescribed in this paragraph, and one year for each additional ten
thousand pesos, but the total of the penalty which may be imposed shall not exceed twenty years. [29] (Underscoring supplied)
The record bears out that private complainant originally claimed P65,000.00 as his share in the partnership. However, he admitted
receiving the total amount of P15,500.00, on two separate occasions, from Wilson Pideli. Verily, only P49,500.00 is due private
complainant.
Hence, the imposable penalty is the maximum period of prision mayor minimum and medium prescribed in the abovequoted first
paragraph of Article 309. That period ranges from six (6) years and one (1) day to ten (10) years, plus one (1) year for every
additional ten thousand pesos in excess of P22,000.00, which in this case is two (2) years for the excess amount of P27,500.00.
Applying the Indeterminate Sentence Law, the maximum term could be twelve (12) years while the minimum term would fall under
the next lower penalty of prision correccional in its medium and maximum periods (2 years, 4 months and 1 day to 6 years), to be
imposed in any of its periods.
Both the trial court and the CA sentenced petitioner to an indeterminate penalty of four (4) years of prision correccional medium, as
minimum term, to twelve (12) years of prision mayor maximum, as maximum term. We sustain it. Petitioners civil liability is likewise
maintained.
WHEREFORE, the appealed Decision is AFFIRMED in full.
SO ORDERED.
G.R. No. 75885 May 27, 1987
BATAAN SHIPYARD & ENGINEERING CO., INC. (BASECO), petitioner, vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT,
CHAIRMAN JOVITO SALONGA, COMMISSIONER MARY CONCEPCION BAUTISTA, COMMISSIONER RAMON DIAZ, COMMISSIONER
RAUL R. DAZA, COMMISSIONER QUINTIN S. DOROMAL, CAPT. JORGE B. SIACUNCO, et al., respondents.
Apostol, Bernas, Gumaru, Ona and Associates for petitioner.
Vicente G. Sison for intervenor A.T. Abesamis.
NARVASA, J.:
Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan Shipyard and
Engineering Co., Inc. are: (1) Executive Orders Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986
and March 12, 1986, respectively, and (2) the sequestration, takeover, and other orders issued, and acts done, in accordance with
said executive orders by the Presidential Commission on Good Government and/or its Commissioners and agents, affecting said
corporation.
1. The Sequestration, Takeover, and Other Orders Complained of
a. The Basic Sequestration Order
The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on April 14, 1986 by
Commissioner Mary Concepcion Bautista. It was addressed to three of the agents of the Commission, hereafter simply referred to as
PCGG. It reads as follows:
RE: SEQUESTRATION ORDER
By virtue of the powers vested in the Presidential Commission on Good Government, by authority of the President of the Philippines,
you are hereby directed to sequester the following companies.
1. Bataan Shipyard and Engineering Co., Inc. (Engineering Island Shipyard and Mariveles Shipyard)
2. Baseco Quarry
3. Philippine Jai-Alai Corporation
4. Fidelity Management Co., Inc.
5. Romson Realty, Inc.
6. Trident Management Co.
7. New Trident Management
8. Bay Transport
9. And all affiliate companies of Alfredo "Bejo" Romualdez
You are hereby ordered:
1. To implement this sequestration order with a minimum disruption of these companies' business activities.
2. To ensure the continuity of these companies as going concerns, the care and maintenance of these assets until such time that the
Office of the President through the Commission on Good Government should decide otherwise.
3. To report to the Commission on Good Government periodically.
Further, you are authorized to request for Military/Security Support from the Military/Police authorities, and such other acts
essential to the achievement of this sequestration order. 1
b. Order for Production of Documents
On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to
the President and other officers of petitioner firm, reiterating an earlier request for the production of certain documents, to wit:
1. Stock Transfer Book
2. Legal documents, such as:
2.1. Articles of Incorporation
2.2. By-Laws
2.3. Minutes of the Annual Stockholders Meeting from 1973 to 1986
2.4. Minutes of the Regular and Special Meetings of the Board of Directors from 1973 to 1986
2.5. Minutes of the Executive Committee Meetings from 1973 to 1986
2.6. Existing contracts with suppliers/contractors/others.
3. Yearly list of stockholders with their corresponding share/stockholdings from 1973 to 1986 duly certified by the Corporate
Secretary.
4. Audited Financial Statements such as Balance Sheet, Profit & Loss and others from 1973 to December 31, 1985.
5. Monthly Financial Statements for the current year up to March 31, 1986.
6. Consolidated Cash Position Reports from January to April 15, 1986.
7. Inventory listings of assets up dated up to March 31, 1986.
8. Updated schedule of Accounts Receivable and Accounts Payable.
9. Complete list of depository banks for all funds with the authorized signatories for withdrawals thereof.
10. Schedule of company investments and placements. 2
The letter closed with the warning that if the documents were not submitted within five days, the officers would be cited for
"contempt in pursuance with Presidential Executive Order Nos. 1 and 2."
c. Orders Re Engineer Island
(1) Termination of Contract for Security Services
A third order assailed by petitioner corporation, hereafter referred to simply as BASECO, is that issued on April 21, 1986 by a Capt.
Flordelino B. Zabala, a member of the task force assigned to carry out the basic sequestration order. He sent a letter to BASECO's
Vice-President for Finance, 3 terminating the contract for security services within the Engineer Island compound between BASECO
and "Anchor and FAIRWAYS" and "other civilian security agencies," CAPCOM military personnel having already been assigned to the
area,
(2) Change of Mode of Payment of Entry Charges
On July 15, 1986, the same Capt. Zabala issued a Memorandum addressed to "Truck Owners and Contractors," particularly a "Mr.
Buddy Ondivilla National Marine Corporation," advising of the amendment in part of their contracts with BASECO in the sense that
the stipulated charges for use of the BASECO road network were made payable "upon entry and not anymore subject to monthly
billing as was originally agreed upon." 4
d. Aborted Contract for Improvement of Wharf at Engineer Island
On July 9, 1986, a PCGG fiscal agent, S. Berenguer, entered into a contract in behalf of BASECO with Deltamarine Integrated Port
Services, Inc., in virtue of which the latter undertook to introduce improvements costing approximately P210,000.00 on the BASECO
wharf at Engineer Island, allegedly then in poor condition, avowedly to "optimize its utilization and in return maximize the revenue
which would flow into the government coffers," in consideration of Deltamarine's being granted "priority in using the improved
portion of the wharf ahead of anybody" and exemption "from the payment of any charges for the use of wharf including the area
where it may install its bagging equipments" "until the improvement remains in a condition suitable for port operations." 5 It seems
however that this contract was never consummated. Capt. Jorge B. Siacunco, "Head- (PCGG) BASECO Management Team," advised
Deltamarine by letter dated July 30, 1986 that "the new management is not in a position to honor the said contract" and thus
"whatever improvements * * (may be introduced) shall be deemed unauthorized * * and shall be at * * (Deltamarine's) own risk." 6
e. Order for Operation of Sesiman Rock Quarry, Mariveles, Bataan
By Order dated June 20, 1986, Commissioner Mary Bautista first directed a PCGG agent, Mayor Melba O. Buenaventura, "to plan and
implement progress towards maximizing the continuous operation of the BASECO Sesiman Rock Quarry * * by conventional
methods;" but afterwards, Commissioner Bautista, in representation of the PCGG, authorized another party, A.T. Abesamis, to
operate the quarry, located at Mariveles, Bataan, an agreement to this effect having been executed by them on September 17,
1986. 7
f. Order to Dispose of Scrap, etc.
By another Order of Commissioner Bautista, this time dated June 26, 1986, Mayor Buenaventura was also "authorized to clean and
beautify the Company's compound," and in this connection, to dispose of or sell "metal scraps" and other materials, equipment and
machineries no longer usable, subject to specified guidelines and safeguards including audit and verification. 8
g. The TAKEOVER Order
By letter dated July 14, 1986, Commissioner Ramon A. Diaz decreed the provisional takeover by the PCGG of BASECO, "the Philippine
Dockyard Corporation and all their affiliated companies." 9 Diaz invoked the provisions of Section 3 (c) of Executive Order No. 1,
empowering the Commission —
* * To provisionally takeover in the public interest or to prevent its disposal or dissipation, business enterprises and properties taken
over by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the
transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities.
A management team was designated to implement the order, headed by Capt. Siacunco, and was given the following powers:
1. Conducts all aspects of operation of the subject companies;
2. Installs key officers, hires and terminates personnel as necessary;
3. Enters into contracts related to management and operation of the companies;
4. Ensures that the assets of the companies are not dissipated and used effectively and efficiently; revenues are duly accounted for;
and disburses funds only as may be necessary;
5. Does actions including among others, seeking of military support as may be necessary, that will ensure compliance to this order;
6. Holds itself fully accountable to the Presidential Commission on Good Government on all aspects related to this take-over order.
h. Termination of Services of BASECO Officers
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza, Moises M. Valdez, Gilberto Pasimanero, and Benito R.
Cuesta I, advising of the termination of their services by the PCGG. 10
2. Petitioner's Plea and Postulates
It is the foregoing specific orders and acts of the PCGG and its members and agents which, to repeat, petitioner BASECO would have
this Court nullify. More particularly, BASECO prays that this Court-
1) declare unconstitutional and void Executive Orders Numbered 1 and 2;
2) annul the sequestration order dated April- 14, 1986, and all other orders subsequently issued and acts done on the basis thereof,
inclusive of the takeover order of July 14, 1986 and the termination of the services of the BASECO executives. 11
a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders
While BASECO concedes that "sequestration without resorting to judicial action, might be made within the context of Executive
Orders Nos. 1 and 2 before March 25, 1986 when the Freedom Constitution was promulgated, under the principle that the law
promulgated by the ruler under a revolutionary regime is the law of the land, it ceased to be acceptable when the same ruler opted
to promulgate the Freedom Constitution on March 25, 1986 wherein under Section I of the same, Article IV (Bill of Rights) of the
1973 Constitution was adopted providing, among others, that "No person shall be deprived of life, liberty and property without due
process of law." (Const., Art. I V, Sec. 1)." 12
It declares that its objection to the constitutionality of the Executive Orders "as well as the Sequestration Order * * and Takeover
Order * * issued purportedly under the authority of said Executive Orders, rests on four fundamental considerations: First, no notice
and hearing was accorded * * (it) before its properties and business were taken over; Second, the PCGG is not a court, but a purely
investigative agency and therefore not competent to act as prosecutor and judge in the same cause; Third, there is nothing in the
issuances which envisions any proceeding, process or remedy by which petitioner may expeditiously challenge the validity of the
takeover after the same has been effected; and Fourthly, being directed against specified persons, and in disregard of the
constitutional presumption of innocence and general rules and procedures, they constitute a Bill of Attainder." 13
b. Re Order to Produce Documents
It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied with, was issued
without court authority and infringed its constitutional right against self-incrimination, and unreasonable search and seizure. 14
c. Re PCGG's Exercise of Right of Ownership and Management
BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its business affairs by
—
1) terminating its contract for security services with Fairways & Anchor, without the consent and against the will of the contracting
parties; and amending the mode of payment of entry fees stipulated in its Lease Contract with National Stevedoring & Lighterage
Corporation, these acts being in violation of the non-impairment clause of the constitution; 15
2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous contract" with Deltamarine Integrated Port Services, Inc.,
giving the latter free use of BASECO premises; 16
3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and operate its rock quarry at Sesiman, Mariveles; 17
4) authorizing the same mayor to sell or dispose of its metal scrap, equipment, machinery and other materials; 18
5) authorizing the takeover of BASECO, Philippine Dockyard Corporation, and all their affiliated companies;
6) terminating the services of BASECO executives: President Hilario M. Ruiz; EVP Manuel S. Mendoza; GM Moises M. Valdez; Finance
Mgr. Gilberto Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19
7) planning to elect its own Board of Directors; 20
8) allowing willingly or unwillingly its personnel to take, steal, carry away from petitioner's premises at Mariveles * * rolls of cable
wires, worth P600,000.00 on May 11, 1986; 21
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold bars supposed to have been buried therein. 22
3. Doubts, Misconceptions regarding Sequestration, Freeze and Takeover Orders
Many misconceptions and much doubt about the matter of sequestration, takeover and freeze orders have been engendered by
misapprehension, or incomplete comprehension if not indeed downright ignorance of the law governing these remedies. It is
needful that these misconceptions and doubts be dispelled so that uninformed and useless debates about them may be avoided,
and arguments tainted b sophistry or intellectual dishonesty be quickly exposed and discarded. Towards this end, this opinion will
essay an exposition of the law on the matter. In the process many of the objections raised by BASECO will be dealt with.
4. The Governing Law
a. Proclamation No. 3
The impugned executive orders are avowedly meant to carry out the explicit command of the Provisional Constitution, ordained by
Proclamation No. 3, 23 that the President-in the exercise of legislative power which she was authorized to continue to wield "(until a
legislature is elected and convened under a new Constitution" — "shall give priority to measures to achieve the mandate of the
people," among others to (r)ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect
the interest of the people through orders of sequestration or freezing of assets or accounts." 24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth," and postulates that "vast resources of the
government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates both
here and abroad." 25 Upon these premises, the Presidential Commission on Good Government was created, 26 "charged with the task
of assisting the President in regard to (certain specified) matters," among which was precisely-
* * The recovery of all in-gotten wealth accumulated by former President Ferdinand E. Marcos, his immediate family, relatives,
subordinates and close associates, whether located in the Philippines or abroad, including the takeover or sequestration of all
business enterprises and entities owned or controlled by them, during his administration, directly or through nominees, by taking
undue advantage of their public office and/or using their powers, authority, influence, connections or relationship. 27
In relation to the takeover or sequestration that it was authorized to undertake in the fulfillment of its mission, the PCGG was
granted "power and authority" to do the following particular acts, to wit:
1. To sequester or place or cause to be placed under its control or possession any building or office wherein any ill-gotten wealth or
properties may be found, and any records pertaining thereto, in order to prevent their destruction, concealment or disappearance
which would frustrate or hamper the investigation or otherwise prevent the Commission from accomplishing its task.
2. To provisionally take over in the public interest or to prevent the disposal or dissipation, business enterprises and properties taken
over by the government of the Marcos Administration or by entities or persons close to former President Marcos, until the
transactions leading to such acquisition by the latter can be disposed of by the appropriate authorities.
3. To enjoin or restrain any actual or threatened commission of acts by any person or entity that may render moot and academic, or
frustrate or otherwise make ineffectual the efforts of the Commission to carry out its task under this order. 28
So that it might ascertain the facts germane to its objectives, it was granted power to conduct investigations; require submission of
evidence by subpoenae ad testificandum and duces tecum; administer oaths; punish for contempt. 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 President-
1) froze "all assets and properties in the Philippines in which former President Marcos and/or his wife, Mrs. Imelda Romualdez
Marcos, their close relatives, subordinates, business associates, dummies, agents, or nominees have any interest or participation;
2) prohibited former President Ferdinand Marcos and/or his wife * *, their close relatives, subordinates, business associates, duties,
agents, or nominees from transferring, conveying, encumbering, concealing or dissipating said assets or properties in the Philippines
and abroad, pending the outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties
were acquired by them through or as a result of improper or illegal use of or the conversion of funds belonging to the Government
of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage
of their official position, authority, relationship, connection or influence to unjustly enrich themselves at the expense and to the
grave damage and prejudice of the Filipino people and the Republic of the Philippines;
3) prohibited "any person from transferring, conveying, encumbering or otherwise depleting or concealing such assets and properties
or from assisting or taking part in their transfer, encumbrance, concealment or dissipation under pain of such penalties as are
prescribed by law;" and
4) required "all persons in the Philippines holding such assets or properties, whether located in the Philippines or abroad, in their
