EN BANC Further, you are authorized to request for Military/Security Support from the d.
urther, you are authorized to request for Military/Security Support from the
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.
d. Aborted Contract for Improvement of Wharf at Engineer Island
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
Thereafter, Capt. Siacunco, sent letters to Hilario M. Ruiz, Manuel S. Mendoza,
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
Moises M. Valdez, Gilberto Pasimanero, and Benito R. Cuesta I, advising of the
termination of their services by the PCGG. 10
2. Petitioner's Plea and Postulates
It is the foregoing specific orders and acts of the PCGG and its members and agents
which, to repeat, petitioner BASECO would have this Court nullify. More
particularly, BASECO prays that this Court-
1) declare unconstitutional and void Executive Orders Numbered 1 and
2;
2) annul the sequestration order dated April- 14, 1986, and all other
orders subsequently issued and acts done on the basis thereof, inclusive of the
takeover order of July 14, 1986 and the termination of the services of the BASECO
executives. 11
a. Re Executive Orders No. 1 and 2, and the Sequestration and Takeover Orders
While BASECO concedes that "sequestration without resorting to judicial action,
might be made within the context of Executive Orders Nos. 1 and 2 before March
25, 1986 when the Freedom Constitution was promulgated, under the principle that
the law promulgated by the ruler under a revolutionary regime is the law of the
land, it ceased to be acceptable when the same ruler opted to promulgate the
Freedom Constitution on March 25, 1986 wherein under Section I of the same,
Article IV (Bill of Rights) of the 1973 Constitution was adopted providing, among
others, that "No person shall be deprived of life, liberty and property without due
process of law." (Const., Art. I V, Sec. 1)." 12
It declares that its objection to the constitutionality of the Executive Orders "as well
as the Sequestration Order * * and Takeover Order * * issued purportedly under
the authority of said Executive Orders, rests on four fundamental considerations:
First, no notice and hearing was accorded * * (it) before its properties and business
were taken over; Second, the PCGG is not a court, but a purely investigative agency
and therefore not competent to act as prosecutor and judge in the same cause;
Third, there is nothing in the issuances which envisions any proceeding, process or
remedy by which petitioner may expeditiously challenge the validity of the takeover
after the same has been effected; and Fourthly, being directed against specified
persons, and in disregard of the constitutional presumption of innocence and
general rules and procedures, they constitute a Bill of Attainder." 13
b. Re Order to Produce Documents
It argues that the order to produce corporate records from 1973 to 1986, which it
has apparently already complied with, was issued without court authority and
infringed its constitutional right against self-incrimination, and unreasonable search
and seizure. 14
c. Re PCGG's Exercise of Right of Ownership and Management
BASECO further contends that the PCGG had unduly interfered with its right of
dominion and management of its business affairs by —
1) terminating its contract for security services with Fairways & Anchor,
without the consent and against the will of the contracting parties; and amending
the mode of payment of entry fees stipulated in its Lease Contract with National
Stevedoring & Lighterage Corporation, these acts being in violation of the non-
impairment clause of the constitution; 15
2) allowing PCGG Agent Silverio Berenguer to enter into an "anomalous
contract" with Deltamarine Integrated Port Services, Inc., giving the latter free use
of BASECO premises; 16
3) authorizing PCGG Agent, Mayor Melba Buenaventura, to manage and
operate its rock quarry at Sesiman, Mariveles; 17
4) authorizing the same mayor to sell or dispose of its metal scrap,
equipment, machinery and other materials; 18
5) authorizing the takeover of BASECO, Philippine Dockyard Corporation,
and all their affiliated companies;