names as nominees, agents or trustees, to make full disclosure of the same to the Commission on Good Government within thirty
(30) days from publication of * (the) Executive Order, * *. 32
d. Executive Order No. 14
A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG is empowered, "with the assistance of the Office of
the Solicitor General and other government agencies, * * to file and prosecute all cases investigated by it * * as may be warranted by
its findings." 34 All such cases, whether civil or criminal, are to be filed "with the Sandiganbayan which shall have exclusive and
original jurisdiction thereof." 35 Executive Order No. 14 also pertinently provides that civil suits for restitution, reparation of
damages, or indemnification for consequential damages, forfeiture proceedings provided for under Republic Act No. 1379, or any
other civil actions under the Civil Code or other existing laws, in connection with * * (said Executive Orders Numbered 1 and 2) may
be filed separately from and proceed independently of any criminal proceedings and may be proved by a preponderance of
evidence;" and that, moreover, the "technical rules of procedure and evidence shall not be strictly applied to* * (said)civil cases." 36
5. Contemplated Situations
The situations envisaged and sought to be governed are self-evident, these being:
1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the previous regime"; 37
a) more particularly, that ill-gotten wealth (was) accumulated by former President Ferdinand E. Marcos, his immediate family,
relatives, subordinates and close associates, * * located in the Philippines or abroad, * * (and) business enterprises and entities
(came to be) owned or controlled by them, during * * (the Marcos) administration, directly or through nominees, by taking undue
advantage of their public office and/or using their powers, authority, influence, Connections or relationship; 38
b) otherwise stated, that "there are assets and properties purportedly pertaining to former President Ferdinand E. Marcos, and/or
his wife Mrs. Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies, agents or nominees
which had been or were acquired by them directly or indirectly, through or as a result of the improper or illegal use of funds or
properties owned by the Government of the Philippines or any of its branches, instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of their office, authority, influence, connections or relationship, resulting in their unjust
enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines"; 39
c) that "said assets and properties are in the form of bank accounts. deposits, trust. accounts, shares of stocks, buildings, shopping
centers, condominiums, mansions, residences, estates, and other kinds of real and personal properties in the Philippines and in
various countries of the world;" 40 and
2) that certain "business enterprises and properties (were) taken over by the government of the Marcos Administration or by
entities or persons close to former President Marcos. 41
6. Government's Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of the Government's plan "to recover all ill-gotten wealth."
Neither can there be any debate about the proposition that assuming the above described factual premises of the Executive Orders
and Proclamation No. 3 to be true, to be demonstrable by competent evidence, the recovery from Marcos, his family and his
dominions of the assets and properties involved, is not only a right but a duty on the part of Government.
But however plain and valid that right and duty may be, still a balance must be sought with the equally compelling necessity that a
proper respect be accorded and adequate protection assured, the fundamental rights of private property and free enterprise which
are deemed pillars of a free society such as ours, and to which all members of that society may without exception lay claim.
* * Democracy, as a way of life enshrined in the Constitution, embraces as its necessary components freedom of conscience,
freedom of expression, and freedom in the pursuit of happiness. Along with these freedoms are included economic freedom and
freedom of enterprise within reasonable bounds and under proper control. * * Evincing much concern for the protection of property,
the Constitution distinctly recognizes the preferred position which real estate has occupied in law for ages. Property is bound up with
every aspect of social life in a democracy as democracy is conceived in the Constitution.The Constitution realizes the indispensable
role which property, owned in reasonable quantities and used legitimately, plays in the stimulation to economic effort and the
formation and growth of a solid social middle class that is said to be the bulwark of democracy and the backbone of every
progressive and happy country. 42
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive Orders cannot simply be assumed. They will have to be duly established by
adequate proof in each case, in a proper judicial proceeding, so that the recovery of the ill-gotten wealth may be validly and properly
adjudged and consummated; although there are some who maintain that the fact-that an immense fortune, and "vast resources of
the government have been amassed by former President Ferdinand E. Marcos, his immediate family, relatives, and close associates
both here and abroad," and they have resorted to all sorts of clever schemes and manipulations to disguise and hide their illicit
acquisitions-is within the realm of judicial notice, being of so extensive notoriety as to dispense with proof thereof, Be this as it may,
the requirement of evidentiary substantiation has been expressly acknowledged, and the procedure to be followed explicitly laid
down, in Executive Order No. 14.
b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits
Nor may it be gainsaid that pending the institution of the suits for the recovery of such "ill-gotten wealth" as the evidence at hand
may reveal, there is an obvious and imperative need for preliminary, provisional measures to prevent the concealment,
disappearance, destruction, dissipation, or loss of the assets and properties subject of the suits, or to restrain or foil acts that may
render moot and academic, or effectively hamper, delay, or negate efforts to recover the same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three (3) provisional remedies. These are: (1) sequestration; (2) freeze orders; and (3)
provisional takeover.
Sequestration and freezing are remedies applicable generally to unearthed instances of "ill-gotten wealth." The remedy of
"provisional takeover" is peculiar to cases where "business enterprises and properties (were) taken over by the government of the
Marcos Administration or by entities or persons close to former President Marcos." 43
a. Sequestration
By the clear terms of the law, the power of the PCGG to sequester property claimed to be "ill-gotten" means to place or cause to be
placed under its possession or control said property, or any building or office wherein any such property and any records pertaining
thereto may be found, including "business enterprises and entities,"-for the purpose of preventing the destruction, concealment or
dissipation of, and otherwise conserving and preserving, the same-until it can be determined, through appropriate judicial
proceedings, whether the property was in truth will- gotten," i.e., acquired through or as a result of improper or illegal use of or the
conversion of funds belonging to the Government or any of its branches, instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of official position, authority relationship, connection or influence, resulting in unjust
enrichment of the ostensible owner and grave damage and prejudice to the State. 44 And this, too, is the sense in which the term is
commonly understood in other jurisdictions. 45
b. "Freeze Order"
A "freeze order" prohibits the person having possession or control of property alleged to constitute "ill-gotten wealth" "from
transferring, conveying, encumbering or otherwise depleting or concealing such property, or from assisting or taking part in its
transfer, encumbrance, concealment, or dissipation." 46 In other words, it commands the possessor to hold the property and
conserve it subject to the orders and disposition of the authority decreeing such freezing. In this sense, it is akin to a garnishment by
which the possessor or ostensible owner of property is enjoined not to deliver, transfer, or otherwise dispose of any effects or
credits in his possession or control, and thus becomes in a sense an involuntary depositary thereof. 47
c. Provisional Takeover
In providing for the remedy of "provisional takeover," the law acknowledges the apparent distinction between "ill gotten" "business
enterprises and entities" (going concerns, businesses in actual operation), generally, as to which the remedy of sequestration
applies, it being necessarily inferred that the remedy entails no interference, or the least possible interference with the actual
management and operations thereof; and "business enterprises which were taken over by the government government of the
Marcos Administration or by entities or persons close to him," in particular, as to which a "provisional takeover" is authorized, "in the
public interest or to prevent disposal or dissipation of the enterprises." 48 Such a "provisional takeover" imports something more
than sequestration or freezing, more than the placing of the business under physical possession and control, albeit without or with
the least possible interference with the management and carrying on of the business itself. In a "provisional takeover," what is taken
into custody is not only the physical assets of the business enterprise or entity, but the business operation as well. It is in fine the
assumption of control not only over things, but over operations or on- going activities. But, to repeat, such a "provisional takeover"
is allowed only as regards "business enterprises * * taken over by the government of the Marcos Administration or by entities or
persons close to former President Marcos."
d. No Divestment of Title Over Property Seized
It may perhaps be well at this point to stress once again the provisional, contingent character of the remedies just described. Indeed
the law plainly qualifies the remedy of take-over by the adjective, "provisional." These remedies may be resorted to only for a
particular exigency: to prevent in the public interest the disappearance or dissipation of property or business, and conserve it
pending adjudgment in appropriate proceedings of the primary issue of whether or not the acquisition of title or other right thereto
by the apparent owner was attended by some vitiating anomaly. None of the remedies is meant to deprive the owner or possessor
of his title or any right to the property sequestered, frozen or taken over and vest it in the sequestering agency, the Government or
other person. This can be done only for the causes and by the processes laid down by law.
That this is the sense in which the power to sequester, freeze or provisionally take over is to be understood and exercised, the
language of the executive orders in question leaves no doubt. Executive Order No. 1 declares that the sequestration of property the
acquisition of which is suspect shall last "until the transactions leading to such acquisition * * can be disposed of by the appropriate
authorities." 49 Executive Order No. 2 declares that the assets or properties therein mentioned shall remain frozen "pending the
outcome of appropriate proceedings in the Philippines to determine whether any such assets or properties were acquired" by illegal
means. Executive Order No. 14 makes clear that judicial proceedings are essential for the resolution of the basic issue of whether or
not particular assets are "ill-gotten," and resultant recovery thereof by the Government is warranted.
e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command
There is thus no cause for the apprehension voiced by BASECO 50 that sequestration, freezing or provisional takeover is designed to
be an end in itself, that it is the device through which persons may be deprived of their property branded as "ill-gotten," that it is
intended to bring about a permanent, rather than a passing, transitional state of affairs. That this is not so is quite explicitly declared
by the governing rules.
Be this as it may, the 1987 Constitution should allay any lingering fears about the duration of these provisional remedies. Section 26
of its Transitory Provisions, 51 lays down the relevant rule in plain terms, apart from extending ratification or confirmation (although
not really necessary) to the institution by presidential fiat of the remedy of sequestration and freeze orders:
SEC. 26. The authority to issue sequestration or freeze orders under Proclamation No. 3 dated March 25, 1986 in relation to the
recovery of ill-gotten wealth shag remain operative for not more than eighteen months after the ratification of this Constitution.
However, in the national interest, as certified by the President, the Congress may extend said period.
A sequestration or freeze order shall be issued only upon showing of a prima facie case. The order and the list of the sequestered or
frozen properties shall forthwith be registered with the proper court. For orders issued before the ratification of this Constitution,
the corresponding judicial action or proceeding shall be filed within six months from its ratification. For those issued after such
ratification, the judicial action or proceeding shall be commenced within six months from the issuance thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial action or proceeding is commenced as herein
provided. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and provisional takeover are akin to the provisional remedy of preliminary attachment, or
receivership. 53 By attachment, a sheriff seizes property of a defendant in a civil suit so that it may stand as security for the
satisfaction of any judgment that may be obtained, and not disposed of, or dissipated, or lost intentionally or otherwise, pending the
action. 54 By receivership, property, real or personal, which is subject of litigation, is placed in the possession and control of a
receiver appointed by the Court, who shall conserve it pending final determination of the title or right of possession over it. 55 All
these remedies — sequestration, freezing, provisional, takeover, attachment and receivership — are provisional, temporary,
designed for-particular exigencies, attended by no character of permanency or finality, and always subject to the control of the
issuing court or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover orders are not issued by a court is of no moment. The Solicitor
General draws attention to the writ of distraint and levy which since 1936 the Commissioner of Internal Revenue has been by law
authorized to issue against property of a delinquent taxpayer. 56 BASECO itself declares that it has not manifested "a rigid insistence
on sequestration as a purely judicial remedy * * (as it feels) that the law should not be ossified to a point that makes it insensitive to
change." What it insists on, what it pronounces to be its "unyielding position, is that any change in procedure, or the institution of a
new one, should conform to due process and the other prescriptions of the Bill of Rights of the Constitution." 57 It is, to be sure, a
proposition on which there can be no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well as delivery of personal property in replevin suits, sequestration
and provisional takeover writs may issue ex parte. 58 And as in preliminary attachment, receivership, and delivery of personality, no
objection of any significance may be raised to the ex parte issuance of an order of sequestration, freezing or takeover, given its
fundamental character of temporariness or conditionality; and taking account specially of the constitutionally expressed "mandate
of the people to recover ill-gotten properties amassed by the leaders and supporters of the previous regime and protect the interest
of the people;" 59 as well as the obvious need to avoid alerting suspected possessors of "ill-gotten wealth" and thereby cause that
disappearance or loss of property precisely sought to be prevented, and the fact, just as self-evident, that "any transfer, disposition,
concealment or disappearance of said assets and properties would frustrate, obstruct or hamper the efforts of the Government" at
the just recovery thereof. 60
8. Requisites for Validity
What is indispensable is that, again as in the case of attachment and receivership, there exist a prima facie factual foundation, at
least, for the sequestration, freeze or takeover order, and adequate and fair opportunity to contest it and endeavor to cause its
negation or nullification. 61
Both are assured under the executive orders in question and the rules and regulations promulgated by the PCGG.
a. Prima Facie Evidence as Basis for Orders
Executive Order No. 14 enjoins that there be "due regard to the requirements of fairness and due process." 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 "ill- gotten wealth" were not expressly imposed by some rule or
regulation as a condition to warrant the sequestration or freezing of property contemplated in the executive orders in question, it
would nevertheless be exigible in this jurisdiction in which the Rule of Law prevails and official acts which are devoid of rational basis
in fact or law, or are whimsical and capricious, are condemned and struck down. 66
9. Constitutional Sanction of Remedies
If any doubt should still persist in the face of the foregoing considerations as to the validity and propriety of sequestration, freeze
and takeover orders, it should be dispelled by the fact that these particular remedies and the authority of the PCGG to issue them
have received constitutional approbation and sanction. As already mentioned, the Provisional or "Freedom" Constitution recognizes
the power and duty of the President to enact "measures to achieve the mandate of the people to * * * (recover ill- gotten properties
amassed by the leaders and supporters of the previous regime and protect the interest of the people through orders of
sequestration or freezing of assets or accounts." And as also already adverted to, Section 26, Article XVIII of the 1987
Constitution 67 treats of, and ratifies the "authority to issue sequestration or freeze orders under Proclamation No. 3 dated March
25, 1986."
The institution of these provisional remedies is also premised upon the State's inherent police power, regarded, as t lie power of
promoting the public welfare by restraining and regulating the use of liberty and property," 68 and as "the most essential, insistent
and illimitable of powers * * in the promotion of general welfare and the public interest," 69and 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, 72that 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. 74The 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

2. Severino G. de la Cruz 1,248 shares

3. Emilio T. Yap 2,508 shares

4. Jose Fernandez 1,248 shares

5. Jose Francisco 128 shares

6. Manuel S. Mendoza 96 shares

7. Anthony P. Lee 1,248 shares

8. Hilario M. Ruiz 32 shares

9. Constante L. Fariñas 8 shares

10. Fidelity Management, Inc. 65,882 shares

11. Trident Management 7,412 shares

 12. United Phil. Lines 1,240 shares

13. Renato M. Tanseco 8 shares

14. Fidel Ventura 8 shares

15. Metro Bay Drydock 136,370 shares

16. Manuel Jacela 1 share

17. Jonathan G. Lu 1 share

18. Jose J. Tanchanco 1 share

19. Dioscoro Papa 128 shares

20. Edward T. Marcelo 4 shares

TOTAL 218,819 shares.

13 Acquisition of NASSCO by BASECO
Barely six months after its incorporation, BASECO acquired from National Shipyard & Steel Corporation, or NASSCO, a government-
owned or controlled corporation, the latter's shipyard at Mariveles, Bataan, known as the Bataan National Shipyard (BNS), and —
except for NASSCO's Engineer Island Shops and certain equipment of the BNS, consigned for future negotiation — all its structures,
buildings, shops, quarters, houses, plants, equipment and facilities, in stock or in transit. This it did in virtue of a "Contract of
Purchase and Sale with Chattel Mortgage" executed on February 13, 1973. The price was P52,000,000.00. As partial payment
thereof, BASECO delivered to NASSCO a cash bond of P11,400,000.00, convertible into cash within twenty-four (24) hours from
completion of the inventory undertaken pursuant to the contract. The balance of P41,600,000.00, with interest at seven percent
(7%) per annum, compounded semi-annually, was stipulated to be paid in equal semi-annual installments over a term of nine (9)
years, payment to commence after a grace period of two (2) years from date of turnover of the shipyard to BASECO. 76
14. Subsequent Reduction of Price; Intervention of Marcos
Unaccountably, the price of P52,000,000.00 was reduced by more than one-half, to P24,311,550.00, about eight (8) months later. A
document to this effect was executed on October 9, 1973, entitled "Memorandum Agreement," and was signed for NASSCO by
Arturo Pacificador, as Presiding Officer of the Board of Directors, and David R. Ines, as General Manager. 77 This agreement bore, at
the top right corner of the first page, the word "APPROVED" in the handwriting of President Marcos, followed by his usual full
signature. The document recited that a down payment of P5,862,310.00 had been made by BASECO, and the balance of
P19,449,240.00 was payable in equal semi-annual installments over nine (9) years after a grace period of two (2) years, with interest
at 7% per annum.
15. Acquisition of 300 Hectares from Export Processing Zone Authority
On October 1, 1974, BASECO acquired three hundred (300) hectares of land in Mariveles from the Export Processing Zone Authority
for the price of P10,047,940.00 of which, as set out in the document of sale, P2,000.000.00 was paid upon its execution, and the
balance stipulated to be payable in installments. 78
16. Acquisition of Other Assets of NASSCO; Intervention of Marcos
Some nine months afterwards, or on July 15, 1975, to be precise, BASECO, again with the intervention of President Marcos, acquired
ownership of the rest of the assets of NASSCO which had not been included in the first two (2) purchase documents. This was
accomplished by a deed entitled "Contract of Purchase and Sale," 79 which, like the Memorandum of Agreement dated October 9,
1973 supra also bore at the upper right-hand corner of its first page, the handwritten notation of President Marcos reading,
"APPROVED, July 29, 1973," and underneath it, his usual full signature. Transferred to BASECO were NASSCO's "ownership and all its
titles, rights and interests over all equipment and facilities including structures, buildings, shops, quarters, houses, plants and
expendable or semi-expendable assets, located at the Engineer Island, known as the Engineer Island Shops, including all the
equipment of the Bataan National Shipyards (BNS) which were excluded from the sale of NBS to BASECO but retained by BASECO
and all other selected equipment and machineries of NASSCO at J. Panganiban Smelting Plant." In the same deed, NASSCO
committed itself to cooperate with BASECO for the acquisition from the National Government or other appropriate Government
entity of Engineer Island. Consideration for the sale was set at P5,000,000.00; a down payment of P1,000,000.00 appears to have
been made, and the balance was stipulated to be paid at 7% interest per annum in equal semi annual installments over a term of
nine (9) years, to commence after a grace period of two (2) years. Mr. Arturo Pacificador again signed for NASSCO, together with the
general manager, Mr. David R. Ines.
17. Loans Obtained
It further appears that on May 27, 1975 BASECO obtained a loan from the NDC, taken from "the last available Japanese war damage
fund of $19,000,000.00," to pay for "Japanese made heavy equipment (brand new)." 80 On September 3, 1975, it got another loan
also from the NDC in the amount of P30,000,000.00 (id.). And on January 28, 1976, it got still another loan, this time from the GSIS,
in the sum of P12,400,000.00. 81 The claim has been made that not a single centavo has been paid on these loans. 82
18. Reports to President Marcos
In September, 1977, two (2) reports were submitted to President Marcos regarding BASECO. The first was contained in a letter dated
September 5, 1977 of Hilario M. Ruiz, BASECO president. 83 The second was embodied in a confidential memorandum dated
September 16, 1977 of Capt. A.T. Romualdez. 84 They further disclose the fine hand of Marcos in the affairs of BASECO, and that of a
Romualdez, a relative by affinity.
a. BASECO President's Report
In his letter of September 5, 1977, BASECO President Ruiz reported to Marcos that there had been "no orders or demands for ship
construction" for some time and expressed the fear that if that state of affairs persisted, BASECO would not be able to pay its debts
to the Government, which at the time stood at the not inconsiderable amount of P165,854,000.00. 85 He suggested that, to "save the
situation," there be a "spin-off (of their) shipbuilding activities which shall be handled exclusively by an entirely new corporation to
be created;" and towards this end, he informed Marcos that BASECO was —
* * inviting NDC and LUSTEVECO to participate by converting the NDC shipbuilding loan to BASECO amounting to P341.165M and
assuming and converting a portion of BASECO's shipbuilding loans from REPACOM amounting to P52.2M or a total of P83.365M as
NDC's equity contribution in the new corporation. LUSTEVECO will participate by absorbing and converting a portion of the
REPACOM loan of Bay Shipyard and Drydock, Inc., amounting to P32.538M. 86
b. Romualdez' Report
Capt. A.T. Romualdez' report to the President was submitted eleven (11) days later. It opened with the following caption:
MEMORANDUM:
FOR : The President
SUBJECT: An Evaluation and Re-assessment of a Performance of a Mission
FROM: Capt. A.T. Romualdez.
Like Ruiz, Romualdez wrote that BASECO faced great difficulties in meeting its loan obligations due chiefly to the fact that "orders to
build ships as expected * * did not materialize."
He advised that five stockholders had "waived and/or assigned their holdings inblank," these being: (1) Jose A. Rojas, (2) Severino de
la Cruz, (3) Rodolfo Torres, (4) Magiliw Torres, and (5) Anthony P. Lee. Pointing out that "Mr. Magiliw Torres * * is already dead and
Mr. Jose A. Rojas had a major heart attack," he made the following quite revealing, and it may be added, quite cynical and indurate
recommendation, to wit:
* * (that) their replacements (be effected) so we can register their names in the stock book prior to the implementation of your
instructions to pass a board resolution to legalize the transfers under SEC regulations;
2. By getting their replacements, the families cannot question us later on; and
3. We will owe no further favors from them. 87
He also transmitted to Marcos, together with the report, the following documents: 88
1. Stock certificates indorsed and assigned in blank with assignments and waivers; 89
2. The articles of incorporation, the amended articles, and the by-laws of BASECO;
3. Deed of Sales, wherein NASSCO sold to BASECO four (4) parcels of land in "Engineer Island", Port Area, Manila;
4. Transfer Certificate of Title No. 124822 in the name of BASECO, covering "Engineer Island";
5. Contract dated October 9, 1973, between NASSCO and BASECO re-structure and equipment at Mariveles, Bataan;
6. Contract dated July 16, 1975, between NASSCO and BASECO re-structure and equipment at Engineer Island, Port Area Manila;
7. Contract dated October 1, 1974, between EPZA and BASECO re 300 hectares of land at Mariveles, Bataan;
8. List of BASECO's fixed assets;
9. Loan Agreement dated September 3, 1975, BASECO's loan from NDC of P30,000,000.00;
10. BASECO-REPACOM Agreement dated May 27, 1975;
11. GSIS loan to BASECO dated January 28, 1976 of P12,400,000.00 for the housing facilities for BASECO's rank-and-file employees. 90
Capt. Romualdez also recommended that BASECO's loans be restructured "until such period when BASECO will have enough orders
for ships in order for the company to meet loan obligations," and that —
An LOI may be issued to government agencies using floating equipment, that a linkage scheme be applied to a certain percent of
BASECO's net profit as part of BASECO's amortization payments to make it justifiable for you, Sir. 91
It is noteworthy that Capt. A.T. Romualdez does not appear to be a stockholder or officer of BASECO, yet he has presented a report
on BASECO to President Marcos, and his report demonstrates intimate familiarity with the firm's affairs and problems.
19. Marcos' Response to Reports
President Marcos lost no time in acting on his subordinates' recommendations, particularly as regards the "spin-off" and the "linkage
scheme" relative to "BASECO's amortization payments."
a. Instructions re "Spin-Off"
Under date of September 28, 1977, he addressed a Memorandum to Secretary Geronimo Velasco of the Philippine National Oil
Company and Chairman Constante Fariñas of the National Development Company, directing them "to participate in the formation of
a new corporation resulting from the spin-off of the shipbuilding component of BASECO along the following guidelines:
a. Equity participation of government shall be through LUSTEVECO and NDC in the amount of P115,903,000 consisting of the
following obligations of BASECO which are hereby authorized to be converted to equity of the said new corporation, to wit:
1. NDC P83,865,000 (P31.165M loan & P52.2M Reparation)
2. LUSTEVECO P32,538,000 (Reparation)
b. Equity participation of government shall be in the form of non- voting shares.
For immediate compliance. 92
Mr. Marcos' guidelines were promptly complied with by his subordinates. Twenty-two (22) days after receiving their president's
memorandum, Messrs. Hilario M. Ruiz, Constante L. Fariñas and Geronimo Z. Velasco, in representation of their respective
corporations, executed a PRE-INCORPORATION AGREEMENT dated October 20, 1977. 93 In it, they undertook to form a shipbuilding
corporation to be known as "PHIL-ASIA SHIPBUILDING CORPORATION," to bring to realization their president's instructions. It would
seem that the new corporation ultimately formed was actually named "Philippine Dockyard Corporation (PDC)." 94
b. Letter of Instructions No. 670
Mr. Marcos did not forget Capt. Romualdez' recommendation for a letter of instructions. On February 14, 1978, he issued Letter of
Instructions No. 670 addressed to the Reparations Commission REPACOM the Philippine National Oil Company (PNOC), the Luzon
Stevedoring Company (LUSTEVECO), and the National Development Company (NDC). What is commanded therein is summarized by
the Solicitor General, with pithy and not inaccurate observations as to the effects thereof (in italics), as follows:
* * 1) the shipbuilding equipment procured by BASECO through reparations be transferred to NDC subject to reimbursement by NDC
to BASECO (of) the amount of s allegedly representing the handling and incidental expenses incurred by BASECO in the installation of
said equipment (so instead of NDC getting paid on its loan to BASECO, it was made to pay BASECO instead the amount of
P18.285M); 2) the shipbuilding equipment procured from reparations through EPZA, now in the possession of BASECO and BSDI (Bay
Shipyard & Drydocking, Inc.) be transferred to LUSTEVECO through PNOC; and 3) the shipbuilding equipment (thus) transferred be
invested by LUSTEVECO, acting through PNOC and NDC, as the government's equity participation in a shipbuilding corporation to be
established in partnership with the private sector.
xxx xxx xxx
And so, through a simple letter of instruction and memorandum, BASECO's loan obligation to NDC and REPACOM * * in the total
amount of P83.365M and BSD's REPACOM loan of P32.438M were wiped out and converted into non-voting preferred shares. 95
20. Evidence of Marcos'
Ownership of BASECO
It cannot therefore be gainsaid that, in the context of the proceedings at bar, the actuality of the control by President Marcos of
BASECO has been sufficiently shown.
Other evidence submitted to the Court by the Solicitor General proves that President Marcos not only exercised control over
BASECO, but also that he actually owns well nigh one hundred percent of its outstanding stock.
It will be recalled that according to petitioner- itself, as of April 23, 1986, there were 218,819 shares of stock outstanding, ostensibly
owned by twenty (20) stockholders. 96 Four of these twenty are juridical persons: (1) Metro Bay Drydock, recorded as holding
136,370 shares; (2) Fidelity Management, Inc., 65,882 shares; (3) Trident Management, 7,412 shares; and (4) United Phil. Lines,
1,240 shares. The first three corporations, among themselves, own an aggregate of 209,664 shares of BASECO stock, or 95.82% of
the outstanding stock.
Now, the Solicitor General has drawn the Court's attention to the intriguing circumstance that found in Malacanang shortly after the
sudden flight of President Marcos, were certificates corresponding to more than ninety-five percent (95%) of all the outstanding
shares of stock of BASECO, endorsed in blank, together with deeds of assignment of practically all the outstanding shares of stock of
the three (3) corporations above mentioned (which hold 95.82% of all BASECO stock), signed by the owners thereof although not
notarized. 97
More specifically, found in Malacanang (and now in the custody of the PCGG) were:
1) the deeds of assignment of all 600 outstanding shares of Fidelity Management Inc. — which supposedly owns as aforesaid 65,882
shares of BASECO stock;
2) the deeds of assignment of 2,499,995 of the 2,500,000 outstanding shares of Metro Bay Drydock Corporation — which allegedly
owns 136,370 shares of BASECO stock;
3) the deeds of assignment of 800 outstanding shares of Trident Management Co., Inc. — which allegedly owns 7,412 shares of
BASECO stock, assigned in blank; 98 and
4) stock certificates corresponding to 207,725 out of the 218,819 outstanding shares of BASECO stock; that is, all but 5 % — all
endorsed in blank. 99
While the petitioner's counsel was quick to dispute this asserted fact, assuring this Court that the BASECO stockholders were still in
possession of their respective stock certificates and had "never endorsed * * them in blank or to anyone else," 100 that denial is
exposed by his own prior and subsequent recorded statements as a mere gesture of defiance rather than a verifiable factual
declaration.
By resolution dated September 25, 1986, this Court granted BASECO's counsel a period of 10 days "to SUBMIT, as undertaken by
him, * * the certificates of stock issued to the stockholders of * * BASECO as of April 23, 1986, as listed in Annex 'P' of the
petition.' 101 Counsel thereafter moved for extension; and in his motion dated October 2, 1986, he declared inter alia that "said
certificates of stock are in the possession of third parties, among whom being the respondents themselves * * and petitioner is still
endeavoring to secure copies thereof from them." 102 On the same day he filed another motion praying that he be allowed
"to secure copies of the Certificates of Stock in the name of Metro Bay Drydock, Inc., and of all other Certificates, of Stock of
petitioner's stockholders in possession of respondents." 103
In a Manifestation dated October 10, 1986,, 104 the Solicitor General not unreasonably argued that counsel's aforestated motion to
secure copies of the stock certificates "confirms the fact that stockholders of petitioner corporation are not in possession of * *
(their) certificates of stock," and the reason, according to him, was "that 95% of said shares * * have been endorsed in blank and
found in Malacañang after the former President and his family fled the country." To this manifestation BASECO's counsel replied on
November 5, 1986, as already mentioned, Stubbornly insisting that the firm's stockholders had not really assigned their stock. 105
In view of the parties' conflicting declarations, this Court resolved on November 27, 1986 among other things "to require * * the
petitioner * * to deposit upon proper receipt with Clerk of Court Juanito Ranjo the originals of the stock certificates alleged to be in
its possession or accessible to it, mentioned and described in Annex 'P' of its petition, (and other pleadings) * * within ten (10) days
from notice." 106 In a motion filed on December 5, 1986, 107 BASECO's counsel made the statement, quite surprising in the
premises, that "it will negotiate with the owners (of the BASECO stock in question) to allow petitioner to borrow from them, if
available, the certificates referred to" but that "it needs a more sufficient time therefor" (sic). BASECO's counsel however eventually
had to confess inability to produce the originals of the stock certificates, putting up the feeble excuse that while he had "requested
the stockholders to allow * * (him) to borrow said certificates, * * some of * * (them) claimed that they had delivered the
certificates to third parties by way of pledge and/or to secure performance of obligations, while others allegedly have entrusted
them to third parties in view of last national emergency." 108 He has conveniently omitted, nor has he offered to give the details of