6) terminating the services of BASECO executives: President Hilario M.
Ruiz; EVP Manuel S. Mendoza; GM Moises M. Valdez; Finance Mgr. Gilberto
Pasimanero; Legal Dept. Mgr. Benito R. Cuesta I; 19
7) planning to elect its own Board of Directors; 20
8) allowing willingly or unwillingly its personnel to take, steal, carry away
from petitioner's premises at Mariveles * * rolls of cable wires, worth P600,000.00
on May 11, 1986; 21
9) allowing "indiscriminate diggings" at Engineer Island to retrieve gold
bars supposed to have been buried therein. 22
3. Doubts, Misconceptions regarding Sequestration, Freeze and
Takeover Orders
Many misconceptions and much doubt about the matter of sequestration, takeover
and freeze orders have been engendered by misapprehension, or incomplete
comprehension if not indeed downright ignorance of the law governing these
remedies. It is needful that these misconceptions and doubts be dispelled so that
uninformed and useless debates about them may be avoided, and arguments
tainted b sophistry or intellectual dishonesty be quickly exposed and discarded.
Towards this end, this opinion will essay an exposition of the law on the matter. In
the process many of the objections raised by BASECO will be dealt with.
4. The Governing Law
a. Proclamation No. 3
The impugned executive orders are avowedly meant to carry out the explicit
command of the Provisional Constitution, ordained by Proclamation No. 3, 23 that
the President-in the exercise of legislative power which she was authorized to
continue to wield "(until a legislature is elected and convened under a new
Constitution" — "shall give priority to measures to achieve the mandate of the
people," among others to (r)ecover ill-gotten properties amassed by the leaders and
supporters of the previous regime and protect the interest of the people through
orders of sequestration or freezing of assets or accounts." 24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent need to recover all ill-gotten wealth,"
and postulates that "vast resources of the government have been amassed by
former President Ferdinand E. Marcos, his immediate family, relatives, and close
associates both here and abroad." 25 Upon these premises, the Presidential
Commission on Good Government was created, 26 "charged with the task of
assisting the President in regard to (certain specified) matters," among which was
precisely-
* * The recovery of all in-gotten wealth accumulated by former President Ferdinand
E. Marcos, his immediate family, relatives, subordinates and close associates,
whether located in the Philippines or abroad, including the takeover or
sequestration of all business enterprises and entities owned or controlled by them,
during his administration, directly or through nominees, by taking undue advantage
of their public office and/or using their powers, authority, influence, connections or
relationship. 27
In relation to the takeover or sequestration that it was authorized to undertake in
the fulfillment of its mission, the PCGG was granted "power and authority" to do
the following particular acts, to wit:
1. To sequester or place or cause to be placed under its control or possession any
building or office wherein any ill-gotten wealth or properties may be found, and any
records pertaining thereto, in order to prevent their destruction, concealment or
disappearance which would frustrate or hamper the investigation or otherwise
prevent the Commission from accomplishing its task.
2. To provisionally take over in the public interest or to prevent the disposal or
dissipation, business enterprises and properties taken over by the government of
the Marcos Administration or by entities or persons close to former President
Marcos, until the transactions leading to such acquisition by the latter can be
disposed of by the appropriate authorities.
3. To enjoin or restrain any actual or threatened commission of acts by any person
or entity that may render moot and academic, or frustrate or otherwise make
ineffectual the efforts of the Commission to carry out its task under this order. 28
So that it might ascertain the facts germane to its objectives, it was granted power
to conduct investigations; require submission of evidence by subpoenae ad
testificandum and duces tecum; administer oaths; punish for contempt. 29 It was
given power also to promulgate such rules and regulations as may be necessary to
carry out the purposes of * * (its creation). 30
c. Executive Order No. 2
Executive Order No. 2 gives additional and more specific data and directions
respecting "the recovery of ill-gotten properties amassed by the leaders and
supporters of the previous regime." It declares that:
1) * * the Government of the Philippines is in possession of evidence showing that
there are assets and properties purportedly pertaining to former Ferdinand E.
Marcos, and/or his wife Mrs. Imelda Romualdez Marcos, their close relatives,
subordinates, business associates, dummies, agents or nominees which had been
or were acquired by them directly or indirectly, through or as a result of the
improper or illegal use of funds or properties owned by the government of the
Philippines or any of its branches, instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of their office, authority, influence,
connections or relationship, resulting in their unjust enrichment and causing grave
damage and prejudice to the Filipino people and the Republic of the Philippines:"
and
2) * * said assets and properties are in the form of bank accounts, deposits, trust
accounts, shares of stocks, buildings, shopping centers, condominiums, mansions,
residences, estates, and other kinds of real and personal properties in the
Philippines and in various countries of the world." 31
Upon these premises, the President-
1) froze "all assets and properties in the Philippines in which former President
Marcos and/or his wife, Mrs. Imelda Romualdez Marcos, their close relatives,
subordinates, business associates, dummies, agents, or nominees have any interest
or participation;
2) prohibited former President Ferdinand Marcos and/or his wife * *, their close
relatives, subordinates, business associates, duties, agents, or nominees from
transferring, conveying, encumbering, concealing or dissipating said assets or
properties in the Philippines and abroad, pending the outcome of appropriate
proceedings in the Philippines to determine whether any such assets or properties
were acquired by them through or as a result of improper or illegal use of or the
conversion of funds belonging to the Government of the Philippines or any of its
branches, instrumentalities, enterprises, banks or financial institutions, or by taking
undue advantage of their official position, authority, relationship, connection or
influence to unjustly enrich themselves at the expense and to the grave damage
and prejudice of the Filipino people and the Republic of the Philippines;
3) prohibited "any person from transferring, conveying, encumbering or
otherwise depleting or concealing such assets and properties or from assisting or
taking part in their transfer, encumbrance, concealment or dissipation under pain
of such penalties as are prescribed by law;" and
4) required "all persons in the Philippines holding such assets or properties, whether
located in the Philippines or abroad, in their names as nominees, agents or trustees,
to make full disclosure of the same to the Commission on Good Government within
thirty (30) days from publication of * (the) Executive Order, * *. 32
d. Executive Order No. 14
A third executive order is relevant: Executive Order No. 14, 33 by which the PCGG
is empowered, "with the assistance of the Office of the Solicitor General and other
government agencies, * * to file and prosecute all cases investigated by it * * as may
be warranted by its findings." 34 All such cases, whether civil or criminal, are to be
filed "with the Sandiganbayan which shall have exclusive and original jurisdiction
thereof." 35 Executive Order No. 14 also pertinently provides that civil suits for
restitution, reparation of damages, or indemnification for consequential damages,
forfeiture proceedings provided for under Republic Act No. 1379, or any other civil
actions under the Civil Code or other existing laws, in connection with * * (said
Executive Orders Numbered 1 and 2) may be filed separately from and proceed
independently of any criminal proceedings and may be proved by a preponderance
of evidence;" and that, moreover, the "technical rules of procedure and evidence
shall not be strictly applied to* * (said)civil cases." 36
5. Contemplated Situations
The situations envisaged and sought to be governed are self-evident, these being:
1) that "(i)ll-gotten properties (were) amassed by the leaders and supporters of the
previous regime"; 37
a) more particularly, that ill-gotten wealth (was) accumulated by former President
Ferdinand E. Marcos, his immediate family, relatives, subordinates and close
associates, * * located in the Philippines or abroad, * * (and) business enterprises
and entities (came to be) owned or controlled by them, during * * (the Marcos)
administration, directly or through nominees, by taking undue advantage of their
public office and/or using their powers, authority, influence, Connections or
relationship; 38
b) otherwise stated, that "there are assets and properties purportedly pertaining to
former President Ferdinand E. Marcos, and/or his wife Mrs. Imelda Romualdez
Marcos, their close relatives, subordinates, business associates, dummies, agents or
nominees which had been or were acquired by them directly or indirectly, through
or as a result of the improper or illegal use of funds or properties owned by the
Government of the Philippines or any of its branches, instrumentalities, enterprises,
banks or financial institutions, or by taking undue advantage of their office,
authority, influence, connections or relationship, resulting in their unjust
enrichment and causing grave damage and prejudice to the Filipino people and the
Republic of the Philippines"; 39
c) that "said assets and properties are in the form of bank accounts. deposits, trust.
accounts, shares of stocks, buildings, shopping centers, condominiums, mansions,
residences, estates, and other kinds of real and personal properties in the
Philippines and in various countries of the world;" 40 and
2) that certain "business enterprises and properties (were) taken over by the
government of the Marcos Administration or by entities or persons close to former
President Marcos. 41
6. Government's Right and Duty to Recover All Ill-gotten Wealth
There can be no debate about the validity and eminent propriety of the
Government's plan "to recover all ill-gotten wealth."
Neither can there be any debate about the proposition that assuming the above
described factual premises of the Executive Orders and Proclamation No. 3 to be
true, to be demonstrable by competent evidence, the recovery from Marcos, his
family and his dominions of the assets and properties involved, is not only a right
but a duty on the part of Government.
But however plain and valid that right and duty may be, still a balance must be
sought with the equally compelling necessity that a proper respect be accorded and
adequate protection assured, the fundamental rights of private property and free
enterprise which are deemed pillars of a free society such as ours, and to which all
members of that society may without exception lay claim.
* * Democracy, as a way of life enshrined in the Constitution, embraces as its
necessary components freedom of conscience, freedom of expression, and freedom
in the pursuit of happiness. Along with these freedoms are included economic
freedom and freedom of enterprise within reasonable bounds and under proper
control. * * Evincing much concern for the protection of property, the Constitution
distinctly recognizes the preferred position which real estate has occupied in law
for ages. Property is bound up with every aspect of social life in a democracy as
democracy is conceived in the Constitution. The Constitution realizes the
indispensable role which property, owned in reasonable quantities and used
legitimately, plays in the stimulation to economic effort and the formation and
growth of a solid social middle class that is said to be the bulwark of democracy and
the backbone of every progressive and happy country. 42
a. Need of Evidentiary Substantiation in Proper Suit
Consequently, the factual premises of the Executive Orders cannot simply be
assumed. They will have to be duly established by adequate proof in each case, in a
proper judicial proceeding, so that the recovery of the ill-gotten wealth may be
validly and properly adjudged and consummated; although there are some who
maintain that the fact-that an immense fortune, and "vast resources of the
government have been amassed by former President Ferdinand E. Marcos, his
immediate family, relatives, and close associates both here and abroad," and they
have resorted to all sorts of clever schemes and manipulations to disguise and hide
their illicit acquisitions-is within the realm of judicial notice, being of so extensive
notoriety as to dispense with proof thereof, Be this as it may, the requirement of
evidentiary substantiation has been expressly acknowledged, and the procedure to
be followed explicitly laid down, in Executive Order No. 14.
b. Need of Provisional Measures to Collect and Conserve Assets Pending Suits
Nor may it be gainsaid that pending the institution of the suits for the recovery of
such "ill-gotten wealth" as the evidence at hand may reveal, there is an obvious and
imperative need for preliminary, provisional measures to prevent the concealment,
disappearance, destruction, dissipation, or loss of the assets and properties subject
of the suits, or to restrain or foil acts that may render moot and academic, or
effectively hamper, delay, or negate efforts to recover the same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed three (3) provisional remedies. These
are: (1) sequestration; (2) freeze orders; and (3) provisional takeover.
Sequestration and freezing are remedies applicable generally to unearthed
instances of "ill-gotten wealth." The remedy of "provisional takeover" is peculiar to
cases where "business enterprises and properties (were) taken over by the
government of the Marcos Administration or by entities or persons close to former
President Marcos." 43
a. Sequestration
By the clear terms of the law, the power of the PCGG to sequester property claimed
to be "ill-gotten" means to place or cause to be placed under its possession or
control said property, or any building or office wherein any such property and any
records pertaining thereto may be found, including "business enterprises and
entities,"-for the purpose of preventing the destruction, concealment or dissipation
of, and otherwise conserving and preserving, the same-until it can be determined,
through appropriate judicial proceedings, whether the property was in truth will-
gotten," i.e., acquired through or as a result of improper or illegal use of or the
conversion of funds belonging to the Government or any of its branches,
instrumentalities, enterprises, banks or financial institutions, or by taking undue
advantage of official position, authority relationship, connection or influence,
resulting in unjust enrichment of the ostensible owner and grave damage and
prejudice to the State. 44 And this, too, is the sense in which the term is commonly
understood in other jurisdictions. 45
b. "Freeze Order"
A "freeze order" prohibits the person having possession or control of property
alleged to constitute "ill-gotten wealth" "from transferring, conveying,
encumbering or otherwise depleting or concealing such property, or from assisting
or taking part in its transfer, encumbrance, concealment, or dissipation." 46 In other
words, it commands the possessor to hold the property and conserve it subject to
the orders and disposition of the authority decreeing such freezing. In this sense, it
is akin to a garnishment by which the possessor or ostensible owner of property is
enjoined not to deliver, transfer, or otherwise dispose of any effects or credits in his
possession or control, and thus becomes in a sense an involuntary depositary
thereof. 47
c. Provisional Takeover
In providing for the remedy of "provisional takeover," the law acknowledges the
apparent distinction between "ill gotten" "business enterprises and entities" (going
concerns, businesses in actual operation), generally, as to which the remedy of
sequestration applies, it being necessarily inferred that the remedy entails no
interference, or the least possible interference with the actual management and
operations thereof; and "business enterprises which were taken over by the
government government of the Marcos Administration or by entities or persons
close to him," in particular, as to which a "provisional takeover" is authorized, "in
the public interest or to prevent disposal or dissipation of the enterprises." 48 Such
a "provisional takeover" imports something more than sequestration or freezing,
more than the placing of the business under physical possession and control, albeit
without or with the least possible interference with the management and carrying
on of the business itself. In a "provisional takeover," what is taken into custody is
not only the physical assets of the business enterprise or entity, but the business
operation as well. It is in fine the assumption of control not only over things, but
over operations or on- going activities. But, to repeat, such a "provisional takeover"
is allowed only as regards "business enterprises * * taken over by the government
of the Marcos Administration or by entities or persons close to former President
Marcos."
d. No Divestment of Title Over Property Seized
It may perhaps be well at this point to stress once again the provisional, contingent
character of the remedies just described. Indeed the law plainly qualifies the
remedy of take-over by the adjective, "provisional." These remedies may be
resorted to only for a particular exigency: to prevent in the public interest the
disappearance or dissipation of property or business, and conserve it pending
adjudgment in appropriate proceedings of the primary issue of whether or not the
acquisition of title or other right thereto by the apparent owner was attended by
some vitiating anomaly. None of the remedies is meant to deprive the owner or
possessor of his title or any right to the property sequestered, frozen or taken over
and vest it in the sequestering agency, the Government or other person. This can
be done only for the causes and by the processes laid down by law.
That this is the sense in which the power to sequester, freeze or provisionally take
over is to be understood and exercised, the language of the executive orders in
question leaves no doubt. Executive Order No. 1 declares that the sequestration of
property the acquisition of which is suspect shall last "until the transactions leading
to such acquisition * * can be disposed of by the appropriate authorities." 49
Executive Order No. 2 declares that the assets or properties therein mentioned shall
remain frozen "pending the outcome of appropriate proceedings in the Philippines
to determine whether any such assets or properties were acquired" by illegal
means. Executive Order No. 14 makes clear that judicial proceedings are essential
for the resolution of the basic issue of whether or not particular assets are "ill-
gotten," and resultant recovery thereof by the Government is warranted.
e. State of Seizure Not To Be Indefinitely Maintained; The Constitutional Command
There is thus no cause for the apprehension voiced by BASECO 50 that
sequestration, freezing or provisional takeover is designed to be an end in itself,
that it is the device through which persons may be deprived of their property
branded as "ill-gotten," that it is intended to bring about a permanent, rather than
a passing, transitional state of affairs. That this is not so is quite explicitly declared
by the governing rules.
Be this as it may, the 1987 Constitution should allay any lingering fears about the
duration of these provisional remedies. Section 26 of its Transitory Provisions, 51
lays down the relevant rule in plain terms, apart from extending ratification or
confirmation (although not really necessary) to the institution by presidential fiat of
the remedy of sequestration and freeze orders:
SEC. 26. The authority to issue sequestration or freeze orders under Proclamation
No. 3 dated March 25, 1986 in relation to the recovery of ill-gotten wealth shag
remain operative for not more than eighteen months after the ratification of this
Constitution. However, in the national interest, as certified by the President, the
Congress may extend said period.
A sequestration or freeze order shall be issued only upon showing of a prima facie
case. The order and the list of the sequestered or frozen properties shall forthwith
be registered with the proper court. For orders issued before the ratification of this
Constitution, the corresponding judicial action or proceeding shall be filed within
six months from its ratification. For those issued after such ratification, the judicial
action or proceeding shall be commenced within six months from the issuance
thereof.
The sequestration or freeze order is deemed automatically lifted if no judicial action
or proceeding is commenced as herein provided. 52
f. Kinship to Attachment Receivership
As thus described, sequestration, freezing and provisional takeover are akin to the
provisional remedy of preliminary attachment, or receivership. 53 By attachment, a
sheriff seizes property of a defendant in a civil suit so that it may stand as security
for the satisfaction of any judgment that may be obtained, and not disposed of, or
dissipated, or lost intentionally or otherwise, pending the action. 54 By receivership,
property, real or personal, which is subject of litigation, is placed in the possession
and control of a receiver appointed by the Court, who shall conserve it pending final
determination of the title or right of possession over it. 55 All these remedies —
sequestration, freezing, provisional, takeover, attachment and receivership — are
provisional, temporary, designed for-particular exigencies, attended by no
character of permanency or finality, and always subject to the control of the issuing
court or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or freeze or takeover orders are not
issued by a court is of no moment. The Solicitor General draws attention to the writ
of distraint and levy which since 1936 the Commissioner of Internal Revenue has
been by law authorized to issue against property of a delinquent taxpayer. 56
BASECO itself declares that it has not manifested "a rigid insistence on
sequestration as a purely judicial remedy * * (as it feels) that the law should not be
ossified to a point that makes it insensitive to change." What it insists on, what it
pronounces to be its "unyielding position, is that any change in procedure, or the
institution of a new one, should conform to due process and the other prescriptions
of the Bill of Rights of the Constitution." 57 It is, to be sure, a proposition on which
there can be no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and receivership, as well as delivery of
personal property in replevin suits, sequestration and provisional takeover writs
may issue ex parte. 58 And as in preliminary attachment, receivership, and delivery
of personality, no objection of any significance may be raised to the ex parte
issuance of an order of sequestration, freezing or takeover, given its fundamental
character of temporariness or conditionality; and taking account specially of the
constitutionally expressed "mandate of the people to recover ill-gotten properties
amassed by the leaders and supporters of the previous regime and protect the
interest of the people;" 59 as well as the obvious need to avoid alerting suspected
possessors of "ill-gotten wealth" and thereby cause that disappearance or loss of
property precisely sought to be prevented, and the fact, just as self-evident, that
"any transfer, disposition, concealment or disappearance of said assets and
properties would frustrate, obstruct or hamper the efforts of the Government" at
the just recovery thereof. 60
8. Requisites for Validity
What is indispensable is that, again as in the case of attachment and receivership,
there exist a prima facie factual foundation, at least, for the sequestration, freeze
or takeover order, and adequate and fair opportunity to contest it and endeavor to
cause its negation or nullification. 61
Both are assured under the executive orders in question and the rules and
regulations promulgated by the PCGG.
a. Prima Facie Evidence as Basis for Orders
Executive Order No. 14 enjoins that there be "due regard to the requirements of
fairness and due process." 62 Executive Order No. 2 declares that with respect to
claims on allegedly "ill-gotten" assets and properties, "it is the position of the new
democratic government that President Marcos * * (and other parties affected) be
afforded fair opportunity to contest these claims before appropriate Philippine
authorities." 63 Section 7 of the Commission's Rules and Regulations provides that
sequestration or freeze (and takeover) orders issue upon the authority of at least
two commissioners, based on the affirmation or complaint of an interested party,
or motu proprio when the Commission has reasonable grounds to believe that the
issuance thereof is warranted. 64 A similar requirement is now found in Section 26,
Art. XVIII of the 1987 Constitution, which requires that a "sequestration or freeze
order shall be issued only upon showing of a prima facie case." 65
b. Opportunity to Contest 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
And Sections 5 and 6 of the same Rules and Regulations lay down the procedure by business and/or assets of the National Shipyard and Engineering Co., Inc., and other
which a party may seek to set aside a writ of sequestration or freeze order, viz: government-owned or controlled entities.
SECTION 5. Who may contend.-The person against whom a writ of sequestration or 12. Organization and Stock Distribution of BASECO
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, BASECO describes itself in its petition as "a shiprepair and shipbuilding company *
or in the case of a hold order, from date of knowledge thereof. * incorporated as a domestic private corporation * * (on Aug. 30, 1972) by a
consortium of Filipino shipowners and shipping executives. Its main office is at
SECTION 6. Procedure for review of writ or order.-After due hearing or motu proprio Engineer Island, Port Area, Manila, where its Engineer Island Shipyard is housed,
for good cause shown, the Commission may lift the writ or order unconditionally or and its main shipyard is located at Mariveles Bataan." 73 Its Articles of Incorporation
subject to such conditions as it may deem necessary, taking into consideration the disclose that its authorized capital stock is P60,000,000.00 divided into 60,000
evidence and the circumstance of the case. The resolution of the commission may shares, of which 12,000 shares with a value of P12,000,000.00 have been
be appealed by the party concerned to the Office of the President of the Philippines subscribed, and on said subscription, the aggregate sum of P3,035,000.00 has been
within fifteen (15) days from receipt thereof. paid by the incorporators. 74 The same articles Identify the incorporators,
numbering fifteen (15), as follows: (1) Jose A. Rojas, (2) Anthony P. Lee, (3) Eduardo
Parenthetically, even if the requirement for a prima facie showing of "ill- gotten T. Marcelo, (4) Jose P. Fernandez, (5) Generoso Tanseco, (6) Emilio T. Yap, (7)
wealth" were not expressly imposed by some rule or regulation as a condition to Antonio M. Ezpeleta, (8) Zacarias Amante, (9) Severino de la Cruz, (10) Jose
warrant the sequestration or freezing of property contemplated in the executive Francisco, (11) Dioscoro Papa, (12) Octavio Posadas, (13) Manuel S. Mendoza, (14)
orders in question, it would nevertheless be exigible in this jurisdiction in which the Magiliw Torres, and (15) Rodolfo Torres.
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 By 1986, however, of these fifteen (15) incorporators, six (6) had ceased to be
stockholders, namely: (1) Generoso Tanseco, (2) Antonio Ezpeleta, (3) Zacarias
9. Constitutional Sanction of Remedies 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
If any doubt should still persist in the face of the foregoing considerations as to the Transfer Book. 75 Their names and the number of shares respectively held by them
validity and propriety of sequestration, freeze and takeover orders, it should be are as follows:
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 1. Jose A. Rojas
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 1,248 shares
* * * (recover ill- gotten properties amassed by the leaders and supporters of the
previous regime and protect the interest of the people through orders of 2. Severino G. de la Cruz
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 1,248 shares
"authority to issue sequestration or freeze orders under Proclamation No. 3 dated
March 25, 1986." 3. Emilio T. Yap
The institution of these provisional remedies is also premised upon the State's 2,508 shares
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 4. Jose Fernandez
essential, insistent and illimitable of powers * * in the promotion of general welfare
and the public interest," 69 and said to be co-extensive with self-protection and * * 1,248 shares
not inaptly termed (also) the'law of overruling necessity." "70
5. Jose Francisco
10. PCGG not a "Judge"; General Functions
128 shares
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 6. Manuel S. Mendoza
conduct investigations in order to collect evidence establishing instances of "ill-
gotten wealth;" issue sequestration, and such orders as may be warranted by the 96 shares
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 7. Anthony P. Lee
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 1,248 shares
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 8. Hilario M. Ruiz
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 32 shares
the designated court, in this case, the Sandiganbayan. 71 There can therefore be no
serious regard accorded to the accusation, leveled by BASECO, 72 that the PCGG 9. Constante L. Fariñas
plays the perfidious role of prosecutor and judge at the same time.
8 shares
11. Facts Preclude Grant of Relief to Petitioner
10. Fidelity Management, Inc.
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 65,882 shares
certiorari and prohibition prayed for will not be issued.
11. Trident Management
The facts show that the corporation known as BASECO was owned or controlled by
President Marcos "during his administration, through nominees, by taking undue 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.
EN BANC
G.R. No. L-22973 January 30, 1968
MAMBULAO LUMBER COMPANY, plaintiff-appellant,
vs.
PHILIPPINE NATIONAL BANK and ANACLETO HERALDO Deputy
Provincial Sheriff of Camarines Norte,defendants-appellees.
Ernesto P. Vilar and Arthur Tordesillas for plaintiff-appellant.
Tomas Besa and Jose B. Galang for defendants-appellees.
ANGELES, J.:
An appeal from a decision, dated April 2, 1964, of the Court of First
Instance of Manila in Civil Case No. 52089, entitled "Mambulao
Lumber Company, plaintiff, versus Philippine National Bank and
Anacleto Heraldo, defendants", dismissing the complaint against
both defendants and sentencing the plaintiff to pay to defendant
Philippine National Bank (PNB for short) the sum of P3,582.52 with
interest thereon at the rate of 6% per annum from December 22,
1961 until fully paid, and the costs of suit.
In seeking the reversal of the decision, the plaintiff advances several
propositions in its brief which may be restated as follows:
1. That its total indebtedness to the PNB as of November 21, 1961,
was only P56,485.87 and not P58,213.51 as concluded by the court a
quo; hence, the proceeds of the foreclosure sale of its real property
alone in the amount of P56,908.00 on that date, added to the sum of
P738.59 it remitted to the PNB thereafter was more than sufficient to
liquidate its obligation, thereby rendering the subsequent foreclosure
sale of its chattels unlawful;
2. That it is not liable to pay PNB the amount of P5,821.35 for
attorney's fees and the additional sum of P298.54 as expenses of the
foreclosure sale;
3. That the subsequent foreclosure sale of its chattels is null and void,
not only because it had already settled its indebtedness to the PNB
at the time the sale was effected, but also for the reason that the
said sale was not conducted in accordance with the provisions of
the Chattel Mortgage Law and the venue agreed upon by the
parties in the mortgage contract;
4. That the PNB, having illegally sold the chattels, is liable to the
plaintiff for its value; and
5. That for the acts of the PNB in proceeding with the sale of the
chattels, in utter disregard of plaintiff's vigorous opposition thereto,
and in taking possession thereof after the sale thru force, intimidation,
coercion, and by detaining its "man-in-charge" of said properties, the
PNB is liable to plaintiff for damages and attorney's fees.
The antecedent facts of the case, as found by the trial court, are as
follows:
On May 5, 1956 the plaintiff applied for an industrial loan of P155,000
with the Naga Branch of defendant PNB and the former offered real
estate, machinery, logging and transportation equipments as
collaterals. The application, however, was approved for a loan of
P100,000 only. To secure the payment of the loan, the plaintiff
mortgaged to defendant PNB a parcel of land, together with the
buildings and improvements existing thereon, situated in the
poblacion of Jose Panganiban (formerly Mambulao), province of
Camarines Norte, and covered by Transfer Certificate of Title No. 381
of the land records of said province, as well as various sawmill
equipment, rolling unit and other fixed assets of the plaintiff, all
situated in its compound in the aforementioned municipality.
On August 2, 1956, the PNB released from the approved loan the sum
of P27,500, for which the plaintiff signed a promissory note wherein it
promised to pay to the PNB the said sum in five equal yearly
installments at the rate of P6,528.40 beginning July 31, 1957, and
every year thereafter, the last of which would be on July 31, 1961.
On October 19, 1956, the PNB made another release of P15,500 as
part of the approved loan granted to the plaintiff and so on the said
date, the latter executed another promissory note wherein it agreed
to pay to the former the said sum in five equal yearly installments at
the rate of P3,679.64 beginning July 31, 1957, and ending on July 31,
1961.
The plaintiff failed to pay the amortization on the amounts released
to and received by it. Repeated demands were made upon the
plaintiff to pay its obligation but it failed or otherwise refused to do so.
Upon inspection and verification made by employees of the PNB, it
was found that the plaintiff had already stopped operation about
the end of 1957 or early part of 1958.
On September 27, 1961, the PNB sent a letter to the Provincial Sheriff
of Camarines Norte requesting him to take possession of the parcel
of land, together with the improvements existing thereon, covered by
Transfer Certificate of Title No. 381 of the land records of Camarines
Norte, and to sell it at public auction in accordance with the
provisions of Act No. 3135, as amended, for the satisfaction of the
unpaid obligation of the plaintiff, which as of September 22, 1961,
amounted to P57,646.59, excluding attorney's fees. In compliance
with the request, on October 16, 1961, the Provincial Sheriff of
Camarines Norte issued the corresponding notice of extra-judicial
sale and sent a copy thereof to the plaintiff. According to the notice,
the mortgaged property would be sold at public auction at 10:00
a.m. on November 21, 1961, at the ground floor of the Court House in
Daet, Camarines Norte.
On November 6, 1961, the PNB sent a letter to the Provincial Sheriff of
Camarines Norte requesting him to take possession of the chattels
mortgaged to it by the plaintiff and sell them at public auction also
on November 21, 1961, for the satisfaction of the sum of P57,646.59,
plus 6% annual interest therefore from September 23, 1961, attorney's
fees equivalent to 10% of the amount due and the costs and
expenses of the sale. On the same day, the PNB sent notice to the
plaintiff that the former was foreclosing extrajudicially the chattels
mortgaged by the latter and that the auction sale thereof would be
held on November 21, 1961, between 9:00 and 12:00 a.m., in
Mambulao, Camarines Norte, where the mortgaged chattels were
situated.
On November 8, 1961, Deputy Provincial Sheriff Anacleto Heraldo
took possession of the chattels mortgaged by the plaintiff and made
an inventory thereof in the presence of a PC Sergeant and a
policeman of the municipality of Jose Panganiban. On November 9,
1961, the said Deputy Sheriff issued the corresponding notice of
public auction sale of the mortgaged chattels to be held on
November 21, 1961, at 10:00 a.m., at the plaintiff's compound
situated in the municipality of Jose Panganiban, Province of
Camarines Norte.
On November 19, 1961, the plaintiff sent separate letters, posted as
registered air mail matter, one to the Naga Branch of the PNB and
another to the Provincial Sheriff of Camarines Norte, protesting
against the foreclosure of the real estate and chattel mortgages on
the grounds that they could not be effected unless a Court's order
was issued against it (plaintiff) for said purpose and that the
foreclosure proceedings, according to the terms of the mortgage
contracts, should be made in Manila. In said letter to the Naga
Branch of the PNB, it was intimated that if the public auction sale
would be suspended and the plaintiff would be given an extension
of ninety (90) days, its obligation would be settled satisfactorily
because an important negotiation was then going on for the sale of
its "whole interest" for an amount more than sufficient to liquidate
said obligation.
The letter of the plaintiff to the Naga Branch of the PNB was
construed by the latter as a request for extension of the foreclosure
sale of the mortgaged chattels and so it advised the Sheriff of
Camarines Norte to defer it to December 21, 1961, at the same time
and place. A copy of said advice was sent to the plaintiff for its
information and guidance.
The foreclosure sale of the parcel of land, together with the buildings
and improvements thereon, covered by Transfer Certificate of Title
No. 381, was, however, held on November 21, 1961, and the said
property was sold to the PNB for the sum of P56,908.00, subject to the
right of the plaintiff to redeem the same within a period of one year.
On the same date, Deputy Provincial Sheriff Heraldo executed a
certificate of sale in favor of the PNB and a copy thereof was sent to
the plaintiff.
In a letter dated December 14, 1961 (but apparently posted several
days later), the plaintiff sent a bank draft for P738.59 to the Naga
Branch of the PNB, allegedly in full settlement of the balance of the
obligation of the plaintiff after the application thereto of the sum of
P56,908.00 representing the proceeds of the foreclosure sale of
parcel of land described in Transfer Certificate of Title No. 381. In the
said letter, the plaintiff reiterated its request that the foreclosure sale
of the mortgaged chattels be discontinued on the grounds that the
mortgaged indebtedness had been fully paid and that it could not
be legally effected at a place other than the City of Manila.
In a letter dated December 16, 1961, the plaintiff advised the
Provincial Sheriff of Camarines Norte that it had fully paid its
obligation to the PNB, and enclosed therewith a copy of its letter to
the latter dated December 14, 1961.
On December 18, 1961, the Attorney of the Naga Branch of the PNB,
wrote to the plaintiff acknowledging the remittance of P738.59 with
the advice, however, that as of that date the balance of the
account of the plaintiff was P9,161.76, to which should be added the
expenses of guarding the mortgaged chattels at the rate of P4.00 a
day beginning December 19, 1961. It was further explained in said
letter that the sum of P57,646.59, which was stated in the request for
the foreclosure of the real estate mortgage, did not include the 10%
attorney's fees and expenses of the sale. Accordingly, the plaintiff
was advised that the foreclosure sale scheduled on the 21st of said
month would be stopped if a remittance of P9,161.76, plus interest
thereon and guarding fees, would be made.
On December 21, 1961, the foreclosure sale of the mortgaged
chattels was held at 10:00 a.m. and they were awarded to the PNB
for the sum of P4,200 and the corresponding bill of sale was issued in
its favor by Deputy Provincial Sheriff Heraldo.
In a letter dated December 26, 1961, the Manager of the Naga
Branch of the PNB advised the plaintiff giving it priority to repurchase
the chattels acquired by the former at public auction. This offer was
reiterated in a letter dated January 3, 1962, of the Attorney of the
Naga Branch of the PNB to the plaintiff, with the suggestion that it
exercise its right of redemption and that it apply for the condonation
of the attorney's fees. The plaintiff did not follow the advice but on
the contrary it made known of its intention to file appropriate action
or actions for the protection of its interests.
On May 24, 1962, several employees of the PNB arrived in the
compound of the plaintiff in Jose Panganiban, Camarines Norte, and
they informed Luis Salgado, Chief Security Guard of the premises,
that the properties therein had been auctioned and bought by the
PNB, which in turn sold them to Mariano Bundok. Upon being advised
that the purchaser would take delivery of the things he bought,
Salgado was at first reluctant to allow any piece of property to be
taken out of the compound of the plaintiff. The employees of the
PNB explained that should Salgado refuse, he would be exposing
himself to a litigation wherein he could be held liable to pay big sum
of money by way of damages. Apprehensive of the risk that he
would take, Salgado immediately sent a wire to the President of the
plaintiff in Manila, asking advice as to what he should do. In the
meantime, Mariano Bundok was able to take out from the plaintiff's
compound two truckloads of equipment.
In the afternoon of the same day, Salgado received a telegram from
plaintiff's President directing him not to deliver the "chattels" without
court order, with the information that the company was then filing an
action for damages against the PNB. On the following day, May 25,
1962, two trucks and men of Mariano Bundok arrived but Salgado did
not permit them to take out any equipment from inside the
compound of the plaintiff. Thru the intervention, however, of the
local police and PC soldiers, the trucks of Mariano Bundok were able
finally to haul the properties originally mortgaged by the plaintiff to
the PNB, which were bought by it at the foreclosure sale and
subsequently sold to Mariano Bundok.
Upon the foregoing facts, the trial court rendered the decision
appealed from which, as stated in the first paragraph of this opinion,
sentenced the Mambulao Lumber Company to pay to the
defendant PNB the sum of P3,582.52 with interest thereon at the rate
of 6% per annum from December 22, 1961 (day following the date of
the questioned foreclosure of plaintiff's chattels) until fully paid, and
the costs. Mambulao Lumber Company interposed the instant
appeal.
We shall discuss the various points raised in appellant's brief
in seriatim.
The first question Mambulao Lumber Company poses is that which
relates to the amount of its indebtedness to the PNB arising out of the
principal loans and the accrued interest thereon. It is contended that
its obligation under the terms of the two promissory notes it had
executed in favor of the PNB amounts only to P56,485.87 as of
November 21, 1961, when the sale of real property was effected,
and not P58,213.51 as found by the trial court.
There is merit to this claim. Examining the terms of the promissory note
executed by the appellant in favor of the PNB, we find that the
agreed interest on the loan of P43,000.00 — P27,500.00 released on
August 2, 1956 as per promissory note of even date (Exhibit C-3), and
P15,500.00 released on October 19, 1956, as per promissory note of
the same date (Exhibit C-4) — was six per cent (6%) per annum from
the respective date of said notes "until paid". In the statement of
account of the appellant as of September 22, 1961, submitted by the
PNB, it appears that in arriving at the total indebtedness of P57,646.59
as of that date, the PNB had compounded the principal of the loan
and the accrued 6% interest thereon each time the yearly
amortizations became due, and on the basis of these compounded
amounts charged additional delinquency interest on them up to
September 22, 1961; and to this erroneously computed total of
P57,646.59, the trial court added 6% interest per annum from
September 23, 1961 to November 21 of the same year. In effect, the
PNB has claimed, and the trial court has adjudicated to it, interest on
accrued interests from the time the various amortizations of the loan
became due until the real estate mortgage executed to secure the
loan was extra-judicially foreclosed on November 21, 1961. This is an
error. Section 5 of Act No. 2655 expressly provides that in computing
the interest on any obligation, promissory note or other instrument or
contract, compound interest shall not be reckoned, except by
agreement, or in default thereof, whenever the debt is judicially
claimed. This is also the clear mandate of Article 2212 of the new Civil
Code which provides that interest due shall earn legal interest only
from the time it is judicially demanded, and of Article 1959 of the
same code which ordains that interest due and unpaid shall not earn
interest. Of course, the parties may, by stipulation, capitalize the
interest due and unpaid, which as added principal shall earn new
interest; but such stipulation is nowhere to be found in the terms of
the promissory notes involved in this case. Clearly therefore, the trial
court fell into error when it awarded interest on accrued interests,
without any agreement to that effect and before they had been
judicially demanded.
Appellant next assails the award of attorney's fees and the expenses
of the foreclosure sale in favor of the PNB. With respect to the
amount of P298.54 allowed as expenses of the extra-judicial sale of
the real property, appellant maintains that the same has no basis,
factual or legal, and should not have been awarded. It likewise
decries the award of attorney's fees which, according to the
appellant, should not be deducted from the proceeds of the sale of
the real property, not only because there is no express agreement in
the real estate mortgage contract to pay attorney's fees in case the
same is extra-judicially foreclosed, but also for the reason that the
PNB neither spent nor incurred any obligation to pay attorney's fees
in connection with the said extra-judicial foreclosure under
consideration.
There is reason for the appellant to assail the award of P298.54 as
expenses of the sale. In this respect, the trial court said:
The parcel of land, together with the buildings and improvements
existing thereon covered by Transfer Certificate of Title No. 381, was
sold for P56,908. There was, however, no evidence how much was
the expenses of the foreclosure sale although from the pertinent
provisions of the Rules of Court, the Sheriff's fees would be P1 for
advertising the sale (par. k, Sec. 7, Rule 130 of the Old Rules) and
P297.54 as his commission for the sale (par. n, Sec. 7, Rule 130 of the
Old Rules) or a total of P298.54.
There is really no evidence of record to support the conclusion that
the PNB is entitled to the amount awarded as expenses of the extra-
judicial foreclosure sale. The court below committed error in applying
the provisions of the Rules of Court for purposes of arriving at the
amount awarded. It is to be borne in mind that the fees enumerated
under paragraphs k and n, Section 7, of Rule 130 (now Rule 141) are
demandable, only by a sheriff serving processes of the court in
connection with judicial foreclosure of mortgages under Rule 68 of
the new Rules, and not in cases of extra-judicial foreclosure of
mortgages under Act 3135. The law applicable is Section 4 of Act
3135 which provides that the officer conducting the sale is entitled to
collect a fee of P5.00 for each day of actual work performed in
addition to his expenses in connection with the foreclosure sale.
Admittedly, the PNB failed to prove during the trial of the case, that it
actually spent any amount in connection with the said foreclosure
sale. Neither may expenses for publication of the notice be legally
allowed in the absence of evidence on record to support it. 1 It is true,
as pointed out by the appellee bank, that courts should take judicial
notice of the fees provided for by law which need not be proved;
but in the absence of evidence to show at least the number of
working days the sheriff concerned actually spent in connection with
the extra-judicial foreclosure sale, the most that he may be entitled
to, would be the amount of P10.00 as a reasonable allowance for
two day's work — one for the preparation of the necessary notices of
sale, and the other for conducting the auction sale and issuance of
the corresponding certificate of sale in favor of the buyer. Obviously,
therefore, the award of P298.54 as expenses of the sale should be set
aside.
But the claim of the appellant that the real estate mortgage does
not provide for attorney's fees in case the same is extra-judicially
foreclosed, cannot be favorably considered, as would readily be
revealed by an examination of the pertinent provision of the
mortgage contract. The parties to the mortgage appear to have
stipulated under paragraph (c) thereof, inter alia:
. . . For the purpose of extra-judicial foreclosure, the Mortgagor
hereby appoints the Mortgagee his attorney-in-fact to sell the
property mortgaged under Act 3135, as amended, to sign all
documents and to perform all acts requisite and necessary to
accomplish said purpose and to appoint its substitute as such
attorney-in-fact with the same powers as above specified. In case of
judicial foreclosure, the Mortgagor hereby consents to the
appointment of the Mortgagee or any of its employees as receiver,
without any bond, to take charge of the mortgaged property at
once, and to hold possession of the same and the rents, benefits and
profits derived from the mortgaged property before the sale, less the
costs and expenses of the receivership; the Mortgagor hereby agrees
further that in all cases, attorney's fees hereby fixed at Ten Per cent
(10%) of the total indebtedness then unpaid which in no case shall
be less than P100.00 exclusive of all fees allowed by law, and the
expenses of collection shall be the obligation of the Mortgagor and
shall with priority, be paid to the Mortgagee out of any sums realized
as rents and profits derived from the mortgaged property or from the
proceeds realized from the sale of the said property and this
mortgage shall likewise stand as security therefor. . . .
We find the above stipulation to pay attorney's fees clear enough to
cover both cases of foreclosure sale mentioned thereunder, i.e.,
judicially or extra-judicially. While the phrase "in all cases" appears to
be part of the second sentence, a reading of the whole context of
the stipulation would readily show that it logically refers to extra-
judicial foreclosure found in the first sentence and to judicial
foreclosure mentioned in the next sentence. And the ambiguity in
the stipulation suggested and pointed out by the appellant by
reason of the faulty sentence construction should not be made to
defeat the otherwise clear intention of the parties in the agreement.
It is suggested by the appellant, however, that even if the above
stipulation to pay attorney's fees were applicable to the extra-judicial
foreclosure sale of its real properties, still, the award of P5,821.35 for
attorney's fees has no legal justification, considering the
circumstance that the PNB did not actually spend anything by way
of attorney's fees in connection with the sale. In support of this
proposition, appellant cites authorities to the effect: (1) that when
the mortgagee has neither paid nor incurred any obligation to pay
an attorney in connection with the foreclosure sale, the claim for
such fees should be denied; 2 and (2) that attorney's fees will not be
allowed when the attorney conducting the foreclosure proceedings
is an officer of the corporation (mortgagee) who receives a salary for
all the legal services performed by him for the corporation. 3 These
authorities are indeed enlightening; but they should not be applied in
this case. The very same authority first cited suggests that said
principle is not absolute, for there is authority to the contrary. As to
the fact that the foreclosure proceeding's were handled by an
attorney of the legal staff of the PNB, we are reluctant to exonerate
herein appellant from the payment of the stipulated attorney's fees
on this ground alone, considering the express agreement between
the parties in the mortgage contract under which appellant became
liable to pay the same. At any rate, we find merit in the contention of
the appellant that the award of P5,821.35 in favor of the PNB as
attorney's fees is unconscionable and unreasonable, considering that
all that the branch attorney of the said bank did in connection with
the foreclosure sale of the real property was to file a petition with the
provincial sheriff of Camarines Norte requesting the latter to sell the
same in accordance with the provisions of Act 3135.
The principle that courts should reduce stipulated attorney's fees
whenever it is found under the circumstances of the case that the
same is unreasonable, is now deeply rooted in this jurisdiction to
entertain any serious objection to it. Thus, this Court has explained:
But the principle that it may be lawfully stipulated that the legal
expenses involved in the collection of a debt shall be defrayed by
the debtor does not imply that such stipulations must be enforced in
accordance with the terms, no matter how injurious or oppressive
they may be. The lawful purpose to be accomplished by such a
stipulation is to permit the creditor to receive the amount due him
under his contract without a deduction of the expenses caused by
the delinquency of the debtor. It should not be permitted for him to
convert such a stipulation into a source of speculative profit at the
expense of the debtor.
Contracts for attorney's services in this jurisdiction stands upon an
entirely different footing from contracts for the payment of
compensation for any other services. By express provision of section
29 of the Code of Civil Procedure, an attorney is not entitled in the
absence of express contract to recover more than a reasonable
compensation for his services; and even when an express contract is
made the court can ignore it and limit the recovery to reasonable
compensation if the amount of the stipulated fee is found by the
court to be unreasonable. This is a very different rule from that
announced in section 1091 of the Civil Code with reference to the
obligation of contracts in general, where it is said that such obligation
has the force of law between the contracting parties. Had the
plaintiff herein made an express contract to pay his attorney an
uncontingent fee of P2,115.25 for the services to be rendered in
reducing the note here in suit to judgment, it would not have been
enforced against him had he seen fit to oppose it, as such a fee is
obviously far greater than is necessary to remunerate the attorney for
the work involved and is therefore unreasonable. In order to enable
the court to ignore an express contract for an attorney's fees, it is not
necessary to show, as in other contracts, that it is contrary to morality
or public policy (Art. 1255, Civil Code). It is enough that it is
unreasonable or unconscionable. 4
Since then this Court has invariably fixed counsel fees on a quantum
meruit basis whenever the fees stipulated appear excessive,
unconscionable, or unreasonable, because a lawyer is primarily a
court officer charged with the duty of assisting the court in
administering impartial justice between the parties, and hence, the
fees should be subject to judicial control. Nor should it be ignored
that sound public policy demands that courts disregard stipulations
for counsel fees, whenever they appear to be a source of
speculative profit at the expense of the debtor or mortgagor. 5 And it
is not material that the present action is between the debtor and the
creditor, and not between attorney and client. As court have power
to fix the fee as between attorney and client, it must necessarily have
the right to say whether a stipulation like this, inserted in a mortgage
contract, is valid. 6
In determining the compensation of an attorney, the following
circumstances should be considered: the amount and character of
the services rendered; the responsibility imposed; the amount of
money or the value of the property affected by the controversy, or
involved in the employment; the skill and experience called for in the
performance of the service; the professional standing of the attorney;
the results secured; and whether or not the fee is contingent or
absolute, it being a recognized rule that an attorney may properly
charge a much larger fee when it is to be contingent than when it is
not. 7 From the stipulation in the mortgage contract earlier quoted, it
appears that the agreed fee is 10% of the total indebtedness,
irrespective of the manner the foreclosure of the mortgage is to be
effected. The agreement is perhaps fair enough in case the
foreclosure proceedings is prosecuted judicially but, surely, it is
unreasonable when, as in this case, the mortgage was foreclosed
extra-judicially, and all that the attorney did was to file a petition for
foreclosure with the sheriff concerned. It is to be assumed though,
that the said branch attorney of the PNB made a study of the case
before deciding to file the petition for foreclosure; but even with this
in mind, we believe the amount of P5,821.35 is far too excessive a fee
for such services. Considering the above circumstances mentioned, it
is our considered opinion that the amount of P1,000.00 would be
more than sufficient to compensate the work aforementioned.
The next issue raised deals with the claim that the proceeds of the
sale of the real properties alone together with the amount it remitted
to the PNB later was more than sufficient to liquidate its total
obligation to herein appellee bank. Again, we find merit in this claim.
From the foregoing discussion of the first two errors assigned, and for
purposes of determining the total obligation of herein appellant to
the PNB as of November 21, 1961 when the real estate mortgage was
foreclosed, we have the following illustration in support of this
conclusion:1äwphï1.ñët
From the foregoing illustration or computation, it is clear that there
was no further necessity to foreclose the mortgage of herein
appellant's chattels on December 21, 1961; and on this ground
alone, we may declare the sale of appellant's chattels on the said
date, illegal and void. But we take into consideration the fact that
the PNB must have been led to believe that the stipulated 10% of the
unpaid loan for attorney's fees in the real estate mortgage was
legally maintainable, and in accordance with such belief, herein
appellee bank insisted that the proceeds of the sale of appellant's
real property was deficient to liquidate the latter's total indebtedness.
Be that as it may, however, we still find the subsequent sale of herein
appellant's chattels illegal and objectionable on other grounds.
That appellant vigorously objected to the foreclosure of its chattel
mortgage after the foreclosure of its real estate mortgage on
November 21, 1961, can not be doubted, as shown not only by its
letter to the PNB on November 19, 1961, but also in its letter to the
provincial sheriff of Camarines Norte on the same date. These letters
were followed by another letter to the appellee bank on December
14, 1961, wherein herein appellant, in no uncertain terms, reiterated
its objection to the scheduled sale of its chattels on December 21,
1961 at Jose Panganiban, Camarines Norte for the reasons therein
stated that: (1) it had settled in full its total obligation to the PNB by
the sale of the real estate and its subsequent remittance of the
amount of P738.59; and (2) that the contemplated sale at Jose
Panganiban would violate their agreement embodied under
paragraph (i) in the Chattel Mortgage which provides as follows:
(i) In case of both judicial and extra-judicial foreclosure under Act
1508, as amended, the parties hereto agree that the corresponding
complaint for foreclosure or the petition for sale should be filed with
the courts or the sheriff of the City of Manila, as the case may be;
and that the Mortgagor shall pay attorney's fees hereby fixed at ten
per cent (10%) of the total indebtedness then unpaid but in no case
shall it be less than P100.00, exclusive of all costs and fees allowed by
law and of other expenses incurred in connection with the said
foreclosure. [Emphasis supplied]
Notwithstanding the abovequoted agreement in the chattel
mortgage contract, and in utter disregard of the objection of herein
appellant to the sale of its chattels at Jose Panganiban, Camarines
Norte and not in the City of Manila as agreed upon, the PNB
proceeded with the foreclosure sale of said chattels. The trial court,
however, justified said action of the PNB in the decision appealed
from in the following rationale:
While it is true that it was stipulated in the chattel mortgage contract
that a petition for the extra-judicial foreclosure thereof should be filed
with the Sheriff of the City of Manila, nevertheless, the effect thereof
was merely to provide another place where the mortgage chattel
could be sold in addition to those specified in the Chattel Mortgage
Law. Indeed, a stipulation in a contract cannot abrogate much less
impliedly repeal a specific provision of the statute. Considering that
Section 14 of Act No. 1508 vests in the mortgagee the choice where
the foreclosure sale should be held, hence, in the case under
consideration, the PNB had three places from which to select,
namely: (1) the place of residence of the mortgagor; (2) the place of
the mortgaged chattels were situated; and (3) the place stipulated
in the contract. The PNB selected the second and, accordingly, the
foreclosure sale held in Jose Panganiban, Camarines Norte, was
legal and valid.
To the foregoing conclusion, We disagree. While the law grants
power and authority to the mortgagee to sell the mortgaged
property at a public place in the municipality where the mortgagor
resides or where the property is situated, 8 this Court has held that the
sale of a mortgaged chattel may be made in a place other than
that where it is found, provided that the owner thereof consents
thereto; or that there is an agreement to this effect between the
mortgagor and the mortgagee. 9 But when, as in this case, the parties
agreed to have the sale of the mortgaged chattels in the City of
Manila, which, any way, is the residence of the mortgagor, it cannot
be rightly said that mortgagee still retained the power and authority
to select from among the places provided for in the law and the
place designated in their agreement over the objection of the
mortgagor. In providing that the mortgaged chattel may be sold at
the place of residence of the mortgagor or the place where it is
situated, at the option of the mortgagee, the law clearly
contemplated benefits not only to the mortgagor but to the
mortgagee as well. Their right arising thereunder, however, are
personal to them; they do not affect either public policy or the rights
of third persons. They may validly be waived. So, when herein
mortgagor and mortgagee agreed in the mortgage contract that in
cases of both judicial and extra-judicial foreclosure under Act 1508,
as amended, the corresponding complaint for foreclosure or the
petition for sale should be filed with the courts or the Sheriff of Manila,
as the case may be, they waived their corresponding rights under
the law. The correlative obligation arising from that agreement have
the force of law between them and should be complied with in
good faith. 10
By said agreement the parties waived the legal venue, and such
waiver is valid and legally effective, because it, was merely a
personal privilege they waived, which is not contrary, to public policy
or to the prejudice of third persons. It is a general principle that a
person may renounce any right which the law gives unless such
renunciation is expressly prohibited or the right conferred is of such
nature that its renunciation would be against public policy. 11
On the other hand, if a place of sale is specified in the mortgage and
statutory requirements in regard thereto are complied with, a sale is
properly conducted in that place. Indeed, in the absence of a
statute to the contrary, a sale conducted at a place other than that
stipulated for in the mortgage is invalid, unless the mortgagor
consents to such sale. 12
Moreover, Section 14 of Act 1508, as amended, provides that the
officer making the sale should make a return of his doings which shall
particularly describe the articles sold and the amount received from
each article. From this, it is clear that the law requires that sale be
made article by article, otherwise, it would be impossible for him to
state the amount received for each item. This requirement was totally
disregarded by the Deputy Sheriff of Camarines Norte when he sold
the chattels in question in bulk, notwithstanding the fact that the said
chattels consisted of no less than twenty different items as shown in
the bill of sale. 13 This makes the sale of the chattels manifestly
objectionable. And in the absence of any evidence to show that the
mortgagor had agreed or consented to such sale in gross, the same
should be set aside.
It is said that the mortgagee is guilty of conversion when he sells
under the mortgage but not in accordance with its terms, or where
the proceedings as to the sale of foreclosure do not comply with the
statute. 14 This rule applies squarely to the facts of this case where, as
earlier shown, herein appellee bank insisted, and the appellee
deputy sheriff of Camarines Norte proceeded with the sale of the
mortgaged chattels at Jose Panganiban, Camarines Norte, in utter
disregard of the valid objection of the mortgagor thereto for the
reason that it is not the place of sale agreed upon in the mortgage
contract; and the said deputy sheriff sold all the chattels (among
which were a skagit with caterpillar engine, three GMC 6 x 6 trucks, a
Herring Hall Safe, and Sawmill equipment consisting of a 150 HP
Murphy Engine, plainer, large circular saws etc.) as a single lot in
violation of the requirement of the law to sell the same article by
article. The PNB has resold the chattels to another buyer with whom it
appears to have actively cooperated in subsequently taking
possession of and removing the chattels from appellant compound
by force, as shown by the circumstance that they had to take along
PC soldiers and municipal policemen of Jose Panganiban who
placed the chief security officer of the premises in jail to deprive
herein appellant of its possession thereof. To exonerate itself of any
liability for the breach of peace thus committed, the PNB would want
us to believe that it was the subsequent buyer alone, who is not a
party to this case, that was responsible for the forcible taking of the
property; but assuming this to be so, still the PNB cannot escape
liability for the conversion of the mortgaged chattels by parting with
its interest in the property. Neither would its claim that it afterwards
gave a chance to herein appellant to repurchase or redeem the
chattels, improve its position, for the mortgagor is not under
obligation to take affirmative steps to repossess the chattels that
were converted by the mortgagee. 15 As a consequence of the said
wrongful acts of the PNB and the Deputy Sheriff of Camarines Norte,
therefore, We have to declare that herein appellant is entitled to
collect from them, jointly and severally, the full value of the chattels
in question at the time they were illegally sold by them. To this effect
was the holding of this Court in a similar situation. 16
The effect of this irregularity was, in our opinion to make the plaintiff
liable to the defendant for the full value of the truck at the time the
plaintiff thus carried it off to be sold; and of course, the burden is on
the defendant to prove the damage to which he was thus
subjected. . . .
This brings us to the problem of determining the value of the
mortgaged chattels at the time of their sale in 1961. The trial court did
not make any finding on the value of the chattels in the decision
appealed from and denied altogether the right of the appellant to
recover the same. We find enough evidence of record, however,
which may be used as a guide to ascertain their value. The record
shows that at the time herein appellant applied for its loan with the
PNB in 1956, for which the chattels in question were mortgaged as
part of the security therefore, herein appellant submitted a list of the
chattels together with its application for the loan with a stated value
of P107,115.85. An official of the PNB made an inspection of the is admitted that herein appellant had already ceased in its business
chattels in the same year giving it an appraised value of P42,850.00 operation at the time of the foreclosure sale of the chattels, but also
and a market value of P85,700.00. 17 The same chattels with some for the reason that whatever adverse effects of the foreclosure sale
additional equipment acquired by herein appellant with part of the of the chattels could have upon its reputation or business standing
proceeds of the loan were reappraised in a re-inspection conducted would undoubtedly be the same whether the sale was conducted at
by the same official in 1958, in the report of which he gave all the Jose Panganiban, Camarines Norte, or in Manila which is the place
chattels an appraised value of P26,850.00 and a market value of agreed upon by the parties in the mortgage contract.
P48,200.00. 18 Another re-inspection report in 1959 gave the appraised
value as P19,400.00 and the market value at P25,600.00. 19 The said But for the wrongful acts of herein appellee bank and the deputy
official of the PNB who made the foregoing reports of inspection and sheriff of Camarines Norte in proceeding with the sale in utter
re-inspections testified in court that in giving the values appearing in disregard of the agreement to have the chattels sold in Manila as
the reports, he used a conservative method of appraisal which, of provided for in the mortgage contract, to which their attentions were
course, is to be expected of an official of the appellee bank. And it timely called by herein appellant, and in disposing of the chattels in
appears that the values were considerably reduced in all the re- gross for the miserable amount of P4,200.00, herein appellant should
inspection reports for the reason that when he went to herein be awarded exemplary damages in the sum of P10,000.00. The
appellant's premises at the time, he found the chattels no longer in circumstances of the case also warrant the award of P3,000.00 as
use with some of the heavier equipments dismantled with parts attorney's fees for herein appellant.
thereof kept in the bodega; and finding it difficult to ascertain the
value of the dismantled chattels in such condition, he did not give WHEREFORE AND CONSIDERING ALL THE FOREGOING, the decision
them anymore any value in his reports. Noteworthy is the fact, appealed from should be, as hereby, it is set aside. The Philippine
however, that in the last re-inspection report he made of the chattels National Bank and the Deputy Sheriff of the province of Camarines
in 1961, just a few months before the foreclosure sale, the same Norte are ordered to pay, jointly and severally, to Mambulao Lumber
inspector of the PNB reported that the heavy equipment of herein Company the total amount of P56,000.73, broken as follows: P150.73
appellant were "lying idle and rusty" but were "with a shed free from overpaid by the latter to the PNB, P42,850.00 the value of the chattels
rains" 20 showing that although they were no longer in use at the time, at the time of the sale with interest at the rate of 6% per annum from
they were kept in a proper place and not exposed to the elements. December 21, 1961, until fully paid, P10,000.00 in exemplary
The President of the appellant company, on the other hand, testified damages, and P3,000.00 as attorney's fees. Costs against both
that its caterpillar (tractor) alone is worth P35,000.00 in the market, appellees.
and that the value of its two trucks acquired by it with part of the
proceeds of the loan and included as additional items in the
mortgaged chattels were worth no less than P14,000.00. He likewise
appraised the worth of its Murphy engine at P16,000.00 which,
according to him, when taken together with the heavy equipments
he mentioned, the sawmill itself and all other equipment forming part
of the chattels under consideration, and bearing in mind the current
cost of equipments these days which he alleged to have increased
by about five (5) times, could safely be estimated at P120,000.00. This
testimony, except for the appraised and market values appearing in
the inspection and re-inspection reports of the PNB official earlier
mentioned, stand uncontroverted in the record; but We are not
inclined to accept such testimony at its par value, knowing that the
equipments of herein appellant had been idle and unused since it
stopped operating its sawmill in 1958 up to the time of the sale of the
chattels in 1961. We have no doubt that the value of chattels was
depreciated after all those years of inoperation, although from the
evidence aforementioned, We may also safely conclude that the
amount of P4,200.00 for which the chattels were sold in the
foreclosure sale in question was grossly unfair to the mortgagor.
Considering, however, the facts that the appraised value of
P42,850.00 and the market value of P85,700.00 originally given by the
PNB official were admittedly conservative; that two 6 x 6 trucks
subsequently bought by the appellant company had thereafter
been added to the chattels; and that the real value thereof,
although depreciated after several years of inoperation, was in a
way maintained because the depreciation is off-set by the marked
increase in the cost of heavy equipment in the market, it is our
opinion that the market value of the chattels at the time of the sale
should be fixed at the original appraised value of P42,850.00.
Herein appellant's claim for moral damages, however, seems to have
no legal or factual basis. Obviously, an artificial person like herein
appellant corporation cannot experience physical sufferings, mental
anguish, fright, serious anxiety, wounded feelings, moral shock or
social humiliation which are basis of moral damages. 21 A corporation
may have a good reputation which, if besmirched, may also be a
ground for the award of moral damages. The same cannot be
considered under the facts of this case, however, not only because it
FIRST DIVISION
[G.R. No. 128690. January 21, 1999]
ABS-CBN BROADCASTING CORPORATION, petitioners, vs. HONORABLE
COURT OF APPEALS, REPUBLIC BROADCASTING CORP., VIVA
PRODUCTIONS, INC., and VICENTE DEL ROSARIO, respondents.
SYNOPSIS
In 1990, ABS-CBN and VIVA executed a Film Exhibition Agreement
whereby the latter gave the former an exclusive right to exhibit 24
VIVA Films for TV telecast. Later, VIVA, through respondent Vincent
del Rosario, offered ABS-CBN a list of 3 film packages (36 titles) from
which the latter may exercise its right of first refusal under their
agreement. ABS-CBN ticked off 10 titles therefrom. Thereafter, in
February 1992, Del Rosario offered ABS-CBN airing rights over a
package of 104 movies for P60 million. In April, 1992, Del Rosario, and
Eugenio Lopez of ABS-CBN, met at a restaurant to discuss the
package proposal. According to Lopez, however, what they agreed
upon was ABS-CBNs exclusive film rights to 14 films for P36 million. Del
Rosario denied the same. He insisted that the discussion was on
VIVAs offer of 104 films for P60 million, to which ABSCBN later made a
counterproposal but rejected by VIVAs Board of Directors. Hence,
VIVA later granted RBS the exclusive right to air the 104 VIVA films,
including the 14 films supposedly granted to ABS-CBN. ABS-CBN then
filed a complaint for specific performance with prayer for
injunction. The RTC granted the prayer and required ABS-CBN post a
P35 million bond. But while ABS-CBN was moving for reduction of the
bond, RBS offered to put up a counterbond and was allowed to post
P30 million. Later, the RTC rendered a decision in favor of RBS and
VIVA, ordering ABS-CBN to pay RBS the amount it paid for the print
advertisement and premium on the counterbond, moral damages,
exemplary damages and attorneys fee. ABS-CBN appealed to the
Court of Appeals. Viva and Del Rosario also appealed seeking moral
and exemplary damages and additional attorneys fees. The Court of
Appeals affirmed the RTC decision and sustained the monetary
awards, VIVAs and Del Rosarios appeals were denied.
The key issues are: 1. Whether there was a perfected contract
between VIVA and ABS-CBN; and 2. Whether RBS is entitled to
damages and attorneys fees.
The first issue is resolved against ABS-CBN, in the absence of the
requisites to make a valid contract. The alleged agreement on the
14 films, if there is one, is not binding to VIVA as it is not manifested
that Del Rosario has an authority to bind VIVA. Thus, when ABS-CBN
made a counter-proposal to VIVA, the same was submitted to its
Board of Directors, who rejected the same. Further, the Court
agreed that the alleged agreement is not a continuation of the 1990
Contract as the right of first refusal under the said contract had
already been exercised by ABS-CBN. However, on the issue of
damages, the Court found ABS-CBN. RBS is not entitled to actual
damages as the claim thereof did not arise from that which allows
the same to be recovered. Neither is RBS entitled to attorneys fees as
there is no showing of bad faith in the other partys persistence in his
case. Also, being a corporation, RBS is not entitled to moral
damages as the same is awarded to compensate actual injuries
suffered. Lastly, exemplary damages cannot be awarded in the
absence of proof that ABS-CBN was inspired by malice or bad faith.
SYLLABUS
1. CIVIL LAW; CONTRACT; ELUCIDATED. A contract is a meeting of
minds between two persons whereby one binds himself to give
something or to render some service to another 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. 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. 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.
2. CORPORATION LAW; BOARD OF DIRECTORS; POWER TO ENTER INTO
CONTRACTS; DELEGATION; VALIDITY THEREOF. Under the Corporation
Code, 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. Delegation to officers makes the latter
agents of the corporation; accordingly, the general rules of agency
as to the binding effects of their acts would apply. For such officers
to be deemed fully clothed by the corporation to exercise a power
of the Board, did not have the authority to accept ABS-CBNs
counter-offer was best evidenced by his submission of the draft
contract to VIVAS Board of Directors for the latters approval. In any
event, there was between Del Rosario and Lopez III no meeting of
minds.
3. CIVIL LAW; OBLIGATIONS AND CONTRACTS; DAMAGES; ACTUAL
DAMAGES; ELABORATED. 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. The indemnification shall
comprehend not only the value of the loss suffered, but also that of
the profits that the obligee failed to obtain. In contracts and quasi-
contracts the damages which may be awarded are dependent on
whether the obligor acted with good faith or otherwise. In case of
good faith, the damages recoverable are those which are the
natural and probable consequences of the breach of the obligation
and which the parties have foreseen or could have reasonably
foreseen at the time of the constitution of the obligation. If the
obligor acted with fraud, bad faith, malice, or wanton attitude, he
shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation. 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 have been foreseen
or could have reasonably been foreseen by the defendant. Actual
damages may likewise be recovered for loss or impairment of
earning capacity in cases of temporary or permanent personal injury,
or for injury to the plaintiffs business standing or commercial credit.
4. ID.; ID.; ID.; ID.; CASE AT BAR. 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-CBNs
alleged knowledge of lack of cause of action. Needless to state, the
award of actual damages cannot be comprehended under the law
on actual damages. RBS could only probably take refuge under
Articles 19, 20, and 21 of the Civil Code. 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. 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 grounds 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.
5. ID.; ID.; ID.; ID.; ATTORNEYS FEES; ELABORATED. As regards attorneys
fees, the law is clear that in the absence of stipulation, attorneys fees
may be recovered as actual or compensatory damages under any
of the circumstances provided for in Article 2208 of the Civil
Code. The general rule is that attorneys fees cannot be recovered
as part of damages because of the policy that no premium should
be placed on the right of litigate. They are not to be awarded every
time a party wins a suit. The power of the court to award attorneys
fees under Article 2208 demands factual, legal, and equitable
justification. Even when a claimant is compelled to litigate with third
persons or to incur expenses to protect his rights, still attorneys fees
may not be awarded where no sufficient showing of bad faith could
be reflected in a partys persistence in a case other than an
erroneous conviction of the righteousness of his cause.
6. ID.; ID.; ID.; MORAL DAMAGES; ELABORATED. 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. 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. The award
is not meant to enrich the complainant at the expense of the
defendant, but to enable the injured party to obtain means,
diversion, or amusements that will serve to obviate the moral suffering
he has undergone. It is aimed at the restoration, within the limits of
the possible, of the spiritual status quo ante, and should be
proportionate to the suffering inflicted. 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.
7. ID.; ID.; ID.; ID.; CASE AT BAR. RBSs claim for moral damages could
possibly fall only under item (10) of Article 2219, thereof which reads:
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32,
34, and 35. However, the award of moral damages cannot be
granted in favor of a corporation because, being an artificial person
and having existence only in legal contemplation, it has no feelings,
no emotions, no senses. It cannot, therefore, experience physical
suffering and mental anguish, which can be experienced only by
one having a nervous system. The statement in People v. Manero
and Mambulao Lumber Co. v. PNB 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.
8. ID.; ID.; ID.; EXEMPLARY DAMAGES; ELUCIDATED. 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. They are recoverable in criminal cases as
part of the civil liability when the crime was committed with one or
more aggravating circumstances; in quasi-delicts, if the defendant
acted with gross negligence; and in contracts and quasi-contracts, if
the defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner.
9. ID.; ID.; ID.; ID.; CASE AT BAR. 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. 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. Such must be substantiated by evidence. 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 persons
exercise of a right, it is damnum absque injuria.
DECISION
DAVIDE, JR., C.J.:
In this petition for review on certiorari, petitioners ABS-CBN
Broadcasting Corp. (hereinafter 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-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 our very first contract because of the cheap production
value of these movies as well as the lack of big action stars. As a film
producer, I am sure you understand what I am trying to say as Viva
produces only big action pictures.
In fact, I would like to request two (2) additional runs for these movies
as I can only schedule them in out non-primetime slots. We have to
cover the amount that was paid for these movies because as you
very well know that non-primetime advertising rates are very
low. These are the unaired titles in the first contract.
1. Kontra Persa [sic]
2. Raider Platoon
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this request of mine.
The other dramatic films have been offered to us before and have
been rejected because of the ruling of MTRCB to have them aired at
9:00 p.m. due to their very adult themes.
As for the 10 titles I have choosen [sic] from the 3 packages please
consider including all the other Viva movies produced last year, I
have quite an attractive offer to make.
Thanking you and with my warmest regards.
(Signed)
Charo Santos-Concio
On February 27, 1992, defendant Del Rosario approached ABS-CBNs
Ms. Concio, with a list consisting of 52 original movie titles (i.e., not yet
aired on television) including the 14 titles subject of the present case,
as well as 104 re-runs (previously aired on television) from which ABS-
CBN may choose another 52 titles, as a total of 156 titles, proposing
to sell to ABS-CBN airing rights over this package of 52 originals and
52 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-CBNs general
manager, Eugenio Lopez III, met at the Tamarind Grill Restaurant in
Quezon City to discuss the package proposal of VIVA. What
transpired in that lunch meeting is the subject of conflicting
versions. Mr. Lopez testified that he and Mr. Del Rosario allegedly
agreed that ABS-CBN was granted exclusive film rights to fourteen
(14) films for a total consideration of P36 million; that he allegedly put
this agreement as to the price and number of films in a napkin and
signed it and gave it to Mr. Del Rosario (Exh. D; TSN, pp. 24-26, 77-78,
June 8, 1992). On the other hand. Del Rosario denied having made
any agreement with Lopez regarding the 14 Viva films; denied the
existence of a napkin in which Lopez wrote something; and insisted
that what he and Lopez discussed at the lunch meeting was Vivas
film package offer of 104 films (52 originals and 52 re-runs) for a total
price of P60 million. Mr. Lopez promising [sic]to make a counter
proposal which came in the form of a proposal contract Annex C of
the complaint (Exh. 1 Viva; Exh C ABS-CBN).
On April 06, 1992, Del Rosario and Mr. Graciano Gozon of RBS Senior
vice-president for Finance discussed the terms and conditions of
Vivas offer to sell the 104 films, after the rejection of the same
package by ABS-CBN.
On April 07, 1992, defendant Del Rosario received through his
secretary , a handwritten note from Ms. Concio, (Exh. 5 Viva), which
reads: Heres the draft of the contract. I hope you find everything in
order, to which was attached a draft exhibition agreement (Exh. C
ABS-CBN; Exh. 9 Viva p. 3) a counter-proposal covering 53 films, 52 of
which came from the list sent by defendant Del Rosario and one film
was added by Ms. Concio, for a consideration of P35 million. Exhibit
C provides that ABS-CBN is granted film rights to 53 films and contains
a right of first refusal to 1992 Viva Films. The said counter proposal was
however rejected by Vivas Board of Directors [in the] evening of the
same day, April 7, 1992, as Viva would not sell anything less than the
package of 104 films for P60 million pesos (Exh. 9 Viva), and such
rejection was relayed to Ms. Concio.
On April 29, 1992, after the rejection of ABS-CBN and following
several negotiations and meetings defendant Del Rosario and Vivas
President Teresita Cruz, in consideration of P60 million, signed a letter
of agreement dated April 24, 1992, granting RBS the exclusive right to
air 104 Viva-produced and/or acquired films (Exh. 7-A - RBS; Exh. 4
RBS) including the fourteen (14) films subject of the present case.[4]
On 27 May 1992, ABS-CBN filed before the RTC a complaint for
specific performance with a prayer for a writ of preliminary injunction
and/or temporary restraining order against private respondents
Republic Broadcasting Corporation[5] (hereafter RBS), Viva
Production (hereafter VIVA), and Vicente del Rosario. The complaint
was docketed as Civil Case No. Q-92-12309.
On 28 May 1992, the RTC issued a temporary restraining
order[6] enjoining private respondents from proceeding with the
airing, broadcasting, and televising of the fourteen VIVA films subject
of the controversy, starting with the film Maging Sino Ka Man, which
was scheduled to be shown on private respondent RBS channel 7 at
seven oclock in the evening of said date.
On 17 June 1992, after appropriate proceedings, the RTC issued an
order[7] directing the issuance of a writ of preliminary injunction upon
ABS-CBNs posting of a P35 million bond. ABS-CBN moved for the
reduction of the bond,[8] while private respondents moved for
reconsideration of the order and offered to put up a counterbond.[9]
In the meantime, private respondents filed separate answer with
counterclaim.[10] RBS also set up a cross-claim against VIVA.
On 3 August 1992, the RTC issued an order[11] dissolving the writ of
preliminary injunction upon the posting by RBS of a P30 million
counterbond to answer for whatever damages ABS-CBN might suffer
by virtue of such dissolution. However, it reduced petitioners
injunction bond to P15 million as a condition precedent for the
reinstatement of the writ of preliminary injunction should private
respondents be unable to post a counterbond.
At the pre-trial[12] on 6 August 1992, the parties upon suggestion of the
court, agreed to explore the possibility of an amicable settlement. In
the meantime, RBS prayed for and was granted reasonable time
within which to put up a P30 million counterbond in the event that no
settlement would be reached.
As the parties failed to enter into an amicable settlement, RBS posted
on 1 October 1992 a counterbond, which the RTC approved in its
Order of 15 October 1992.[13]
On 19 October 1992, ABS-CBN filed a motion for reconsideration [14] of
the 3 August and 15 October 1992 Orders, which RBS opposed.[15]
On 29 October, the RTC conducted a pre-trial.[16]
Pending resolution of its motion for reconsideration, ABS-CBN filed
with the Court of Appeals a petition[17] challenging the RTCs Order of
3 August and 15 October 1992 and praying for the issuance of a writ
of preliminary injunction to enjoin the RTC from enforcing said
orders. The case was docketed as 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. SP No. 29300 for being
premature. ABS-CBN challenged the dismissal in a petition for review
filed with this Court on 19 January 1993, which was docketed s G.R.
No. 108363.
In the meantime the RTC received the evidence for the parties in
Civil Case No. Q-92-12309. 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, judgment is rendered in favor of defendants and against
the plaintiff.
(1) The complaint is hereby dismissed;
(2) Plaintiff ABS-CBN is ordered to pay defendant RBS the following:
a) P107,727.00 the amount of premium paid by RBS to the surety
which issued defendants RBSs bond to lift the injunction;
b) P191,843.00 for the amount of print advertisement for Maging Sino
Ka Man in various newspapers;
c) Attorneys fees in the amount of P1 million;
d) P5 million as and by way of moral damages;
e) P5 million as and by way of exemplary damages;
(3) For the defendant VIVA, plaintiff ABS-CBN is ordered to
pay P212,000.00 by way of reasonable attorneys fees.
(4) The cross-claim of defendant RBS against defendant VIVA is
dismissed.
(5) Plaintiff to pay the costs.
According to the RTC, there was no meeting of minds on the price
and terms of the offer. The alleged agreement between Lopez III and
Del Rosario was subject to the approval of the VIVA Board of
Directors, and said agreement was disapproved during the meeting
of the Board on 7 April 1992. Hence, there was no basis for ABS-CBNs
demand that VIVA signed the 1992 Film Exhibition
Agreement. Furthermore, the right of first refusal under the 1990 Film
Exhibition Agreement had previously been exercised per Ms. Concios
letter to Del Rosario ticking off ten titles acceptable to them, which
would have made the 1992 agreement an entirely new contract.
On 21 June 1993, this Court denied[21] ABS-CBNs petition for review in
G.R. No. 108363, as no reversible error was committed by the Court of
Appeals in its challenged decision and the case had become moot
and academic in view of the dismissal of the main action by the
court a quo in its decision of 28 April 1993.
Aggrieved by the RTCs decision, ABS-CBN appealed to the Court of
Appeals claiming that there was a perfected contract between ABS-
CBN and VIVA granting ABS-CBN the exclusive right to exhibit the
subject films. Private respondents VIVA and Del Rosario also
appealed seeking moral and exemplary damages and additional
attorneys fees.
In its decision of 31 October 1996, the Court of Appeals agreed with
the RTC that the contract between ABS-CBN and VIVA had not been
perfected, absent the approval by the VIVA Board of Directors of
whatever Del Rosario, its agent, might have agreed with Lopez III. The
appellate court did not even believe ABS-CBNs evidence that Lopez
III actually wrote down such an agreement on a napkin, as the same
was never produced in court. It likewise rejected ABS-CBNs insistence
on its right of first refusal and ratiocinated as follows:
As regards the matter of right of first refusal, it may be true that a Film
Exhibition Agreement was entered into between Appellant ABS-CBN
and appellant VIVA under Exhibit A in 1990 and that parag. 1.4
thereof provides:
1.4 ABS-CBN shall have the right of first refusal to the next twenty-four
(24) VIVA films for TV telecast under such terms as may be agreed
upon by the parties hereto, provided, however, that such right shall
be exercised by ABS-CBN within a period of fifteen (15) days from the
actual offer in writing (Records, p. 14).
[H]owever, it is very clear that said right of first refusal in favor of ABS-
CBN shall still be subjected to such terms as may be agreed upon by
the parties thereto, and that the said right shall be exercised by ABS-
CBN within fifteen (15) days from the actual offer in writing.
Said parag. 1.4 of the agreement Exhibit A on the right of first refusal
did not fix the price of the film right to the twenty-four (24) films, nor
did it specify the terms thereof. The same are still left to be agreed
upon by the parties.
In the instant case, ABS-CBNs letter of rejection Exhibit 3 (Records, p.
89) stated that it can only tick off ten (10) films, and the draft
contract Exhibit C accepted only fourteen (14) films, while parag. 1.4
of Exhibit A speaks of the next twenty-four (24) films.
The offer of VIVA was sometime in December 1991, (Exhibits 2, 2-A, 2-
B; Records, pp. 86-88; Decision, p. 11, Records, p. 1150), when the first
list of VIVA films was sent by Mr. Del Rosario to ABS-CBN. The Vice
President of ABS-CBN, Mrs. Charo Santos-Concio, sent a letter dated
January 6, 1992 (Exhibit 3, Records, p. 89) where ABS-CBN exercised
its right of refusal by rejecting the offer of VIVA. As aptly observed by
the trial court, with the said letter of Mrs. Concio of January 6, 1992,
ABS-CBN had lost its right of first refusal. And even if We reckon the
fifteen (15) day period from February 27, 1992 (Exhibit 4 to 4-C) when
another list was sent to ABS-CBN after the letter of Mrs. Concio, still
the fifteen (15) day period within which ABS-CBN shall exercise its
right of first refusal has already expired.[22]
Accordingly, respondent court sustained the award factual
damages consisting in the cost of print advertisements and the
premium payments for the counterbond, there being adequate
proof of the pecuniary loss which RBS has suffered as a result of the
filing of the complaint by ABS-CBN. As to the award of moral
damages, the Court of Appeals found reasonable basis therefor,
holding that RBSs reputation was debased by the filing of the
complaint in Civil Case No. Q-92-12309 and by the non-showing of
the film Maging Sino Ka Man. Respondent court also held that
exemplary damages were correctly imposed by way of example or
correction for the public good in view of the filing of the complaint
despite petitioners knowledge that the contract with VIVA had not
been perfected. It also upheld the award of attorneys fees,
reasoning that with ABS-CBNs act of instituting Civil Case No. Q-92-
12309, RBS was unnecessarily forced to litigate. The appellate court,
however, reduced the awards of moral damages to P 2 million,
exemplary damages to P2 million, and attorneys fees to P500,000.00.
On the other hand, respondent Court of Appeals denied VIVA and
Del Rosarios appeal because it was RBS and not VIVA which was
actually prejudiced when the complaint was filed by ABS-CBN.
Its motion for reconsideration having been denied, ABS-CBN filed the
petition in this case, contending that the Court of Appeals gravely
erred in
I humiliation. When the showing was cancelled, irate viewers called
RULING THAT THERE WAS NO PERFECTED CONTRACT BETWEEN
PETITIONER AND PRIVATE RESPONDENT VIVA
NOTWITHSTANDINGPREPONFERANCE OF EVIDENCE ADDUCED BY
PETITIONER TO THE CONTRARY.
II
IN AWARDING ACTUAL AND COMPENSATORY DAMAGES IN FAVOR
OF PRIVATE RESPONDENT RBS.
III
IN AWARDING MORAL AND EXEMPLARY DAMAGES IN FAVOR OF
PRIVATE RESPONDENT RBS.
IV
IN AWARDING ATORNEYS FEES OF RBS.
ABS-CBN claims that it had yet to fully exercise its right of first refusal
over twenty-four titles under the 1990 Film Exhibition Agreement, as it
had chosen only ten titles from the first list. It insists that we give
credence to Lopezs testimony that he and Del Rosario met at the
Tamarind Grill Restaurant, discussed the terms and conditions of the
second list (the 1992 Film Exhibition Agreement) and upon
agreement thereon, wrote the same on a paper napkin. It also
asserts that the contract has already been effective, as the elements
thereof, namely, consent, object, and consideration were
established. It then concludes that the Court of Appeals
pronouncements were not supported by law and jurisprudence, as
per our decision of 1 December 1995 in Limketkai Sons Milling, Inc. v.
Court of Appeals,[23]which cited Toyota Shaw, Inc. v. Court of
Appeals;[24] Ang Yu Asuncion v. Court of Appeals,[25] and Villonco
Realty Company v. Bormaheco, Inc.[26]
Anent the actual damages awarded to RBS, ABS-CBN disavows
liability therefor. RBS spent for the premium on the counterbond of its
own volition in order to negate the injunction issued by the trial court
after the parties had ventilated their respective positions during the
hearings for the purpose. The filing of the counterbond was an option
available to RBS, but it can hardly be argued that ABS-CBN
compelled RBS to incur such expense. Besides, RBS had another
available option, i.e., move for the dissolution of the injunction; or if it
was determined to put up a counterbond, it could have presented a
cash bond. Furthermore under Article 2203 of the Civil Code, the
party suffering loss injury is also required to exercise the diligence of a
good father of a family to minimize the damages resulting from the
act or omission. As regards the cost of print advertisements, RBS had
not convincingly established that this was a loss attributable to the
non-showing of Maging Sino Ka Man; on the contrary, it was brought
out during trial that with or without the case or injunction, RBS would
have spent such an amount to generate interest in the film.
ABS-CBN further contends that there was no other clear basis for the
awards of moral and exemplary damages. The controversy involving
ABS-CBN and RBS did not in any way originate from business
transaction between them. The claims for such damages did not
arise from any contractual dealings or from specific acts committed
by ABS-CBN against RBS that may be characterized as wanton,
fraudulent, or reckless; they arose by virtue only of the filing of the
complaint. An award of moral and exemplary damages is not
warranted where the record is bereft of any proof that a party acted
maliciously or in bad faith in filing an action.[27] In any case, free resort
to courts for redress of wrongs is a matter of public policy. The law
recognizes the right of every one to sue for that which he honestly
believes to be his right without fear of standing trial for damages
where by lack of sufficient evidence, legal technicalities, or a
different interpretation of the laws on the matter, the case would lose
ground.[28] One who, makes use of his own legal right does no
injury.[29] If damage results from filing of the complaint, it is damnum
absque injuria.[30] Besides, moral damages are generally not
awarded in favor of a juridical person, unless it enjoys a good
reputation that was debased by the offending party resulting in
social humiliation.[31]
As regards the award of attorneys fees, ABS-CBN maintains that the
same had no factual, legal, or equitable justification. In sustaining the
trial courts award, the Court of Appeals acted in clear disregard of
the doctrine laid down in Buan v. Camaganacan[32] that the text of
the decision should state the reason why attorneys fees are being
awarded; otherwise, the award should be disallowed. Besides, no
bad faith has been imputed on, much less proved as having been
committed by, ABS-CBN. It has been held that where no sufficient
showing of bad faith would be reflected in a partys persistence in a
case other than an erroneous conviction of the righteousness of his
cause, attorneys fees shall not be recovered as cost.[33]
On the other hand, RBS asserts that there was no perfected contract
between ABS-CBN and VIVA absent meeting of minds between
them regarding the object and consideration of the alleged
contract. It affirms that ABS-CBNs claim of a right of first refusal was
correctly rejected by the trial court. RBS insists the premium it had
paid for the counterbond constituted a pecuniary loss upon which it
may recover. It was obliged to put up the counterbond due to the
injunction procured by ABS-CBN. Since the trial court found that ABS-
CBN had no cause of action or valid claim against RBS and,
therefore not entitled to the writ of injunction, RBS could recover from
ABS-CBN the premium paid on the counterbond. Contrary to the
claim of ABS-CBN, the cash bond would prove to be more expensive,
as the loss would be equivalent to the cost of money RBS would
forego in case the P30 million came from its funds or was borrowed
from banks.
RBS likewise asserts that it was entitled to the cost of advertisements
for the cancelled showing of the film Maging Sino Ka Man because
the print advertisements were out to announce the showing on a
particular day and hour on Channel 7, i.e., in its entirety at one time,
not as series to be shown on a periodic basis. Hence, the print
advertisements were good and relevant for the particular date of
showing, and since the film could not be shown on that particular
date and hour because of the injunction, the expenses for the
advertisements had gone to waste.
As regards moral and exemplary damages, RBS asserts that ABS-CBN
filed the case and secured injunctions purely for the purpose of
harassing and prejudicing RBS. Pursuant then to Articles 19 and 21 of
the Civil Code, ABS-CBN must be held liable for such
damages. Citing Tolentino,[34] damages may be awarded in cases of
abuse of rights even if the done is not illicit, and there is abuse of
rights where a plaintiff institutes an action purely for the purpose of
harassing or prejudicing the defendant.
In support of its stand that a juridical entity can recover moral and
exemplary damages, private respondent RBS cited People v.
Manero,[35] where it was stated that such entity may recover moral
and exemplary damages if it has a good reputation that is debased
resulting in social humiliation. It then ratiocinates; thus:
There can be no doubt that RBS reputation has been debased by
ABS-CBNs acts in this case. When RBS was not able to fulfill its
commitment to the viewing public to show the film Maging Sino Ka
Man on the scheduled dates and times (and on two occasions that
RBS advertised), it suffered serious embarrassment and social
up RBS offices and subjected RBS to verbal abuse (Announce kayo
ng announce, hindi ninyo naman ilalabas, nanloloko yata kayo) (Exh.
3-RBS, par.3). This alone was not something RBS brought upon itself. It
was exactly what ABS-CBN had planted to happen.
The amount of moral and exemplary damages cannot be said to be
excessive. Two reasons justify the amount of the award.
The first is that the humiliation suffered by RBS, is national in extent.
RBS operations as a broadcasting company is [sic] nationwide. Its
clientele, like that of ABS-CBN, consists of those who own and watch
television. It is not an exaggeration to state, and it is a matter of
judicial notice that almost every other person in the country watches
television. The humiliation suffered by RBS is multiplied by the number
of televiewers who had anticipated the showing of the film, Maging
Sino Ka Man on May 28 and November 3, 1992 but did not see it
owing to the cancellation. Added to this are the advertisers who had
placed commercial spots for the telecast and to whom RBS had a
commitment in consideration of the placement to show the film in
the dates and times specified.
The second is that it is a competitor that caused RBS suffer the
humiliation. The humiliation and injury are far greater in degree when
caused by an entity whose ultimate business objective is to lure
customers (viewers in this case) away from the competition.[36]
For their part, VIVA and Vicente del Rosario contend that the findings
of fact of the trial court and the Court of Appeals do not support
ABS-CBNs claim that there was a perfected contract. Such factual
findings can no longer be disturbed in this petition for review under
Rule 45, as only questions of law can be raised, not questions of
fact. On the issue of damages and attorneys fees, they adopted the
arguments of RBS.
The key issues for our consideration are (1) whether there was a
perfected contract between VIVA and ABS-CBN, and (2) whether
RBS is entitled to damages and attorneys fees. It may be noted that
that award of attorneys fees of P212,000 in favor of VIVA is not
assigned as another error.
I
The first issue should be resolved against ABS-CBN. A contract is a
meeting of minds between two persons whereby one binds himself to
give something or render some service to another[37] for a
consideration. There is no contract unless the following requisites
concur: (1) consent of the contracting parties; (2) object certain
which is the subject of the contract; and (3) cause of the obligation,
which is established.[38] A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of
negotiation and bargaining, ending at the moment of agreement of
the parties;
(b) perfection or birth of the contract, which is the moment when the
parties come to agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of
the terms agreed upon in the contract.[39]
Contracts that are consensual in nature are perfected upon mere
meeting of the minds. Once there is concurrence between the offer
and the acceptance upon the subject matter, consideration, and
terms of payment a contract is produced. The offer must be
certain. To convert the offer into a contract, the acceptance must
be absolute and must not qualify the terms of the offer; it must be
plain, unequivocal, unconditional, and without variance of any sort
from the proposal. A qualified acceptance, or one that involves a
new proposal, constitutes a counter-offer and is a rejection of the
original offer. Consequently, when something is desired which is not
exactly what is proposed in the offer, such acceptance is not
sufficient to generate consent because any modification or variation
from the terms of the offer annuls the offer.[40]
When Mr. Del Rosario of Viva met Mr. Lopez of ABS-CBN at the
Tamarind Grill on 2 April 1992 to discuss the package of films, said
package of 104 VIVA films was VIVAs offer to ABS-CBN to enter into a
new Film Exhibition Agreement. But ABS-CBN, sent through Ms.
Concio, counter-proposal in the form a draft contract proposing
exhibition of 53 films for a consideration of P35 million. This counter-
proposal could be nothing less than the counter-offer of Mr. Lopez
during his conference with Del Rosario at Tamarind Grill
Restaurant. Clearly, there was no acceptance of VIVAs offer, for it
was met by a counter-offer which substantially varied the terms of
the offer.
ABS-CBNs reliance in Limketkai Sons Milling, Inc. v. Court of
Appeals[41] and Villonco Realty Company v. Bormaheco, Inc.,[42] is
misplaced. In these cases, it was held that an acceptance may
contain a request for certain changes in the terms of the offer and
yet be a binding acceptance as long as it is clear that the meaning
of the acceptance is positively and unequivocally to accept the
offer, whether such request is granted or not. This ruling was,
however, reversed in the resolution of 29 March 1996,[43] which ruled
that the acceptance of an offer must be unqualified and
absolute, i.e., it must be identical in all respects with that of the offer
so as to produce consent or meetings of the minds.
On the other hand, in Villonco, cited in Limketkai, the alleged
changes in the revised counter-offer were not material but merely
clarificatory of what had previously been agreed upon. It cited the
statement in Stuart v. Franklin Life Insurance Co.[44] that a vendors
change in a phrase of the offer to purchase, which change does not
essentially change the terms of the offer, does not amount to a
rejection of the offer and the tender of a counter-offer.[45] However,
when any of the elements of the contract is modified upon
acceptance, such alteration amounts to a counter-offer.
In the case at bar, ABS-CBN made no unqualified acceptance of
VIVAs offer hence, they underwent period of bargaining. ABS-CBN
then formalized its counter-proposals or counter-offer in a draft
contract. VIVA through its Board of Directors, rejected such counter-
offer. Even if it be conceded arguendo that Del Rosario had
accepted the counter-offer, the acceptance did not bind VIVA, as
there was no proof whatsoever that Del Rosario had the specific
authority to do so.
Under the Corporation Code,[46] unless otherwise provided by said
Code, corporate powers, such as the power to enter into contracts,
are exercised by the Board of Directors. However, the Board may
delegate such powers to either an executive committee or officials
or contracted managers. The delegation, except for the executive
committee, must be for specific purposes.[47] Delegation to officers
makes the latter agents of the corporation; accordingly, the general
rules of agency as to the binding effects of their acts would
apply.[48] For such officers to be deemed fully clothed by the
corporation to exercise a power of the Board, the latter must
specially authorize them to do so. that Del Rosario did not have the
authority to accept ABS-CBNs counter-offer was best evidenced by
his submission of the draft contract to VIVAs Board of Directors for the
latters approval. In any event, there was between Del Rosario and
Lopez III no meeting of minds. The following findings of the trial court
are instructive:
A number of considerations militate against ABS-CBNs claim that a
contract was perfected at that lunch meeting on April 02, 1992 at
the Tamarind Grill.
FIRST, Mr. Lopez claimed that what was agreed upon at the Tamarind
Grill referred to the price and the number of films, which he wrote on
a napkin. However, Exhibit C contains numerous provisions which
were not discussed at the Tamarind Grill, if Lopez testimony was to be
believed nor could they have been physically written on a
napkin. There was even doubt as to whether it was a paper napkin or
cloth napkin. In short what were written in Exhibit C were not
discussed, and therefore could not have been agreed upon, by the
parties. How then could this court compel the parties to sign Exhibit C
when the provisions thereof were not previously agreed upon?
SECOND, Mr. Lopez claimed that what was agreed upon as the
subject matter of the contract was 14 films. The complaint in fact
prays for delivery of 14 films. But Exhibit C mentions 53 films as its
subject matter. Which is which? If Exhibit C reflected the true intent of
the parties, then ABS-CBNs claim for 14 films in its complaint is false or
if what it alleged in the complaint is true, then Exhibit C did not reflect
what was agreed upon by the parties. This underscores the fact that
there was no meeting of the minds as to the subject matter of the
contract, so as to preclude perfection thereof. For settled is the rule
that there can be no contract where there is no object certain which
is its subject matter (Art. 1318, NCC).
THIRD, Mr. Lopez [sic] answer to question 29 of his affidavit testimony
(Exh. D) States:
We were able to reach an agreement. VIVA gave us the exclusive
license to show these fourteen (14) films, and we agreed to pay Viva
the amount of P16,050,000.00 as well as grant Viva commercial slots
worth P19,950,000.00. We had already earmarked this P16,050,000.00.
which gives a total consideration of P36 million (P19,951,000.00
plus P16,050,000.00 equals P36,000,000.00).
On cross-examination Mr. Lopez testified:
Q What was written in this napkin?
A The total price, the breakdown the known Viva movies, the 7
blockbuster movies and the other 7 Viva movies because the price
was broken down accordingly. The none [sic] Viva and the seven
other Viva movies and the sharing between the cash portion and the
concerned spot portion in the total amount of P35 million pesos.
Now, which is which? P36 million or P35 million? This weakens ABS-
CBNs claim.
FOURTH. Mrs. Concio, testifying for ABS-CBN stated that she
transmitted Exhibit C to Mr. Del Rosario with a handwritten note,
describing said Exhibit C as a draft. (Exh. 5 Viva; tsn pp. 23-24, June
08, 1992). The said draft has a well defined meaning.
Since Exhibit C is only a draft, or a tentative, provisional or
preparatory writing prepared for discussion, the terms and conditions
thereof could not have been previously agreed upon by ABS-CBN
and Viva. Exhibit C could not therefore legally bind Viva, not having
agreed thereto. In fact, Ms. Concio admitted that the terms and
conditions embodied in Exhibit C were prepared by ABS-CBNs
lawyers and there was no discussion on said terms and conditions.
As the parties had not yet discussed the proposed terms and
conditions in Exhibit C, and there was no evidence whatsoever that
Viva agreed to the terms and conditions thereof, said document
cannot be a binding contract. The fact that Viva refused to sign
Exhibit C reveals only two [sic] well that it did not agree on its terms
and conditions, and this court has no authority to compel Viva to
agree thereto.
FIFTH. Mr. Lopez understand [sic] that what he and Mr. Del Rosario
agreed upon at the Tamarind Grill was only provisional, in the sense
that it was subject to approval by the Board of Directors of Viva. He
testified:
Q Now, Mr. Witness, and after that Tamarinf meeting the second
meeting wherein you claimed that you have the meeting of the
minds between you and Mr. Vic del Rosario, what happened?
A Vic Del Rosario was supposed to call us up and tell us specifically
the result of the discussion with the Board of Directors.
Q And you are referring to the so-called agreement which you wrote
in [sic] a piece of paper?
A Yes, sir.
Q So, he was going to forward that to the board of Directors for
approval?
A Yes, sir (Tsn, pp. 42-43, June 8, 1992)
Q Did Mr. Del Rosario tell you that he will submit it to his Board for
approval?
A Yes, sir. (Tsn, p. 69, June 8, 1992).
The above testimony of Mr. Lopez shows beyond doubt that he knew
Mr. Del Rosario had no authority to bind Viva to a contract with ABS-
CBN until and unless its Board of Directors approved it. The complaint,
in fact, alleges that Mr. Del Rosario is the Executive Producer of
defendant Viva which is a corporation. (par. 2, complaint). As a
mere agent of Viva, Del Rosario could not bind Viva unless what he
did is ratified by its Directors. (Vicente vs.Geraldez, 52 SCRA 210;
Arnold vs. Willets and Paterson, 44 Phil. 634). As a mere agent,
recognized as such by plaintiff, Del Rosario could not be held liable
jointly and severally with Viva and his inclusion as party defendant
has no legal basis. (Salonga vs. Warner Barnes [sic],COLTA, 88 Phil.
125; Salmon vs. Tan, 36 Phil. 556).
The testimony of Mr. Lopez and the allegations in the complaint are
clear admissions that what was supposed to have been agreed
upon at the Tamarind Grill between Mr. Lopez and Del Rosario was
not a binding agreement. It is as it should be because corporate
power to enter into a contract is lodged in the Board of
Directors. (Sec. 23, Corporation Code). Without such board approval
by the Viva board, whatever agreement Lopez and Del Rosario
arrived at could not ripen into a valid binding upon Viva (Yao Ka Sin
Trading vs. Court of Appeals, 209 SCRA 763). The evidence adduced
shows that the Board of Directors of Viva rejected Exhibit C and
insisted that the film package for 104 films be maintained (Exh. 7-1
Cica).[49]
The contention that ABS-CBN had yet to fully exercise its right of first
refusal over twenty-four films under the 1990 Film Exhibition
Agreement and that the meeting between Lopez and Del Rosario
was a continuation of said previous contract is untenable. As
observed by the trial court, ABS-CBNs right of first refusal had already
been exercised when Ms. Concio wrote to Viva ticking off ten
films. Thus:
[T]he subsequent negotiation with ABS-CBN two (2) months after this
letter was sent, was for an entirely different package. Ms. Concio
herself admitted on cross-examination to having used or exercised
the right of first refusal. She stated that the list was not acceptable
and was indeed not accepted by ABS-CBN, (Tsn, June 8, 1992, pp. 8-
10). Even Mr. Lopez himself admitted that the right of first refusal may
have been already exercised by Ms. Concio (as she had). (TSN, June
8, 1992, pp. 71-75). Del Rosario himself knew and understand [sic] that
ABS-CBN has lost its right of first refusal when his list of 36 titles were
rejected (Tsn, June 9, 1992, pp. 10-11).[50]
II
However, we find for ABS-CBN on the issue of damages. We shall first
take up actual damages. Chapter 2, Title XVIII, Book IV of the Civil
Code is the specific law on actual or compensatory
damages. Except as provided by law or by stipulation, one is entitled
to compensation for actual damages only for such pecuniary loss
suffered by him as he has duly proved.[51] The indemnification shall
comprehend not only the value of the loss suffered, but also that of
the profits that the obligee failed to obtain.[52] In contracts and quasi-
contracts the damages which may be awarded are dependent on
whether the obligor acted with good faith or otherwise. In case of
good faith, the damages recoverable are those which are the
natural and probable consequences of the breach of the obligation
and which the parties have foreseen or could have reasonably
foreseen at the time of the constitution of the obligation. If the
obligor acted with fraud, bad faith, malice, or wanton attitude, he
shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation.[53] In crimes and
quasi-delicts, the defendants shall be liable for all damages which
are the natural and probable consequences of the act or omission
complained of, whether or not such damages have been foreseen
or could have reasonably been foreseen by the defendant.[54]
Actual damages may likewise be recovered for loss or impairment of
earning capacity in cases of temporary or permanent personal injury,
or for injury to the plaintiffs business standing or commercial credit.[55]
The claim of RBS for actual damages did not arise from contract,
quasi-contract, delict, or quasi-delict. It arose from the fact of filing of
the complaint despite ABS-CBNs alleged knowledge of lack of cause
of action. Thus paragraph 12 of RBSs Answer with Counterclaim and
Cross-claim under the heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the complaint knowing fully well that it has no
cause of action against RBS. As a result thereof, RBS suffered actual
damages in the amount of P6,621,195.32.[56]
Needless to state the award of actual damages cannot be
comprehended under the above law on actual damages. RBS could
only probably take refuge under Articles 19, 20, and 21 of the Civil
Code, which read as follows:
ART. 19. Every person must, in the exercise of hid rights and in the
performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith.
ART. 20. Every person who, contrary to law, wilfully or negligently
causes damage to another shall indemnify the latter for the same.
ART. 21. Any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.
It may further be observed that in cases where a writ of preliminary
injunction is issued, the damages which the defendant may suffer by
reason of the writ are recoverable from the injunctive bond.[57] In this
case, ABS-CBN had not yet filed the required bond; as a matter of
fact, it asked for reduction of the bond and even went to the Court
of Appeals to challenge the order on the matter. Clearly then, it was
not necessary for RBS to file a counterbond. Hence, ABS-CBN cannot
be held responsible for the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print advertisements for
Maging Sino Ka Man for lack of sufficient legal basis. The RTC issued a
temporary restraining order and later, a writ of preliminary injunction
on the basis of its determination that there existed sufficient ground
for the issuance thereof. Notably, the RTC did not dissolve the
injunction on the ground of lack of legal and factual basis, but
because of the plea of RBS that it be allowed to put up a
counterbond.
As regards attorneys fees, the law is clear that in the absence of
stipulation, attorneys fees may be recovered as actual or
compensatory damages under any of the circumstances provided
for in Article 2208 of the Civil Code.[58]
The general rule is that attorneys fees cannot be recovered as part of
damages because of the policy that no premium should be placed
on the right to litigate.[59]They are not to be awarded every time a
party wins a suit. The power of the court t award attorneys fees under
Article 2208 demands factual, legal, and equitable
justification.[60] Even when a claimant is compelled to litigate with
third persons or to incur expenses to protect his rights, still attorneys
fees may not be awarded where no sufficient showing of bad faith
could be reflected in a partys persistence in a case other than an
erroneous conviction of the righteousness of his cause.[61]
As to moral damages the law is Section 1, Chapter 3, Title XVIII, Book
IV of the Civil Code. Article 2217 thereof defines what are included in
moral damages, while Article 2219 enumerates the cases where they
may be recovered. Article 2220 provides that moral damages may
be recovered in breaches of contract where the defendant acted
fraudulently or in bad faith. RBSs claim for moral damages could
possibly fall only under item (10) of Article 2219, thereof which reads:
Verily then, malice or bad faith is at the core of Articles 19, 20, and
21. Malice or bad faith implies a conscious and intentional design to
do a wrongful act for a dishonest purpose or moral obliquity.[73] Such
must be substantiated by evidence.[74]
There is no adequate proof that ABS-CBN was inspired by malice or
bad faith. It was honestly convinced of the merits of its cause after it
had undergone serious negotiations culminating in its formal
submission of a draft contract. Settled is the rule that the adverse
result of an action does not per se make the action wrongful and
subject the actor to damages, for the law could not have meant
impose a penalty on the right to litigate. If damages result from a
persons exercise of a right, it is damnum absque injuria.[75]

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34 WHEREFORE, the instant petition is GRANTED. The challenged decision
and 35. of the Court of Appeals in CA-G.R. CV No. 44125 is hereby REVERSED
except as to unappealed award of attorneys fees in favor of VIVA
Moral damages are in the category of an award designed to Productions, Inc.
compensate the claimant for actual injury suffered and not to
impose a penalty on the wrongdoer.[62]The award is not meant to No pronouncement as to costs.
enrich the complainant at the expense of the defendant, but to
enable the injured party to obtain means, diversion, or amusements SO ORDERED.
that will serve to obviate the moral suffering he has undergone. It is
aimed at the restoration, within the limits of the possible, of the
spiritual status quo ante, and should be proportionate to the suffering
inflicted.[63] Trial courts must then guard against the award of
exorbitant damages; they should exercise balanced restrained and
measured objectivity to avoid suspicion that it was due to passion,
prejudice, or corruption or the part of the trial court.[64]

The award of moral damages cannot be granted in favor of a

corporation because, being an artificial person and having existence
only in legal contemplation, it has no feelings, no emotions, no
senses. It cannot, therefore, experience physical suffering and mental
anguish, which can be experienced only by one having a nervous
system.[65] The statement in People v. Manero[66] and Mambulao
Lumber Co. v. PNB[67] that a corporation may recover moral
damages if it has a good reputation that is debased, resulting in
social humiliation is an obiter dictum. On this score alone the award
for damages must be set aside, since RBS is a corporation.