the transactions adverted to by him, or to explain why he had not impressed on the supposed stockholders the primordial
importance of convincing this Court of their present custody of the originals of the stock, or if he had done so, why the stockholders
are unwilling to agree to some sort of arrangement so that the originals of their certificates might at the very least be exhibited to
the Court. Under the circumstances, the Court can only conclude that he could not get the originals from the stockholders for the
simple reason that, as the Solicitor General maintains, said stockholders in truth no longer have them in their possession, these
having already been assigned in blank to then President Marcos.
21. Facts Justify Issuance of Sequestration and Takeover Orders
In the light of the affirmative showing by the Government that, prima facie at least, the stockholders and directors of BASECO as of
April, 1986 109 were mere "dummies," nominees or alter egos of President Marcos; at any rate, that they are no longer owners of
any shares of stock in the corporation, the conclusion cannot be avoided that said stockholders and directors have no basis and no
standing whatever to cause the filing and prosecution of the instant proceeding; and to grant relief to BASECO, as prayed for in the
petition, would in effect be to restore the assets, properties and business sequestered and taken over by the PCGG to persons who
are "dummies," nominees or alter egos of the former president.
From the standpoint of the PCGG, the facts herein stated at some length do indeed show that the private corporation known as
BASECO was "owned or controlled by former President Ferdinand E. Marcos * * during his administration, * * through nominees, by
taking advantage of * * (his) public office and/or using * * (his) powers, authority, influence * *," and that NASSCO and other
property of the government had been taken over by BASECO; and the situation justified the sequestration as well as the provisional
takeover of the corporation in the public interest, in accordance with the terms of Executive Orders No. 1 and 2, pending the filing of
the requisite actions with the Sandiganbayan to cause divestment of title thereto from Marcos, and its adjudication in favor of the
Republic pursuant to Executive Order No. 14.
As already earlier stated, this Court agrees that this assessment of the facts is correct; accordingly, it sustains the acts of
sequestration and takeover by the PCGG as being in accord with the law, and, in view of what has thus far been set out in this
opinion, pronounces to be without merit the theory that said acts, and the executive orders pursuant to which they were done, are
fatally defective in not according to the parties affected prior notice and hearing, or an adequate remedy to impugn, set aside or
otherwise obtain relief therefrom, or that the PCGG had acted as prosecutor and judge at the same time.
22. Executive Orders Not a Bill of Attainder
Neither will this Court sustain the theory that the executive orders in question are a bill of attainder. 110 "A bill of attainder is a
legislative act which inflicts punishment without judicial trial." 111 "Its essence is the substitution of a legislative for a judicial
determination of guilt." 112
In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of guilt. On the
contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing
or acquisition of "ill-gotten wealth" is to be handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed
and prosecuted by the PCGG. In the second place, no punishment is inflicted by the executive orders, as the merest glance at their
provisions will immediately make apparent. In no sense, therefore, may the executive orders be regarded as a bill of attainder.
23. No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures
BASECO also contends that its right against self incrimination and unreasonable searches and seizures had been transgressed by the
Order of April 18, 1986 which required it "to produce corporate records from 1973 to 1986 under pain of contempt of the
Commission if it fails to do so." The order was issued upon the authority of Section 3 (e) of Executive Order No. 1, treating of the
PCGG's power to "issue subpoenas requiring * * the production of such books, papers, contracts, records, statements of accounts
and other documents as may be material to the investigation conducted by the Commission, " and paragraph (3), Executive Order
No. 2 dealing with its power to "require all persons in the Philippines holding * * (alleged "ill-gotten") assets or properties, whether
located in the Philippines or abroad, in their names as nominees, agents or trustees, to make full disclosure of the same * *." The
contention lacks merit.
It is elementary that the right against self-incrimination has no application to juridical persons.
While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not
follow that a corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse
ofsuchprivileges * * 113
Relevant jurisprudence is also cited by the Solicitor General. 114
* * corporations are not entitled to all of the constitutional protections which private individuals have. * * They are not at all within
the privilege against self-incrimination, although this court more than once has said that the privilege runs very closely with the 4th
Amendment's Search and Seizure provisions. It is also settled that an officer of the company cannot refuse to produce its records in
its possession upon the plea that they will either incriminate him or may incriminate it." (Oklahoma Press Publishing Co. v. Walling,
327 U.S. 186; emphasis, the Solicitor General's).
* * The corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It received certain
special privileges and franchises, and holds them subject to the laws of the state and the limitations of its charter. Its powers are
limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long
as it obeys the laws of its creation. There is a reserve right in the legislature to investigate its contracts and find out whether it has
exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation to make use of certain
franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been
abused, and demand the production of the corporate books and papers for that purpose. The defense amounts to this, that an
officer of the corporation which is charged with a criminal violation of the statute may plead the criminality of such corporation as a
refusal to produce its books. To state this proposition is to answer it. While an individual may lawfully refuse to answer incriminating
questions unless protected by an immunity statute, it does not follow that a corporation, vested with special privileges and franchises
may refuse to show its hand when charged with an abuse of such privileges. (Wilson v. United States, 55 Law Ed., 771, 780
[emphasis, the Solicitor General's])
At any rate, Executive Order No. 14-A, amending Section 4 of Executive Order No. 14 assures protection to individuals required to
produce evidence before the PCGG against any possible violation of his right against self-incrimination. It gives them immunity from
prosecution on the basis of testimony or information he is compelled to present. As amended, said Section 4 now provides that —
xxx xxx xxx
The witness may not refuse to comply with the order on the basis of his privilege against self-incrimination; but no testimony or
other information compelled under the order (or any information directly or indirectly derived from such testimony, or other
information) may be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or
otherwise failing to comply with the order.
The constitutional safeguard against unreasonable searches and seizures finds no application to the case at bar either. There has
been no search undertaken by any agent or representative of the PCGG, and of course no seizure on the occasion thereof.
24. Scope and Extent of Powers of the PCGG
One other question remains to be disposed of, that respecting the scope and extent of the powers that may be wielded by the PCGG
with regard to the properties or businesses placed under sequestration or provisionally taken over. Obviously, it is not a question to
which an answer can be easily given, much less one which will suffice for every conceivable situation.
a. PCGG May Not Exercise Acts of Ownership
One thing is certain, and should be stated at the outset: the PCGG cannot exercise acts of dominion over property sequestered,
frozen or provisionally taken over. AS already earlier stressed with no little insistence, the act of sequestration; freezing or
provisional takeover of property does not import or bring about a divestment of title over said property; does not make the PCGG
the owner thereof. In relation to the property sequestered, frozen or provisionally taken over, the PCGG is a conservator, not an
owner. Therefore, it can not perform acts of strict ownership; and this is specially true in the situations contemplated by the
sequestration rules where, unlike cases of receivership, for example, no court exercises effective supervision or can upon due
application and hearing, grant authority for the performance of acts of dominion.
Equally evident is that the resort to the provisional remedies in question should entail the least possible interference with business
operations or activities so that, in the event that the accusation of the business enterprise being "ill gotten" be not proven, it may be
returned to its rightful owner as far as possible in the same condition as it was at the time of sequestration.
b. PCGG Has Only Powers of Administration
The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over,
much like a court-appointed receiver, 115 such as to bring and defend actions in its own name; receive rents; collect debts due; pay
outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and
administrator. In this context, it may in addition enjoin or restrain any actual or threatened commission of acts by any person or
entity that may render moot and academic, or frustrate or otherwise make ineffectual its efforts to carry out its task; punish for
direct or indirect contempt in accordance with the Rules of Court; and seek and secure the assistance of any office, agency or
instrumentality of the government. 116 In the case of sequestered businesses generally (i.e., going concerns, businesses in current
operation), as in the case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker,
"watchdog" or overseer. It is not that of manager, or innovator, much less an owner.
c. Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him; Limitations Thereon
Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the government of the Marcos
Administration or by entities or persons close to former President Marcos," 117 the PCGG is given power and authority, as already
adverted to, to "provisionally take (it) over in the public interest or to prevent * * (its) disposal or dissipation;" and since the term is
obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical
custody is connoted; the PCGG may in this case exercise some measure of control in the operation, running, or management of the
business itself. But even in this special situation, the intrusion into management should be restricted to the minimum degree
necessary to accomplish the legislative will, which is "to prevent the disposal or dissipation" of the business enterprise. There should
be no hasty, indiscriminate, unreasoned replacement or substitution of management officials or change of policies, particularly in
respect of viable establishments. In fact, such a replacement or substitution should be avoided if at all possible, and undertaken only
when justified by demonstrably tenable grounds and in line with the stated objectives of the PCGG. And it goes without saying that
where replacement of management officers may be called for, the greatest prudence, circumspection, care and attention - should
accompany that undertaking to the end that truly competent, experienced and honest managers may be recruited. There should be
no role to be played in this area by rank amateurs, no matter how wen meaning. The road to hell, it has been said, is paved with
good intentions. The business is not to be experimented or played around with, not run into the ground, not driven to bankruptcy,
not fleeced, not ruined. Sight should never be lost sight of the ultimate objective of the whole exercise, which is to turn over the
business to the Republic, once judicially established to be "ill-gotten." Reason dictates that it is only under these conditions and
circumstances that the supervision, administration and control of business enterprises provisionally taken over may legitimately be
exercised.
d. Voting of Sequestered Stock; Conditions Therefor
So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise the prerogative to
vote sequestered stock of corporations, granted to it by the President of the Philippines through a Memorandum dated June 26,
1986. That Memorandum authorizes the PCGG, "pending the outcome of proceedings to determine the ownership of * *
(sequestered) shares of stock," "to vote such shares of stock as it may have sequestered in corporations at all stockholders' meetings
called for the election of directors, declaration of dividends, amendment of the Articles of Incorporation, etc." The Memorandum
should be construed in such a manner as to be consistent with, and not contradictory of the Executive Orders earlier promulgated
on the same matter. There should be no exercise of the right to vote simply because the right exists, or because the stocks
sequestered constitute the controlling or a substantial part of the corporate voting power. The stock is not to be voted to replace
directors, or revise the articles or by-laws, or otherwise bring about substantial changes in policy, program or practice of the
corporation except for demonstrably weighty and defensible grounds, and always in the context of the stated purposes of
sequestration or provisional takeover, i.e., to prevent the dispersion or undue disposal of the corporate assets. Directors are not to
be voted out simply because the power to do so exists. Substitution of directors is not to be done without reason or rhyme, should
indeed be shunned if at an possible, and undertaken only when essential to prevent disappearance or wastage of corporate
property, and always under such circumstances as assure that the replacements are truly possessed of competence, experience and
probity.
In the case at bar, there was adequate justification to vote the incumbent directors out of office and elect others in their stead
because the evidence showed prima facie that the former were just tools of President Marcos and were no longer owners of any
stock in the firm, if they ever were at all. This is why, in its Resolution of October 28, 1986; 118 this Court declared that —
Petitioner has failed to make out a case of grave abuse or excess of jurisdiction in respondents' calling and holding of a stockholders'
meeting for the election of directors as authorized by the Memorandum of the President * * (to the PCGG) dated June 26, 1986,
particularly, where as in this case, the government can, through its designated directors, properly exercise control and management
over what appear to be properties and assets owned and belonging to the government itself and over which the persons who
appear in this case on behalf of BASECO have failed to show any right or even any shareholding in said corporation.
It must however be emphasized that the conduct of the PCGG nominees in the BASECO Board in the management of the company's
affairs should henceforth be guided and governed by the norms herein laid down. They should never for a moment allow themselves
to forget that they are conservators, not owners of the business; they are fiduciaries, trustees, of whom the highest degree of
diligence and rectitude is, in the premises, required.
25. No Sufficient Showing of Other Irregularities
As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution of certain contracts,
inclusive of the termination of the employment of some of its executives, 119 this Court cannot, in the present state of the evidence
on record, pass upon them. It is not necessary to do so. The issues arising therefrom may and will be left for initial determination in
the appropriate action. But the Court will state that absent any showing of any important cause therefor, it will not normally
substitute its judgment for that of the PCGG in these individual transactions. It is clear however, that as things now stand, the
petitioner cannot be said to have established the correctness of its submission that the acts of the PCGG in question were done
without or in excess of its powers, or with grave abuse of discretion.
WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted.
Yap, Fernan, Paras, Gancayco and Sarmiento, JJ., concur.
G.R. No. 128690 January 21, 1999
ABS-CBN BROADCASTING CORPORATION, petitioner, vs. HONORABLE COURT OF APPEALS, REPUBLIC BROADCASTING CORP, VIVA
PRODUCTION, INC., and VICENTE DEL ROSARIO, respondents.
DAVIDE, JR., CJ.:
In this petition for review on certiorari, petitioner ABS-CBN Broadcasting Corp. (hereafter ABS-CBN) seeks to reverse and set aside
the decision 1 of 31 October 1996 and the resolution 2 of 10 March 1997 of the Court of Appeals in CA-G.R. CV No. 44125. The former
affirmed with modification the decision 3 of 28 April 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 80, in Civil Case
No. Q-92-12309. The latter denied the motion to reconsider the decision of 31 October 1996.
The antecedents, as found by the RTC and adopted by the Court of Appeals, are as follows:
In 1990, ABS-CBN and Viva executed a Film Exhibition Agreement (Exh. "A") whereby Viva gave ABS-CBN an exclusive right to exhibit
some Viva films. Sometime in December 1991, in accordance with paragraph 2.4 [sic] of said agreement stating that —.
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) Viva films for TV telecast under such terms as may be
agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN from the actual offer in writing.
Viva, through defendant Del Rosario, offered ABS-CBN, through its vice-president Charo Santos-Concio, a list of three(3) film
packages (36 title) from which ABS-CBN may exercise its right of first refusal under the afore-said agreement (Exhs. "1" par, 2, "2,"