The basic law on exemplary damages is Section 5 Chapter 3, Title

XVIII, Book IV of the Civil Code. These are imposed by way of
example or correction for the public good, in addition to moral,
temperate, liquidated, or compensatory damages.[68] They are
recoverable in criminal cases as part of the civil liability when the
crime was committed with one or more aggravating
circumstances;[69] in quasi-delicts, if the defendant acted with gross
negligence;[70] and in contracts and quasi-contracts, if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner.[71]

It may be reiterated that the claim of RBS against ABS-CBN is not

based on contract, quasi-contract, delict, or quasi-delict. Hence, the
claims for moral and exemplary damages can only be based on
Articles 19, 20, and 21 of the Civil Code.

The elements of abuse of right under Article 19 are the following: (1)
the existence of a legal right or duty, (2) which is exercised in bad
faith, and (3) for the sole intent of prejudicing or injuring
another. Article 20 speaks of the general sanction for all provisions of
law which do not especially provide for their own sanction; while
Article 21 deals with acts contra bonus mores, and has the following
elements: (1) there is an act which is legal, (2) but which is contrary to
morals, good custom, public order, or public policy, and (3) and it is
done with intent to injure.[72]
THIRD DIVISION
MANILA ELECTRIC COMPANY, G.R. No. 131723
Petitioners,
Present:
- versus -
YNARES-SANTIAGO, J.,
Chairperson,
T.E.A.M. ELECTRONICS AUSTRIA-MARTINEZ,
CORPORATION, TECHNOLOGY CHICO-NAZARIO,
ELECTRONICS ASSEMBLY and NACHURA, and
MANAGEMENT PACIFIC REYES, JJ.
CORPORATION; and ULTRA
ELECTRONICS INSTRUMENTS, INC., Promulgated:
Respondents.
December 13, 2007
x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court seeking the reversal of the Decision[1] of the Court of Appeals
(CA) dated June 18, 1997 and its Resolution[2] dated December 3,
1997 in CA-G.R. CV No. 40282 denying the appeal filed by petitioner
Manila Electric Company.
The facts of the case, as culled from the records, are as follows:
Respondent T.E.A.M. Electronics Corporation (TEC) was formerly
known as NS Electronics (Philippines), Inc. before 1982 and National
Semi-Conductors (Phils.) before 1988. TEC is wholly owned by
respondent Technology Electronics Assembly and Management
Pacific Corporation (TPC). On the other hand, petitioner Manila
Electric Company (Meralco) is a utility company supplying electricity
in the Metro Manila area.
Petitioner and NS Electronics (Philippines), Inc., the predecessor-in-
interest of respondent TEC, were parties to two separate contracts
denominated as Agreements for the Sale of Electric Energy under the
following account numbers: 09341-1322-16[3] and 09341-1812-
13.[4]Under the aforesaid agreements, petitioner undertook to supply
TECs building known as Dyna Craft International Manila (DCIM)
located at Electronics Avenue, Food Terminal Complex, Taguig,
Metro Manila, with electric power. Another contract was entered
into for the supply of electric power to TECs NS Building under
Account No. 19389-0900-10.
In September 1986, TEC, under its former name National Semi-
Conductors (Phils.) entered into a Contract of Lease[5] with
respondent Ultra Electronics Industries, Inc. (Ultra) for the use of the
formers DCIM building for a period of five years or until September
1991. Ultra was, however, ejected from the premises on February 12,
1988 by virtue of a court order, for repeated violation of the terms
and conditions of the lease contract.
On September 28, 1987, a team of petitioners inspectors conducted
a surprise inspection of the electric meters installed at the DCIM
building, witnessed by Ultras[6] representative, Mr. Willie Abangan. The
two meters covered by account numbers 09341-1322-16 and 09341-
1812-13, were found to be allegedly tampered with and did not
register the actual power consumption in the building. The results of
the inspection were reflected in the Service Inspection
Reports[7] prepared by the team.
In a letter dated November 25, 1987, petitioner informed TEC of the
results of the inspection and demanded from the latter the payment
of P7,040,401.01 representing its unregistered consumption
from February 10, 1986 until September 28, 1987, as a result of the
alleged tampering of the meters.[8] TEC received the letters
on January 7, 1988. Since Ultra was in possession of the subject
building during the covered period, TECs Managing Director, Mr.
Bobby Tan, referred the demand letter to Ultra[9] which, in turn,
informed TEC that its Executive Vice-President had met with
petitioners representative. Ultra further intimated that assuming that
there was tampering of the meters, petitioners assessment was
excessive.[10] For failure of TEC to pay the differential billing, petitioner
disconnected the electricity supply to the DCIM building on April 29,
1988.
TEC demanded from petitioner the reconnection of electrical
service, claiming that it had nothing to do with the alleged
tampering but the latter refused to heed the demand. Hence, TEC
filed a complaint on May 27, 1988 before the Energy Regulatory
Board (ERB) praying that electric power be restored to the DCIM
building.[11] The ERB immediately ordered the reconnection of the
service but petitioner complied with it only on October 12, 1988 after
TEC paid P1,000,000.00, under protest. The complaint before the ERB
was later withdrawn as the parties deemed it best to have the issues
threshed out in the regular courts. Prior to the reconnection, or
on June 7, 1988, petitioner conducted a scheduled inspection of the
questioned meters and found them to have been tampered
anew.[12]
Meanwhile, on April 25, 1988, petitioner conducted another
inspection, this time, in TECs NS Building. The inspection allegedly
revealed that the electric meters were not registering the correct
power consumption. Petitioner, thus, sent a letter dated June 18,
1988demanding payment of P280,813.72 representing the differential
billing.[13] TEC denied petitioners allegations and claim in a letter
dated June 29, 1988.[14] Petitioner, thus, sent TEC another letter
demanding payment of the aforesaid amount, with a warning that
the electric service would be disconnected in case of continued
refusal to pay the differential billing.[15] To avert the impending
disconnection of electrical service, TEC paid the above amount,
under protest.[16]
On January 13, 1989, TEC and TPC filed a complaint for damages
against petitioner and Ultra[17] before the Regional Trial Court (RTC)
of Pasig. The case was raffled to Branch 162 and was docketed as
Civil Case No. 56851.[18] Upon the filing of the parties answer to the
complaint, pre-trial was scheduled.
At the pre-trial, the parties agreed to limit the issues, as follows:
1. Whether or not the defendant Meralco is liable for the plaintiffs
disconnection of electric service at DCIM Building.
2. Whether or not the plaintiff is liable for (sic) the defendant for the
differential billings in the amount of P7,040,401.01.
3. Whether or not the plaintiff is liable to defendant for exemplary
damages.[19]
For failure of the parties to reach an amicable settlement, trial on the
merits ensued. On June 17, 1992, the trial court rendered a Decision
in favor of respondents TEC and TPC, and against respondent Ultra
and petitioner. The pertinent portion of the decision reads:
WHEREFORE, judgment is hereby rendered in this case in favor of the
plaintiffs and against the defendants as follows:
(1) Ordering both defendants Meralco and ULTRA Electronics
Instruments, Inc. to jointly and severally reimburse plaintiff TEC actual
damages in the amount of ONE MILLION PESOS with legal rate of
interest from the date of the filing of this case on January 19,
1989 until the said amount shall have been fully paid;
(2) Ordering defendant Meralco to pay to plaintiff TEC the
amount of P280,813.72 as actual damages with legal rate of interest
also from January 19, 1989;
(3) Ordering defendant Meralco to pay to plaintiff TPC the
amount of P150,000.00 as actual damages with interest at legal rate
from January 19, 1989;
(4) Condemning defendant Meralco to pay both plaintiffs
moral damages in the amount pf P500,000.00;
(5) Condemning defendant Meralco to pay both plaintiffs
corrective and/or exemplary damages in the amount of P200,000.00;
(6) Ordering defendant Meralco to pay attorneys fees in the
amount of P200,000.00
Costs against defendant Meralco.
SO ORDERED.[20]
The trial court found the evidence of petitioner insufficient to prove
that TEC was guilty of tampering the meter installations. The
deformed condition of the meter seal and the existence of an
opening in the wire duct leading to the transformer vault did not, in
themselves, prove the alleged tampering, especially since access to
the transformer was given only to petitioners employees.[21] The
sudden drop in TECs (or Ultras) electric consumption did not, per
se, show meter tampering. The delay in the sending of notice of the
results of the inspection was likewise viewed by the court as evidence
of inefficiency and arbitrariness on the part of petitioner. More
importantly, petitioners act of disconnecting the DCIM buildings
electric supply constituted bad faith and thus makes it liable for
damages.[22] The court further denied petitioners claim of differential
billing primarily on the ground of equitable
negligence.[23] Considering that TEC and TPC paid P1,000,000.00 to
avert the disconnection of electric power; and because Ultra
manifested to settle the claims of petitioner, the court imposed
solidary liability on both Ultra and petitioner for the payment of
the P1,000,000.00.
Ultra and petitioner appealed to the CA which affirmed the RTC
decision, with a modification of the amount of actual damages and
interest thereon. The dispositive portion of the CA decision
dated June 18, 1997, states:
WHEREFORE, this Court renders judgment affirming in toto the
Decision rendered by the trial court with the slight modification that
the interest at legal rate shall be computed from January 13, 1989
and that Meralco shall pay plaintiff T.E.A.M. Electronics Corporation
and Technology Electronics Assembly and Management Pacific
Corporation the sum of P150,000.00 per month for five (5) months for
actual damages incurred when it was compelled to lease a
generator set with interest at the legal rate from the above-stated
date.
SO ORDERED.[24]
The appellate court agreed with the RTCs conclusion. In addition, it
considered petitioner negligent for failing to discover the alleged
defects in the electric meters; in belatedly notifying TEC and TPC of
the results of the inspection; and in disconnecting the electric power
without prior notice.
Petitioner now comes before this Court in this petition for review
on certiorari contending that:
The Court of Appeals committed grievous errors and decided
matters of substance contrary to law and the rulings of this Honorable
Court:
1. In finding that the issue in the case is whether there was deliberate
tampering of the metering installations at the building owned by TEC.
2. In not finding that the issue is: whether or not, based on the
tampered meters, whether or not petitioner is entitled to differential
billing, and if so, how much.
3. In declaring that petitioner ME RALCO had the burden of proof to
show by clear and convincing evidence that with respect to the
tampered meters that TEC and/or TPC authored their tampering.
4. In finding that petitioner Meralco should not have held TEC and/or
TPC responsible for the acts of Ultra.
5. In finding that TEC should not be held liable for the tampering of
this electric meter in its DCIM Building.
6. In finding that there was no notice of disconnection.
7. In finding that petitioner MERALCO was negligent in informing TEC
of the alleged tampering.
8. In making the finding that it is difficult to believe that when
petitioner MERALCO inspected on June 7, 1988 the meter
installations, they were found to be tampered.
9. In declaring that petitioner MERALCO estopped from
claiming any tampering of the meters.
10. In finding that the method employed by MERALCO to as certain
(sic) the correct amount of electricity consumed is questionable;
11. In declaring that MERALCO all throughout its dealings with TEC
took on an attitude which is oppressive, wanton and reckless.
12. In declaring that MERALCO acted arbitrarily in inspecting TECs
DCIM building and the NS building.
13. In declaring that respondents TEC and TPC are entitled to the
damages which it awarded.
14. In not declaring that petitioner is entitled to the differential bill.
15. In not declaring that respondents are liable to petitioner for
exemplary damages, attorneys fee and expenses for litigation.[25]
The petition must fail.
The issues for resolution can be summarized as follows: 1) whether or
not TEC tampered with the electric meters installed at its DCIM and
NS buildings; 2) If so, whether or not it is liable for the differential billing
as computed by petitioner; and 3) whether or not petitioner was
justified in disconnecting the electric power supply in TECs DCIM
building.
Petitioner insists that the tampering of the electric meters installed at
the DCIM and NS buildings owned by respondent TEC has been
established by overwhelming evidence, as specifically shown by the
shorting devices found during the inspection. Thus, says petitioner,
tampering of the meter is no longer an issue.
It is obvious that petitioner wants this Court to revisit the factual
findings of the lower courts. Well-established is the doctrine that
under Rule 45 of the Rules of Court, only questions of law, not of fact,
may be raised before the Court. We would like to stress that this
Court is not a trier of facts and may not re-examine and weigh anew
the respective evidence of the parties. Factual findings of the trial
court, especially those affirmed by the Court of Appeals, are binding
on this Court.[26]
Looking at the record, we note that petitioner claims to have
discovered three incidences of meter-tampering; twice in the DCIM
building on September 28, 1987 and June 7, 1988; and once in the NS
building on April 24, 1988.
The first instance was supposedly discovered on September 28,
1987. The inspector allegedly found the presence of a short circuiting
device and saw that the meter seal was deformed. In addition,
petitioner, through the Supervising Engineer of its Special Billing
Analysis Department,[27] claimed that there was a sudden and
unexplainable drop in TECs electrical consumption starting February
10, 1986. On the basis of the foregoing, petitioner concluded that the
electric meters were tampered with.
However, contrary to petitioners claim that there was a drastic and
unexplainable drop in TECs electric consumption during the affected
period, the Pattern of TECs Electrical Consumption[28] shows that the
sudden drop is not peculiar to the said period. Noteworthy is the
observation of the RTC in this wise:
In fact, in Account No. 09341-1812-13 (heretofore referred as
Account/Meter No. 2), as evidenced by Exhibits 35 and 35-A, there
was likewise a sudden drop of electrical consumption from the year
1984 which recorded an average 141,300 kwh/month to 1985 which
recorded an averagekwh/month at 87,600 or a difference-drop
of 53,700 kwh/month; from 1985s 87,600 recorded consumption, the
same dropped to 18,600 kwh/month or a difference-drop of 69,000
kwh/month. Surely, a drop of 53,700 could be equally categorized as
a sudden drop amounting to 69,000 which, incidentally, the Meralco
claimed as unexplainable. x x x.[29]
The witnesses for petitioner who testified on the alleged tampering of
the electric meters, declared that tampering is committed by
consumers to prevent the meter from registering the correct amount
of electric consumption, and result in a reduced monthly electric bill,
while continuing to enjoy the same power supply. Only the
registration of actual electric energy consumption, not the supply of
electricity, is affected when a meter is tampered with.[30] The
witnesses claimed that after the inspection, the tampered electric
meters were corrected, so that they would register the correct
consumption of TEC. Logically, then, after the correction of the
allegedly tampered meters, the customers registered consumption
would go up.
In this case, the period claimed to have been affected by the
tampered electric meters is from February 1986 until September
1987.Based on petitioners Billing Record[31] (for the DCIM building),
TECs monthly electric consumption on Account No. 9341-1322-16 was
between 4,500 and 27,000 kwh.[32] Account No. 9341-1812-13 showed
a monthly consumption between 9,600 and 34,200 kwh.[33] It is
interesting to note that, after correction of the allegedly tampered
meters, TECs monthly electric consumption from October 1987 to
February 1988 (the last month that Ultra occupied the DCIM building)
was between 8,700 and 24,300 kwh in its first account, and 16,200 to
46,800 kwh on the second account.
Even more revealing is the fact that TECs meters registered 9,300 kwh
and 19,200 kwh consumption on the first and second accounts,
respectively, a month prior to the inspection. On the first month after
the meters were corrected, TECs electric consumption registered at
9,300 kwh and 22,200 kwh on the respective accounts. These figures
clearly show that there was no palpably drastic difference between
the consumption before and after the inspection, casting a cloud of
doubt over petitioners claim of meter-tampering. Indeed, Ultras
explanation that the corporation was losing; thus, it had lesser
consumption of electric power appear to be the more plausible
reason for the drop in electric consumption.
Petitioner likewise claimed that when the subject meters were again
inspected on June 7, 1988, they were found to have been tampered
anew. The Court notes that prior to the inspection, TEC was informed
about it; and months before the inspection, there was an unsettled
controversy between TEC and petitioner, brought about by the
disconnection of electric power and the non-payment of differential
billing. We are more disposed to accept the trial courts conclusion
that it is hard to believe that a customer previously apprehended for
tampered meters and assessed P7 million would further jeopardize
itself in the eyes of petitioner.[34] If it is true that there was evidence of
tampering found on September 28, 1987 and again on June 7, 1988,
the better view would be that the defective meters were not actually
corrected after the first inspection. If so, then Manila Electric
Company v. Macro Textile Mills Corporation[35] would apply, where
we said that we cannot sanction a situation wherein the defects in
the electric meter are allowed to continue indefinitely until suddenly,
the public utilities demand payment for the unrecorded electricity
utilized when they could have remedied the situation
immediately. Petitioners failure to do so may encourage neglect of
public utilities to the detriment of the consuming public. Corollarily, it
must be underscored that petitioner has the imperative duty to make
a reasonable and proper inspection of its apparatus and equipment
to ensure that they do not malfunction, and the due diligence to
discover and repair defects therein. Failure to perform such duties
constitutes negligence.[36] By reason of said negligence, public utilities
run the risk of forfeiting amounts originally due from their customers.[37]
As to the alleged tampering of the electric meter in TECs NS building,
suffice it to state that the allegation was not proven, considering that
the meters therein were enclosed in a metal cabinet the metal seal
of which was unbroken, with petitioner having sole access to the said
meters.[38]
In view of the negative finding on the alleged tampering of electric
meters on TECs DCIM and NS buildings, petitioners claim of
differential billing was correctly denied by the trial and appellate
courts. With greater reason, therefore, could petitioner not exercise
the right of immediate disconnection.
The law in force at the time material to this controversy was
Presidential Decree (P.D.) No. 401 [39] issued on March 1, 1974.[40] The
decree penalized unauthorized installation of water, electrical or
telephone connections and such acts as the use of tampered
electrical meters. It was issued in answer to the urgent need to put an
end to illegal activities that prejudice the economic well-being of
both the companies concerned and the consuming public.[41] P.D.
401 granted the electric companies the right to conduct inspections
of electric meters and the criminal prosecution [42] of erring consumers
who were found to have tampered with their electric meters. It did
not expressly provide for more expedient remedies such as the
charging of differential billing and immediate disconnection against
erring consumers. Thus, electric companies found a creative way of
availing themselves of such remedies by inserting into their service
contracts (or agreements for the sale of electric energy) a provision
for differential billing with the option of disconnection upon non-
payment by the erring consumer. The Court has recognized the
validity of such stipulations.[43] However, recourse to differential billing
with disconnection was subject to the prior requirement of a 48-hour
written notice of disconnection.[44]
Petitioner, in the instant case, resorted to the remedy of
disconnection without prior notice. While it is true that petitioner sent
a demand letter to TEC for the payment of differential billing, it did
not include any notice that the electric supply would be
disconnected. In fine, petitioner abused the remedies granted to it
under P.D. 401 and Revised General Order No. 1 by outrightly
depriving TEC of electrical services without first notifying it of the
impending disconnection. Accordingly, the CA did not err in
affirming the RTC decision.
As to the damages awarded by the CA, we deem it proper to
modify the same. Actual damages are compensation for an injury
that will put the injured party in the position where it was before the
injury. They pertain to such injuries or losses that are actually sustained
and susceptible of measurement. Except as provided by law or by
stipulation, a party is entitled to adequate compensation only for
such pecuniary loss as is duly proven. Basic is the rule that to recover
actual damages, not only must the amount of loss be capable of
proof; it must also be actually proven with a reasonable degree of
certainty, premised upon competent proof or the best evidence
obtainable.[45]
Respondent TEC sufficiently established, and petitioner in fact
admitted, that the former paid P1,000,000.00 and P280,813.72 under
protest, the amounts representing a portion of the latters claim of
differential billing. With the finding that no tampering was committed
and, thus, no differential billing due, the aforesaid amounts should be
returned by petitioner, with interest, as ordered by the Court of
Appeals and pursuant to the guidelines set forth by the Court.[46]
However, despite the appellate courts conclusion that no tampering
was committed, it held Ultra solidarily liable with petitioner
for P1,000,000.00, only because the former, as occupant of the
building, promised to settle the claims of the latter. This ruling is
erroneous. Ultras promise was conditioned upon the finding of defect
or tampering of the meters. It did not acknowledge any culpability
and liability, and absent any tampered meter, it is absurd to make
the lawful occupant liable. It was petitioner who received the P1
million; thus, it alone should be held liable for the return of the
amount.
TEC also sufficiently established its claim for the reimbursement of the
amount paid as rentals for the generator set it was constrained to
rent by reason of the illegal disconnection of electrical service. The
official receipts and purchase orders submitted by TEC as evidence
sufficiently show that such rentals were indeed made. However, the
amount of P150,000.00 per month for five months, awarded by the
CA, is excessive. Instead, a total sum of P150,000.00, as found by the
RTC, is proper.
As to the payment of exemplary damages and attorneys fees, we
find no cogent reason to disturb the same. Exemplary damages are
imposed by way of example or correction for the public good in
addition to moral, temperate, liquidated, or compensatory
damages.[47] In this case, to serve as an example that before a
disconnection of electrical supply can be effected by a public utility,
the requisites of law must be complied with we affirm the award
of P200,000.00 as exemplary damages. With the award of exemplary
damages, the award of attorneys fees is likewise proper, pursuant to
Article 2208[48] of the Civil Code. It is obvious that TEC needed the
services of a lawyer to argue its cause through three levels of the
judicial hierarchy. Thus, the award of P200,000.00 is in order.[49]
We, however, deem it proper to delete the award of moral
damages. TECs claim was premised allegedly on the damage to its
goodwill and reputation.[50] As a rule, a corporation is not entitled to
moral damages because, not being a natural person, it cannot
experience physical suffering or sentiments like wounded feelings,
serious anxiety, mental anguish and moral shock. The only exception
to this rule is when the corporation has a reputation that is debased,
resulting in its humiliation in the business realm.[51] But in such a case, it
is imperative for the claimant to present proof to justify the award. It is
essential to prove the existence of the factual basis of the damage
and its causal relation to petitioners acts.[52] In the present case, the
records are bereft of any evidence that the name or reputation of
TEC/TPC has been debased as a result of petitioners acts. Besides,
the trial court simply awarded moral damages in the dispositive
portion of its decision without stating the basis thereof.
WHEREFORE, the petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 40282 dated June 18, 1997 and its
Resolution dated December 3, 1997 are AFFIRMED with the
following MODIFICATIONS: (1) the award of P150,000.00 per month for
five months as reimbursement for the rentals of the generator set
is REDUCED to P150,000.00; and (2) the award of P500,000.00 as moral
damages is hereby DELETED.
SO ORDERED.
HIRD DIVISION
EMPLOYEES UNION OF BAYER PHILS., FFW G.R. No. 162943
and JUANITO S. FACUNDO, in his Present:
capacity as President,
Petitioners, CARPIO MORALES, J.,
Chairperson,
BRION,
- versus - BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.
BAYER PHILIPPINES, INC., DIETER J.
LONISHEN Promulgated:
(President), ASUNCION AMISTOSO (HRD
Manager), AVELINA REMIGIO AND December 6, 2010
ANASTACIA VILLAREAL,
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - -x
DECISION
VILLARAMA, JR., J.:
This petition for review on certiorari assails the
Decision[1] dated December 15, 2003 and Resolution[2] dated March
23, 2004 of the Court of Appeals (CA) in CA-G.R. SP No. 73813.
Petitioner Employees Union of Bayer Philippines[3] (EUBP) is the
exclusive bargaining agent of all rank-and-file employees of Bayer
Philippines (Bayer), and is an affiliate of the Federation of Free
Workers (FFW). In 1997, EUBP, headed by its president Juanito S.
Facundo (Facundo), negotiated with Bayer for the signing of a
collective bargaining agreement (CBA). During the negotiations,
EUBP rejected Bayers 9.9% wage-increase proposal resulting in a
bargaining deadlock. Subsequently, EUBP staged a strike, prompting
the Secretary of the Department of Labor and Employment (DOLE) to
assume jurisdiction over the dispute.
In November 1997, pending the resolution of the dispute, respondent
Avelina Remigio (Remigio) and 27 other union members, without any
authority from their union leaders, accepted Bayers wage-increase
proposal. EUBPs grievance committee questioned Remigios action
and reprimanded Remigio and her allies. On January 7, 1998, the
DOLE Secretary issued an arbitral award ordering EUBP and Bayer to
execute a CBA retroactive to January 1, 1997 and to be made
effective until December 31, 2001. The said CBA[4] was registered
on July 8, 1998 with the Industrial Relations Division of the DOLE-
National Capital Region (NCR).[5]
Meanwhile, the rift between Facundos leadership and Remigios
group broadened. On August 3, 1998, barely six months from the
signing of the new CBA, during a company-sponsored
seminar,[6] Remigio solicited signatures from union members in support
of a resolution containing the decision of the signatories to: (1)
disaffiliate from FFW, (2) rename the union as Reformed Employees
Union of Bayer Philippines (REUBP), (3) adopt a new constitution and
by-laws for the union, (4) abolish all existing officer positions in the
union and elect a new set of interim officers, and (5) authorize REUBP
to administer the CBA between EUBP and Bayer.[7] The said resolution
was signed by 147 of the 257 local union members. A subsequent
resolution was also issued affirming the first resolution.[8]
A tug-of-war then ensued between the two rival groups, with both
seeking recognition from Bayer and demanding remittance of the
union dues collected from its rank-and-file members. On September
8, 1998, Remigios splinter group wrote Facundo, FFW and Bayer
informing them of the decision of the majority of the union members
to disaffiliate from FFW.[9] This was followed by another letter informing
Facundo, FFW and Bayer that an interim set of REUBP executive
officers and board of directors had been appointed, and
demanding the remittance of all union dues to REUBP. Remigio also
asked Bayer to desist from further transacting with EUBP. Facundo,
meanwhile, sent similar requests to Bayer[10] requesting for the
remittance of union dues in favor of EUBP and accusing the
company of interfering with purely union matters.[11] Bayer responded
by deciding not to deal with either of the two groups, and by placing
the union dues collected in a trust account until the conflict between
the two groups is resolved.[12]
On September 15, 1998, EUBP filed a complaint for unfair labor
practice (first ULP complaint) against Bayer for non-remittance of
union dues. The case was docketed as NLRC-NCR-Case No. 00-09-
07564-98.[13]
EUBP later sent a letter dated November 5, 1998 to Bayer asking for a
grievance conference.[14] The meeting was conducted by the
management on November 11, 1998, with all REUBP officers including
their lawyers present. Facundo did not attend the meeting, but sent
two EUBP officers to inform REUBP and the management that a
preventive mediation conference between the two groups has been
scheduled on November 12, 1998 before the National Conciliation
and Mediation Board (NCMB).[15]
Apparently, the two groups failed to settle their issues as Facundo
again sent respondent Dieter J. Lonishen two more letters,
dated January 14, 1999[16] and September 2, 1999,[17] asking for a
grievance meeting with the management to discuss the failure of the
latter to comply with the terms of their CBA. Both requests remained
unheeded.
On February 9, 1999, while the first ULP case was still pending and
despite EUBPs repeated request for a grievance conference, Bayer
decided to turn over the collected union dues amounting
to P254,857.15 to respondent Anastacia Villareal, Treasurer of REUBP.
Aggrieved by the said development, EUBP lodged a
complaint[18] on March 4, 1999 against Remigios group before the
Industrial Relations Division of the DOLE praying for their expulsion
from EUBP for commission of acts that threaten the life of the union.
On June 18, 1999, Labor Arbiter Jovencio Ll. Mayor, Jr. dismissed
the first ULP complaint for lack of jurisdiction.[19] The Arbiter explained
that the root cause for Bayers failure to remit the collected union
dues can be traced to the intra-union conflict between EUBP and
Remigios group[20] and that the charges imputed against Bayer
should have been submitted instead to voluntary arbitration.[21] EUBP
did not appeal the said decision.[22]
On December 14, 1999, petitioners filed a second ULP complaint
against herein respondents docketed as NLRC-RAB-IV Case No. 12-
11813-99-L. Three days later, petitioners amended the complaint
charging the respondents with unfair labor practice committed by
organizing a company union, gross violation of the CBA and violation
of their duty to bargain.[23] Petitioners complained that Bayer refused
to remit the collected union dues to EUBP despite several demands
sent to the management.[24] They also alleged that notwithstanding
the requests sent to Bayer for a renegotiation of the last two years of
the 1997-2001 CBA between EUBP and Bayer, the latter opted to
negotiate instead with Remigios group.[25]
On even date, REUBP and Bayer agreed to sign a new CBA. Remigio
immediately informed her allies of the managements decision.[26]
In response, petitioners immediately filed an urgent motion for the
issuance of a restraining order/injunction[27] before the National Labor
Relations Commission (NLRC) and the Labor Arbiter against
respondents. Petitioners asserted their authority as the exclusive
bargaining representative of all rank-and-file employees of Bayer
and asked that a temporary restraining order be issued against
Remigios group and Bayer to prevent the employees from ratifying
the new CBA. Later, petitioners filed a second amended
complaint[28] to include in its complaint the issue of gross violation of
the CBA for violation of the contract bar rule following Bayers
decision to negotiate and sign a new CBA with Remigios group.
Meanwhile, on January 26, 2000, the Regional Director of the
Industrial Relations Division of DOLE issued a decision dismissing the
issue on expulsion filed by EUBP against Remigio and her allies for
failure to exhaust reliefs within the union and ordering the conduct of
a referendum to determine which of the two groups should be
recognized as union officers.[29] EUBP seasonably appealed the said
decision to the Bureau of Labor Relations (BLR).[30] On June 16, 2000,
the BLR reversed the Regional Directors ruling and ordered the
management of Bayer to respect the authority of the duly-elected
officers of EUBP in the administration of the prevailing CBA.[31]
Unfortunately, the said BLR ruling came late since Bayer had already
signed a new CBA[32] with REUBP on February 21, 2000. The said CBA
was eventually ratified by majority of the bargaining unit.[33]
On June 2, 2000, Labor Arbiter Waldo Emerson R. Gan dismissed
EUBPs second ULP complaint for lack of jurisdiction.[34] The Labor
Arbiter explained the dismissal as follows:
All told, were it not for the fact that there were two (2) [groups] of
employees, the Union led by its President Juanito Facundo and the
members who decided to disaffiliate led by Ms. Avelina Remigio,
claiming to be the rightful representative of the rank and file
employees, the Company would not have acted the way it did and
the Union would not have filed the instant case.
Clearly then, as the case involves intra-union disputes, this Office is
bereft of any jurisdiction pursuant to Article 226 of the Labor Code, as
amended, which provides pertinently in part, thus:
Bureau of Labor Relations The Bureau of Labor Relations and the
Labor Relations Divisions in the regional offices of the Department of
Labor and Employment shall have original and exclusive authority to
act, at their own initiative or upon request of either or both parties, on
all inter-union and intra-union conflicts, and all disputes, grievances
or problems arising from or affecting labor-management relations in
all workplaces whether agricultural or non-agricultural, except those
arising from the implementation or interpretation of collective
bargaining agreements which shall be the subject of grievance
procedure and/or voluntary arbitration.
Specifically, with respect to the union dues, the authority is the case
of Cebu Seamens Association[,] Inc. vs. Ferrer-Calleja, (212 SCRA 51),
where the Supreme Court held that when the issue calls for the
determination of which between the two groups within a union is
entitled to the union dues, the same cannot be taken cognizance of
by the NLRC.
xxxx
WHEREFORE, premises considered, the instant complaint is hereby
DISMISSED on the ground of lack of jurisdiction.
SO ORDERED.[35]
On June 28, 2000, the NLRC resolved to dismiss[36] petitioners motion
for a restraining order and/or injunction stating that the subject
matter involved an intra-union dispute, over which the said
Commission has no jurisdiction.[37]
Aggrieved by the Labor Arbiters decision to dismiss the second ULP
complaint, petitioners appealed the said decision, but the NLRC
denied the appeal.[38] EUBPs motion for reconsideration was likewise
denied.[39]
Thus, petitioners filed a Rule 65 petition to the CA. On December 15,
2003, the CA sustained both the Labor Arbiter and the NLRCs rulings.
The appellate court explained,
A cursory reading of the three pleadings, to wit: the Complaint (Vol. I,
Rollo, p[p]. 166-167); the Amended Complaint (Vol. I, Rollo[,] pp. 168-
172) and the Second Amended Complaint dated March 8, 2000
(Vol. II, Rollo, pp. 219-225) will readily show that the instant case was
brought about by the action of the Group of REM[I]GIO to disaffiliate
from FFW and to organized (sic) REUBP under the tutelage of
REM[I]GIO and VILLAREAL. At first glance of the case at bar, it
involves purely an (sic) inter-union and intra-union conflicts or
disputes between EUBP-FFW and REUBP which issue should have
been resolved by the Bureau of Labor Relations under Article 226 of
the Labor Code. However, since no less than petitioners who
admitted that respondents committed gross violations of the CBA,
then the BLR is divested of jurisdiction over the case and the issue
should have been referred to the Grievance Machinery and
Voluntary Arbitrator and not to the Labor Arbiter as what petitioners
did in the case at bar. x x x
xxxx
Furthermore, the CBA entered between BAYER and EUBP-FFW [has] a
life span of only five years and after the said period, the employees
have all the right to change their bargaining unit who will represent
them. If there exist[s] two opposing unions in the same company, the
remedy is not to declare that such act is considered unfair labor
practice but rather they should conduct a certification election
provided [that] it should be conducted within 60 days of the so[-
]called freedom period before the expiration of the CBA.
WHEREFORE, premises considered, this Petition is DENIED and the
assailed Decision dated September 27, 2001 as well as the Order
dated June 21, 2002, denying the motion for reconsideration, by the
National Labor Relations Commission, First Division, in NLRC Case No.
RAB-IV-12-11813-99-L, are hereby AFFIRMED in toto. Costs against
petitioners.
SO ORDERED.[40]
Undaunted, petitioners filed this Rule 45 petition before this Court.
Initially, the said petition was denied for having been filed out of time
and for failure to comply with the requirements provided in the 1997
Rules of Civil Procedure, as amended.[41] Upon petitioners motion,
however, we decided to reinstate their appeal.
The following are the issues raised by petitioners, to wit:
I. WHETHER OR NOT THE HONORABLE COURT OF APPEALS, IN
ARRIVING AT THE DECISION PROMULGATED ON 15 DECEMBER 2003
AND RESOLUTION PROMULGATED ON 23 MARCH 2004, DECIDED THE
CASE IN ACCORDANCE WITH LAW AND JURISPRUDENCE; AND
II. WHETHER OR NOT THE HONORABLE COURT OF APPEALS, IN
ARRIVING AT THE DECISION PROMULGATED ON 15 DECEMBER 2003
AND RESOLUTION PROMULGATED ON 23 MARCH 2004, GRAVELY
ABUSE[D] ITS DISCRETION IN ITS FINDINGS AND CONCLUSION THAT:
THE ACTS OF ABETTING OR ASSISTING IN THE CREATION OF ANOTHER
UNION, NEGOTIATING OR BARGAINING WITH SUCH UNION, WHICH IS
NOT THE SOLE AND EXCLUSIVE BARGAINING AGENT, VIOLATING THE
DUTY TO BARGAIN COLLECTIVELY, REFUSAL TO PROCESS GRIEVABLE
ISSUES IN THE GRIEVANCE MACHINERY AND/OR REFUSAL TO DEAL
WITH THE SOLE AND EXCLUSIVE BARGAINING AGENT ARE ACTS
CONSTITUTING OR TANTAMOUNT TO UNFAIR LABOR PRACTICE.[42]
Respondents Bayer, Lonishen and Amistoso, meanwhile, identify the
issues as follows:
I. WHETHER OR NOT THE UNIFORM FINDINGS OF THE COURT OF
APPEALS, THE NLRC AND THE LABOR ARBITER ARE BINDING ON THIS
HONORABLE COURT;
II. WHETHER OR NOT THE LABOR ARBITER AND THE NLRC HAVE
JURISDICTION OVER THE INSTANT CASE;
III. WHETHER OR NOT THE INSTANT CASE INVOLVES AN INTRA-UNION
DISPUTE;
IV. WHETHER OR NOT RESPONDENTS COMPANY, LONISHEN AND
AMISTOSO COMMITTED AN ACT OF UNFAIR LABOR PRACTICE; AND
V. WHETHER OR NOT THE INSTANT CASE HAS BECOME MOOT AND
ACADEMIC.[43]
Essentially, the issue in this petition is whether the act of the
management of Bayer in dealing and negotiating with Remigios
splinter group despite its validly existing CBA with EUBP can be
considered unfair labor practice and, if so, whether EUBP is entitled to
any relief.
Petitioners argue that the subject matter of their complaint, as well as
the subsequent amendments thereto, pertain to the unfair labor
practice act of respondents Bayer, Lonishen and Amistoso in dealing
with Remigios splinter union. They contend that (1) the acts of
abetting or assisting in the creation of another union is among those
considered by the Labor Code, as amended, specifically under
Article 248 (d)[44]thereof, as unfair labor practice; (2) the act of
negotiating with such union constitutes a violation of Bayers duty to
bargain collectively; and (3) Bayers unjustified refusal to process
EUBPs grievances and to recognize the said union as the sole and
exclusive bargaining agent are tantamount to unfair labor
practice.[45]
Respondents Bayer, Lonishen and Amistoso, on the other hand,
contend that there can be no unfair labor practice on their part
since the requisites for unfair labor practice i.e., that the violation of
the CBA should be gross, and that it should involve violation in the
economic provisions of the CBA were not satisfied. Moreover, they
cite the ruling of the Labor Arbiter that the issues raised in the
complaint should have been ventilated and threshed out before the
voluntary arbitrators as provided in Article 261 of the Labor Code, as
amended.[46]Respondents Remigio and Villareal, meanwhile, point
out that the case should be dismissed as against them since they are
not real parties in interest in the ULP complaint against Bayer,[47] and
since there are no specific or material acts imputed against them in
the complaint.[48]
The petition is partly meritorious.
An intra-union dispute refers to any conflict between and among
union members, including grievances arising from any violation of the
rights and conditions of membership, violation of or disagreement
over any provision of the unions constitution and by-laws, or disputes
arising from chartering or disaffiliation of the union.[49] Sections 1 and
2, Rule XI of Department Order No. 40-03, Series of 2003 of the DOLE
enumerate the following circumstances as inter/intra-union
disputes, viz:
RULE XI
INTER/INTRA-UNION DISPUTES AND
OTHER RELATED LABOR RELATIONS DISPUTES
SECTION 1. Coverage. - Inter/intra-union disputes shall include:
(a) cancellation of registration of a labor organization filed by its
members or by another labor organization;
(b) conduct of election of union and workers association
officers/nullification of election of union and workers association
officers;
(c) audit/accounts examination of union or workers association
funds;
(d) deregistration of collective bargaining agreements;
(e) validity/invalidity of union affiliation or disaffiliation;
(f) validity/invalidity of acceptance/non-acceptance for union
membership;
(g) validity/invalidity of impeachment/expulsion of union and
workers association officers and members;
(h) validity/invalidity of voluntary recognition;
(i) opposition to application for union and CBA registration;
(j) violations of or disagreements over any provision in a union
or workers association constitution and by-laws;
(k) disagreements over chartering or registration of labor
organizations and collective bargaining agreements;
(l) violations of the rights and conditions of union or workers
association membership;
(m) violations of the rights of legitimate labor organizations,
except interpretation of collective bargaining agreements;
(n) such other disputes or conflicts involving the rights to self-
organization, union membership and collective bargaining
(1) between and among legitimate labor organizations;
(2) between and among members of a union or workers
association.
SECTION 2. Coverage. Other related labor relations disputes shall
include any conflict between a labor union and the employer or any
individual, entity or group that is not a labor organization or workers
association. This includes: (1) cancellation of registration of unions
and workers associations; and (2) a petition for interpleader.
It is clear from the foregoing that the issues raised by petitioners do
not fall under any of the aforementioned circumstances constituting
an intra-union dispute. More importantly, the petitioners do not seek
a determination of whether it is the Facundo group (EUBP) or the
Remigio group (REUBP) which is the true set of union officers. Instead,
the issue raised pertained only to the validity of the acts of
management in light of the fact that it still has an existing CBA with
EUBP. Thus as to Bayer, Lonishen and Amistoso the question was
whether they were liable for unfair labor practice, which issue was
within the jurisdiction of the NLRC. The dismissal of the second ULP
complaint was therefore erroneous.
However, as to respondents Remigio and Villareal, we find that
petitioners complaint was validly dismissed.
Petitioners ULP complaint cannot prosper as against respondents
Remigio and Villareal because the issue, as against them, essentially
involves an intra-union dispute based on Section 1 (n) of DOLE
Department Order No. 40-03. To rule on the validity or illegality of their
acts, the Labor Arbiter and the NLRC will necessarily touch on the
issues respecting the propriety of their disaffiliation and the legality of
the establishment of REUBP issues that are outside the scope of their
jurisdiction. Accordingly, the dismissal of the complaint was validly
made, but only with respect to these two respondents.
But are Bayer, Lonishen and Amistoso liable for unfair labor
practice? On this score, we find that the evidence supports an
answer in the affirmative.
It must be remembered that a CBA is entered into in order to foster
stability and mutual cooperation between labor and capital. An
employer should not be allowed to rescind unilaterally its CBA with
the duly certified bargaining agent it had previously contracted with,
and decide to bargain anew with a different group if there is no
legitimate reason for doing so and without first following the proper
procedure. If such behavior would be tolerated, bargaining and
negotiations between the employer and the union will never be
truthful and meaningful, and no CBA forged after arduous
negotiations will ever be honored or be relied upon. Article 253 of
the Labor Code, as amended, plainly provides:
ART. 253. Duty to bargain collectively when there exists a collective
bargaining agreement. Where there is a collective bargaining
agreement, the duty to bargain collectively shall also mean that
neither party shall terminate or modify such agreement during its
lifetime. However, either party can serve a written notice to
terminate or modify the agreement at least sixty (60) days prior to its
expiration date. It shall be the duty of both parties to keep the status
quo and to continue in full force and effect the terms and conditions
of the existing agreement during the 60-day period and/or until a
new agreement is reached by the parties. (Emphasis supplied.)
This is the reason why it is axiomatic in labor relations that a CBA
entered into by a legitimate labor organization that has been duly
certified as the exclusive bargaining representative and the
employer becomes the law between them. Additionally, in the
Certificate of Registration[50] issued by the DOLE, it is specified that the
registered CBA serves as the covenant between the parties and has
the force and effect of law between them during the period of its
duration. Compliance with the terms and conditions of the CBA is
mandated by express policy of the law primarily to afford protection
to labor[51] and to promote industrial peace. Thus, when a valid and
binding CBA had been entered into by the workers and the
employer, the latter is behooved to observe the terms and conditions
thereof bearing on union dues and representation.[52] If the employer
grossly violates its CBA with the duly recognized union, the former
may be held administratively and criminally liable for unfair labor
practice.[53]
Respondents Bayer, Lonishen and Amistoso, contend that their acts
cannot constitute unfair labor practice as the same did not involve
gross violations in the economic provisions of the CBA, citing the
provisions of Articles 248 (1) and 261[54] of the Labor Code, as
amended.[55]Their argument is, however, misplaced.
Indeed, in Silva v. National Labor Relations Commission,[56] we
explained the correlations of Article 248 (1) and Article 261 of
the Labor Code to mean that for a ULP case to be cognizable by the
Labor Arbiter, and for the NLRC to exercise appellate jurisdiction
thereon, the allegations in the complaint must show prima facie the
concurrence of two things, namely: (1) gross violation of the CBA;
and (2) the violation pertains to the economic provisions of the
CBA.[57]
This pronouncement in Silva, however, should not be construed to
apply to violations of the CBA which can be considered as gross
violations per se, such as utter disregard of the very existence of the
CBA itself, similar to what happened in this case. When an employer
proceeds to negotiate with a splinter union despite the existence of
its valid CBA with the duly certified and exclusive bargaining agent,
the former indubitably abandons its recognition of the latter and
terminates the entire CBA.
Respondents cannot claim good faith to justify their acts. They knew
that Facundos group represented the duly-elected officers of EUBP.
Moreover, they were cognizant of the fact that even the DOLE
Secretary himself had recognized the legitimacy of EUBPs mandate
by rendering an arbitral award ordering the signing of the 1997-2001
CBA between Bayer and EUBP. Respondents were likewise well-
aware of the pendency of the intra-union dispute case, yet they still
proceeded to turn over the collected union dues to REUBP and to
effusively deal with Remigio. The totality of respondents conduct,
therefore, reeks with anti-EUBP animus.
Bayer, Lonishen and Amistoso argue that the case is already moot
and academic following the lapse of the 1997-2001 CBA and their
renegotiation with EUBP for the 2006-2007 CBA. They also reason that
the act of the company in negotiating with EUBP for the 2006-2007
CBA is an obvious recognition on their part that EUBP is now the
certified collective bargaining agent of its rank-and-file employees.[58]
We do not agree. First, a legitimate labor organization cannot be
construed to have abandoned its pending claim against the
management/employer by returning to the negotiating table to fulfill
its duty to represent the interest of its members, except when the
pending claim has been expressly waived or compromised in its
subsequent negotiations with the management. To hold otherwise
would be tantamount to subjecting industrial peace to the
precondition that previous claims that labor may have against
capital must first be waived or abandoned before negotiations
between them may resume. Undoubtedly, this would be against
public policy of affording protection to labor and will encourage
scheming employers to commit unlawful acts without fear of being
sanctioned in the future.
Second, that the management of Bayer decided to recognize EUBP
as the certified collective bargaining agent of its rank-and-file
employees for purposes of its 2006-2007 CBA negotiations is of no
moment. It did not obliterate the fact that the management of Bayer
had withdrawn its recognition of EUBP and supported REUBP during
the tumultuous implementation of the 1997-2001 CBA. Such act of
interference which is violative of the existing CBA with EUBP led to the
filing of the subject complaint.
On the matter of damages prayed for by the petitioners, we have
held that as a general rule, a corporation cannot suffer nor be
entitled to moral damages. A corporation, and by analogy a labor
organization, being an artificial person and having existence only in
legal contemplation, has no feelings, no emotions, no senses;
therefore, it cannot experience physical suffering and mental
anguish. Mental suffering can be experienced only by one having a
nervous system and it flows from real ills, sorrows, and griefs of life all
of which cannot be suffered by an artificial, juridical person.[59] A
fortiori, the prayer for exemplary damages must also be
denied.[60] Nevertheless, we find it in order to award (1) nominal
damages in the amount of P250,000.00 on the basis of our ruling in De
La Salle University v. De La Salle University Employees Association
(DLSUEA-NAFTEU)[61] and Article 2221,[62] and (2) attorneys fees
equivalent to 10% of the monetary award. The remittance to
petitioners of the collected union dues previously turned over to
Remigio and Villareal is likewise in order.
WHEREFORE, the petition for review on certiorari is PARTLY
GRANTED. The Decision dated December 15, 2003 and the Resolution
dated March 23, 2004 of the Court of Appeals in CA-G.R. SP No.
73813 are MODIFIED as follows:
1) Respondents Bayer Phils., Dieter J. Lonishen and Asuncion
Amistoso are found LIABLE for Unfair Labor Practice, and are
hereby ORDERED to remit to petitioners the amount of P254,857.15
representing the collected union dues previously turned over to
Avelina Remigio and Anastacia Villareal. They are
likewise ORDERED to pay petitioners nominal damages in the amount
of P250,000.00 and attorneys fees equivalent to 10% of the monetary
award; and
2) The complaint, as against respondents Remigio and Villareal.
is DISMISSED due to the lack of jurisdiction of the Labor Arbiter and
the NLRC, the complaint being in the nature of an intra-union
dispute.
No pronouncement as to costs.
SO ORDERED.
THIRD DIVISION
G.R. No. 178008, October 09, 2013
SAN FERNANDO REGALA TRADING, INC., Petitioner, v. CARGILL
PHILIPPINES, INC., Respondent.
G.R. No. 178042, October 09, 2013
CARGILL PHILIPPINES, INC., Petitioner, v. SAN FERNANDO REGALA
TRADING, INC., Respondent.
DECISION
ABAD, J.:
These cases pertain to the reciprocal obligations of the parties in a
contract of sale to deliver the goods, receive them, and pay the
price as stipulated and the consequent effects of breach of such
obligations.
The Facts and the Case
Cargill Philippines, Inc. (Cargill) and San Fernando Regala Trading,
Inc. (San Fernando) were cane molasses traders that did business
with each other for sometime. The present controversy arose when
San Fernando claimed that Cargill reneged on its contractual
obligations to deliver certain quantities of molasses. Cargill denied
this, insisting that San Fernando actually refused to accept the
delivery of the goods. This enmity resulted in Cargill’s filing on March
2, 1998 a complaint for sum of money and damages against San
Fernando before the Regional Trial Court (RTC) of Makati City in Civil
Case 98-493.
Cargill alleged that on July 15, 1996 it entered into Contract
50261 covering its sale to San Fernando of 4,000 metric tons (mt) of
molasses at the price of P3,950.00 per mt. Cargill agreed to deliver
the molasses within the months of “April to May 1997” at the wharf of
Union Ajinomoto, Inc. (Ajinomoto) along the Pasig River, Metro
Manila. This was a risk-taking forward sale in that its execution was to
take place about 10 months later when the parties did not yet know
what the trading price of molasses would be.
Shortly after, Cargill also entered into Contract 50472 covering
another sale to San Fernando of 5,000 mt of molasses at P2,750.00
per mt. The delivery period under this contract was within “October-
November-December 1996,” sooner than the delivery period under
Contract 5026. Apparently, San Fernando had a deal with Ajinomoto
for the supply of these molasses.
Cargill further alleged that it offered to deliver the 4,000 mt of
molasses as required by Contract 5026 within the months of April and
May 1997 but San Fernando accepted only 951 mt, refusing to
accept the rest. On April 2, 1997 Dolman V, the barge carrying
Cargill’s 1,174 mt of molasses, arrived at the Ajinomoto wharf but San
Fernando refused to accept the same. The barge stayed at the
wharf for 71 days, waiting for San Fernando’s unloading order.
Because of the delay, the owner of the barge slapped Cargill with
demurrage amounting to P920,000.00. Cargill also suffered
P3,480,000.00 in damages by way of unrealized profits because it had
to sell the cargo to another buyer at a loss.
Cargill further alleged that it earlier sought to deliver the molasses
covered by Contract 5047 at the Ajinomoto wharf in the months of
October, November, and December 1996, but San Fernando failed
or refused for unjustified reasons to accept the delivery.
Consequently, Cargill suffered damages by way of unrealized profits
of P360,000.00 from this contract. Apart from asking the RTC for
awards of unrealized profits, Cargill also asked for a return of the
demurrage it paid, attorney’s fees, and cost of litigation.
To substantiate its claim, Cargill presented David Mozo of Dolman
Transport Corp. who testified that Cargill chartered its Dolman V
barge to carry molasses from Pasacao to the Ajinomoto wharf in
Pasig. But the barge was unable to unload its cargo and was placed
on stand-by for around 70 days, awaiting orders to unload its
molasses. Consequently, Dolman Transport charged Cargill for
demurrage.
Cargill also presented Arthur Gunlao, an employee, who testified that
his company was unable to unload the molasses covered by
Contracts 5026 and 5047 because San Fernando’s President, Quirino
Kehyeng, advised them to wait because Ajinomoto’s storage tanks
were still full and could not receive the molasses. Because of the
prolonged delay in the unloading of the goods, Cargill had no
choice but to sell the molasses to another buyer. At the prodding of
Kehyeng, Cargill wrote San Fernando on May 14, 1997 proposing
changes in the delivery periods of Contract 5026 and 5047,
respectively from “April to May 1997” to “May to June 1997” and
from “October-November-December 1996” to “May-June-July
1997.”3The amendments were needed to keep the contracts valid
and maintain the good business relations between the two
companies.
In its Answer with counterclaim, San Fernando pointed out that,
except for the 951 mt of molasses that Cargill delivered in March
1997, the latter made no further deliveries for Contract 5026. Indeed,
Cargill sent San Fernando a letter dated May 14, 1997 proposing a
change in the delivery period for that contract from “April to May
1997” to “May to June 1997.” But San Fernando rejected the change
since it had a contract to sell the molasses to Ajinomoto for P5,300.00
per mt.4 San Fernando expected to earn a P5,400,000.00 profit out of
Contract 5026.
As for Contract 5047, San Fernando maintained that Cargill delivered
no amount of molasses in connection with the same. Cargill
admitted its inability to deliver the goods when it wrote San Fernando
a letter on May 14, 1997, proposing to move the delivery period from
“October-November-December 1996” to “May-June-July 1997.” But
San Fernando also rejected the change since it had already
contracted to sell the subject molasses to Ajinomoto for P4,950.00 per
mt.5 San Fernando expected a profit of P11,000,000.00 under this
contract.
To prove its claims, San Fernando presented its President, Kehyeng,
who testified that apart from the March 1997 delivery of 951 mt of
molasses under Contract 5026, Cargill made no further deliveries. He
called Dennis Seah of Cargill several times demanding delivery but
nothing came of it. Subsequently, Cargill wrote San Fernando,
proposing the extension of the delivery periods provided in their two
contracts. But Kehyeng rejected the proposal and refused to sign his
conformity at the appropriate spaces on Cargill’s letter.
Kehyeng denied that San Fernando had refused to receive deliveries
because it bought molasses from Cargill at prices higher than what
Ajinomoto was willing to pay. Kehyeng insisted that San Fernando
had always received Cargill’s deliveries even on occasions when the
prices fluctuated resulting in losses to his company. He claimed that,
as a result of Cargill’s violation of Contracts 5026 and 5047, San
Fernando was entitled to rescission and awards for unrealized profits
of P4,115,329.20 and P11,000,000.00, respectively, moral and
exemplary damages each in the amount of P500,000.00, attorney’s
fees of P1,000,000.00, and litigation expenses.
On December 23, 2003 the RTC dismissed Cargill’s complaint for lack
of merit and granted San Fernando’s counterclaims. The RTC did not
give credence to Cargill’s claim that San Fernando refused to
accept the deliveries of molasses because Ajinomoto’s tanks were
full. San Fernando sufficiently proved that Ajinomoto continued
receiving molasses from other suppliers during the entire time that
Cargill’s chartered barge was put on stand-by at the wharf,
supposedly waiting for San Fernando’s unloading orders.
It was incomprehensible, said the RTC, for San Fernando to refuse
Cargill’s deliveries, considering that Ajinomoto had already agreed
to buy the molasses from it. Cargill’s failure to make the required
deliveries resulted in San Fernando’s default on its obligations to
Ajinomoto, prompting the latter to cancel its orders. As a result, San
Fernando lost expected profits of P4,115,329.20 representing the
remaining undelivered molasses under Contract 5026 and
P11,000,000.00 under Contract 5047. The RTC awarded San Fernando
its claims for unrealized profits, P500,000.00 in moral damages,
another P500,000.00 in exemplary damages, attorney’s fees of
P1,000,000.00, and P500,000.00 as cost of litigation.
The Court of Appeals (CA) ruled on appeal, however, that Cargill
was not entirely in breach of Contract 5026. Cargill made an
advance delivery of 951 mt in March 1997. It then actually sent a
barge containing 1,174 mt of molasses on April 2, 1997 for delivery at
Ajinomoto’s wharf but San Fernando refused to have the cargo
unloaded. Consequently, the trial court erred in awarding San
Fernando unrealized profits of P4,115,329.20 under Contract 5026. The
CA also ruled that since San Fernando unjustifiably refused to accept
the April 2, 1997 delivery, it should reimburse Cargill the P892,732.50
demurrage that it paid the owner of the barge.
The CA, however, found Cargill guilty of breach of Contract 5047
which called for delivery of the molasses in “October-November-
December 1996.” Since San Fernando did not accede to Cargill’s
request to move the delivery period back, Cargill violated the
contract when it did not deliver the goods during the previously
agreed period. Cargill was liable to San Fernando for unrealized
profits of P11,000,000.00 that it would have made if it had sold them
to Ajinomoto. The CA deleted the award of moral and exemplary
damages in favor of San Fernando for its failure to sufficiently
establish Cargill’s bad faith in complying with its obligations. The CA
also deleted the awards of attorney’s fees and cost of litigation.
The CA thus ordered: 1) San Fernando to reimburse Cargill the
demurrage of P892,732.50 that it paid, subject to 6% interest per
annum computed from the date of the filing of the complaint until
the finality of the decision; and 2) Cargill to pay San Fernando
P11,000,000.00 in unrealized profits under Contract 5047. The CA
deleted the award of moral and exemplary damages, attorney’s
fees, and cost of litigation. This prompted both Cargill and San
Fernando to appeal to this Court.
Issues for Resolution
These cases present the following issues:chanroblesvirtualawlibrary
1. Whether or not the CA erred in ruling that Cargill was not guilty of
breach of obligation to deliver the 4,000 mt of molasses covered by
Contract 5026 during the period April and May 1997;
2. Whether or not the CA erred in ruling that Cargill was guilty of
breach of obligation to deliver the 5,000 mt of molasses covered by
Contract 5047 during the period October, November, and
December 1996; and
3. Whether or not the CA erred in deleting the award of moral and
exemplary damages, attorney’s fees, and cost of suit in favor of San
Fernando.
The Rulings of the Court
One. The CA held that Cargill committed no breach of Contract
5026 because it had earlier delivered 951 mt of molasses in March
19976 and sent a barge containing 1,174 mt of the goods on April 2,
1997 at the Ajinomoto’s wharf. It was actually San Fernando that
refused to accept this delivery on April 2.
But Contract 5026 required Cargill to deliver 4,000 mt of molasses
during the period “April to May 1997.” Thus, anything less than that
quantity constitutes breach of the agreement. And since Cargill only
delivered a total of 2,125 mt of molasses during the agreed period,
Cargill should be regarded as having violated Contract 5026 with
respect to the undelivered balance of 1,875 mt of molasses.
Notably, Chargill’s chartered barge showed up with 1,174 mt of
molasses at the Ajinomoto wharf on April 27, 1997. The barge stayed
there for around 70 days, awaiting orders to unload the cargo. David
Mozo of Dolman Transport Corp. attested to this. Dolman V was put
on stand-by at the wharf while other barges queued to unload their
molasses into Ajinomoto’s storage tanks.7 In failing to accept delivery
of Cargill’s 1,174 molasses, San Fernando should reimburse Cargill the
P892,732.50 demurrage that it paid.
Ultimately, what are the liabilities of the parties under Contract 5026?
Had San Fernando accepted the delivery of 1,174 mt of molasses on
April 27, 1997 Cargill would have been entitled to payment of their
price of P4,637,300.00 at P3,950.00 per mt. But, since Cargill
succeeded in selling that 1,174 mt of molasses to Schuurmans & Van
Ginneken for P1,861.92 per mt.8 Cargill’s unrealized profit then
amounted to only P2,451,405.59. Thus:chanroblesvirtualawlibrary
P3,950 per mt – P1,861.92 per mt = P2,088.09 x 1,174 mt =
P2,451,405.59
Since Cargill failed, however, to deliver the balance of 1,875 mt of
molasses under Contract 5026, it must pay San Fernando the
P2,531,250.00, representing the latter’s unrealized profits had it been
able to sell that 1,875 mt of molasses to Ajinomoto.
Thus:chanroblesvirtualawlibrary
P5,300 per mt selling price at Ajinomoto – P3,950 acquisition cost =
P1,350 profit per mt
P1,350.00 profit margin per mt x 1,875 mt = P2,531,250.00
Cargill, of course, claimed that it had sufficient inventories of
molasses to complete its deliveries, implying that had San Fernando
accepted its initial delivery of 1,174 mt it would have continued
delivering the rest. But it is not enough for a seller to show that he is
capable of delivering the goods on the date he agreed to make the
delivery. He has to bring his goods and deliver them at the place
their agreement called for, i.e., at the Ajinomoto Pasig River wharf.
A stipulation designating the place and manner of delivery is
controlling on the contracting parties.9 The thing sold can only be
understood as delivered to the buyer when it is placed in the buyer’s
control and possession at the agreed place of delivery.10 Cargill
presented no evidence that it attempted to make other deliveries to
complete the balance of Contract 5026.
Two. The CA correctly ruled that Cargill was in breach of Contract
5047 which provided for delivery of the molasses within the months of
October, November, and December 1996. Thus, when Cargill wrote
San Fernando on May 14, 1997 proposing to move the delivery dates
of this contract to May, June, and July, 1997, it was already in
default. San Fernando’s refusal to signify its conformity at the proper
space on Cargill’s letter-proposal regarding Contract 5047 signifies
that it was not amenable to the change.
San Fernando had good reason for this: it had already agreed to
supply Ajinomoto the molasses covered by Contract 5047 at the rate
of P4,950.00 per mt.11 Consequently, Cargill’s failure to deliver the
5,000 mt of molasses on “October-November-December 1996”
makes it liable to San Fernando for P11,000,000.00 in unrealized
profits. Thus:chanroblesvirtualawlibrary
P4,950 per mt selling price to Ajinomoto – P2,750 acquisition cost =
P2,200 profit per mt