"2-A'' and "2-B"-Viva). ABS-CBN, however through Mrs. Concio, "can tick off only ten (10) titles" (from the list) "we can purchase"
(Exh. "3" - Viva) and therefore did not accept said list (TSN, June 8, 1992, pp. 9-10). The titles ticked off by Mrs. Concio are not the
subject of the case at bar except the film ''Maging Sino Ka Man."
For further enlightenment, this rejection letter dated January 06, 1992 (Exh "3" - Viva) is hereby quoted:
6 January 1992
Dear Vic,
This is not a very formal business letter I am writing to you as I would like to express my difficulty in recommending the purchase of
the three film packages you are offering ABS-CBN.
From among the three packages I can only tick off 10 titles we can purchase. Please see attached. I hope you will understand my
position. Most of the action pictures in the list do not have big action stars in the cast. They are not for primetime. In line with this I
wish to mention that I have not scheduled for telecast several action pictures in out very first contract because of the cheap
production value of these movies as well as the lack of big action stars. As a film producer, I am sure you understand what I am
trying to say as Viva produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies as I can only schedule them in our non-primetime slots. We
have to cover the amount that was paid for these movies because as you very well know that non-primetime advertising rates are
very low. These are the unaired titles in the first contract.
1. Kontra Persa [sic].
2. Raider Platoon.
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. Lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have been rejected because of the ruling of MTRCB to have them aired
at 9:00 p.m. due to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please consider including all the other Viva movies produced last year. I
have quite an attractive offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBN's Ms. Concio, with a list consisting of 52 original movie titles (i.e.
not yet aired on television) including the 14 titles subject of the present case, as well as 104 re-runs (previously aired on television)
from which ABS-CBN may choose another 52 titles, as a total of 156 titles, proposing to sell to ABS-CBN airing rights over this
package of 52 originals and 52 re-runs for P60,000,000.00 of which P30,000,000.00 will be in cash and P30,000,000.00 worth of
television spots (Exh. "4" to "4-C" Viva; "9" -Viva).
On April 2, 1992, defendant Del Rosario and ABS-CBN general manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in
Quezon City to discuss the package proposal of Viva. What transpired in that lunch meeting is the subject of conflicting versions. Mr.
Lopez testified that he and Mr. Del Rosario allegedly agreed that ABS-CRN was granted exclusive film rights to fourteen (14) films for
a total consideration of P36 million; that he allegedly put this agreement as to the price and number of films in a "napkin'' and
signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78, June 8, 1992). On the other hand, Del Rosario denied having
made any agreement with Lopez regarding the 14 Viva films; denied the existence of a napkin in which Lopez wrote something; and
insisted that what he and Lopez discussed at the lunch meeting was Viva's film package offer of 104 films (52 originals and 52 re-
runs) for a total price of P60 million. Mr. Lopez promising [sic]to make a counter proposal which came in the form of a proposal
contract Annex "C" of the complaint (Exh. "1"·- Viva; Exh. "C" - ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior vice-president for Finance discussed the terms and conditions
of Viva's offer to sell the 104 films, after the rejection of the same package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his secretary, a handwritten note from Ms. Concio, (Exh. "5" - Viva),
which reads: "Here's the draft of the contract. I hope you find everything in order," to which was attached a draft exhibition
agreement (Exh. "C''- ABS-CBN; Exh. "9" - Viva, p. 3) a counter-proposal covering 53 films, 52 of which came from the list sent by
defendant Del Rosario and one film was added by Ms. Concio, for a consideration of P35 million. Exhibit "C" provides that ABS-CBN is
granted films right to 53 films and contains a right of first refusal to "1992 Viva Films." The said counter proposal was however
rejected by Viva's Board of Directors [in the] evening of the same day, April 7, 1992, as Viva would not sell anything less than the
package of 104 films for P60 million pesos (Exh. "9" - Viva), and such rejection was relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following several negotiations and meetings defendant Del Rosario and Viva's
President Teresita Cruz, in consideration of P60 million, signed a letter of agreement dated April 24, 1992. granting RBS the exclusive
right to air 104 Viva-produced and/or acquired films (Exh. "7-A" - RBS; Exh. "4" - RBS) including the fourteen (14) films subject of the
present case. 4
On 27 May 1992, ABS-CBN filed before the RTC a complaint for specific performance with a prayer for a writ of preliminary
injunction and/or temporary restraining order against private respondents Republic Broadcasting Corporation 5 (hereafter RBS ),
Viva Production (hereafter VIVA), and Vicente Del Rosario. The complaint was docketed as Civil Case No. Q-92-12309.
On 27 May 1992, RTC issued a temporary restraining order 6 enjoining private respondents from proceeding with the airing,
broadcasting, and televising of the fourteen VIVA films subject of the controversy, starting with the film Maging Sino Ka Man, which
was scheduled to be shown on private respondents RBS' channel 7 at seven o'clock in the evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an
order 7 directing the issuance of a writ of preliminary injunction upon ABS-CBN's posting of P35 million bond. ABS-CBN moved for
the reduction of the bond, 8 while private respondents moved for reconsideration of the order and offered to put up a
counterbound. 9
In the meantime, private respondents filed separate answers with counterclaim. 10 RBS also set up a cross-claim against VIVA..
On 3 August 1992, the RTC issued an order 11 dissolving the writ of preliminary injunction upon the posting by RBS of a P30 million
counterbond to answer for whatever damages ABS-CBN might suffer by virtue of such dissolution. However, it reduced petitioner's
injunction bond to P15 million as a condition precedent for the reinstatement of the writ of preliminary injunction should private
respondents be unable to post a counterbond.
At the pre-trial 12 on 6 August 1992, the parties, upon suggestion of the court, agreed to explore the possibility of an amicable
settlement. In the meantime, RBS prayed for and was granted reasonable time within which to put up a P30 million counterbond in
the event that no settlement would be reached.
As the parties failed to enter into an amicable settlement RBS posted on 1 October 1992 a counterbond, which the RTC approved in
its Order of 15 October 1992.13
On 19 October 1992, ABS-CBN filed a motion for reconsideration 14 of the 3 August and 15 October 1992 Orders, which RBS
opposed. 15
On 29 October 1992, the RTC conducted a pre-trial. 16
Pending resolution of its motion for reconsideration, ABS-CBN filed with the Court of Appeals a petition17challenging the RTC's
Orders of 3 August and 15 October 1992 and praying for the issuance of a writ of preliminary injunction to enjoin the RTC from
enforcing said orders. The case was docketed as CA-G.R. SP No. 29300.
On 3 November 1992, the Court of Appeals issued a temporary restraining order 18 to enjoin the airing, broadcasting, and televising
of any or all of the films involved in the controversy.
On 18 December 1992, the Court of Appeals promulgated a decision 19 dismissing the petition in CA -G.R. No. 29300 for being
premature. ABS-CBN challenged the dismissal in a petition for review filed with this Court on 19 January 1993, which was docketed
as G.R. No. 108363.
In the meantime the RTC received the evidence for the parties in Civil Case No. Q-192-1209. Thereafter, on 28 April 1993, it
rendered a decision 20 in favor of RBS and VIVA and against ABS-CBN disposing as follows:
WHEREFORE, under cool reflection and prescinding from the foregoing, judgments is rendered in favor of defendants and against
the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00, the amount of premium paid by RBS to the surety which issued defendant RBS's bond to lift the injunction;
b) P191,843.00 for the amount of print advertisement for "Maging Sino Ka Man" in various newspapers;
c) Attorney's fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For defendant VIVA, plaintiff ABS-CBN is ordered to pay P212,000.00 by way of reasonable attorney's fees.
(4) The cross-claim of defendant RBS against defendant VIVA is dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price and terms of the offer. The alleged agreement between Lopez III
and Del Rosario was subject to the approval of the VIVA Board of Directors, and said agreement was disapproved during the meeting
of the Board on 7 April 1992. Hence, there was no basis for ABS-CBN's demand that VIVA signed the 1992 Film Exhibition
Agreement. Furthermore, the right of first refusal under the 1990 Film Exhibition Agreement had previously been exercised per Ms.
Concio's letter to Del Rosario ticking off ten titles acceptable to them, which would have made the 1992 agreement an entirely new
contract.
On 21 June 1993, this Court denied21 ABS-CBN's petition for review in G.R. No. 108363, as no reversible error was committed by the
Court of Appeals in its challenged decision and the case had "become moot and academic in view of the dismissal of the main action
by the court a quo in its decision" of 28 April 1993.
Aggrieved by the RTC's decision, ABS-CBN appealed to the Court of Appeals claiming that there was a perfected contract between
ABS-CBN and VIVA granting ABS-CBN the exclusive right to exhibit the subject films. Private respondents VIVA and Del Rosario also
appealed seeking moral and exemplary damages and additional attorney's fees.
In its decision of 31 October 1996, the Court of Appeals agreed with the RTC that the contract between ABS-CBN and VIVA had not
been perfected, absent the approval by the VIVA Board of Directors of whatever Del Rosario, it's agent, might have agreed with
Lopez III. The appellate court did not even believe ABS-CBN's evidence that Lopez III actually wrote down such an agreement on a
"napkin," as the same was never produced in court. It likewise rejected ABS-CBN's insistence on its right of first refusal and
ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film Exhibition Agreement was entered into between Appellant
ABS-CBN and appellant VIVA under Exhibit "A" in 1990, and that parag. 1.4 thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four (24) VIVA films for TV telecast under such terms as may be
agreed upon by the parties hereto, provided, however, that such right shall be exercised by ABS-CBN within a period of fifteen (15)
days from the actual offer in writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-CBN shall still be subject to such terms as may be agreed upon
by the parties thereto, and that the said right shall be exercised by ABS-CBN within fifteen (15) days from the actual offer in writing.
Said parag. 1.4 of the agreement Exhibit "A" on the right of first refusal did not fix the price of the film right to the twenty-four (24)
films, nor did it specify the terms thereof. The same are still left to be agreed upon by the parties.
In the instant case, ABS-CBN's letter of rejection Exhibit 3 (Records, p. 89) stated that it can only tick off ten (10) films, and the draft
contract Exhibit "C" accepted only fourteen (14) films, while parag. 1.4 of Exhibit "A'' speaks of the next twenty-four (24) films.
The offer of V1VA was sometime in December 1991 (Exhibits 2, 2-A. 2-B; Records, pp. 86-88; Decision, p. 11, Records, p. 1150), when
the first list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice President of ABS-CBN, Ms. Charo Santos-Concio, sent a
letter dated January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised its right of refusal by rejecting the offer of VIVA.. As
aptly observed by the trial court, with the said letter of Mrs. Concio of January 6, 1992, ABS-CBN had lost its right of first refusal. And
even if We reckon the fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when another list was sent to ABS-CBN after
the letter of Mrs. Concio, still the fifteen (15) day period within which ABS-CBN shall exercise its right of first refusal has already
expired.22
Accordingly, respondent court sustained the award of actual damages consisting in the cost of print advertisements and the
premium payments for the counterbond, there being adequate proof of the pecuniary loss which RBS had suffered as a result of the
filing of the complaint by ABS-CBN. As to the award of moral damages, the Court of Appeals found reasonable basis therefor, holding
that RBS's reputation was debased by the filing of the complaint in Civil Case No. Q-92-12309 and by the non-showing of the film
"Maging Sino Ka Man." Respondent court also held that exemplary damages were correctly imposed by way of example or
correction for the public good in view of the filing of the complaint despite petitioner's knowledge that the contract with VIVA had
not been perfected, It also upheld the award of attorney's fees, reasoning that with ABS-CBN's act of instituting Civil Case No, Q-92-
1209, RBS was "unnecessarily forced to litigate." The appellate court, however, reduced the awards of moral damages to P2 million,
exemplary damages to P2 million, and attorney's fees to P500, 000.00.
On the other hand, respondent Court of Appeals denied VIVA and Del Rosario's appeal because it was "RBS and not VIVA which was
actually prejudiced when the complaint was filed by ABS-CBN."
Its motion for reconsideration having been denied, ABS-CBN filed the petition in this case, contending that the Court of Appeals
gravely erred in
I. . . RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN PETITIONER AND PRIVATE RESPONDENT VIVA
NOTWITHSTANDING PREPONDERANCE OF EVIDENCE ADDUCED BY PETITIONER TO THE CONTRARY.
II. . . IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.
III. . . IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF PRIVATE RESPONDENT RBS.
IV. . . IN AWARDING ATTORNEY'S FEES IN FAVOR OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal over twenty-four titles under the 1990 Film Exhibition
Agreement, as it had chosen only ten titles from the first list. It insists that we give credence to Lopez's testimony that he and Del
Rosario met at the Tamarind Grill Restaurant, discussed the terms and conditions of the second list (the 1992 Film Exhibition
Agreement) and upon agreement thereon, wrote the same on a paper napkin. It also asserts that the contract has already been
effective, as the elements thereof, namely, consent, object, and consideration were established. It then concludes that the Court of
Appeals' pronouncements were not supported by law and jurisprudence, as per our decision of 1 December 1995 in Limketkai Sons
Milling, Inc. v. Court of Appeals, 23 which cited Toyota Shaw, Inc. v. Court of Appeals, 24 Ang Yu Asuncion v. Court of
Appeals, 25 and Villonco Realty Company v. Bormaheco. Inc.26
Anent the actual damages awarded to RBS, ABS-CBN disavows liability therefor. RBS spent for the premium on the counterbond of
its own volition in order to negate the injunction issued by the trial court after the parties had ventilated their respective positions
during the hearings for the purpose. The filing of the counterbond was an option available to RBS, but it can hardly be argued that
ABS-CBN compelled RBS to incur such expense. Besides, RBS had another available option, i.e., move for the dissolution or the
injunction; or if it was determined to put up a counterbond, it could have presented a cash bond. Furthermore under Article 2203 of
the Civil Code, the party suffering loss or injury is also required to exercise the diligence of a good father of a family to minimize the
damages resulting from the act or omission. As regards the cost of print advertisements, RBS had not convincingly established that
this was a loss attributable to the non showing "Maging Sino Ka Man"; on the contrary, it was brought out during trial that with or
without the case or the injunction, RBS would have spent such an amount to generate interest in the film.
ABS-CBN further contends that there was no clear basis for the awards of moral and exemplary damages. The controversy involving
ABS-CBN and RBS did not in any way originate from business transaction between them. The claims for such damages did not arise
from any contractual dealings or from specific acts committed by ABS-CBN against RBS that may be characterized as wanton,
fraudulent, or reckless; they arose by virtue only of the filing of the complaint, An award of moral and exemplary damages is not
warranted where the record is bereft of any proof that a party acted maliciously or in bad faith in filing an action. 27 In any case, free
resort to courts for redress of wrongs is a matter of public policy. The law recognizes the right of every one to sue for that which he
honestly believes to be his right without fear of standing trial for damages where by lack of sufficient evidence, legal technicalities,
or a different interpretation of the laws on the matter, the case would lose ground. 28 One who makes use of his own legal right does
no injury. 29 If damage results front the filing of the complaint, it is damnum absque injuria. 30 Besides, moral damages are generally
not awarded in favor of a juridical person, unless it enjoys a good reputation that was debased by the offending party resulting in
social humiliation.31
As regards the award of attorney's fees, ABS-CBN maintains that the same had no factual, legal, or equitable justification. In
sustaining the trial court's award, the Court of Appeals acted in clear disregard of the doctrines laid down in Buan
v. Camaganacan 32 that the text of the decision should state the reason why attorney's fees are being awarded; otherwise, the
award should be disallowed. Besides, no bad faith has been imputed on, much less proved as having been committed by, ABS-CBN.