P2,200 per mt x 5,000 mt = P11,000,000.00

In failing to make any delivery under Contract 5047, Cargill should
pay San Fernando the profit that it lost because of such breach.
Cargill of course points out that San Fernando never wrote a
demand letter respecting its failure to make any delivery under that
contract. But demand was not necessary since Cargill’s obligation
under the contract specified the date and place of delivery, i.e.,
“October-November-December 1996,” at the Ajinomoto wharf in
Pasig.12cralawlibrary

Three. The Court concurs with the CA’s deletion of the RTC’s award
of moral damages to San Fernando. As a rule, moral damages are
not awarded to a corporation unless it enjoyed good reputation that
the offender debased and besmirched by his actuations.13 San
Fernando failed to prove by sufficient evidence that it fell within this
exception. Besides, moral damages are, as a rule, also not
recoverable in culpa contractual except when bad faith had been
proved.14 San Fernando failed to show that Cargill was motivated by
bad faith or ill will when it failed to deliver the molasses as agreed.

The Court rules that the CA correctly deleted the award of

exemplary damages to San Fernando. In breach of contract, the
court may only award exemplary damages if the defendant acted in
a wanton, fraudulent, reckless, oppressive, or malevolent
manner.15 The evidence has not sufficiently established that Cargill’s
failure to deliver the molasses on time was attended by such
wickedness.

Lastly, the CA correctly deleted the award of attorney’s fees and

cost of litigation to San Fernando. Attorney’s fees and expenses of
litigation under Article 2208 of the Civil Code are proper only when
exemplary damages are awarded. Here, the Court has ruled that
San Fernando is not entitled to an award of exemplary damages.
Both parties actually committed shortcomings in complying with their
contractual obligations. San Fernando failed in Contract 5026 to
accept Cargill’s delivery of 1,174 mt of molasses; Cargill only
complied partially with its undertakings under Contract 5026 and
altogether breached its obligations under Contract 5047. For these,
they must bear their own expenses of litigation.

WHEREFORE, the Court PARTIALLY GRANTS the petitions

and MODIFIES the Court of Appeals Decision on January 19, 2007 in
CA-G.R. CV 81993 as follows:chanroblesvirtualawlibrary

1. San Fernando Regala Trading, Inc. is ORDERED to pay Cargill

Philippines, Inc. (a) P892,732.50 representing the demurrage that the
latter incurred and (b) P2,451,405.59 representing its unrealized profit
on the rejected delivery of 1,174 mt of molasses, both under Contract
5026, for a total of P3,344,138.09, with interest at 6% per annum
computed from the date of the filing of the complaint until the same
is fully paid; and

2. Cargill Philippines, Inc. is ORDERED to pay San Fernando Regala

Trading, Inc. the latter’s unrealized profits of P2,531,250.00 for the
breach of Contract 5026 and P11,000,000.00 for the breach of
Contract 5047, for a total of P13,531,250.00, with interest at 6% per
annum computed from the date of the filing of the answer with
counterclaim until the same is fully paid.

The Court of Appeals’ deletion of the awards of moral and

exemplary damages, attorney’s fees, and costs of litigation stands.

SO ORDERED.
EN BANC
G.R. No. L-18216 October 30, 1962
STOCKHOLDERS OF F. GUANZON AND SONS, INC., petitioners-
appellants,
vs.
REGISTER OF DEEDS OF MANILA, respondent-appellee.
Ramon C. Fernando for petitioners-appellants.
Office of the Solicitor General for respondent-appellee.
BAUTISTA ANGELO, J.:
On September 19, 1960, the five stockholders of the F. Guanzon and
Sons, Inc. executed a certificate of liquidation of the assets of the
corporation reciting, among other things, that by virtue of a
resolution of the stockholders adopted on September 17, 1960,
dissolving the corporation, they have distributed among themselves
in proportion to their shareholdings, as liquidating dividends, the
assets of said corporation, including real properties located in Manila.
The certificate of liquidation, when presented to the Register of
Deeds of Manila, was denied registration on seven grounds, of which
the following were disputed by the stockholders:
3. The number of parcels not certified to in the acknowledgment;
5. P430.50 Reg. fees need be paid;
6. P940.45 documentary stamps need be attached to the document;
7. The judgment of the Court approving the dissolution and directing
the disposition of the assets of the corporation need be presented
(Rules of Court, Rule 104, Sec. 3).
entity separate and distinct from its members. While shares of stock
constitute personal property they do not represent property of the
corporation. The corporation has property of its own which consists
chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75;
Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only
typifies an aliquot part of the corporation's property, or the right to
share in its proceeds to that extent when distributed according to
law and equity (Hall & Faley v. Alabama Terminal, 173 Ala 398, 56 So.,
235), but its holder is not the owner of any part of the capital of the
corporation (Bradley v. Bauder 36 Ohio St., 28). Nor is he entitled to
the possession of any definite portion of its property or assets
(Gottfried v. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The
stockholder is not a co-owner or tenant in common of the corporate
property (Halton v. Hohnston, 166 Ala 317, 51 So 992).
On the basis of the foregoing authorities, it is clear that the act of
liquidation made by the stockholders of the F. Guanzon and Sons,
Inc. of the latter's assets is not and cannot be considered a partition
of community property, but rather a transfer or conveyance of the
title of its assets to the individual stockholders. Indeed, since the
purpose of the liquidation, as well as the distribution of the assets of
the corporation, is to transfer their title from the corporation to the
stockholders in proportion to their shareholdings, — and this is in
effect the purpose which they seek to obtain from the Register of
Deeds of Manila, — that transfer cannot be effected without the
corresponding deed of conveyance from the corporation to the
stockholders. It is, therefore, fair and logical to consider the
certificate of liquidation as one in the nature of a transfer or
conveyance.
WHEREFORE, we affirm the resolution appealed from, with costs
against appellants.

Deciding the consulta elevated by the stockholders, the

Commissioner of Land Registration overruled ground No. 7 and
sustained requirements Nos. 3, 5 and 6.

The stockholders interposed the present appeal.

As correctly stated by the Commissioner of Land Registration, the

propriety or impropriety of the three grounds on which the denial of
the registration of the certificate of liquidation was predicated hinges
on whether or not that certificate merely involves a distribution of the
corporation's assets or should be considered a transfer or
conveyance.

Appellants contend that the certificate of liquidation is not a

conveyance or transfer but merely a distribution of the assets of the
corporation which has ceased to exist for having been dissolved. This
is apparent in the minutes for dissolution attached to the document.
Not being a conveyance the certificate need not contain a
statement of the number of parcel of land involved in the distribution
in the acknowledgment appearing therein. Hence the amount of
documentary stamps to be affixed thereon should only be P0.30 and
not P940.45, as required by the register of deeds. Neither is it correct
to require appellants to pay the amount of P430.50 as registration
fee.

The Commissioner of Land Registration, however, entertained a

different opinion. He concurred in the view expressed by the register
of deed to the effect that the certificate of liquidation in question,
though it involves a distribution of the corporation's assets, in the last
analysis represents a transfer of said assets from the corporation to
the stockholders. Hence, in substance it is a transfer or conveyance.

We agree with the opinion of these two officials. A corporation is a

juridical person distinct from the members composing it. Properties
registered in the name of the corporation are owned by it as an
SECOND DIVISION
G.R. No. 93397 March 3, 1997
TRADERS ROYAL BANK, petitioner,
vs.
COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION
and CENTRAL BANK of the PHILIPPINES, respondents.
TORRES, JR., J.:
Assailed in this Petition for Review on Certiorari is the Decision of the
respondent Court of Appeals dated January 29, 1990,1 affirming the
nullity of the transfer of Central Bank Certificate of Indebtedness
(CBCI) No. D891,2 with a face value of P500,000.00, from the
Philippine Underwriters Finance Corporation (Philfinance) to the
petitioner Trader's Royal Bank (TRB), under a Repurchase
Agreement3 dated February 4, 1981, and a Detached
Assignment4dated April 27, 1981.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of
Manila, Branch 32, the action was originally filed as a Petition
for Mandamus5 under Rule 65 of the Rules of Court, to compel the
Central Bank of the Philippines to register the transfer of the subject
CBCI to petitioner Traders Royal Bank (TRB).
In the said petition, TRB stated that:
3. On November 27, 1979, Filriters Guaranty Assurance Corporation
(Filriters) executed a "Detached Assignment" . . ., whereby Filriters, as
registered owner, sold, transferred, assigned and delivered unto
Philippine Underwriters Finance Corporation (Philfinance) all its rights
and title to Central Bank Certificates of Indebtedness of PESOS: FIVE
HUNDRED THOUSAND (P500,000) and having an aggregate value of
PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00);
4. The aforesaid Detached Assignment (Annex "A") contains an
express authorization executed by the transferor intended to
complete the assignment through the registration of the transfer in
the name of PhilFinance, which authorization is specifically phrased
as follows: '(Filriters) hereby irrevocably authorized the said issuer
(Central Bank) to transfer the said bond/certificates on the books of
its fiscal agent;
5. On February 4, 1981, petitioner entered into a Repurchase
Agreement with PhilFinance . . ., whereby, for and in consideration of
the sum of PESOS: FIVE HUNDRED THOUSAND (P500,000.00),
PhilFinance sold, transferred and delivered to petitioner CBCI 4-year,
8th series, Serial No. D891 with a face value of P500,000.00 . . ., which
CBCI was among those previously acquired by PhilFinance from
Filriters as averred in paragraph 3 of the Petition;
6. Pursuant to the aforesaid Repurchase Agreement (Annex "B"),
Philfinance agreed to repurchase CBCI Serial No. D891 (Annex "C"),
at the stipulated price of PESOS: FIVE HUNDRED NINETEEN THOUSAND
THREE HUNDRED SIXTY-ONE & 11/100 (P519,361.11) on April 27, 1981;
7. PhilFinance failed to repurchase the CBCI on the agreed date of
maturity, April 27, 1981, when the checks it issued in favor of
petitioner were dishonored for insufficient funds;
8. Owing to the default of PhilFinance, it executed a Detached
Assignment in favor of the Petitioner to enable the latter to have its
title completed and registered in the books of the respondent. And
by means of said Detachment, Philfinance transferred and assigned
all, its rights and title in the said CBCI (Annex "C") to petitioner and,
furthermore, it did thereby "irrevocably authorize the said issuer
(respondent herein) to transfer the said bond/certificate on the
books of its fiscal agent." . . .
9. Petitioner presented the CBCI (Annex "C"), together with the two
(2) aforementioned Detached Assignments (Annexes "B" and "D"), to
the Securities Servicing Department of the respondent, and
requested the latter to effect the transfer of the CBCI on its books
and to issue a new certificate in the name of petitioner as absolute
owner thereof;
10. Respondent failed and refused to register the transfer as
requested, and continues to do so notwithstanding petitioner's valid
and just title over the same and despite repeated demands in
writing, the latest of which is hereto attached as Annex "E" and made
an integral part hereof;
11. The express provisions governing the transfer of the CBCI were
substantially complied with the petitioner's request for registration, to
wit:
"No transfer thereof shall be valid unless made at said office (where
the Certificate has been registered) by the registered owner hereof,
in person or by his attorney duly authorized in writing, and similarly
noted hereon, and upon payment of a nominal transfer fee which
may be required, a new Certificate shall be issued to the transferee
of the registered holder thereof."
and, without a doubt, the Detached Assignments presented to
respondent were sufficient authorizations in writing executed by the
registered owner, Filriters, and its transferee, PhilFinance, as required
by the above-quoted provision;
12. Upon such compliance with the aforesaid requirements, the
ministerial duties of registering a transfer of ownership over the CBCI
and issuing a new certificate to the transferee devolves upon the
respondent;
Upon these assertions, TRB prayed for the registration by the Central
Bank of the subject CBCI in its name.
On December 4, 1984, the Regional Trial Court the case took
cognizance of the defendant Central Bank of the Philippines' Motion
for Admission of Amended Answer with Counter Claim for
Interpleader6 thereby calling to fore the respondent Filriters Guaranty
Assurance Corporation (Filriters), the registered owner of the subject
CBCI as respondent.
For its part, Filriters interjected as Special Defenses the following:
11. Respondent is the registered owner of CBCI No. 891;
12. The CBCI constitutes part of the reserve investment against
liabilities required of respondent as an insurance company under the
Insurance Code;
13. Without any consideration or benefit whatsoever to Filriters, in
violation of law and the trust fund doctrine and to the prejudice of
policyholders and to all who have present or future claim against
policies issued by Filriters, Alfredo Banaria, then Senior Vice-President-
Treasury of Filriters, without any board resolution, knowledge or
consent of the board of directors of Filriters, and without any
clearance or authorization from the Insurance Commissioner,
executed a detached assignment purportedly assigning CBCI No.
891 to Philfinance;
xxx xxx xxx
14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller
are Pilar Jacobe, Vice-President-Treasury of Filriters (both of whom
were holding the same positions in Philfinance), without any
consideration or benefit redounding to Filriters and to the grave
prejudice of Filriters, its policy holders and all who have present or
future claims against its policies, executed similar detached
assignment forms transferring the CBCI to plaintiff;
xxx xxx xxx
15. The detached assignment is patently void and inoperative
because the assignment is without the knowledge and consent of
directors of Filriters, and not duly authorized in writing by the Board, as
requiring by Article V, Section 3 of CB Circular No. 769;
16. The assignment of the CBCI to Philfinance is a personal act of
Alfredo Banaria and not the corporate act of Filriters and such null
and void;
a) The assignment was executed without consideration and for that
reason, the assignment is void from the beginning (Article 1409, Civil
Code);
b) The assignment was executed without any knowledge and
consent of the board of directors of Filriters;
c) The CBCI constitutes reserve investment of Filriters against liabilities,
which is a requirement under the Insurance Code for its existence as
an insurance company and the pursuit of its business operations. The
assignment of the CBCI is illegal act in the sense of malum in
se or malum prohibitum, for anyone to make, either as corporate or
personal act;
d) The transfer of dimunition of reserve investments of Filriters is
expressly prohibited by law, is immoral and against public policy;
e) The assignment of the CBCI has resulted in the capital impairment
and in the solvency deficiency of Filriters (and has in fact helped in
placing Filriters under conservatorship), an inevitable result known to
the officer who executed assignment.
17. Plaintiff had acted in bad faith and with knowledge of the
illegality and invalidity of the assignment.
a) The CBCI No. 891 is not a negotiable instrument and as a
certificate of indebtedness is not payable to bearer but is a
registered in the name of Filriters;
b) The provision on transfer of the CBCIs provides that the Central
Bank shall treat the registered owner as the absolute owner and that
the value of the registered certificates shall be payable only to the
registered owner; a sufficient notice to plaintiff that the assignments
do not give them the registered owner's right as absolute owner of
the CBCI's;
c) CB Circular 769, Series of 1980 (Rules and Regulations Governing
CBCIs) provides that the registered certificates are payable only to
the registered owner (Article II, Section 1).
18. Plaintiff knew full well that the assignment by Philfinance of CBCI
No. 891 by Filriters is not a regular transaction made in the usual of
ordinary course of business;
a) The CBCI constitutes part of the reserve investments of Filriters
against liabilities requires by the Insurance Code and its assignment
or transfer is expressly prohibited by law. There was no attempt to get
any clearance or authorization from the Insurance Commissioner;
b) The assignment by Filriters of the CBCI is clearly not a transaction in
the usual or regular course of its business;
c) The CBCI involved substantial amount and its assignment clearly
constitutes disposition of "all or substantially all" of the assets of Filriters,
which requires the affirmative action of the stockholders (Section 40,
Corporation [sic] Code.7
In its Decision8 dated April 29, 1988, the Regional Trial Court of Manila,
Branch XXXIII found the assignment of CBCI No. D891 in favor of
Philfinance, and the subsequent assignment of the same CBCI by
Philfinance in favor of Traders Royal Bank null and void and of no
force and effect. The dispositive portion of the decision reads:
ACCORDINGLY, judgment is hereby rendered in favor of the
respondent Filriters Guaranty Assurance Corporation and against the
plaintiff Traders Royal Bank:
(a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance,
and the subsequent assignment of CBCI by PhilFinance in favor of
the plaintiff Traders Royal Bank as null and void and of no force and
effect;
(b) Ordering the respondent Central Bank of the Philippines to
disregard the said assignment and to pay the value of the proceeds
of the CBCI No. D891 to the Filriters Guaranty Assurance Corporation;
(c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters
Guaranty Assurance Corp. The sum of P10,000 as attorney's fees; and
(d) to pay the costs.
SO ORDERED.9
The petitioner assailed the decision of the trial court in the Court of
Appeals 10, but their appeals likewise failed. The findings of the fact of
the said court are hereby reproduced:
The records reveal that defendant Filriters is the registered owner of
CBCI No. D891. Under a deed of assignment dated November 27,
1971, Filriters transferred CBCI No. D891 to Philippine Underwriters
Finance Corporation (Philfinance). Subsequently, Philfinance
transferred CBCI No. D891, which was still registered in the name of
Filriters, to appellant Traders Royal Bank (TRB). The transfer was made
under a repurchase agreement dated February 4, 1981, granting
Philfinance the right to repurchase the instrument on or before April
27, 1981. When Philfinance failed to buy back the note on maturity
date, it executed a deed of assignment, dated April 27, 1981,
conveying to appellant TRB all its right and the title to CBCI No. D891.
Armed with the deed of assignment, TRB then sought the transfer and
registration of CBCI No. D891 in its name before the Security and
Servicing Department of the Central Bank (CB). Central Bank,
however, refused to effect the transfer and registration in view of an
adverse claim filed by defendant Filriters.
Left with no other recourse, TRB filed a special civil action
for mandamus against the Central Bank in the Regional Trial Court of
Manila. The suit, however, was subsequently treated by the lower
court as a case of interpleader when CB prayed in its amended
answer that Filriters be impleaded as a respondent and the court
adjudge which of them is entitled to the ownership of CBCI No. D891.
Failing to get a favorable judgment. TRB now comes to this Court on
appeal. 11
In the appellate court, petitioner argued that the subject CBCI was a
negotiable instrument, and having acquired the said certificate from
Philfinance as a holder in due course, its possession of the same is
thus free fro any defect of title of prior parties and from any defense
available to prior parties among themselves, and it may thus, enforce
payment of the instrument for the full amount thereof against all
parties liable thereon. 12
In ignoring said argument, the appellate court that the CBCI is not a
negotiable instrument, since the instrument clearly stated that it was
payable to Filriters, the registered owner, whose name was inscribed
thereon, and that the certificate lacked the words of negotiability
which serve as an expression of consent that the instrument may be
transferred by negotiation.
Obviously, the assignment of the certificate from Filriters to
Philfinance was fictitious, having made without consideration, and
did not conform to Central Bank Circular No. 769, series of 1980,
better known as the "Rules and Regulations Governing Central Bank
Certificates of Indebtedness", which provided that any "assignment
of registered certificates shall not be valid unless made . . . by the
registered owner thereof in person or by his representative duly
authorized in writing."
Petitioner's claimed interest has no basis, since it was derived from
Philfinance whose interest was inexistent, having acquired the
certificate through simulation. What happened was Philfinance
merely borrowed CBCI No. D891 from Filriters, a sister corporation, to
guarantee its financing operations.
Said the Court:
In the case at bar, Alfredo O. Banaria, who signed the deed of
assignment purportedly for and on behalf of Filriters, did not have the
necessary written authorization from the Board of Directors of Filriters
to act for the latter. For lack of such authority, the assignment did not
therefore bind Filriters and violated as the same time Central Bank
Circular No. 769 which has the force and effect of a law, resulting in
the nullity of the transfer (People v. Que Po Lay, 94 Phil. 640; 3M
Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891
which it could assign or transfer to Traders Royal Bank and which the
latter can register with the Central Bank.
WHEREFORE, the judgment appealed from is AFFIRMED, with costs
against plaintiff-appellant.
SO ORDERED. 13
Petitioner's present position rests solely on the argument that
Philfinance owns 90% of Filriters equity and the two corporations have
identical corporate officers, thus demanding the application of the
doctrine or piercing the veil of corporate fiction, as to give validity to
the transfer of the CBCI from registered owner to petitioner TRB. 14 This
renders the payment by TRB to Philfinance of CBCI, as actual
payment to Filriters. Thus, there is no merit to the lower court's ruling
that the transfer of the CBCI from Filriters to Philfinance was null and
void for lack of consideration.
Admittedly, the subject CBCI is not a negotiable instrument in the
absence of words of negotiability within the meaning of the
negotiable instruments law (Act 2031).
The pertinent portions of the subject CBCI read:
xxx xxx xxx
The Central Bank of the Philippines (the Bank) for value received,
hereby promises to pay bearer, of if this Certificate of indebtedness
be registered, to FILRITERS GUARANTY ASSURANCE CORPORATION,
the registered owner hereof, the principal sum of FIVE HUNDRED
THOUSAND PESOS.
xxx xxx xxx
Properly understood, a certificate of indebtedness pertains to
certificates for the creation and maintenance of a permanent
improvement revolving fund, is similar to a "bond," (82 Minn. 202).
Being equivalent to a bond, it is properly understood as
acknowledgment of an obligation to pay a fixed sum of money. It is
usually used for the purpose of long term loans.
The appellate court ruled that the subject CBCI is not a negotiable
instrument, stating that:
As worded, the instrument provides a promise "to pay Filriters
Guaranty Assurance Corporation, the registered owner hereof." Very
clearly, the instrument is payable only to Filriters, the registered owner,
whose name is inscribed thereon. It lacks the words of negotiability
which should have served as an expression of consent that the
instrument may be transferred by negotiation.15
A reading of the subject CBCI indicates that the same is payable to
FILRITERS GUARANTY ASSURANCE CORPORATION, and to no one else,
thus, discounting the petitioner's submission that the same is a
negotiable instrument, and that it is a holder in due course of the
certificate.
The language of negotiability which characterize a negotiable
paper as a credit instrument is its freedom to circulate as a substitute
for money. Hence, freedom of negotiability is the touchtone relating
to the protection of holders in due course, and the freedom of
negotiability is the foundation for the protection which the law throws
around a holder in due course (11 Am. Jur. 2d, 32). This freedom in
negotiability is totally absent in a certificate indebtedness as it merely
to pay a sum of money to a specified person or entity for a period of
time.
As held in Caltex (Philippines), Inc. v. Court of Appeals, 16:
The accepted rule is that the negotiability or non-negotiability of an
instrument is determined from the writing, that is, from the face of the
instrument itself. In the construction of a bill or note, the intention of
the parties is to control, if it can be legally ascertained. While the
writing may be read in the light of surrounding circumstance in order
to more perfectly understand the intent and meaning of the parties,
yet as they have constituted the writing to be the only outward and
visible expression of their meaning, no other words are to be added
to it or substituted in its stead. The duty of the court in such case is to
ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the
meaning of the words they have used. What the parties meant must
be determined by what they said.
Thus, the transfer of the instrument from Philfinance to TRB was merely
an assignment, and is not governed by the negotiable instruments
law. The pertinent question then is, was the transfer of the CBCI from
Filriters to Philfinance and subsequently from Philfinance to TRB, in
accord with existing law, so as to entitle TRB to have the CBCI
registered in its name with the Central Bank?
The following are the appellate court's pronouncements on the
matter:
Clearly shown in the record is the fact that Philfinance's title over
CBCI No. D891 is defective since it acquired the instrument from
Filriters fictitiously. Although the deed of assignment stated that the
transfer was for "value received", there was really no consideration
involved. What happened was Philfinance merely borrowed CBCI
No. D891 from Filriters, a sister corporation. Thus, for lack of any
consideration, the assignment made is a complete nullity.
What is more, We find that the transfer made by Filriters to Philfinance
did not conform to Central Bank Circular No. 769, series of 1980,
otherwise known as the "Rules and Regulations Governing Central
Bank Certificates of Indebtedness", under which the note was issued.
Published in the Official Gazette on November 19, 1980, Section 3
thereof provides that any assignment of registered certificates shall
not be valid unless made . . . by the registered owner thereof in
person or by his representative duly authorized in writing.
In the case at bar, Alfredo O. Banaria, who signed the deed of
assignment purportedly for and on behalf of Filriters, did not have the
necessary written authorization from the Board of Directors of Filriters
to act for the latter. For lack of such authority, the assignment did not
therefore bind Filriters and violated at the same time Central Bank
Circular No. 769 which has the force and effect of a law, resulting in
the nullity of the transfer (People vs. Que Po Lay, 94 Phil. 640; 3M
Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891
which it could assign or transfer to Traders Royal Bank and which the
latter can register with the Central Bank
Petitioner now argues that the transfer of the subject CBCI to TRB
must upheld, as the respondent Filriters and Philfinance, though
separate corporate entities on paper, have used their corporate
fiction to defraud TRB into purchasing the subject CBCI, which
purchase now is refused registration by the Central Bank.
Says the petitioner;
Since Philfinance own about 90% of Filriters and the two companies
have the same corporate officers, if the principle of piercing the veil
of corporate entity were to be applied in this case, then TRB's
payment to Philfinance for the CBCI purchased by it could just as
well be considered a payment to Filriters, the registered owner of the
CBCI as to bar the latter from claiming, as it has, that it never
received any payment for that CBCI sold and that said CBCI was
sold without its authority.
xxx xxx xxx
We respectfully submit that, considering that the Court of Appeals
has held that the CBCI was merely borrowed by Philfinance from
Filriters, a sister corporation, to guarantee its (Philfinance's) financing
operations, if it were to be consistent therewith, on the issued raised
by TRB that there was a piercing a veil of corporate entity, the Court
of Appeals should have ruled that such veil of corporate entity was,
in fact, pierced, and the payment by TRB to Philfinance should be
construed as payment to Filriters. 17
We disagree with Petitioner.
Petitioner cannot put up the excuse of piercing the veil of corporate
entity, as this merely an equitable remedy, and may be awarded
only in cases when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime or where a
corporation is a mere alter ego or business conduit of a person. 18
Peiercing the veil of corporate entity requires the court to see
through the protective shroud which exempts its stockholders from
liabilities that ordinarily, they could be subject to, or distinguished one
corporation from a seemingly separate one, were it not for the
existing corporate fiction. But to do this, the court must be sure that
the corporate fiction was misused, to such an extent that injustice,
fraud, or crime was committed upon another, disregarding, thus, his,
her, or its rights. It is the protection of the interests of innocent third
persons dealing with the corporate entity which the law aims to
protect by this doctrine.
The corporate separateness between Filriters and Philfinance
remains, despite the petitioners insistence on the contrary. For one,
other than the allegation that Filriters is 90% owned by Philfinance,
and the identity of one shall be maintained as to the other, there is
nothing else which could lead the court under circumstance to
disregard their corporate personalities.
Though it is true that when valid reasons exist, the legal fiction that a
corporation is an entity with a juridical personality separate from its
stockholders and from other corporations may be disregarded, 19 in
the absence of such grounds, the general rule must upheld. The fact
that Filfinance owns majority shares in Filriters is not by itself a ground
to disregard the independent corporate status of Filriters. In Liddel &
Co., Inc. vs. Collector of Internal Revenue, 20 the mere ownership by a
single stockholder or by another corporation of all or nearly all of the
capital stock of a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities.
In the case at bar, there is sufficient showing that the petitioner was
not defrauded at all when it acquired the subject certificate of
indebtedness from Philfinance.
On its face the subject certificates states that it is registered in the
name of Filriters. This should have put the petitioner on notice, and
prompted it to inquire from Filriters as to Philfinance's title over the
same or its authority to assign the certificate. As it is, there is no
showing to the effect that petitioner had any dealings whatsoever
with Filriters, nor did it make inquiries as to the ownership of the
certificate.
The terms of the CBCI No. D891 contain a provision on its TRANSFER.
Thus:
TRANSFER. This Certificate shall pass by delivery unless it is registered in
the owner's name at any office of the Bank or any agency duly
authorized by the Bank, and such registration is noted hereon. After
such registration no transfer thereof shall be valid unless made at said
office (where the Certificates has been registered) by the registered
owner hereof, in person, or by his attorney, duly authorized in writing
and similarly noted hereon and upon payment of a nominal transfer
fee which may be required, a new Certificate shall be issued to the
transferee of the registered owner thereof. The bank or any agency
duly authorized by the Bank may deem and treat the bearer of this
Certificate, or if this Certificate is registered as herein authorized, the
person in whose name the same is registered as the absolute owner
of this Certificate, for the purpose of receiving payment hereof, or on
account hereof, and for all other purpose whether or not this
Certificate shall be overdue.
This is notice to petitioner to secure from Filriters a written
authorization for the transfer or to require Philfinance to submit such
an authorization from Filriters.
Petitioner knew that Philfinance is not registered owner of the CBCI
No. D891. The fact that a non-owner was disposing of the registered
CBCI owned by another entity was a good reason for petitioner to
verify of inquire as to the title Philfinance to dispose to the CBCI.
Moreover, CBCI No. D891 is governed by CB Circular No. 769, series
of 1990 21, known as the Rules and Regulations Governing Central
Bank Certificates of Indebtedness, Section 3, Article V of which
provides that:
Sec. 3. Assignment of Registered Certificates. — Assignment of
registered certificates shall not be valid unless made at the office
where the same have been issued and registered or at the Securities
Servicing Department, Central Bank of the Philippines, and by the
registered owner thereof, in person or by his representative, duly
authorized in writing. For this purpose, the transferee may be
designated as the representative of the registered owner.
Petitioner, being a commercial bank, cannot feign ignorance of
Central Bank Circular 769, and its requirements. An entity which deals
with corporate agents within circumstances showing that the agents
are acting in excess of corporate authority, may not hold the
corporation liable. 22 This is only fair, as everyone 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. 23
The transfer made by Filriters to Philfinance did not conform to the
said. Central Bank Circular, which for all intents, is considered part of
the law. As found by the courts a quo, Alfredo O. Banaria, who had
signed the deed of assignment from Filriters to Philfinance,
purportedly for and in favor of Filriters, did not have the necessary
written authorization from the Board of Directors of Filriters to act for
the latter. As it is, the sale from Filriters to Philfinance was fictitious,
and therefore void and inexistent, as there was no consideration for
the same. This is fatal to the petitioner's cause, for then, Philfinance
had no title over the subject certificate to convey the Traders Royal
Bank. Nemo potest nisi quod de jure potest — no man can do
anything except what he can do lawfully.

Concededly, the subject CBCI was acquired by Filriters to form part

of its legal and capital reserves, which are required by law 24 to be
maintained at a mandated level. This was pointed out by Elias
Garcia, Manager-in-Charge of respondent Filriters, in his testimony
given before the court on May 30, 1986.

Q Do you know this Central Bank Certificate of Indebtedness, in short,

CBCI No. D891 in the face value of P5000,000.00 subject of this case?

A Yes, sir.

Q Why do you know this?

A Well, this was CBCI of the company sought to be examined by the

Insurance Commission sometime in early 1981 and this CBCI No. 891
was among the CBCI's that were found to be missing.

Q Let me take you back further before 1981. Did you have the
knowledge of this CBCI No. 891 before 1981?

A Yes, sir. This CBCI is an investment of Filriters required by the

Insurance Commission as legal reserve of the company.

Q Legal reserve for the purpose of what?

A Well, you see, the Insurance companies are required to put up

legal reserves under Section 213 of the Insurance Code equivalent to
40 percent of the premiums receipt and further, the Insurance
Commission requires this reserve to be invested preferably in
government securities or government binds. This is how this CBCI
came to be purchased by the company.

It cannot, therefore, be taken out of the said funds, without violating

the requirements of the law. Thus, the anauthorized use or distribution
of the same by a corporate officer of Filriters cannot bind the said
corporation, not without the approval of its Board of Directors, and
the maintenance of the required reserve fund.

Consequently, the title of Filriters over the subject certificate of

indebtedness must be upheld over the claimed interest of Traders
Royal Bank.

ACCORDINGLY, the petition is DISMISSED and the decision appealed

from dated January 29, 1990 is hereby AFFIRMED.