It has been held that "where no sufficient showing of bad faith would be reflected in a party' s persistence in a case other than an
erroneous conviction of the righteousness of his cause, attorney's fees shall not be recovered as cost." 33
On the other hand, RBS asserts that there was no perfected contract between ABS-CBN and VIVA absent any meeting of minds
between them regarding the object and consideration of the alleged contract. It affirms that the ABS-CBN's claim of a right of first
refusal was correctly rejected by the trial court. RBS insist the premium it had paid for the counterbond constituted a pecuniary loss
upon which it may recover. It was obliged to put up the counterbound due to the injunction procured by ABS-CBN. Since the trial
court found that ABS-CBN had no cause of action or valid claim against RBS and, therefore not entitled to the writ of injunction, RBS
could recover from ABS-CBN the premium paid on the counterbond. Contrary to the claim of ABS-CBN, the cash bond would prove
to be more expensive, as the loss would be equivalent to the cost of money RBS would forego in case the P30 million came from its
funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the cost of advertisements for the cancelled showing of the film "Maging Sino Ka Man"
because the print advertisements were put out to announce the showing on a particular day and hour on Channel 7, i.e., in its
entirety at one time, not a series to be shown on a periodic basis. Hence, the print advertisement were good and relevant for the
particular date showing, and since the film could not be shown on that particular date and hour because of the injunction, the
expenses for the advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN filed the case and secured injunctions purely for the purpose of
harassing and prejudicing RBS. Pursuant then to Article 19 and 21 of the Civil Code, ABS-CBN must be held liable for such
damages. Citing Tolentino,34 damages may be awarded in cases of abuse of rights even if the act done is not illicit and there is abuse
of rights were plaintiff institutes and action purely for the purpose of harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and exemplary damages, private respondents RBS cited People
v. Manero,35 where it was stated that such entity may recover moral and exemplary damages if it has a good reputation that is
debased resulting in social humiliation. it then ratiocinates; thus:
There can be no doubt that RBS' reputation has been debased by ABS-CBN's acts in this case. When RBS was not able to fulfill its
commitment to the viewing public to show the film "Maging Sino Ka Man" on the scheduled dates and times (and on two occasions
that RBS advertised), it suffered serious embarrassment and social humiliation. When the showing was canceled, late viewers called
up RBS' offices and subjected RBS to verbal abuse ("Announce kayo nang announce, hindi ninyo naman ilalabas," "nanloloko yata
kayo") (Exh. 3-RBS, par. 3). This alone was not something RBS brought upon itself. it was exactly what ABS-CBN had planned to
happen.
The amount of moral and exemplary damages cannot be said to be excessive. Two reasons justify the amount of the award.
The first is that the humiliation suffered by RBS is national extent. RBS operations as a broadcasting company is [sic] nationwide. Its
clientele, like that of ABS-CBN, consists of those who own and watch television. It is not an exaggeration to state, and it is a matter
of judicial notice that almost every other person in the country watches television. The humiliation suffered by RBS is multiplied by
the number of televiewers who had anticipated the showing of the film "Maging Sino Ka Man" on May 28 and November 3, 1992 but
did not see it owing to the cancellation. Added to this are the advertisers who had placed commercial spots for the telecast and to
whom RBS had a commitment in consideration of the placement to show the film in the dates and times specified.
The second is that it is a competitor that caused RBS to suffer the humiliation. The humiliation and injury are far greater in degree
when caused by an entity whose ultimate business objective is to lure customers (viewers in this case) away from the competition. 36
For their part, VIVA and Vicente del Rosario contend that the findings of fact of the trial court and the Court of Appeals do not
support ABS-CBN's claim that there was a perfected contract. Such factual findings can no longer be disturbed in this petition for
review under Rule 45, as only questions of law can be raised, not questions of fact. On the issue of damages and attorneys fees, they
adopted the arguments of RBS.
The key issues for our consideration are (1) whether there was a perfected contract between VIVA and ABS-CBN, and (2) whether
RBS is entitled to damages and attorney's fees. It may be noted that the award of attorney's fees of P212,000 in favor of VIVA is not
assigned as another error.
I.
The first issue should be resolved against ABS-CBN. A contract is a meeting of minds between two persons whereby one binds
himself to give something or to render some service to another 37 for a consideration. there is no contract unless the following
requisites concur: (1) consent of the contracting parties; (2) object certain which is the subject of the contract; and (3) cause of the
obligation, which is established.38 A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of
the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. 39
Contracts that are consensual in nature are perfected upon mere meeting of the minds, Once there is concurrence between the
offer and the acceptance upon the subject matter, consideration, and terms of payment a contract is produced. The offer must be
certain. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be
plain, unequivocal, unconditional, and without variance of any sort from the proposal. A qualified acceptance, or one that involves a
new proposal, constitutes a counter-offer and is a rejection of the original offer. Consequently, when something is desired which is
not exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or
variation from the terms of the offer annuls the offer.40
When Mr. Del Rosario of VIVA met with Mr. Lopez of ABS-CBN at the Tamarind Grill on 2 April 1992 to discuss the package of films,
said package of 104 VIVA films was VIVA's offer to ABS-CBN to enter into a new Film Exhibition Agreement. But ABS-CBN, sent,
through Ms. Concio, a counter-proposal in the form of a draft contract proposing exhibition of 53 films for a consideration of P35
million. This counter-proposal could be nothing less than the counter-offer of Mr. Lopez during his conference with Del Rosario at
Tamarind Grill Restaurant. Clearly, there was no acceptance of VIVA's offer, for it was met by a counter-offer which substantially
varied the terms of the offer.
ABS-CBN's reliance in Limketkai Sons Milling, Inc. v. Court of
Appeals 41 and Villonco Realty Company v. Bormaheco, Inc., 42 is misplaced. In these cases, it was held that an acceptance may
contain a request for certain changes in the terms of the offer and yet be a binding acceptance as long as "it is clear that the
meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not." This ruling
was, however, reversed in the resolution of 29 March 1996, 43 which ruled that the acceptance of all offer must be unqualified and
absolute, i.e., it "must be identical in all respects with that of the offer so as to produce consent or meeting of the minds."
On the other hand, in Villonco, cited in Limketkai, the alleged changes in the revised counter-offer were not material but merely
clarificatory of what had previously been agreed upon. It cited the statement in Stuart v. Franklin Life Insurance Co.44 that "a
vendor's change in a phrase of the offer to purchase, which change does not essentially change the terms of the offer, does not
amount to a rejection of the offer and the tender of a counter-offer." 45However, when any of the elements of the contract is
modified upon acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of VIVA's offer. Hence, they underwent a period of bargaining. ABS-CBN
then formalized its counter-proposals or counter-offer in a draft contract, VIVA through its Board of Directors, rejected such
counter-offer, Even if it be conceded arguendo that Del Rosario had accepted the counter-offer, the acceptance did not bind VIVA,
as there was no proof whatsoever that Del Rosario had the specific authority to do so.
Under Corporation Code,46 unless otherwise provided by said Code, corporate powers, such as the power; to enter into contracts;
are exercised by the Board of Directors. However, the Board may delegate such powers to either an executive committee or officials
or contracted managers. The delegation, except for the executive committee, must be for specific purposes, 47 Delegation to officers
makes the latter agents of the corporation; accordingly, the general rules of agency as to the bindings effects of their acts would
apply. 48 For such officers to be deemed fully clothed by the corporation to exercise a power of the Board, the latter must specially
authorize them to do so. That Del Rosario did not have the authority to accept ABS-CBN's counter-offer was best evidenced by his
submission of the draft contract to VIVA's Board of Directors for the latter's approval. In any event, there was between Del Rosario
and Lopez III no meeting of minds. The following findings of the trial court are instructive:
A number of considerations militate against ABS-CBN's claim that a contract was perfected at that lunch meeting on April 02, 1992 at
the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind Grill referred to the price and the number of films, which he
wrote on a napkin. However, Exhibit "C" contains numerous provisions which, were not discussed at the Tamarind Grill, if Lopez
testimony was to be believed nor could they have been physically written on a napkin. There was even doubt as to whether it was a
paper napkin or a cloth napkin. In short what were written in Exhibit "C'' were not discussed, and therefore could not have been
agreed upon, by the parties. How then could this court compel the parties to sign Exhibit "C" when the provisions thereof were not
previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the subject matter of the contract was 14 films. The complaint in fact
prays for delivery of 14 films. But Exhibit "C" mentions 53 films as its subject matter. Which is which If Exhibits "C" reflected the true
intent of the parties, then ABS-CBN's claim for 14 films in its complaint is false or if what it alleged in the complaint is true, then
Exhibit "C" did not reflect what was agreed upon by the parties. This underscores the fact that there was no meeting of the minds as
to the subject matter of the contracts, so as to preclude perfection thereof. For settled is the rule that there can be no contract
where there is no object which is its subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony (Exh. "D") states:
We were able to reach an agreement. VIVA gave us the exclusive license to show these fourteen (14) films, and we agreed to pay
Viva the amount of P16,050,000.00 as well as grant Viva commercial slots worth P19,950,000.00. We had already earmarked this
P16, 050,000.00.
which gives a total consideration of P36 million (P19,950,000.00 plus P16,050,000.00. equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q. What was written in this napkin?
A. The total price, the breakdown the known Viva movies, the 7 blockbuster movies and the other 7 Viva movies because the price
was broken down accordingly. The none [sic] Viva and the seven other Viva movies and the sharing between the cash portion and
the concerned spot portion in the total amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-CBN's claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she transmitted Exhibit "C" to Mr. Del Rosario with a handwritten note,
describing said Exhibit "C" as a "draft." (Exh. "5" - Viva; tsn pp. 23-24 June 08, 1992). The said draft has a well defined meaning.
Since Exhibit "C" is only a draft, or a tentative, provisional or preparatory writing prepared for discussion, the terms and conditions
thereof could not have been previously agreed upon by ABS-CBN and Viva Exhibit "C'' could not therefore legally bind Viva, not
having agreed thereto. In fact, Ms. Concio admitted that the terms and conditions embodied in Exhibit "C" were prepared by ABS-
CBN's lawyers and there was no discussion on said terms and conditions. . . .
As the parties had not yet discussed the proposed terms and conditions in Exhibit "C," and there was no evidence whatsoever that
Viva agreed to the terms and conditions thereof, said document cannot be a binding contract. The fact that Viva refused to sign
Exhibit "C" reveals only two [sic] well that it did not agree on its terms and conditions, and this court has no authority to compel Viva
to agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario agreed upon at the Tamarind Grill was only provisional, in the
sense that it was subject to approval by the Board of Directors of Viva. He testified:
Q. Now, Mr. Witness, and after that Tamarind meeting ... the second meeting wherein you claimed that you have the meeting of the
minds between you and Mr. Vic del Rosario, what happened?
A. Vic Del Rosario was supposed to call us up and tell us specifically the result of the discussion with the Board of Directors.
Q. And you are referring to the so-called agreement which you wrote in [sic] a piece of paper?
A. Yes, sir.
Q. So, he was going to forward that to the board of Directors for approval?
A. Yes, sir. (Tsn, pp. 42-43, June 8, 1992)
Q. Did Mr. Del Rosario tell you that he will submit it to his Board for approval?
A. Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew Mr. Del Rosario had no authority to bind Viva to a contract
with ABS-CBN until and unless its Board of Directors approved it. The complaint, in fact, alleges that Mr. Del Rosario "is the Executive
Producer of defendant Viva" which "is a corporation." (par. 2, complaint). As a mere agent of Viva, Del Rosario could not bind Viva
unless what he did is ratified by its Board of Directors. (Vicente vs. Geraldez, 52 SCRA 210; Arnold vs. Willetsand Paterson, 44 Phil.
634). As a mere agent, recognized as such by plaintiff, Del Rosario could not be held liable jointly and severally with Viva and his
inclusion as party defendant has no legal basis. (Salonga vs. Warner Barner [sic] , COLTA , 88 Phil. 125; Salmon vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are clear admissions that what was supposed to have been agreed
upon at the Tamarind Grill between Mr. Lopez and Del Rosario was not a binding agreement. It is as it should be because corporate
power to enter into a contract is lodged in the Board of Directors. (Sec. 23, Corporation Code). Without such board approval by the
Viva board, whatever agreement Lopez and Del Rosario arrived at could not ripen into a valid contract binding upon Viva (Yao Ka Sin
Trading vs. Court of Appeals, 209 SCRA 763). The evidence adduced shows that the Board of Directors of Viva rejected Exhibit "C"
and insisted that the film package for 140 films be maintained (Exh. "7-1" - Viva ). 49
The contention that ABS-CBN had yet to fully exercise its right of first refusal over twenty-four films under the 1990 Film Exhibition
Agreement and that the meeting between Lopez and Del Rosario was a continuation of said previous contract is untenable. As
observed by the trial court, ABS-CBN right of first refusal had already been exercised when Ms. Concio wrote to VIVA ticking off ten
films, Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this letter was sent, was for an entirely different package. Ms.
Concio herself admitted on cross-examination to having used or exercised the right of first refusal. She stated that the list was not
acceptable and was indeed not accepted by ABS-CBN, (TSN, June 8, 1992, pp. 8-10). Even Mr. Lopez himself admitted that the right
of the first refusal may have been already exercised by Ms. Concio (as she had). (TSN, June 8, 1992, pp. 71-75). Del Rosario himself
knew and understand [sic] that ABS-CBN has lost its rights of the first refusal when his list of 36 titles were rejected (Tsn, June 9,
1992, pp. 10-11) 50
II
However, we find for ABS-CBN on the issue of damages. We shall first take up actual damages. Chapter 2, Title XVIII, Book IV of the
Civil Code is the specific law on actual or compensatory damages. Except as provided by law or by stipulation, one is entitled to
compensation for actual damages only for such pecuniary loss suffered by him as he has duly proved. 51 The indemnification shall
comprehend not only the value of the loss suffered, but also that of the profits that the obligee failed to obtain. 52 In contracts and
quasi-contracts the damages which may be awarded are dependent on whether the obligor acted with good faith or otherwise, It
case of good faith, the damages recoverable are those which are the natural and probable consequences of the breach of the
obligation and which the parties have foreseen or could have reasonably foreseen at the time of the constitution of the obligation. If
the obligor acted with fraud, bad faith, malice, or wanton attitude, he shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation. 53 In crimes and quasi-delicts, the defendant shall be liable for all damages
which are the natural and probable consequences of the act or omission complained of, whether or not such damages has been
foreseen or could have reasonably been foreseen by the defendant. 54
Actual damages may likewise be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal
injury, or for injury to the plaintiff's business standing or commercial credit. 55
The claim of RBS for actual damages did not arise from contract, quasi-contract, delict, or quasi-delict. It arose from the fact of filing
of the complaint despite ABS-CBN's alleged knowledge of lack of cause of action. Thus paragraph 12 of RBS's Answer with
Counterclaim and Cross-claim under the heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no cause of action RBS. As a result thereof, RBS suffered actual
damages in the amount of P6,621,195.32. 56
Needless to state the award of actual damages cannot be comprehended under the above law on actual damages. RBS could only