SO ORDERED.
SECOND DIVISION
G.R. No. 82797 February 27, 1991
GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners,
vs.
HONORABLE COURT OF APPEALS and ROCES-REYES REALTY
INC., respondents.
PARAS, J.:
This is a petition for review on certiorari of the December 29, 1987
decision * of the Court of Appeals in CA-G.R. No. 11960 entitled
"ROCES-REYES REALTY, INC. vs. HONORABLE JUDGE REGIONAL TRIAL
COURT OF MANILA, BRANCH 44, GOOD EARTH EMPORIUM, INC. and
LIM KA PING" reversing the decision of respondent Judge ** of the
Regional Trial Court of Manila, Branch 44 in Civil Case No. 85-30484,
which reversed the resolution of the Metropolitan Trial Court Of
Manila, Branch 28 in Civil Case No. 09639, *** denying herein
petitioners' motion to quash the alias writ of execution issued against
them.
As gathered from the records, the antecedent facts of this case, are
as follows:
A Lease Contract, dated October 16, 1981, was entered into by and
between ROCES-REYES REALTY, INC., as lessor, and GOOD EARTH
EMPORIUM, INC., as lessee, for a term of three years beginning
November 1, 1981 and ending October 31, 1984 at a monthly rental
of P65,000.00 (Rollo, p. 32; Annex "C" of Petition). The building which
was the subject of the contract of lease is a five-storey building
located at the corner of Rizal Avenue and Bustos Street in Sta. Cruz,
Manila.
From March 1983, up to the time the complaint was filed, the lessee
had defaulted in the payment of rentals, as a consequence of
which, private respondent ROCES-REYES REALTY, INC., (hereinafter
designated as ROCES for brevity) filed on October 14, 1984, an
ejectment case (Unlawful Detainer) against herein petitioners, GOOD
EARTH EMPORIUM, INC. and LIM KA PING, hereinafter designated as
GEE, (Rollo, p. 21; Annex "B" of the Petition). After the latter had
tendered their responsive pleading, the lower court (MTC, Manila) on
motion of Roces rendered judgment on the pleadings dated April 17,
1984, the dispositive portion of which states:
Judgment is hereby rendered ordering defendants (herein
petitioners) and all persons claiming title under him to vacate the
premises and surrender the same to the plaintiffs (herein
respondents); ordering the defendants to pay the plaintiffs the rental
of P65,000.00 a month beginning March 1983 up to the time
defendants actually vacate the premises and deliver possession to
the plaintiff; to pay attorney's fees in the amount of P5,000.00 and to
pay the costs of this suit. (Rollo, p. 111; Memorandum of
Respondents)
On May 16, 1984, Roces filed a motion for execution which was
opposed by GEE on May 28, 1984 simultaneous with the latter's filing
of a Notice of Appeal (Rollo, p. 112, Ibid.). On June 13, 1984, the trial
court resolved such motion ruling:
After considering the motion for the issuance of a writ of execution
filed by counsel for the plaintiff (herein respondents) and the
opposition filed in relation thereto and finding that the defendant
failed to file the necessary supersedeas bond, this court resolved to
grant the same for being meritorious. (Rollo, p. 112)
On June 14, 1984, a writ of execution was issued by the lower court.
Meanwhile, the appeal was assigned to the Regional Trial Court
(Manila) Branch XLVI. However, on August 15, 1984, GEE thru counsel
filed with the Regional Trial Court of Manila, a motion to withdraw
appeal citing as reason that they are satisfied with the decision of
the Metropolitan Trial Court of Manila, Branch XXVIII, which said court
granted in its Order of August 27, 1984 and the records were
remanded to the trial court (Rollo, p. 32; CA Decision). Upon an ex-
parte Motion of ROCES, the trial court issued an Alias Writ of
Execution dated February 25, 1985 (Rollo, p. 104; Annex "D" of
Petitioner's Memorandum), which was implemented on February 27,
1985. GEE thru counsel filed a motion to quash the writ of execution
and notice of levy and an urgent Ex-parte Supplemental Motion for
the issuance of a restraining order, on March 7, and 20, 1985,
respectively. On March 21, 1985, the lower court issued a restraining
order to the sheriff to hold the execution of the judgment pending
hearing on the motion to quash the writ of execution (Rollo, p. 22;
RTC Decision). While said motion was pending resolution, GEE filed a
Petition for Relief from judgment before another court, Regional Trial
Court of Manila, Branch IX, which petition was docketed as Civil
Case No. 80-30019, but the petition was dismissed and the injunctive
writ issued in connection therewith set aside. Both parties appealed
to the Court of Appeals; GEE on the order of dismissal and Roces on
denial of his motion for indemnity, both docketed as CA-G.R. No.
15873-CV. Going back to the original case, the Metropolitan Trial
Court after hearing and disposing some other incidents, promulgated
the questioned Resolution, dated April 8, 1985, the dispositive portion
of which reads as follows:
Premises considered, the motion to quash the writ is hereby denied
for lack of merit.
The restraining orders issued on March 11 and 23, 1985 are hereby
recalled, lifted and set aside. (Rollo, p. 20, MTC Decision)
GEE appealed and by coincidence. was raffled to the same Court,
RTC Branch IX. Roces moved to dismiss the appeal but the Court
denied the motion. On certiorari, the Court of Appeals dismissed
Roces' petition and remanded the case to the RTC. Meantime,
Branch IX became vacant and the case was re-raffled to Branch
XLIV.
On April 6, 1987, the Regional Trial Court of Manila, finding that the
amount of P1 million evidenced by Exhibit "I" and another P1 million
evidenced by the pacto de retro sale instrument (Exhibit "2") were in
full satisfaction of the judgment obligation, reversed the decision of
the Municipal Trial Court, the dispositive portion of which reads:
Premises considered, judgment is hereby rendered reversing the
Resolution appealed from quashing the writ of execution and
ordering the cancellation of the notice of levy and declaring the
judgment debt as having been fully paid and/or Liquidated. (Rollo,
p. 29).
On further appeal, the Court of Appeals reversed the decision of the
Regional Trial Court and reinstated the Resolution of the Metropolitan
Trial Court of Manila, the dispositive portion of which is as follows:
WHEREFORE, the judgment appealed from is hereby REVERSED and
the Resolution dated April 8, 1985, of the Metropolitan Trial Court of
Manila Branch XXXIII is hereby REINSTATED. No pronouncement as to
costs. (Rollo, p. 40).
GEE's Motion for Reconsideration of April 5, 1988 was denied (Rollo, p.
43). Hence, this petition.
The main issue in this case is whether or not there was full satisfaction
of the judgment debt in favor of respondent corporation which
would justify the quashing of the Writ of Execution.
A careful study of the common exhibits (Exhibits 1/A and 2/B) shows
that nowhere in any of said exhibits was there any writing alluding to
or referring to any settlement between the parties of petitioners'
judgment obligation (Rollo, pp. 45-48).
Moreover, there is no indication in the receipt, Exhibit "1", that it was
in payment, full or partial, of the judgment obligation. Likewise, there
is no indication in the pacto de retro sale which was drawn in favor
of Jesus Marcos Roces and Marcos V. Roces and not the respondent
corporation, that the obligation embodied therein had something to
do with petitioners' judgment obligation with respondent corporation.
Finding that the common exhibit, Exhibit 1/A had been signed by
persons other than judgment creditors (Roces-Reyes Realty, Inc.)
coupled with the fact that said exhibit was not even alleged by GEE
and Lim Ka Ping in their original motion to quash the alias writ of
execution (Rollo, p. 37) but produced only during the hearing (Ibid.)
which production resulted in petitioners having to
claim belatedly that there was an "overpayment" of about half a
million pesos (Rollo, pp. 25-27) and remarking on the utter absence of
any writing in Exhibits "1/A" and "2/B" to indicate payment of the
judgment debt, respondent Appellate Court correctly concluded
that there was in fact no payment of the judgment debt. As aptly
observed by the said court:
What immediately catches one's attention is the total absence of
any writing alluding to or referring to any settlement between the
parties of private respondents' (petitioners') judgment obligation. In
moving for the dismissal of the appeal Lim Ka Ping who was then
assisted by counsel simply stated that defendants (herein petitioners)
are satisfied with the decision of the Metropolitan Trial Court (Records
of CA, p. 54).
Notably, in private respondents' (petitioners') Motion to Quash the
Writ of Execution and Notice of Levy dated March 7, 1985, there is
absolutely no reference to the alleged payment of one million pesos
as evidenced by Exhibit 1 dated September 20, 1984. As pointed out
by petitioner (respondent corporation) this was brought out by Linda
Panutat, Manager of Good Earth only in the course of the latter's
testimony. (Rollo, p. 37)
Article 1240 of the Civil Code of the Philippines provides that:
Payment shall be made to the person in whose favor the obligation
has been constituted, or his successor in interest, or any person
authorized to receive it.
In the case at bar, the supposed payments were not made to Roces-
Reyes Realty, Inc. or to its successor in interest nor is there positive
evidence that the payment was made to a person authorized to
receive it. No such proof was submitted but merely inferred by the
Regional Trial Court (Rollo, p. 25) from Marcos Roces having signed
the Lease Contract as President which was witnessed by Jesus
Marcos Roces. The latter, however, was no longer President or even
an officer of Roces-Reyes Realty, Inc. at the time he received the
money (Exhibit "1") and signed the sale with pacto de retro (Exhibit
"2"). He, in fact, denied being in possession of authority to receive
payment for the respondent corporation nor does the receipt show
that he signed in the same capacity as he did in the Lease Contract
at a time when he was President for respondent corporation (Rollo, p.
20, MTC decision).
On the other hand, Jesus Marcos Roces testified that the amount of
P1 million evidenced by the receipt (Exhibit "1") is the payment for a
loan extended by him and Marcos Roces in favor of Lim Ka Ping. The
assertion is home by the receipt itself whereby they acknowledged
payment of the loan in their names and in no other capacity.
A corporation has a personality distinct and separate from its
individual stockholders or members. Being an officer or stockholder of
a corporation does not make one's property also of the corporation,
and vice-versa, for they are separate entities (Traders Royal Bank v.
CA-G.R. No. 78412, September 26, 1989; Cruz v. Dalisay, 152 SCRA
482). Shareowners are in no legal sense the owners of corporate
property (or credits) which is owned by the corporation as a distinct
legal person (Concepcion Magsaysay-Labrador v. CA-G.R. No.
58168, December 19, 1989). As a consequence of the separate
juridical personality of a corporation, the corporate debt or credit is
not the debt or credit of the stockholder, nor is the stockholder's debt
or credit that of the corporation (Prof. Jose Nolledo's "The
Corporation Code of the Philippines, p. 5, 1988
Edition, citing Professor Ballantine).
The absence of a note to evidence the loan is explained by Jesus
Marcos Roces who testified that the IOU was subsequently delivered
to private respondents (Rollo, pp. 97-98). Contrary to the Regional
Trial Court's premise that it was incumbent upon respondent
corporation to prove that the amount was delivered to the Roces
brothers in the payment of the loan in the latter's favor, the delivery
of the amount to and the receipt thereof by the Roces brothers in
their names raises the presumption that the said amount was due to
them.1âwphi1 There is a disputable presumption that money paid by
one to the other was due to the latter (Sec. 5(f) Rule 131, Rules of
Court). It is for GEE and Lim Ka Ping to prove otherwise. In other
words, it is for the latter to prove that the payments made were for
the satisfaction of their judgment debt and not vice versa.
The fact that at the time payment was made to the two Roces
brothers, GEE was also indebted to respondent corporation for a
larger amount, is not supportive of the Regional Trial Court's
conclusions that the payment was in favor of the latter, especially in
the case at bar where the amount was not receipted for by
respondent corporation and there is absolutely no indication in the
receipt from which it can be reasonably inferred, that said payment
was in satisfaction of the judgment debt. Likewise, no such inference
can be made from the execution of the pacto de retro sale which
was not made in favor of respondent corporation but in favor of the
two Roces brothers in their individual capacities without any
reference to the judgment obligation in favor of respondent
corporation.
In addition, the totality of the amount covered by the receipt (Exhibit
"1/A") and that of the sale with pacto de retro(Exhibit "2/B") all in the
sum of P2 million, far exceeds petitioners' judgment obligation in
favor of respondent corporation in the sum of P1,560,000.00 by
P440,000.00, which militates against the claim of petitioner that the
aforesaid amount (P2M) was in full payment of the judgment
obligation.
Petitioners' explanation that the excess is interest and advance
rentals for an extension of the lease contract (Rollo, pp. 25-28) is
belied by the absence of any interest awarded in the case and of
any agreement as to the extension of the lease nor was there any
such pretense in the Motion to Quash the Alias Writ of Execution.
Petitioners' averments that the respondent court had gravely abused
its discretion in arriving at the assailed factual findings as contrary to
the evidence and applicable decisions of this Honorable Court are
therefore, patently unfounded. Respondent court was correct in
stating that it "cannot go beyond what appears in the documents
submitted by petitioners themselves (Exhibits "1" and "2") in the
absence of clear and convincing evidence" that would support its
claim that the judgment obligation has indeed been fully satisfied
which would warrant the quashal of the Alias Writ of Execution.
It has been an established rule that when the existence of a debt is
fully established by the evidence (which has been done in this case),
the burden of proving that it has been extinguished by payment
devolves upon the debtor who offers such a defense to the claim of
the plaintiff creditor (herein respondent corporation) (Chua Chienco
v. Vargas, 11 Phil. 219; Ramos v. Ledesma, 12 Phil. 656; Pinon v. De
Osorio, 30 Phil. 365). For indeed, it is well-entrenched in Our
jurisprudence that each party in a case must prove his own
affirmative allegations by the degree of evidence required by law
(Stronghold Insurance Co. v. CA, G.R. No. 83376, May 29,1989; Tai
Tong Chuache & Co. v. Insurance Commission, 158 SCRA 366).
The appellate court cannot, therefore, be said to have gravely
abused its discretion in finding lack of convincing and reliable
evidence to establish payment of the judgment obligation as
claimed by petitioner. The burden of evidence resting on the
petitioners to establish the facts upon which their action is premised
has not been satisfactorily discharged and therefore, they have to
bear the consequences.
PREMISES CONSIDERED, the petition is hereby DENIED and the
Decision of the Respondent court is hereby AFFIRMED, reinstating the
April 8, 1985 Resolution of the Metropolitan Trial Court of Manila.
SO ORDERED.
SECOND DIVISION
G.R. No. 86932 June 27, 1990
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and DOROTHY S. ANCHETA, MA.
MAGDALENA Y. ARMARILLE, CONSTANTE A. ANCHETA, CONSTANTE B.
BANAYOS, EVELYN BARRIENTOS, JOSE BENAVIDEZ, LEONARDO BUENAAGUA,
BENJAMIN BAROT, ERNESTO S. CANTILLER, EDUARDO CANDA, ARMANDO
CANDA, AIDA DE LUNA, PACIFICO M. DE JESUS, ALFREDO ESTRERA, AURELIO
A. FARINAS, FRANCISCO GREGORIO, DOMELINA GONZALES, JUANA
JALANDONI, MANUEL MALUBAY, FELICIANO OCAMPO, MABEL PADO,
GEMINIANO PLETA, ERNESTO S. SALAMAT, JULIAN TRAQUENA, JUSFIEL
SILVERIO, JAMES CRISTALES, FRANCISCO BAMBIO, JOSE T. MARCELO, JR.,
SUSAN M. OLIVAR, ERNESTO JULIO, CONSTANTE ANCHETA, JR., ENRIQUE
NABUA and JAVIER P. MATARO, respondents.
REGALADO, J.:
The present petition for certiorari seeks the reversal of the decision of the
National Labor Relations Commission (NLRC) in, NLRC-NCR Case No. 00-07-
02500-87, dated January 16, 1986, 1 which dismissed the appeal of the
Development Bank of the Philippines (DBP) from the decision of the labor
arbiter ordering it to pay the unpaid wages, 13th month pay, incentive pay
and separation pay of herein private respondents.
Philippine Smelters Corporation (PSC), a corporation registered under
Philippine law, obtained a loan in 1983 from the Development Bank of the
Philippines, a government-owned financial institution created and
operated in accordance with Executive Order No. 81, to finance its iron
smelting and steel manufacturing business. To secure said loan, PSC
mortgaged to DBP real properties with all the buildings and improvements
thereon and chattels, with its President, Jose T. Marcelo, Jr., as co-obligor.
By virtue of the said loan agreement, DBP became the majority stockholder
of PSC, with stockholdings in the amount of P31,000,000.00 of the total
P60,226,000.00 subscribed and paid up capital stock. Subsequently, it took
over the management of PSC.
When PSC failed to pay its obligation with DBP, which amounted to
P75,752,445.83 as of March 31, 1986, DBP foreclosed and acquired the
mortgaged real estate and chattels of PSC in the auction sales held on
February 25, 1987 and March 4, 1987.
On February 10, 1987, forty (40) petitioners filed a Petition for Involuntary
Insolvency in the Regional Trial Court, Branch 61 at Makati, Metropolitan
Manila, docketed therein as Special Proceeding No. M-1359, 2against PSC
and DBP, impleading as co-respondents therein Olecram Mining
Corporation, Jose Panganiban Ice Plant and Cold Storage, Inc. and PISO
Bank, with said petitioners representing themselves as unpaid employees of
said private respondents, except PISO Bank.
On February 13, 1987, herein private respondents filed a complaint with the
Department of Labor against PSC for nonpayment of salaries, 13th month
pay, incentive leave pay and separation pay. On February 20, 1987, the
complaint was amended to include DBP as party respondent. The case
was thereafter indorsed to the Arbitration Branch of the National Labor
Relations Commission (NLRC). DBP filed its position paper on September 7,
1987, invoking the absence of employer-employee relationship between
private respondents and DBP and submitting that when DBP foreclosed the
assets of PSC, it did so as a foreclosing creditor.
On January 30, 1988, the labor arbiter rendered a decision, the dispositive
portion of which directed that "DBP as foreclosing creditor is hereby
ordered to pay all the unpaid wages and benefits of the workers which
remain unpaid due to PSC's foreclosure." 3
On appeal by DBP, the NLRC sustained the ruling of the labor arbiter,
holding DBP liable for unpaid wages of private respondents "not as a
majority stockholder of respondent PSC, but as the foreclosing creditor who
possesses the assets of said PSC by virtue of the auction sale it held in 1987."
In addition, the NLRC held that the labor arbiter is correct in assuming
jurisdiction because "the worker's preference to the amount secured by
DBP by virtue of said foreclosure sales of PSC properties arose out of or are
connected or interwoven with the labor dispute brought forth by appellees
against PSC and DBP. 4 Hence, the present petition by DBP.
DBP contends that the labor arbiter and the NLRC committed a grave
abuse of discretion (1) in assuming jurisdiction over DBP; (2) in applying the
provisions of Article 110 of the Labor Code, as amended; and (3) in not
enforcing and applying Section 14 of Executive Order No. 81.
We find merit in the petition.
It is to be noted that in their comment, private respondents tried to prove
the existence of employer-employee relationship based on the fact that
DBP is the majority stockholder of PSC and that the majority of the
members of the board of directors of PSC are from DBP. 5 We do not
believe that these circumstances are sufficient indicia of the existence of
an employer-employee relationship as would confer jurisdiction over the
case on the labor arbiter, especially in the light of the express declaration
of said labor arbiter and the NLRC that DBP is being held liable as a
foreclosing creditor. At any rate, this jurisdictional defect was cured when
DBP appealed the labor arbiter's decision to the NLRC and thereby
submitted to its jurisdiction.
The pivotal issue for resolution is whether DBP, as foreclosing creditor, could
be held liable for the unpaid wages, 13th month pay, incentive leave pay
and separation pay of the employees of PSC.
We rule in the negative.
During the dates material to the foregoing proceedings, Article 110 of the
Labor Code read:
Art. 110. Worker preference in case of bankruptcy. — In the event of
bankruptcy or liquidation of an employer's business, his workers shall enjoy
first preference as regards wages due them for services rendered during
the period prior to the bankruptcy or liquidation, any provision of law to the
contrary notwithstanding. Unpaid wages shall be paid in full before other
creditors may establish any claim to a share in the assets of the employer.
In conjunction therewith, Section 10, Rule VIII, Book III of the Implementing
Rules and Regulations of the Labor Code provided:
Sec. 10. Payment of wages in mm of bankruptcy.-Unpaid wages earned by
the employees before the declaration of bankruptcy or judicial liquidation
of the employer's business shall be given first preference and shall be paid
in full before other creditors may establish any claim to a share in the assets
of the employer.
Interpreting the above provisions, this Court, in Development Bank of the
Philippines vs. Hon. Labor Arbiter Ariel C. Santos, et al., 6 explicated as
follows:
It is quite clear from the provisions that a declaration of bankruptcy or a
judicial liquidation must be present before the worker's preference may be
enforced. ... .
xxx xxx xxx
Moreover, the reason behind the necessity for a judicial proceeding or a
proceeding in rem before the concurrence and preference of credits may
be applied was explained by this Court in the case of Philippine Savings
Bank v. Lantin (124 SCRA 476 [1983]). We said:
The proceedings in the court below do not partake of the nature of the
insolvency proceedings or settlement of a decedent's estate. The action
filed by Ramos was only to collect the unpaid cost of the construction of
the duplex apartment. It is far from being a general liquidation of the
estate of the Tabligan spouses.
Insolvency proceedings and settlement of a decedent's estate are both
proceedings in rem which are binding against the whole world. All persons
having interest in the subject matter involved, whether they were notified
or not, are equally bound. Consequently, a liquidation of similar import or
'other equivalent general liquidation must also necessarily be a
proceeding in rem so that all interested persons whether known to the
parties or not may be bound by such proceeding.
In the case at bar, although the lower court found that 'there were no
known creditors other than the plaintiff and the defendant herein,' this can
not be conclusive. It will not bar other creditors in the event they show up
and present their claim against the petitioner bank, claiming that they also
have preferred liens against the property involved. Consequently, Transfer
Certificate of Title No. 101864 issued in favor of the bank which is supposed
to be indefeasible would remain constantly unstable and questionable.
Such could not have been the intention of Article 2243 of the Civil Code
although it considers claims and credits under Article 2242 as statutory
fines. Neither does the De Barreto case ...
The claims of all creditors whether preferred or non- preferred, the
Identification of the preferred ones and the totality of the employer's asset
should be brought into the picture. There can then be an authoritative, fair,
and binding adjudication instead of the piece meal settlement which
would result from the questioned decision in this case.
Republic Act No. 6715, which took effect on March 21, 1989, amended
Article 110 of the Labor Code to read as follows:
Art. 110. Worker preference in case of bankruptcy. — In the event of
bankruptcy or liquidation of an employer's business, his workers shall enjoy
first preference as regards their unpaid wages and other monetary claims,
any provision of law to the contrary notwithstanding. Such unpaid wages
and monetary claims shall be paid in full before the claims of the
Government and other creditors may be paid.
As a consequence, Section 1 0, Rule VIII, Book III of the Implementing Rules
and Regulations of the Labor Code was likewise amended, to wit:
Sec. 10. Payment of wages and other monetary claims in case of
bankruptcy. — In case of bankruptcy or liquidation of the employer's
business, the unpaid wages and other monetary claims of the employees
shall be given first preference and shall be paid in full before the claims of
government and other creditors may be paid.
Despite said amendments, however, the same interpretation of Article 110
as applied in the aforesaid case of Development Bank of the Philippines vs.
Hon. Labor Arbiter Ariel C. Santos, et al., supra, was adopted by this Court
in the recent case of Development Bank of the Philippines vs. National
Labor Relations Commission, et. al., 7 For facility of reference, especially the
rationalization for the conclusions reached therein, we reproduce the
salient portions of the decision in this later case.
Notably, the terms "declaration" of bankruptcy or "judicial" liquidation have
been eliminated. Does this means then that liquidation proceedings have
been done away with?
We opine m the negative, upon the following considerations:
1. Because of its impact on the entire system of credit, Article 110 of the
Labor Code cannot be viewed in isolation but must be read in relation to
the Civil Code scheme on classification and preference of credits.
Article 110 of the Labor Code, in determining the reach of its terms, cannot
be viewed in isolation. Rather, Article 110 must be read in relation to the
provisions of the Civil Code concerning the classification, concurrence and
preference of credits which provisions find particular application in
insolvency proceedings where the claims of all creditors, preferred or non-
preferred, may be adjudicated in a binding manner ... (Republic vs.
Peralta (G.R. No. L-56568, May 20, 1987, 150 SCRA 37).
2. In the same way that the Civil Code provisions on classification of credits
and the Insolvency Law have been brought into harmony, so also must the
kindred provisions of the Labor Law be made to harmonize with those laws.
3. In the event of insolvency, a principal objective should be to effect an
equitable distribution of the insolvent's property among his creditors. To
accomplish this there must first be some proceeding where notice to all of
the insolvent's creditors may be given and where the claims of preferred
creditors may be bindingly adjudicated (De Barretto vs. Villanueva, No. L-
14938, December 29, 1962, 6 SCRA 928). The rationale therefor has been
expressed in the recent case of DBP vs. Secretary of Labor (G.R. No. 79351,
28 November 1989), which we quote:
A preference of credit bestows upon the preferred creditor an advantage
of having his credit satisfied first ahead of other claims which may be
established against the debtor. Logically, it becomes material only when
the properties and assets of the debtors are insufficient to pay his debts in
full; for if the debtor is amply able to pay his various creditors, in full, how
can the necessity exist to determine which of his creditors shall be paid first
or whether they shall be paid out of the proceeds of the sale of the
debtor's specific property? Indubitably, the preferential right of credit
attains significance only after the properties of the debtor have been
inventoried and liquidated, and the claims held by his various creditors
have been established (Kuenzle & Streiff [Ltd.] vs. Villanueva, 41 Phil. 611
[1916]; Barretto vs. Villanueva, G.R. No. 14038, 29 December 1962, 6 SCRA
928; Philippine Savings Bank vs. Lantin, G.R. 33929, 2 September 1983,124
SCRA 476).4. A distinction should be made between a preference of credit
and a lien. A preference applies only to claims which do not attach to
specific properties. A hen creates a charge on a particular property. The
right of first preference as regards unpaid wages recognize by Article 110
does not constitute a hen on the property of the insolvent debtor in favor
of workers. It is but a preference of credit in their favor, a preference in
application. It is a met-hod adopted to determine and specify the order in
which credits should be paid in the final distribution of the proceeds of the
insolvent's assets- It is a right to a first preference in the discharge of the
funds of the judgment debtor. in the words of Republic vs. Peralta, supra:
Article 110 of the Labor Code does not purport to create a lien in favor of
workers or employees for unpaid wages either upon all of the properties or
upon any particular property owned by their employer. Claims for unpaid
wages do not therefore fall at all within the category of specially preferred
claims established under Articles 2241 and 2242 of the Civil Code, except
to the extent that such claims for unpaid wages are already covered by
Article 2241, number 6: 'claims for laborers' wages, on the goods
manufactured or the work done; or by Article 2242, number 3: 'claims of
laborers and other workers engaged in the construction, reconstruction or
repair of buildings, canals and other works, upon said buildings, canals or
other works.' To the extent that claims for unpaid wages fall outside the
scope of Article 2241, number 6 and Article 2242, number 3, they would
come within the ambit of the category of ordinary preferred credits under
Article 2244.'
5. The DBP anchors its claim on a mortgage credit. A mortgage directly
and immediately subjects the property upon which it is imposed, whoever
the possessor may be, to the fulfillment of the obligation for whose security
it was constituted (Article 2176, Civil Code). It creates a real right which is
enforceable against the whole world. It is a lien on an Identified
immovable property, which a preference is not. A recorded mortgage
credit is a special preferred credit under Article 2242 (5) of the Civil Code
on classification of credits. The preference given by Article 110, when not
falling within Article 2241 (6) and Article 2242 (3) of the Civil Code and not
attached to any specific property, is an ordinary preferred credit although
its impact is to move it from second priority to first priority in the order of
preference established by Article 2244 of the Civil Code (Republic vs.
Peralta, supra).
In fact, under the Insolvency Law (Section 29) a creditor holding a
mortgage or hen of any kind as security is not permitted to vote in the
election of the assignee in insolvency proceedings unless the value of his
security is first fixed or he surrenders all such property to the receiver of the
insolvent's estate.
6. Even if Article 110 and its Implementing Rule, as amended, should be
interpreted to mean 'absolute preference,' the same should be given only
prospective effect in line with the cardinal rule that laws shall have no
retroactive effect, unless the contrary is provided (Article 4, Civil Code).
Thereby, any infringement on the constitutional guarantee on non-
impairment of obligation of contracts (Section 10, Article III, 1987
Constitution) is also avoided. In point of fact, DBP's mortgage credit
antedated by several years the amendatory law, RA No. 6715. To give
Article 110 retroactive effect would be to wipe out the mortgage in DBPs
favor and expose it to a risk which it sought to protect itself against by
requiring a collateral in the form of real property.
In fine, the right to preference given to workers under Article 110 of the
Labor Code cannot exist in any effective way prior to the time of its
presentation in distribution proceedings. It will find application when, in
proceedings such as insolvency, such unpaid wages shall be paid in full
before the 'claims of the Government and other creditors' may be paid.
But, for an orderly settlement of a debtor's assets, all creditors must be
convened, their claims ascertained and inventoried, and thereafter the
preference determined in the course of judicial proceedings which have
for their object the subjection of the property of the debtor to the payment
of his debts or other lawful obligations. Thereby, an orderly determination of
preference of creditors' claims is assured (Philippine Savings Bank vs. Lantin,
No. L-33929, September 2, 1983, 124 SCRA 476); the adjudication made will
be binding on all parties-in-interest, since those proceedings are
proceedings in rem; and the legal scheme of classification, concurrence
and preference of credits in the Civil Code, the Insolvency Law, and the
Labor Code is preserved in harmony.
On the foregoing considerations and it appearing that an involuntary
insolvency proceeding has been instituted against PSC, private
respondents should properly assert their respective claims in said
proceeding. .
WHEREFORE, the petition is GRANTED. The decision of public respondent is
hereby ANNULLED and SET ASIDE. SO ORDERED.
SECOND DIVISION
[G.R. No. 143513. November 14, 2001]
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, petitioner, vs. COURT OF
APPEALS and FIRESTONE CERAMICS, INC., respondents.
[G.R. No. 143590. November 14, 2001]
NATIONAL DEVELOPMENT CORPORATION, petitioner, vs. FIRESTONE
CERAMICS, INC., respondents.
DECISION
BELLOSILLO, J.:
A litigation is not simply a contest of litigants before the bar of public
opinion; more than that, it is a pursuit of justice through legal and
equitable means. To prevent the search for justice from evolving into
a competition for public approval, society invests the judiciary with
complete independence thereby insulating it from demands
expressed through any medium, the press not excluded. Thus, if the
court would merely reflect, and worse, succumb to the great
pressures of the day, the end result, it is feared, would be a travesty
of justice.
In the early sixties, petitioner National Development Corporation
(NDC), a government owned and controlled corporation created
under CA 182 as amended by CA 311 and PD No. 668, had in its
disposal a ten (10)-hectare property located along Pureza St., Sta.
Mesa, Manila. The estate was popularly known as the NDC
compound and covered by Transfer Certificates of Title Nos. 92885,
110301 and 145470.
Sometime in May 1965 private respondent Firestone Ceramics Inc.
(FIRESTONE) manifested its desire to lease a portion of the property for
its ceramic manufacturing business. On 24 August 1965 NDC and
FIRESTONE entered into a contract of lease denominated as
Contract No. C-30-65 covering a portion of the property measured at
2.90118 hectares for use as a manufacturing plant for a term of ten
(10) years, renewable for another ten (10) years under the same
terms and conditions.[1] In consequence of the agreement,
FIRESTONE constructed on the leased premises several warehouses
and other improvements needed for the fabrication of ceramic
products.
Three and a half (3-1/2) years later, or on 8 January 1969, FIRESTONE
entered into a second contract of lease with NDC over the latter's
four (4)-unit pre-fabricated reparation steel warehouse stored in
Daliao, Davao. FIRESTONE agreed to ship the warehouse to Manila
for eventual assembly within the NDC compound. The second
contract, denominated as Contract No. C-26-68, was for similar use
as a ceramic manufacturing plant and was agreed expressly to be
"co-extensive with the lease of LESSEE with LESSOR on the 2.60
hectare-lot."[2]
On 31 July 1974 the parties signed a similar contract concerning a six
(6)-unit pre-fabricated steel warehouse which, as agreed upon by
the parties, would expire on 2 December 1978.[3] Prior to the
expiration of the aforementioned contract, FIRESTONE wrote NDC
requesting for an extension of their lease agreement.Consequently
on 29 November 1978 the Board of Directors of NDC adopted
Resolution No. 11-78-117 extending the term of the lease, subject to
several conditions among which was that in the event NDC "with the
approval of higher authorities, decide to dispose and sell these
properties including the lot, priority should be given to the
LESSEE"[4] (underscoring supplied). On 22 December 1978, in
pursuance of the resolution, the parties entered into a new
agreement for a ten-year lease of the property, renewable for
another ten (10) years, expressly granting FIRESTONE the first option to
purchase the leased premises in the event that it decided "to dispose
and sell these properties including the lot . . . . "[5]
The contracts of lease conspicuously contain an identically worded
provision requiring FIRESTONE to construct buildings and other
improvements within the leased premises worth several hundred
thousands of pesos.[6]
The parties' lessor-lessee relationship went smoothly until early 1988
when FIRESTONE, cognizant of the impending expiration of their lease
agreement with NDC, informed the latter through several letters and
telephone calls that it was renewing its lease over the property. While
its letter of 17 March 1988 was answered by Antonio A. Henson,
General Manager of NDC, who promised immediate action on the
matter, the rest of its communications remained
unacknowledged.[7]FIRESTONE's predicament worsened when rumors
of NDC's supposed plans to dispose of the subject property in favor of
petitioner Polytechnic University of the Philippines (PUP) came to its
knowledge. Forthwith, FIRESTONE served notice on NDC conveying its
desire to purchase the property in the exercise of its contractual right
of first refusal.
Apprehensive that its interest in the property would be disregarded,
FIRESTONE instituted an action for specific performance to compel
NDC to sell the leased property in its favor. FIRESTONE averred that it
was pre-empting the impending sale of the NDC compound to
petitioner PUP in violation of its leasehold rights over the 2.60-
hectare[8] property and the warehouses thereon which would expire
in 1999. FIRESTONE likewise prayed for the issuance of a writ of
preliminary injunction to enjoin NDC from disposing of the property
pending the settlement of the controversy.[9]
In support of its complaint, FIRESTONE adduced in evidence a letter
of Antonio A. Henson dated 15 July 1988 addressed to Mr. Jake C.
Lagonera, Director and Special Assistant to Executive Secretary
Catalino Macaraeg, reviewing a proposed memorandum order
submitted to then President Corazon C. Aquino transferring the whole
NDC compound, including the leased property, in favor of petitioner
PUP. Attached to the letter was a draft of the proposed
memorandum order as well as a summary of existing leases on the
subject property. The survey listed FIRESTONE as lessee of a portion of
the property, placed at 29,000[10] square meters, whose contract with
NDC was set to expire on 31 December 1989[11] renewable for
another ten (10) years at the option of the lessee. The report expressly
recognized FIRESTONE's right of first refusal to purchase the leased
property "should the lessor decide to sell the same."[12]
Meanwhile, on 21 February 1989 PUP moved to intervene and
asserted its interest in the subject property, arguing that a
"purchaser pendente lite of property which is subject of a litigation is
entitled to intervene in the proceedings."[13] PUP referred
to Memorandum Order No. 214 issued by then President Aquino
ordering the transfer of the whole NDC compound to the National
Government, which in turn would convey the aforementioned
property in favor of PUP at acquisition cost.The issuance was
supposedly made in recognition of PUP's status as the "Poor Man's
University" as well as its serious need to extend its campus in order to
accommodate the growing student population. The order of
conveyance of the 10.31-hectare property would automatically
result in the cancellation of NDC's total obligation in favor of the
National Government in the amount of P57,193,201.64.
Convinced that PUP was a necessary party to the controversy that
ought to be joined as party defendant in order to avoid multiplicity of
suits, the trial court granted PUP's motion to intervene. FIRESTONE
moved for reconsideration but was denied. On certiorari, the Court
of Appeals affirmed the order of the trial court.FIRESTONE came to us
on review but in a Resolution dated 11 July 1990 we upheld PUP's
inclusion as party-defendant in the present controversy.
Following the denial of its petition, FIRESTONE amended its complaint
to include PUP and Executive Secretary Catalino Macaraeg, Jr., as
party-defendants, and sought the annulment of Memorandum Order
No. 214. FIRESTONE alleged that although Memorandum Order No.
214 was issued "subject to such liens/leases existing [on the subject
property]," PUP disregarded and violated its existing lease by
increasing the rental rate at P200,000.00 a month while demanding
that it vacated the premises immediately.[14] FIRESTONE prayed that
in the event Memorandum Order No. 214 was not declared
unconstitutional, the property should be sold in its favor at the price
for which it was sold to PUP - P554.74 per square meter or for a total
purchase price of P14,423,240.00.[15]
Petitioner PUP, in its answer to the amended complaint, argued in
essence that the lease contract covering the property had expired
long before the institution of the complaint, and that further, the right
of first refusal invoked by FIRESTONE applied solely to the six-unit pre-
fabricated warehouse and not the lot upon which it stood.
After trial on the merits, judgment was rendered declaring the
contracts of lease executed between FIRESTONE and NDC covering
the 2.60-hectare property and the warehouses constructed thereon
valid and existing until 2 June 1999. PUP was ordered and directed to
sell to FIRESTONE the "2.6 hectare leased premises or as may be
determined by actual verification and survey of the actual size of the
leased properties where plaintiff's fire brick factory is located"
at P1,500.00 per square meter considering that, as admitted by
FIRESTONE, such was the prevailing market price thereof.
The trial court ruled that the contracts of lease executed between
FIRESTONE and NDC were interrelated and inseparable because
"each of them forms part of the integral system of plaintiff's brick
manufacturing plant x x x if one of the leased premises will be taken
apart or otherwise detached from the two others, the purpose of the
lease as well as plaintiff's business operations would be rendered
useless and inoperative."[16] It thus decreed that FIRESTONE could
exercise its option to purchase the property until 2 June 1999
inasmuch as the 22 December 1978 contract embodied a covenant
to renew the lease for another ten (10) years at the option of the
lessee as well as an agreement giving the lessee the right of first
refusal.
The trial court also sustained the constitutionality of Memorandum
Order No. 214 which was not per se hostile to FIRESTONE's property
rights, but deplored as prejudicial thereto the "very manner with
which defendants NDC and PUP interpreted and applied the same,
ignoring in the process that plaintiff has existing contracts of lease
protectable by express provisions in the Memorandum No. 214
itself."[17] It further explained that the questioned memorandum was
issued "subject to such liens/leases existing thereon"[18] and petitioner
PUP was under express instructions "to enter, occupy and take
possession of the transferred property subject to such leases or liens
and encumbrances that may be existing thereon"[19] (underscoring
supplied).
Petitioners PUP, NDC and the Executive Secretary separately filed
their Notice of Appeal, but a few days thereafter, or on 3 September
1996, perhaps realizing the groundlessness and the futility of it all, the
Executive Secretary withdrew his appeal.[20]
Subsequently, the Court of Appeals affirmed the decision of the trial
court ordering the sale of the property in favor of FIRESTONE but
deleted the award of attorney's fees in the amount of Three Hundred
Thousand Pesos (P300,000.00). Accordingly, FIRESTONE was given a
grace period of six (6) months from finality of the court's judgment
within which to purchase the property in questioned in the exercise
of its right of first refusal. The Court of Appeals observed that as there
was a sale of the subject property, NDC could not excuse itself from
its obligation TO OFFER THE PROPERTY FOR SALE FIRST TO FIRESTONE
BEFORE IT COULD TO OTHER PARTIES. The Court of Appeals held: "NDC
cannot look to Memorandum Order No. 214 to excuse or shield it
from its contractual obligations to FIRESTONE. There is nothing therein
that allows NDC to disavow or repudiate the solemn engagement
that it freely and voluntarily undertook, or agreed to undertake." [21]
PUP moved for reconsideration asserting that in ordering the sale of
the property in favor of FIRESTONE the courts a quo unfairly created a
contract to sell between the parties. It argued that the "court cannot
substitute or decree its mind or consent for that of the parties in
determining whether or not a contract (has been) perfected
between PUP and NDC."[22] PUP further contended that since "a real
property located in Sta. Mesa can readily command a sum
of P10,000.00 per square (meter)," the lower court gravely erred in
ordering the sale of the property at only P1,500.00 per square
meter. PUP also advanced the theory that the enactment
of Memorandum Order No. 214 amounted to a withdrawal of the
option to purchase the property granted to FIRESTONE. NDC, for its
part, vigorously contended that the contracts of lease executed
between the parties had expired without being renewed by
FIRESTONE; consequently, FIRESTONE was no longer entitled to any
preferential right in the sale or disposition of the leased property.
We do not see it the way PUP and NDC did. It is elementary that a
party to a contract cannot unilaterally withdraw a right of first refusal
that stands upon valuable consideration. That principle was clearly
upheld by the Court of Appeals when it denied on 6 June 2000 the
twin motions for reconsideration filed by PUP and NDC on the ground
that the appellants failed to advance new arguments substantial
enough to warrant a reversal of the Decision sought to be
reconsidered.[23]On 28 June 2000 PUP filed an urgent motion for an
additional period of fifteen (15) days from 29 June 2000 or until 14 July
2000 within which to file a Petition for Review on Certiorari of
the Decision of the Court of Appeals.
On the last day of the extended period PUP filed its Petition for
Review on Certiorari assailing the Decision of the Court of Appeals of
6 December 1999 as well as the Resolution of 6 June 2000 denying
reconsideration thereof. PUP raised two issues: (a) whether the
courts a quo erred when they "conjectured" that the transfer of the
leased property from NDC to PUP amounted to a sale; and, (b)
whether FIRESTONE can rightfully invoke its right of first
refusal. Petitioner posited that if we were to place our imprimatur on
the decisions of the courts a quo, "public welfare or specifically the
constitutional priority accorded to education" would greatly be
prejudiced.[24]
Paradoxically, our paramount interest in education does not license
us, or any party for that matter, to destroy the sanctity of binding
obligations. Education may be prioritized for legislative or budgetary
purposes, but we doubt if such importance can be used to
confiscate private property such as FIRESTONE's right of first refusal.
On 17 July 2000 we denied PUP's motion for extension of fifteen (15)
days within which to appeal inasmuch as the aforesaid pleading
lacked an affidavit of service of copies thereof on the Court of
Appeals and the adverse party, as well as written explanation for not
filing and serving the pleading personally.[25]
Accordingly, on 26 July 2000 we issued a Resolution dismissing
PUP's Petition for Review for having been filed out of time. PUP moved
for reconsideration imploring a resolution or decision on the merits of
its petition. Strangely, about the same time, several articles came out
in the newspapers assailing the denial of the petition. The daily
papers reported that we unreasonably dismissed PUP's petition on
technical grounds, affirming in the process the decision of the trial
court to sell the disputed property to the prejudice of the
government in the amount of P1,000,000,000.00.[26] Counsel for
petitioner PUP, alleged that the trial court and the Court of Appeals
"have decided a question of substance in a way definitely not in
accord with law or jurisprudence."[27]
At the outset, let it be noted that the amount of P1,000,000,000.00 as
reported in the papers was way too exaggerated, if not
fantastic. We stress that NDC itself sold the whole 10.31-hectare
property to PUP at only P57,193,201.64 which represents NDC's
obligation to the national government that was, in exchange, written
off. The price offered per square meter of the property was pegged
at P554.74. FIRESTONE's leased premises would therefore be worth
only P14,423,240.00. From any angle, this amount is certainly far
below the ballyhooed price of P1,000,000,000.00.
On 4 October 2000 we granted PUP's Motion for Reconsideration to
give it a chance to ventilate its right, if any it still had in the leased
premises, thereby paving the way for a reinstatement of its Petition
for Review.[28] In its appeal, PUP took to task the courts a quo for
supposedly "substituting or decreeing its mind or consent for that of
the parties (referring to NDC and PUP) in determining whether or not
a contract of sale was perfected." PUP also argued that inasmuch as
"it is the parties alone whose minds must meet in reference to the
subject matter and cause," it concluded that it was error for the
lower courts to have decreed the existence of a sale of the NDC
compound thus allowing FIRESTONE to exercise its right of first refusal.
On the other hand, NDC separately filed its own Petition for
Review and advanced arguments which, in fine, centered on
whether or not the transaction between petitioners NDC and PUP
amounted to a sale considering that ownership of the property
remained with the government.[29] Petitioner NDC introduced the
novel proposition that if the parties involved are both government
entities the transaction cannot be legally called a sale.
In due course both petitions were consolidated.[30]
We believe that the courts a quo did not hypothesize, much less
conjure, the sale of the disputed property by NDC in favor of
petitioner PUP. Aside from the fact that the intention of NDC and PUP
to enter into a contract of sale was clearly expressed in
the Memorandum Order No. 214,[31] a close perusal of the
circumstances of this case strengthens the theory that the
conveyance of the property from NDC to PUP was one of absolute
sale, for a valuable consideration, and not a mere paper transfer as
argued by petitioners.
A contract of sale, as defined in the Civil Code, is a contract where
one of the parties obligates himself to transfer the ownership of and
to deliver a determinate thing to the other or others who shall pay
therefore a sum certain in money or its equivalent.[32] It is therefore a
general requisite for the existence of a valid and enforceable
contract of sale that it be mutually obligatory, i.e., there should be a
concurrence of the promise of the vendor to sell a determinate thing
and the promise of the vendee to receive and pay for the property
so delivered and transferred. The Civil Code provision is, in effect, a
"catch-all" provision which effectively brings within its grasp a whole
gamut of transfers whereby ownership of a thing is ceded for a
consideration.
Contrary to what petitioners PUP and NDC propose, there is not just
one party involved in the questioned transaction. Petitioners NDC
and PUP have their respective charters and therefore each possesses
a separate and distinct individual personality.[33] The inherent
weakness of NDCs proposition that there was no sale as it was only
the government which was involved in the transaction thus reveals
itself. Tersely put, it is not necessary to write an extended dissertation
on government owned and controlled corporations and their legal
personalities. Beyond cavil, a government owned and controlled
corporation has a personality of its own, distinct and separate from
that of the government.[34] The intervention in the transaction of the
Office of the President through the Executive Secretary did not
change the independent existence of these entities. The involvement
of the Office of the President was limited to brokering the
consequent relationship between NDC and PUP. But the withdrawal
of the appeal by the Executive Secretary is considered significant as
he knew, after a review of the records, that the transaction was
subject to existing liens and encumbrances, particularly the priority to
purchase the leased premises in favor of FIRESTONE.
True that there may be instances when a particular deed does not
disclose the real intentions of the parties, but their action may
nevertheless indicate that a binding obligation has been
undertaken. Since the conduct of the parties to a contract may be
sufficient to establish the existence of an agreement and the terms
thereof, it becomes necessary for the courts to examine the
contemporaneous behavior of the parties in establishing the
existence of their contract.
The preponderance of evidence shows that NDC sold to PUP the
whole NDC compound, including the leased premises, without the
knowledge much less consent of private respondent FIRESTONE
which had a valid and existing right of first refusal.
All three (3) essential elements of a valid sale, without which there
can be no sale, were attendant in the "disposition" and "transfer" of
the property from NDC to PUP - consent of the parties, determinate
subject matter, and consideration therefor.
Consent to the sale is obvious from the prefatory clauses
of Memorandum Order No. 214 which explicitly states the
acquiescence of the parties to the sale of the property -
WHEREAS, PUP has expressed its willingness to acquire said NDC
properties and NDC has expressed its willingness to sell the properties
to PUP(underscoring supplied).[35]
Furthermore, the cancellation of NDC's liabilities in favor of the
National Government in the amount of P57,193,201.64 constituted
the "consideration" for the sale. As correctly observed by the Court of
Appeals-
The defendants-appellants' interpretation that there was a mere
transfer, and not a sale, apart from being specious sophistry and a
mere play of words, is too strained and hairsplitting. For it is axiomatic
that every sale imposes upon the vendor the obligation to transfer
ownership as an essential element of the contract. Transfer of title or
an agreement to transfer title for a price paid, or promised to be
paid, is the very essence of sale (Kerr & Co. v. Lingad, 38 SCRA
524; Schmid & Oberly, Inc., v. RJL Martinez Fishing Corp., 166 SCRA
493). At whatever legal angle we view it, therefore, the inescapable
fact remains that all the requisites of a valid sale were attendant in
the transaction between co-defendants-appellants NDC and PUP
concerning the realities subject of the present suit.[36]
What is more, the conduct of petitioner PUP immediately after the
transaction is in itself an admission that there was a sale of the NDC
compound in its favor.Thus, after the issuance of Memorandum Order
No. 214 petitioner PUP asserted its ownership over the property by
posting notices within the compound advising residents and
occupants to vacate the premises.[37] In its Motion for
Intervention petitioner PUP also admitted that its interest as a
"purchaser pendente lite" would be better protected if it was joined
as party-defendant in the controversy thereby confessing that it
indeed purchased the property.
In light of the foregoing disquisition, we now proceed to determine
whether FIRESTONE should be allowed to exercise its right of first
refusal over the property.Such right was expressly stated by NDC and
FIRESTONE in par. XV of their third contract denominated as A-10-78
executed on 22 December 1978 which, as found by the courts a
quo, was interrelated to and inseparable from their first contract
denominated as C-30-65 executed on 24 August 1965 and their
second contract denominated as C-26-68 executed on 8 January
1969. Thus -
Should the LESSOR desire to sell the leased premises during the term
of this Agreement, or any extension thereof, the LESSOR shall first give
to the LESSEE, which shall have the right of first option to purchase the
leased premises subject to mutual agreement of both parties.[38]
In the instant case, the right of first refusal is an integral and indivisible
part of the contract of lease and is inseparable from the whole
contract. The consideration for the right is built into the reciprocal
obligations of the parties. Thus, it is not correct for petitioners to insist
that there was no consideration paid by FIRESTONE to entitle it to the
exercise of the right, inasmuch as the stipulation is part and parcel of
the contract of lease making the consideration for the lease the
same as that for the option.
It is a settled principle in civil law that when a lease contract contains
a right of first refusal, the lessor is under a legal duty to the lessee not
to sell to anybody at any price until after he has made an offer to sell
to the latter at a certain price and the lessee has failed to accept
it.[39] The lessee has a right that the lessor's first offer shall be in his
favor.
The option in this case was incorporated in the contracts of lease by
NDC for the benefit of FIRESTONE which, in view of the total amount
of its investments in the property, wanted to be assured that it would
be given the first opportunity to buy the property at a price for which
it would be offered. Consistent with their agreement, it was then
implicit for NDC to have first offered the leased premises of 2.60
hectares to FIRESTONE prior to the sale in favor of PUP. Only if
FIRESTONE failed to exercise its right of first priority could NDC lawfully
sell the property to petitioner PUP.
It now becomes apropos to ask whether the courts a quo were
correct in fixing the proper consideration of the sale at P1,500.00 per
square meter. In contracts of sale, the basis of the right of first refusal
must be the current offer of the seller to sell or the offer to purchase
of the prospective buyer. Only after the lessee-grantee fails to
exercise its right under the same terms and within the period
contemplated can the owner validly offer to sell the property to a
third person, again, under the same terms as offered to the
grantee.[40] It appearing that the whole NDC compound was sold to
PUP for P554.74 per square meter, it would have been more proper
for the courts below to have ordered the sale of the property also at
the same price. However, since FIRESTONE never raised this as an
issue, while on the other hand it admitted that the value of the
property stood at P1,500.00 per square meter, then we see no
compelling reason to modify the holdings of the courts a quo that
the leased premises be sold at that price.
Our attention is invited by petitioners to Ang Yu Asuncion v. CA[41] in
concluding that if our holding in Ang Yu would be applied to the
facts of this case then FIRESTONE's "option, if still subsisting, is not
enforceable," the option being merely a preparatory contract which
cannot be enforced.
The contention has no merit. At the heels of Ang Yu came Equatorial
Realty Development, Inc., v. Mayfair Theater, Inc.,[42] where after
much deliberation we declared, and so we hold, that a right of first
refusal is neither "amorphous nor merely preparatory" and can be
enforced and executed according to its terms. Thus, in Equatorial we
ordered the rescission of the sale which was made in violation of the
lessee's right of first refusal and further ordered the sale of the leased
property in favor of Mayfair Theater, as grantee of the
right. Emphatically, we held that "(a right of first priority) should be
enforced according to the law on contracts instead of the
panoramic and indefinite rule on human relations." We then
concluded that the execution of the right of first refusal consists in
directing the grantor to comply with his obligation according to the
terms at which he should have offered the property in favor of the
grantee and at that price when the offer should have been made.
One final word. Petitioner PUP should be cautioned against bidding
for public sympathy by bewailing the dismissal of its petition before
the press. Such advocacy is not likely to elicit the compassion of this
Court or of any court for that matter. An entreaty for a favorable
disposition of a case not made directly through pleadings and oral
arguments before the courts do not persuade us, for as judges, we
are ruled only by our forsworn duty to give justice where justice is
due.
WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are
DENIED. Inasmuch as the first contract of lease fixed the area of the
leased premises at 2.90118 hectares while the second contract
placed it at 2.60 hectares, let a ground survey of the leased premises
be immediately conducted by a duly licensed, registered surveyor at
the expense of private respondent FIRESTONE CERAMICS, INC., within
two (2) months from finality of the judgment in this case.Thereafter,
private respondent FIRESTONE CERAMICS, INC., shall have six (6)
months from receipt of the approved survey within which to exercise
its right to purchase the leased property at P1,500.00 per square
meter, and petitioner Polytechnic University of the Philippines is
ordered to reconvey the property to FIRESTONE CERAMICS, INC., in
the exercise of its right of first refusal upon payment of the purchase
price thereof.
SO ORDERED.
SECOND DIVISION
G.R. No. 186433 November 27, 2013
NUCCIO SAVERIO and NS INTERNATIONAL INC., Petitioners,
vs.
ALFONSO G. PUYAT, Respondent.
DECISION
BRION, J.:
We resolve the petition for review on certiorari,1 filed by petitioners
Nuccio Saverio and NS International, Inc. (NS) against respondent
Alfonso G. Puyat, challenging the October 27, 2008 decision2 and the
February 10, 2009 resolution3 of the Court of Appeals (CA) in CA-G.R.
CV. No. 87879. The CA decision affirmed the December 15, 2004
decision4 of the Regional Trial Court RTC) of Makati City, Branch 136,
in Civil Case No. 00-594. The CA subsequently denied the petitioners
motion for reconsideration.
The Factual Antecedents
On July 22, 1996, the respondent granted a loan to NSI. The loan was
made pursuant to the Memorandum of Agreement and Promissory
Note (MOA)5 between the respondent and NSI, represented by
Nuccio. It was agreed that the respondent would extend a credit line
with a limit of ₱500,000.00 to NSI, to be paid within thirty (30) days
from the time of the signing of the document. The loan carried an
interest rate of 17% per annum, or at an adjusted rate of 25% per
annum if payment is beyond the stipulated period. The petitioners
received a total amount of ₱300,000.00 and certain machineries
intended for their fertilizer processing plant business (business). The
proposed business, however, failed to materialize.
On several occasions, Nuccio made personal payments amounting
to ₱600,000.00. However, as of December 16, 1999, the petitioners
allegedly had an outstanding balance of ₱460,505.86. When the
petitioners defaulted in the payment of the loan, the respondent
filed a collection suit with the RTC, alleging mainly that the petitioners
still owe him the value of the machineries as shown by the
Breakdown of Account6 he presented.
The petitioners refuted the respondent’s allegation and insisted that
they have already paid the loan, evidenced by the respondent’s
receipt for the amount of ₱600,000.00. They submitted that their
remaining obligation to pay the machineries’ value, if any, had long
been extinguished by their business’ failure to materialize. They
posited that, even assuming without conceding that they are liable,
the amount being claimed is inaccurate, the penalty and the interest
imposed are unconscionable, and an independent accounting is
needed to determine the exact amount of their liability.
The RTC Ruling
In its decision dated December 15, 2004, the RTC found that aside
from the cash loan, the petitioners’ obligation to the respondent also
covered the payment of the machineries’ value. The RTC also
brushed aside the petitioners’ claim of partnership. The RTC thus ruled
that the payment of ₱600,000.00 did not completely extinguish the
petitioners’ obligation.
The RTC also found merit in the respondent’s contention that the
petitioners are one and the same. Based on Nuccio’s act of entering
a loan with the respondent for purposes of financing NSI’s proposed
business and his own admission during cross-examination that the
word "NS" in NSI’s name stands for "Nuccio Saverio," the RTC found
that the application of the doctrine of piercing the veil of corporate
fiction was proper.
The RTC, moreover, concluded that the interest rates stipulated in the
MOA were not usurious and that the respondent is entitled to
attorney’s fees on account of the petitioners’ willful breach of the
loan obligation. Thus, principally relying on the submitted Breakdown
of Account, the RTC ordered the petitioners, jointly and severally, to
pay the balance of ₱460,505.86, at 12% interest, and attorney’s fees
equivalent to 25% of the total amount due.
The CA Ruling
The petitioners appealed the RTC ruling to the CA. There, they
argued that in view of the lack of proper accounting and the
respondent’s failure to substantiate his claims, the exact amount of
their indebtedness had not been proven. Nuccio also argued that by
virtue of NSI’s separate and distinct personality, he cannot be made
solidarily liable with NSI.
On October 27, 2008, the CA rendered a decision7 declaring the
petitioners jointly and severally liable for the amount that the
respondent sought. The appellate court likewise held that since the
petitioners neither questioned the delivery of the machineries nor
their valuation, their obligation to pay the amount of ₱460,505.86
under the Breakdown of Account remained unrefuted.
The CA also affirmed the RTC ruling that petitioners are one and the
same for the following reasons: (1) Nuccio owned forty percent (40%)
of NSI; (2) Nuccio personally entered into the loan contract with the
respondent because there was no board resolution from NSI; (3) the
petitioners were represented by the same counsel; (4) the failure of
NSI to object to Nuccio’s acts shows the latter’s control over the
corporation; and (5) Nuccio’s control over NSI was used to commit a
wrong or fraud. It further adopted the RTC’s findings of bad faith and
willful breach of obligation on the petitioners’ part, and affirmed its
award of attorney’s fees.
The Petition
The petitioners submit that the CA gravely erred in ruling that a
proper accounting was not necessary. They argue that the
Breakdown of Account - which the RTC used as a basis in awarding
the claim, as affirmed by the CA - is hearsay since the person who
prepared it, Ramoncito P. Puyat, was not presented in court to
authenticate it. They also point to the absence of the award’s
computation in the RTC ruling, arguing that assuming they are still
indebted to the respondent, the specific amount of their
indebtedness remains undetermined, thus the need for an
accounting to determine their exact liability.
They further question the CA’s findings of solidary liability. They submit
that in the absence of any showing that corporate fiction was used
to defeat public convenience, justify a wrong, protect fraud or
defend a crime, or where the corporation is a mere alter ego or
business conduit of a person, Nuccio’s mere ownership of forty
percent (40%) does not justify the piercing of the separate and
distinct personality of NSI.
The Case for the Respondent
The respondent counters that the issues raised by the petitioners in
the present petition – pertaining to the correctness of the calibration
of the documentary and testimonial evidence by the RTC, as
affirmed by the CA, in awarding the money claims – are essentially
factual, not legal. These issues, therefore, cannot, as a general rule,
be reviewed by the Supreme Court in an appeal by certiorari. In
other words, the resolution of the assigned errors is beyond the ambit
of a Rule 45 petition.
The Issue
The case presents to us the issue of whether the CA committed a
reversible error in affirming the RTC’s decision holding the petitioners
jointly and severally liable for the amount claimed.
Our Ruling
After a review of the parties’ contentions, we hold that a remand of
the case to the court of origin for a complete accounting and
determination of the actual amount of the petitioners’ indebtedness
is called for.
The determination of questions of fact is improper in a Rule 45
proceeding; Exceptions.
The respondent questions the present petition’s propriety, and
contends that in a petition for review on certiorari under Rule 45 of
the Rules of Court, only questions of law may be raised. He argues
that the petitioners are raising factual issues that are not permissible
under the present petition and these issues have already been
extensively passed upon by the RTC and the CA. The petitioners, on
the other hand, assert that the exact amount of their indebtedness
has not been determined with certainty. They insist that the amount
of ₱460,505.86 awarded in favor of the respondent has no basis
because the latter failed to substantiate his claim. They also maintain
that the Breakdown of Account used by the lower courts in arriving
at the collectible amount is unreliable for the respondent’s failure to
adduce supporting documents for the alleged additional expenses
charged against them. With no independent determination of the
actual amount of their indebtedness, the petitioners submit that an
order for a proper accounting is imperative.
We agree with the petitioners. While we find the fact of indebtedness
to be undisputed, the determination of the extent of the adjudged
money award is not, because of the lack of any supporting
documentary and testimonial evidence. These evidentiary issues, of
course, are necessarily factual, but as we held in The Insular Life
Assurance Company, Ltd. v. Court of Appeals,8 this Court may take
cognizance even of factual issues under exceptional circumstances.
In this cited case, we held:
It is a settled rule that in the exercise of the Supreme Court's power of
review, the Court is not a trier of facts and does not normally
undertake the re-examination of the evidence presented by the
contending parties during the trial of the case considering that the
findings of facts of the CA are conclusive and binding on the Court.
However, the Court had recognized several exceptions to this rule, to
wit: (1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of facts are conflicting; (6) when in
making its findings the Court of Appeals went beyond the issues of
the case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to the
trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set
forth in the petition as well as in the petitioner's main and reply briefs
are not disputed by the respondent; (10) when the findings of fact
are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by
the parties, which, if properly considered, would justify a different
conclusion.
We note in this regard that the RTC, in awarding the amount of
₱460,505.86 in favor of the respondent, principally relied on the
Breakdown of Account. Under this document, numerous entries,
including the cash loan, were enumerated and identified with their
corresponding amounts. It included the items of expenses allegedly
chargeable to the petitioners, the value of the machineries, the
amount credited as paid, and the interest and penalty allegedly
incurred.
A careful perusal of the records, however, reveals that the entries in
the Breakdown of Account and their corresponding amounts are not
supported by the respondent’s presented evidence. The itemized
expenses, as repeatedly pointed out by the petitioners, were not
proven, and the remaining indebtedness, after the partial payment
of ₱600,000.00, was merely derived by the RTC from the Breakdown
of Account.
Significantly, the RTC ruling neither showed how the award was
computed nor how the interest and penalty were calculated. In fact,
it merely declared the petitioners liable for the amount claimed by
the respondent and adopted the breakdown of liability in the
Breakdown of Account. This irregularity is even aggravated by the
RTC’s explicit refusal to explain why the payment of ₱600,000.00 did
not extinguish the debt. While it may be true that the petitioners’
indebtedness, aside from the cash loan of ₱300,000.00, undoubtedly
covered the value of the machineries, the RTC decision was far from
clear and instructive on the actual remaining indebtedness (inclusive
of the machineries’ value, penalties and interests) after the partial
payment was made and how these were all computed.
We, thus, find it unacceptable for the RTC to simply come up with a
conclusion that the payment of ₱600,000.00 did not extinguish the
debt, or, assuming it really did not, that the remaining amount of
indebtedness amounts exactly to ₱460,505.86, without any showing
of how this balance was arrived at. To our mind, the RTC’s ruling, in so
far as the determination of the actual indebtedness is concerned, is
incomplete.
What happened at the RTC likewise transpired at the CA when the
latter affirmed the appealed decision; the CA merely glossed over
the contention of the petitioners, and adopted the RTC’s findings
without giving any enlightenment. To reiterate, nowhere in the
decisions of the RTC and the CA did they specify how the award,
including the penalty and interest, was determined. The petitioners
were left in the dark as to how their indebtedness of ₱300,000.00,
after making a payment of ₱600,000.00, ballooned to ₱460,505.86.
Worse, unsubstantiated expenses, appearing in the Breakdown of
Account, were charged to them.
We, therefore, hold it inescapable that the prayer for proper
accounting to determine the petitioners’ actual remaining
indebtedness should be granted. As this requires presentation of
additional evidence, a remand of the case is only proper and in
order.
Piercing the veil of corporate fiction is not justified. The petitioners are
not one and the same.
At the outset, we note that the question of whether NSI is an alter
ego of Nuccio is a factual one. This is also true with respect to the
question of whether the totality of the evidence adduced by the
respondent warrants the application of the piercing the veil of
corporate fiction doctrine. As we did in the issue of accounting, we
hold that the Court may properly wade into the piercing the veil issue
although purely factual questions are involved.
After a careful study of the records and the findings of both the RTC
and the CA, we hold that their conclusions, based on the given
findings, are not supported by the evidence on record.
The rule is settled that a corporation is vested by law with a
personality separate and distinct from the persons composing it.
Following this principle, a stockholder, generally, is not answerable for
the acts or liabilities of the corporation, and vice versa. The
obligations incurred by the corporate officers, or other persons acting
as corporate agents, are the direct accountabilities of the
corporation they represent, and not theirs. A director, officer or
employee of a corporation is generally not held personally liable for
obligations incurred by the corporation9 and while there may be
instances where solidary liabilities may arise, these circumstances are
exceptional.10
Incidentally, we have ruled that mere ownership by a single
stockholder or by another corporation of all or nearly all of the
capital stocks of the corporation is not, by itself, a sufficient ground
for disregarding the separate corporate personality. Other than mere
ownership of capital stocks, circumstances showing that the
corporation is being used to commit fraud or proof of existence of
absolute control over the corporation have to be proven. In short,
before the corporate fiction can be disregarded, alter-ego elements
must first be sufficiently established.
In Hi-Cement Corporation v. Insular Bank of Asia and America (later
PCI-Bank, now Equitable PCI-Bank),11 we refused to apply the
piercing the veil doctrine on the ground that the corporation was a
mere alter ego because mere ownership by a stockholder of all or
nearly all of the capital stocks of a corporation does not, by itself,
justify the disregard of the separate corporate personality. In this
cited case, we ruled that in order for the ground of corporate
ownership to stand, the following circumstances should also be
established: (1) that the stockholders had control or complete
domination of the corporation’s finances and that the latter had no
separate existence with respect to the act complained of; (2) that
they used such control to commit a wrong or fraud; and (3) the
control was the proximate cause of the loss or injury.
G.R. CV. No. 87879 are REVERSED AND SET ASIDE. The case is
REMANDED to the Regional Trial Court of Makati City, Branch 136, for
proper accounting and reception of such evidence as may be
needed to determine the actual amount of petitioner NS
International, Inc.’s indebtedness, and to adjudicate respondent
Alfonso G. Puyat’s claims as such evidence may warrant.