probably take refuge under Articles 19, 20, and 21 of the Civil Code, which read as follows:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith.
Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for tile same.
Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage.
It may further be observed that in cases where a writ of preliminary injunction is issued, the damages which the defendant may
suffer by reason of the writ are recoverable from the injunctive bond. 57 In this case, ABS-CBN had not yet filed the required bond; as
a matter of fact, it asked for reduction of the bond and even went to the Court of Appeals to challenge the order on the matter,
Clearly then, it was not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot be held responsible for the premium RBS
paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for "Maging Sino Ka Man" for lack of sufficient legal basis. The RTC
issued a temporary restraining order and later, a writ of preliminary injunction on the basis of its determination that there existed
sufficient ground for the issuance thereof. Notably, the RTC did not dissolve the injunction on the ground of lack of legal and factual
basis, but because of the plea of RBS that it be allowed to put up a counterbond.
As regards attorney's fees, the law is clear that in the absence of stipulation, attorney's fees may be recovered as actual or
compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. 58
The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be
placed on the right to litigate.59 They are not to be awarded every time a party wins a suit. The power of the court to award
attorney's fees under Article 2208 demands factual, legal, and equitable justification. 60Even when claimant is compelled to litigate
with third persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where no sufficient showing of
bad faith could be reflected in a party's persistence in a case other than erroneous conviction of the righteousness of his cause. 61
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book IV of the Civil Code. Article 2217 thereof defines what are
included in moral damages, while Article 2219 enumerates the cases where they may be recovered, Article 2220 provides that moral
damages may be recovered in breaches of contract where the defendant acted fraudulently or in bad faith. RBS's claim for moral
damages could possibly fall only under item (10) of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered. and not to impose a
penalty on the wrongdoer.62 The award is not meant to enrich the complainant at the expense of the defendant, but to enable the
injured party to obtain means, diversion, or amusements that will serve to obviate then moral suffering he has undergone. It is
aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the
suffering inflicted.63 Trial courts must then guard against the award of exorbitant damages; they should exercise balanced restrained
and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial court. 64
The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence
only in legal contemplation, it has no feelings, no emotions, no senses, It cannot, therefore, experience physical suffering and mental
anguish, which call be experienced only by one having a nervous system. 65 The statement in People v. Manero 66 and Mambulao
Lumber Co. v. PNB 67 that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in social
humiliation" is an obiter dictum. On this score alone the award for damages must be set aside, since RBS is a corporation.
The basic law on exemplary damages is Section 5, Chapter 3, Title XVIII, Book IV of the Civil Code. These are imposed by way of
example or correction for the public good, in addition to moral, temperate, liquidated or compensatory damages. 68 They are
recoverable in criminal cases as part of the civil liability when the crime was committed with one or more aggravating
circumstances; 69 in quasi-contracts, if the defendant acted with gross negligence; 70 and in contracts and quasi-contracts, if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. 71
It may be reiterated that the claim of RBS against ABS-CBN is not based on contract, quasi-contract, delict, or quasi-delict, Hence, the
claims for moral and exemplary damages can only be based on Articles 19, 20, and 21 of the Civil Code.
The elements of abuse of right under Article 19 are the following: (1) the existence of a legal right or duty, (2) which is exercised in
bad faith, and (3) for the sole intent of prejudicing or injuring another. Article 20 speaks of the general sanction for all other
provisions of law which do not especially provide for their own sanction; while Article 21 deals with acts contra bonus mores, and
has the following elements; (1) there is an act which is legal, (2) but which is contrary to morals, good custom, public order, or public
policy, and (3) and it is done with intent to injure. 72
Verily then, malice or bad faith is at the core of Articles 19, 20, and 21. Malice or bad faith implies a conscious and intentional design
to do a wrongful act for a dishonest purpose or moral obliquity. 73 Such must be substantiated by evidence. 74
There is no adequate proof that ABS-CBN was inspired by malice or bad faith. It was honestly convinced of the merits of its cause
after it had undergone serious negotiations culminating in its formal submission of a draft contract. Settled is the rule that the
adverse result of an action does not per se make the action wrongful and subject the actor to damages, for the law could not have
meant to impose a penalty on the right to litigate. If damages result from a person's exercise of a right, it is damnum absque
injuria.75
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV No, 44125 is hereby
REVERSED except as to unappealed award of attorney's fees in favor of VIVA Productions, Inc.1âwphi1.nêt
No pronouncement as to costs.
SO ORDERED.
Melo, Kapunan, Martinez and Pardo JJ., concur.
G.R. No. L-18692 January 31, 1963
MANUEL B. RUIZ, plaintiff-appellant, vs. J.M. TUASON & CO., INC., ET AL., defendants-appellees.
Manuel B. Ruiz for and in his own behalf as plaintiff-appellant.
Tuason & Sison for defendants-appellees.
BAUTISTA ANGELO, J.:
Manuel B. Ruiz brought an action before the Court of Instance of Manila praying (a) that J. M. Tuason & Co., Inc. and the sheriff of
Quezon City be enjoined from executing the writ of execution issued in Civil Case No. Q-3492 against Sixto M. Cacho but which is
being enforced against him by ejecting him from the property in question and demolishing the house erected thereon, and (b) that
J.M. Tuason & Co., Inc., be ordered to execute a final deed of sale in his favor of a parcel of land with an area of 420 sq. m. upon
payment by him of the purchase price at the rate of P7.00 per sq. m. and to consider the sum of P855.00 already paid by him to
defendant Florencio Deudor as partial payment thereof.
Florencio Deudor, one of the defendants, filed a motion to dismiss on the grounds that (1) the venue of action is improperly laid, (2)
plaintiff has no cause of action against said defendant; and (3) plaintiff's cause of action, if any, has prescribed. Defendant J. M.
Tuason & Co., lnc., in turn filed a motion for bill of particulars.
Disregarding plaintiff's opposition to the motion to dismiss and while the motion for bill of particulars was pending consideration,
the court a quo, on March 11, 1961, issued an order dismissing the case on the ground that, the property in question being situated
in Quezon City, and the action being one affecting real property or involving title thereto, the venue of action is improperly laid. His
motion for reconsideration having been denied, plaintiff interposed the present appeal.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court,
without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts. 1äwphï1.ñët
The case having been dismissed on the basis of a mere motion to dismiss, the only facts that may be considered for the purpose of
this appeal are those alleged in the complaint. The pertinent facts may be stated as follows:
That ... defendant Florencio Deudor was ... the absolute owner and possessor of a piece of land situated in Barrio Tatalon, Quezon
City, Philippines, containing an area of ... 210,000 square meters, covered by a possessory information title in the name of his
deceased father, Telesforo Deudor, ....
That ... said Florencio Deudor, in consideration of the sum of ... P4,800.00, ... by way of absolute sale, sold, transferred and conveyed
unto Severino G. Navarro, Jose Dinglasan and Teofilo P. Bantug, ... a portion of the parcel of land referred to in the next preceding
paragraph, which portion is more particularly described as follows, to wit:
A parcel of land known as Lot No. 72 on Subdivision Plan, Psu — situated in the Barrio of Tatalon, Quezon City; Bounded on the
North by Lot No. 74; on the East by Lot No. 73; on the South by Quezon Blvd.; and on the West by Road; — Hunters ROTC Ave.; ....'
That ... after the sale aforestated ... said vendee, Jose Dinglasan, took possession of his portion of the land sold containing an area of
420 square meters, and built two houses of strong materials thereon declared for purposes of taxation in his name, under Tax No.
11876 and Tax No. 11935, both of Quezon City, ....
That sometime in ... 1950, Jose Dingsalan tried to make payments on the balance of the purchase price of the land aforestated, but
... Florencio Deudor refused to accept said payment because there was then pending an action (Civil Case No. Q-135) before the
Court of First Instance of Rizal, Quezon City Branch, involving the ownership of the parcel of land referred to above, and of which the
lot bought by Jose Dinglasan is a part, ....
That in Civil Case No. Q-135 above referred to, together with Civil Case Nos. Q-139, 174, 177 and 186 of the same Court, ... after a ...
joint trial the parties thereto, ... on March 16, 1953, entered into a 'Compromise Agreement', ... paragraph 7 of which provides:
SEVENTH. That the sales of the property rights claimed by the DEUDORS, are described in the lists submitted by them to the
OWNERS which are attached hereto marked Annexes "B" and "C" and made a part hereof. Whatever amounts may have been
collected by the DEUDORS on account thereof, shall be deducted from the total sum of P1,201,063.00 to be paid to them. It shall be
the joint and solidary obligation of the DEUDORS to make the buyers of the lots purportedly sold by them to recognize the title of
the OWNERS over the property purportedly bought by them, and to make them sign, whenever possible, new contracts of purchase
for said property at the current prices and terms specified by the OWNERS in their sales of lots to their subdivision known as "Sta.
Mesa Heights Subdivision." The DEUDORS hereby advise the OWNERS that the buyers listed in Annex "B" herein with the annotation
"continue" shall buy the lots respectively occupied by them and shall sign new contracts, but the sums already paid by them to the
DEUDORS amounting to P134,992.84 (subject to verification by the Court) shall be credited to the buyers and shall be deducted from
the sums to be paid to the DEUDORS by the OWNERS. The DEUDORS also advise the OWNERS that the buyers listed in Annex "C"
herein with the annotation "Refund" have decided not to continue with their former contracts of purchase with the DEUDORS and
the sums already paid by them to the DEUDORS totalling P101,182.42 (subject to verification by the Court) shall be refunded to
them by the OWNERS and deducted from the sums that may be due the DEUDORS from the OWNERS.'
That in the list of purchasers ... the name of Jose Dinglasan appears in Number 13 thereof, who has paid the amount of P865.00 ....
That our Honorable Supreme Court in the case of Lucina Evangelista vs. Deudor, et al., G.R. No. L-12826, promulgated on September
10, 1959, ruled and held that, by the said Compromise Agreement, a sort of contractual relation has existed between ... J.M. Tuason
& Co., Inc. and the purchaser of the land from the 'Deudors' as regards the sales of their respective lots, and that J.M. Tuason & Co.,
Inc. assumed certain obligations in favor of said purchasers, among whom is Jose Dinglasan, ....
That ... Jose Dinglasan sold, transferred and conveyed unto the spouses Sixto M. Cacho and Julita de Jesus, all his rights and interests
over the portion of land of 420 square meters referred to above, including all the improvements thereon, ... who in turn sold,
transferred and conveyed unto appellant all their rights and interest in the portion of land of 420 square meters .....
That immediately after said transfer, ... herein plaintiff took possession of said portion of land and the improvements thereon, in the
concept of an owner thereof, ....
That the subject property corresponds to a portion of Lot No. 10, Block No. 504 of the Subdivision plan of J. M. Tuason & Co., Inc. ...
located in Barrio Matalahib, Tatalon, Quezon City and covered by TCT No. 1267 of the Register of Deeds of Quezon City....
That ... plaintiff made a demand upon J. M. Tuason & Co., Inc., through its agent and administrator Gregorio Araneta, Inc., to execute
a new contract in his favor of the subject property ... at P7.00 per square meter pursuant to paragraph 7 of the Compromise
Agreement but ... Tuason & Co., through its agent Gregorio Araneta, Inc., refused to do so; ... that plaintiff was and is always ready
and willing to pay ... the price of the lot in question ... at the rate of P7.00 per square meter....
That ... Tuason & Co., on November 20, 1958, filed an action ... against Sixto M. Cacho in the Court of First Instance of Rizal, Quezon
City Branch IV, docketed as Civil Case No. Q-3492, wherein a judgment by default was rendered against Sixto M. Cacho .....
That ... J. M. Tuason & Co. secured a writ of execution of the aforementioned judgment by default against said Sixto M. Cacho in said
Civil Case No. Q-3492, dated May 20, 1959, and armed with said writ, and with the aid of the defendant Sheriff of Quezon City, now
threatens, and is about, to eject herein plaintiff from the property in question and demolish his houses therein, including the house
where he is now living .....
That the execution of the judgment against Sixto M. Cacho in Civil Case No. Q-3492 will ... cause irreparable injury ... and injustice to
the plaintiff ....
Appellant contends that the present action is transitory because it is one for specific performance and its object is to compel J. M.
Tuason & Co., Inc. to execute a final deed of sale of the property in question in favor of appellant founded upon compliance with the
compromise agreement wherein said company recognized the sale made by Florencio Deudor of said property in favor of Jose
Dinglasan who, in the same agreement, was recognized by the company as a purchaser who had already made partial payment of
the purchase price of the land.
This contention has no merit. Although appellant's complaint is entitled to be one for specific performance, yet the fact that he
asked that a deed of sale of a parcel of land situated in Quezon City be issued in his favor and that a transfer certificate of title
covering said land be issued to him shows that the primary objective and nature of the action is to recover the parcel of land itself
because to execute in favor of appellant the conveyance requested there is need to make a finding that he is the owner of the land
which in the last analysis resolves itself into an issue of ownership. Hence, the action must be commenced in the province where the
property is situated pursuant to Section 3, Rule 5, of the Rules of Court, which provides that actions affecting title to or recovery of
possession of real property shall be commenced and tried in the province where the property or any part thereof lies. This
contention finds support in the following authorities:
An action by which plaintiff seeks to have it adjudged that he is the owner of an undivided third of mining property, and to have
defendants directed to execute to him a conveyance thereof, is within Code Civ. Proc. Section 392, providing that actions for
recovery of real property or of an interest therein, or for the determination of such interest, must be tried in the country in which
the subject of the action is situated. (McFarland v. Martin, et al., 78 P. 239)
Suit by purchaser for ascertainment of amount due on contract and for vendors' execution of deed on payment thereof held suit for
specific performance, triable where land was situated. (Kopke v. Carlson. et al. 276 P. 606)
It should further be noted that among the reliefs prayed for in the complaint is the prayer that defendants J. M. Tuason & Co., Inc.
and the sheriff of Quezon City be enjoined from executing the writ of execution issued by court of first instance of said city in Civil
Case No. Q-3492 wherein said sheriff is allegedly trying to enforce against appellant by ejecting him and demolishing the house he
has on the land located in Quezon City, which claim necessarily involves a determination of ownership and possession of said
property as a preliminary step to determining the validity of the writ of execution. The complaint having been filed in the Court of
First Instance of Manila it is apparent that venue is improperly laid. This is in accordance with the rule that if an action necessarily
involves a determination of an interest in land, the suit must be brought in the place where the land is situated. The fact that an
injunction is sought as an ancillary to the principal action does not make the case transitory or personal.
The primary object of a suit for injunction is determinative on the question of venue. If the suit necessarily involves a determination
of an interest in land, the suit must be brought in the country where the land lies.... The fact that an injunction is sought as relief
ancillary to the main suit does not make it transitory." (92 C.J.S., pp. 748-749)
WHEREFORE, the order appealed from is affirmed. No costs.
G.R. No. 172428
HERMAN C. CRYSTAL, LAMBERTO C. CRYSTAL, ANN GEORGIA C. SOLANTE, and DORIS C. MAGLASANG, as Heirs of
Deceased SPOUSES RAYMUNDO QUISUMBING, J.,
I. CRYSTAL and DESAMPARADOS Chairperson,
C. CRYSTAL, CARPIO MORALES,
Petitioners, TINGA,
VELASCO, JR., and
BRION, JJ.
- versus -
Promulgated:
November 28, 2008
BANK OF THE PHILIPPINE ISLANDS,
Respondent.

x----------------------------------------------------------------------------x
DECISION
TINGA, J.:
Before us is a Petition for Review[1] of the Decision[2] and Resolution[3] of the Court of Appeals dated 24 October 2005 and 31 March
2006, respectively, in CA G.R. CV No. 72886, which affirmed the 8 June 2001 decision of the Regional Trial Court, Branch 5,
of Cebu City.[4]
The facts, as culled from the records, follow.
On 28 March 1978, spouses Raymundo and Desamparados Crystal obtained a P300,000.00 loan in behalf of the Cebu Contractors
Consortium Co. (CCCC) from the Bank of the Philippine Islands-Butuan branch (BPI-Butuan). The loan was secured by a chattel
mortgage on heavy equipment and machinery of CCCC. On the same date, the spouses executed in favor of BPI-Butuan a Continuing
Suretyship[5] where they bound themselves as surety of CCCC in the aggregate principal sum of not
exceeding P300,000.00.Thereafter, or on 29 March 1979, Raymundo Crystal executed a promissory note[6] for the amount
of P300,000.00, also in favor of BPI-Butuan.
Sometime in August 1979, CCCC renewed a previous loan, this time from BPI, Cebu City branch (BPI-Cebu City). The renewal was
evidenced by a promissory note[7] dated 13 August 1979, signed by the spouses in their personal capacities and as managing
partners of CCCC. The promissory note states that the spouses are jointly and severally liable with CCCC. It appears that before the
original loan could be granted, BPI-Cebu City required CCCC to put up a security.
However, CCCC had no real property to offer as security for the loan; hence, the spouses executed a real estate mortgage [8] over
their own real property on 22 September 1977.[9] On 3 October 1977, they executed another real estate mortgage over the same lot
in favor of BPI-Cebu City, to secure an additional loan of P20,000.00 of CCCC.[10]
CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City when they became due. CCCC, as well as the spouses, failed to pay
their obligations despite demands. Thus, BPI resorted to the foreclosure of the chattel mortgage and the real estate mortgage. The
foreclosure sale on the chattel mortgage was initially stalled with the issuance of a restraining order against BPI.[11] However,
following BPIs compliance with the necessary requisites of extrajudicial foreclosure, the foreclosure sale on the chattel mortgage
was consummated on 28 February 1988, with the proceeds amounting to P240,000.00 applied to the loan from BPI-Butuan which
had then reached P707,393.90.[12] Meanwhile, on 7 July 1981, Insular Bank of Asia and America (IBAA), through its Vice-President for
Legal and Corporate Affairs, offered to buy the lot subject of the two (2) real estate mortgages and to pay directly the spouses
indebtedness in exchange for the release of the mortgages. BPI rejected IBAAs offer to pay.[13]
BPI filed a complaint for sum of money against CCCC and the spouses before the Regional Trial Court of Butuan City (RTC Butuan),
seeking to recover the deficiency of the loan of CCCC and the spouses with BPI-Butuan. The trial court ruled in favor of BPI. Pursuant
to the decision, BPI instituted extrajudicial foreclosure of the spouses mortgaged property.[14]
On 10 April 1985, the spouses filed an action for Injunction With Damages, With A Prayer For A Restraining Order and/ or Writ of
Preliminary Injunction.[15] The spouses claimed that the foreclosure of the real estate mortgages is illegal because BPI should have
exhausted CCCCs properties first, stressing that they are mere guarantors of the renewed loans. They also prayed that they be
awarded moral and exemplary damages, attorneys fees, litigation expenses and cost of suit. Subsequently, the spouses filed an
amended complaint,[16] additionally alleging that CCCC had opened and maintained a foreign currency savings account (FCSA-197)
with bpi, Makati branch (BPI-Makati), and that said FCSA was used as security for a P450,000.00 loan also extended by BPI-
Makati. The P450,000.00 loan was allegedly paid, and thereafter the spouses demanded the return of the FCSA passbook. BPI
rejected the demand; thus, the spouses were unable to withdraw from the said account to pay for their other obligations to BPI.
The trial court dismissed the spouses complaint and ordered them to pay moral and exemplary damages and attorneys fees to
BPI.[17] It ruled that since the spouses agreed to bind themselves jointly and severally, they are solidarily liable for the loans; hence,
BPI can validly foreclose the two real estate mortgages. Moreover, being guarantors-mortgagors, the spouses are not entitled to the
benefit of exhaustion. Anent the FCSA, the trial court found that CCCC originally had FCDU SA No. 197 with BPI, Dewey Boulevard
branch, which was transferred to BPI-Makati as FCDU SA 76/0035, at the request of Desamparados Crystal. FCDU SA 76/0035 was
thus closed, but DesamparadosCrystal failed to surrender the passbook because it was lost. The transferred FCSA in BPI-Makati was
the one used as security for CCCCs P450,000.00 loan from BPI-Makati. CCCC was no longer allowed to withdraw from FCDU SA No.
197 because it was already closed.
The spouses appealed the decision of the trial court to the Court of Appeals, but their appeal was dismissed. [18] The spouses moved
for the reconsideration of the decision, but the Court of Appeals also denied their motion for reconsideration. [19] Hence, the present
petition.
Before the Court, petitioners who are the heirs of the spouses argue that the failure of the spouses to pay the BPI-Cebu City loan
of P120,000.00 was due to BPIs illegal refusal to accept payment for the loan unless the P300,000.00 loan from BPI-Butuan would
also be paid. Consequently, in view of BPIs unjust refusal to accept payment of the BPI-Cebu City loan, the loan obligation of the
spouses was extinguished, petitioners contend.
The contention has no merit. Petitioners rely on IBAAs offer to purchase the mortgaged lot from them and to directly pay BPI out of
the proceeds thereof to settle the loan.[20]BPIs refusal to agree to such payment scheme cannot extinguish the spouses loan
obligation. In the first place, IBAA is not privy to the loan agreement or the promissory note between the spouses and BPI. Contracts,
after all, take effect only between the parties, their successors in interest, heirs and assigns.[21] Besides, under Art. 1236 of the Civil
Code, the creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the
obligation, unless there is a stipulation to the contrary. We see no stipulation in the promissory note which states that a third person
may fulfill the spouses obligation. Thus, it is clear that the spouses alone bear responsibility for the same.
In any event, the promissory note is the controlling repository of the obligation of the spouses. Under the promissory note, the
spouses defined the parameters of their obligation as follows:
On or before June 29, 1980 on demand, for value received, I/we promise to pay, jointly and severally, to the BANK OF THE
PHILIPPINE ISLANDS, at its office in the city of Cebu Philippines, the sum of ONE HUNDRED TWENTY THOUSAND
PESOS (P120,0000.00), Philippine Currency, subject to periodic installments on the principal as follows: P30,000.00 quarterly
amortization starting September 28, 1979. x x x [22]
A solidary obligation is one in which each of the debtors is liable for the entire obligation, and each of the creditors is entitled to
demand the satisfaction of the whole obligation from any or all of the debtors. [23] A liability is solidary only when the obligation
expressly so states, when the law so provides or when the nature of the obligation so requires.[24] Thus, when the obligor undertakes
to be jointly and severally liable, it means that the obligation is solidary, [25] such as in this case. By stating I/we promise to pay, jointly
and severally, to the BANK OF THE PHILIPPINE ISLANDS, the spouses agreed to be sought out and be demanded payment from, by
BPI. BPI did demand payment from them, but they failed to comply with their obligation, prompting BPIs valid resort to the
foreclosure of the chattel mortgage and the real estate mortgages.
More importantly, the promissory note, wherein the spouses undertook to be solidarily liable for the principal loan, partakes the
nature of a suretyship and therefore is an additional security for the loan. Thus we held in one case that if solidary liability was
instituted to guarantee a principal obligation, the law deems the contract to be one of suretyship. [26] And while a contract of a surety
is in essence secondary only to a valid principal obligation, the suretys liability to the creditor or promisee of the principal is said to
be direct, primary, and absolute; in other words, the surety is directly and equally bound with the principal. The surety therefore
becomes liable for the debt or duty of another even if he possesses no direct or personal interest over the obligations nor does he
receive any benefit therefrom.[27]
Petitioners contend that the Court of Appeals erred in not granting their counterclaims, considering that they suffered moral
damages in view of the unjust refusal of BPI to accept the payment scheme proposed by IBAA and the allegedly unjust and illegal
foreclosure of the real estate mortgages on their property.[28] Conversely, they argue that the Court of Appeals erred in awarding
moral damages to BPI, which is a corporation, as well as exemplary damages, attorneys fees and expenses of litigation. [29]
We do not agree. Moral damages are meant to compensate the claimant for any physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injuries unjustly caused. [30] Such
damages, to be recoverable, must be the proximate result of a wrongful act or omission the factual basis for which is satisfactorily
established by the aggrieved party.[31] There being no wrongful or unjust act on the part of BPI in demanding payment from them
and in seeking the foreclosure of the chattel and real estate mortgages, there is no lawful basis for award of damages in favor of
the spouses.
Neither is BPI entitled to moral damages. A juridical person is generally not entitled to moral damages because, unlike a natural
person, it cannot experience physical suffering or such sentiments as wounded feelings, serious anxiety, mental anguish or moral
shock.[32] The Court of Appeals found BPI as being famous and having gained its familiarity and respect not only in the Philippines but
also in the whole world because of its good will and good reputation must protect and defend the same against any unwarranted
suit such as the case at bench.[33] In holding that BPI is entitled to moral damages, the Court of Appeals relied on the case of People
v. Manero,[34] wherein the Court ruled that [i]t is only when a juridical person has a good reputation that is debased, resulting in
social humiliation, that moral damages may be awarded.[35]
We do not agree with the Court of Appeals. A statement similar to that made by the Court in Manero can be found in the case
of Mambulao Lumber Co. v. PNB, et al.,[36] thus:
x x x Obviously, an artificial person like herein appellant corporation cannot experience physical sufferings, mental anguish, fright,
serious anxiety, wounded feelings, moral shock or social humiliation which are basis of moral damages. A corporation may have
good reputation which, if besmirched may also be a ground for the award of moral damages. x x x (Emphasis supplied)
Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of Appeals, et al.,[37] and Filipinas Broadcasting Network, Inc. v. Ago
Medical and Educational Center-Bicol Christian College of Medicine (AMEC-BCCM),[38] the Court held that the
statements in Manero and Mambulao were mere obiter dicta, implying that the award of moral damages to corporations is not a
hard and fast rule. Indeed, while the Court may allow the grant of moral damages to corporations, it is not automatically granted;
there must still be proof of the existence of the factual basis of the damage and its causal relation to the defendants acts. This is so
because moral damages, though incapable of pecuniary estimation, are in the category of an award designed to compensate the
claimant for actual injury suffered and not to impose a penalty on the wrongdoer. [39]
The spouses complaint against BPI proved to be unfounded, but it does not automatically entitle BPI to moral damages. Although
the institution of a clearly unfounded civil suit can at times be a legal justification for an award of attorney's fees, such filing,
however, has almost invariably been held not to be a ground for an award of moral damages. The rationale for the rule is that the
law could not have meant to impose a penalty on the right to litigate. Otherwise, moral damages must every time be awarded in
favor of the prevailing defendant against an unsuccessful plaintiff. [40] BPI may have been inconvenienced by the suit, but we do not
see how it could have possibly suffered besmirched reputation on account of the single suit alone. Hence, the award of moral
damages should be deleted.
The awards of exemplary damages and attorneys fees, however, are proper. Exemplary damages, on the other hand, are imposed by
way of example or correction for the public good, when the party to a contract acts in a wanton, fraudulent, oppressive or
malevolent manner, while attorneys fees are allowed when exemplary damages are awarded and when the party to a suit is
compelled to incur expenses to protect his interest.[41] The spouses instituted their complaint against BPI notwithstanding the fact
that they were the ones who failed to pay their obligations. Consequently, BPI was forced to litigate and defend its interest. For
these reasons, BPI is entitled to the awards of exemplary damages and attorneys fees.
WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals dated 24 October 2005 and 31 March
2006, respectively, are hereby AFFIRMED, with the MODIFICATION that the award of moral damages to Bank of the Philippine
Islands is DELETED.
Costs against the petitioners.
SO ORDERED.