Applying these principles to the present case, we opine and so hold SO ORDERED.
that the attendant circumstances do not warrant the piercing of the
veil of NSI’s corporate fiction.

Aside from the undisputed fact of Nuccio’s 40% shareholdings with

NSI, the RTC applied the piercing the veil doctrine based on the
following reasons. First, there was no board resolution authorizing
Nuccio to enter into a contract of loan. Second, the petitioners were
represented by one and the same counsel. Third, NSI did not object
to Nuccio’s act of contracting the loan.

Fourth, the control over NSI was used to commit a wrong or fraud.
Fifth, Nuccio’s admission that "NS" in the corporate name "NSI" means
"Nuccio Saverio."

We are not convinced of the sufficiency of these cited reasons. In our

view, the RTC failed to provide a clear and convincing explanation
why the doctrine was applied. It merely declared that its application
of the doctrine of piercing the veil of corporate fiction has a basis,
specifying for this purpose the act of Nuccio’s entering into a
contract of loan with the respondent and the reasons stated above.

The records of the case, however, do not show that Nuccio had
control or domination over NSI’s finances.1âwphi1 The mere fact that
it was Nuccio who, in behalf of the corporation, signed the MOA is
not sufficient to prove that he exercised control over the
corporation’s finances. Neither the absence of a board resolution
authorizing him to contract the loan nor NSI’s failure to object thereto
supports this conclusion. These may be indicators that, among others,
may point the proof required to justify the piercing the veil of
corporate fiction, but by themselves, they do not rise to the level of
proof required to support the desired conclusion. It should be noted
in this regard that while Nuccio was the signatory of the loan and the
money was delivered to him, the proceeds of the loan were
unquestionably intended for NSI’s proposed business plan. That the
business did not materialize is not also sufficient proof to justify a
piercing, in the absence of proof that the business plan was a
fraudulent scheme geared to secure funds from the respondent for
the petitioners’ undisclosed goals.

Considering that the basis for holding Nuccio liable for the payment
of the loan has been proven to be insufficient, we find no justification
for the RTC to hold him jointly and solidarily liable for NSI’s unpaid
loan. Similarly, we find that the CA ruling is wanting in sufficient
explanation to justify the doctrine’s application and affirmation of
the RTC’s ruling. With these points firmly in mind, we hold that NSI’s
liability should not attach to Nuccio.

On the final issue of the award of attorney’s fees, Article 1229 of the
New Civil Code provides:

Article 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by
the debtor. Even if there has been no performance, the penalty may
also be reduced by the courts if it is iniquitous or unconscionable.

Under the circumstances of the case, we find the respondent’s

entitlement to attorney’s fees to be justified. There is no doubt that he
was forced to litigate to protect his interest, i.e., to recover his money.
We find, however, that in view of the partial payment of ₱600,000.00,
the award of attorney’s fees equivalent to 25% should be reduced to
10% of the total amount due. The award of appearance fee of
₱3,000.00 and litigation cost of ₱10,000.00 should, however, stand as
these are costs necessarily attendant to litigation.

WHEREFORE, the petition is GRANTED. The October 27, 2008 decision

and the February 10, 2009 resolution of the Court of Appeals in CA-
SECOND DIVISION
[G.R. NO. 180036 - July 25, 2012]
SITUS DEVELOPMENT CORPORATION, DAILY SUPERMARKET, INC. and
COLOR LITHOGRAPHIC PRESS, INC., Petitioners, v. ASIATRUST BANK,
ALLIED BANKING CORPORATION, METROPOLITAN BANK AND TRUST
COMPANY, and CAMERON GRANVILLE II ASSET MANAGEMENT, INC.
(CAMERON), Respondents.
DECISION
SERENO, J.:
The instant Rule 45 Petition assails the Decision1 and Resolution2 of the
Court of Appeals (CA) in CA-G.R. CV No. 80223. The CA reversed
and set aside the Adjudication 3 of the Regional Trial Court (RTC),
Branch 93, Quezon City (the Rehabilitation Court) in Civil Case No. Q-
02-010, which had approved the Second Amended Rehabilitation
Plan of petitioners Situs Development Corporation, Daily
Supermarket, Inc. and Color Lithographic Press, Inc. (collectively,
petitioners or petitioner corporations) over the objections of
respondents Asiatrust Bank (Asiatrust), Allied Banking Corporation
(Allied Bank) and Metropolitan Bank and Trust Company
(Metrobank). Respondent Cameron Granville II Asset Management,
Inc. (Cameron), a Special Purpose Vehicle, was the transferee of
Metrobank s rights, title and interest in the instant case.
The facts are not in issue, and we quote with favor the narration of
the appellate court:ςrαlαω
In 1972, the Chua Family, headed by its patriarch, Cua Yong Hu,
a.k.a. Tony Chua, started a printing business and put up Color
Lithographic Press, Inc. (COLOR). On June 6, 1995, the Chua Family
ventured into real estate development/leasing by organizing Situs
Development Corporation (SITUS) in order to build a shopping mall
complex, known as Metrolane Complex (COMPLEX) at 20th Avenue
corner P. Tuazon, Cubao, Quezon City. To finance the construction of
the COMPLEX, SITUS, COLOR and Tony Chua and his wife, Siok Lu
Chua, obtained several loans from (1) ALLIED secured by real estate
mortgages over two lots covered by TCT Nos. RT-13620 and RT-13621;
(2) ASIATRUST secured by a real estate mortgage over a lot covered
by TCT No. 79915; and (3) Global Banking Corporation, now
METROBANK, secured by a real estate mortgage over a lot covered
by TCT No. 79916. The COMPLEX was built on said four (4) lots, all of
which are registered in the names of Tony Chua and his wife, Siok Lu
Chua. On March 21, 1996, the Chua Family expanded into retail
merchandising and organized Daily Supermarket, Inc. (DAILY). All
three (3) corporations have interlocking directors and are all housed
in the COMPLEX. The Chua Family also resides in the COMPLEX, while
the other units are being leased to tenants. SITUS, COLOR and DAILY
obtained additional loans from ALLIED, ASIATRUST and METROBANK
and their real estate mortgages were updated and/or amended.
Spouses Chua likewise executed five (5) Continuing
Guarantee/Comprehensive Surety in favor of ALLIED to guarantee
the payment of the loans of SITUS and DAILY.
SITUS, COLOR, DAILY and the spouses Chua failed to pay their
obligations as they fell due, despite demands.
On November 22, 2000, ALLIED filed with the Office of the Clerk of
Court and Ex-Officio Sheriff of Quezon City an application for
extrajudicial foreclosure of the mortgage on the properties of
spouses Chua covered by TCT Nos. RT-13620 and RT-13621. The
auction sale was scheduled on February 6, 2001. However, on
February 5, 2001, SITUS, COLOR and spouses Chua filed a complaint
for nullification of foreclosure proceedings, with prayer for temporary
restraining order/injunction, with the Regional Trial Court, Branch 87,
Quezon City, docketed as Civil Case No. Q-01-43280. As no
temporary restraining order was issued, the scheduled auction sale
proceeded wherein ALLIED emerged as the highest bidder in the
amount of P88,958,700.00. The Certificate of Sale dated March 9,
2001 in favor of ALLIED was approved by the Executive Judge of the
Regional Trial Court of Quezon City on September 9, 2002 and the
same was annotated on TCT Nos. RT-13620 and RT-13621 on
September 23, 2002.
On July 26, 2001, METROBANK likewise filed an application for
extrajudicial foreclosure of the mortgage on the property of spouses
Chua covered by TCT No. 79916. The auction sale was conducted on
September 18, 2001, with METROBANK as the highest bidder in the
amount of P95,282,563.86.
On May 16, 2002, ASIATRUST sent a demand letter to DAILY and
COLOR for the payment of their outstanding obligations.
On June 11, 2002, SITUS, DAILY and COLOR, herein petitioners, filed a
petition for the declaration of state of suspension of payments with
approval of proposed rehabilitation plan, docketed as Civil Case No.
Q-02-010, with the Regional Trial Court, Branch 93, Quezon City.
Petitioners alleged that due to the 1997 Asian financial crisis, peso
devaluation and high interest rate, their loan obligations ballooned
and they foresee their inability to meet their obligations as they fall
due; that their loan obligations are secured by the real properties of
their major stockholder, Tony Chua; that ALLIED has already initiated
foreclosure proceedings; that Global Banking Corporation, now
METROBANK, and ASIATRUST made final demands for payment of
their obligations; that they foresee a very good future ahead of them
if they would be given a "breathing spell" from their obligations as
they fall due; and that their assets are more than sufficient to pay off
their debts. Petitioners submitted a program of rehabilitation for the
approval of creditors and the court a quo.
A Stay Order dated June 17, 2002, was issued by the court a quo
directing as follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
A. ) a stay in the enforcement of all claims, whether for money or
otherwise and whether such enforcement is by court action or
otherwise, against the petitioners Situs Development Corporation,
Daily Supermarket, Inc., & Color Lithographic Press, Inc., their
guarantors and sureties not solidarily liable with them;
b.) prohibiting Situs Development Corporation, Daily Supermarket,
Inc., & Color Lithographic Press, Inc., from selling, encumbering,
transferring or disposing in any manner any of their properties except
in the ordinary course of business;
c.) prohibiting Situs Development Corporation, Daily Supermarket,
Inc. & Color Lithographic Press, Inc., from making any payment of
their liabilities outstanding as of the filing of the instant petition;
d.) prohibiting Situs Development Corporation, Daily Supermarket,
Inc. and Color Lithographic Press, Inc. s suppliers of goods and
services from withholding supply of goods and services in the ordinary
course of business for as long as Situs Development Corporation,
Daily Supermarket, Inc. & Color Lithographic Press, Inc., make
payments for the goods and services supplied after the issuance of
this stay order; andcralawlibrary
e.) directing the payment in full of all administrative expenses
incurred after the issuance of this stay order.
chanrobles virtual law library
The court a quo appointed Mr. Antonio B. Garcia as the
Rehabilitation Receiver, set the initial hearing on the petition on
August 2, 2002 and directed all creditors and interested parties,
including the Securities and Exchange Commission (SEC), to file their
comment on or opposition to the petition.
ALLIED filed its opposition and comment praying for the dismissal of
the petition and the lifting of the Stay Order on the grounds that it is
defective in form and substance; that it contains substantial
inaccuracies and inconsistencies; and that it does not contain a
viable rehabilitation plan.
ASIATRUST filed its comment with partial opposition praying likewise
for the dismissal of the petition on the grounds that it is not in due
form and lacks substantial allegations on its debt obligations with its
various creditors; that petitioners do not have a viable rehabilitation
plan; and that petitioners do not have a clear source of repayment
of their obligations.
No comment or opposition was filed by SEC.
In an Order dated August 2, 2002, the court a quo found prima
facie merit in the petition and gave due course thereto. The
Rehabilitation Receiver was given forty-five (45) days within which to
submit his report on the proposed rehabilitation plan.
On October 15, 2002, METROBANK filed a Manifestation stating that it
was participating in the proceedings as a mere observer inasmuch
as the mortgage executed in its favor by spouses Chua on the
property covered by TCT No. 79916 was foreclosed by it on
September 18, 2001, so that it ceased to be a creditor of COLOR as
its claim was already fully satisfied.
On October 9, 2002, petitioners filed a motion for the cancellation of
the certificate of sale approved on September 9, 2002 by the
Executive Judge of the RTC of Quezon City and the annotation
thereof on TCT Nos. RT-13620 and RT-13621, as the same were done in
violation of the Stay Order dated June 17, 2002. A vehement
opposition was filed by ALLIED arguing that the foreclosure
proceedings cannot be considered as a "claim", as understood
under Section 1, Rule 2 of the Interim Rules of Procedure on
Corporate Rehabilitation, since the issuance of the Certificate of Sale
and annotation thereof on the certificates of titles do not constitute
demands for payment of debt or enforcement of pecuniary liabilities;
that the auction sale was conducted more than one year before the
filing of the petition for rehabilitation; and that TCT Nos. RT-13620 and
RT-13621 are registered in the names of "Cua Yong Hu/Tony Chua
and Siok Lu Chua", hence, should not have been included in the
Inventory of Assets of petitioners.
On October 21, 2002, ASIATRUST filed an urgent manifestation praying
for the outright dismissal of the petition inasmuch as METROBANK and
ALLIED had already foreclosed the mortgages on the properties that
stood as securities for petitioners obligations, as well as the lifting of
the Stay Order.
On October 19, 2002, the Rehabilitation Receiver submitted his
Report on petitioners proposed Rehabilitation Plan, to which
oppositions were filed by ALLIED and METROBANK.
On November 21, 2002, petitioners proposed to amend their
Rehabilitation Plan. On December 2, 2002, petitioners filed and
submitted an Amended Rehabilitation Plan, which was opposed by
ALLIED and ASIATRUST.
On January 8, 2003, petitioners filed a motion to admit Second
Amended Rehabilitation Program of Situs Development Corporation,
the pertinent provisions of which
read:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
1. Situs will assume the outstanding obligations of its non-profiting
affiliate companies: Daily Supermarket, Inc. and Color Lithographic
Press, Inc.;
2. Situs will convert all its debts to equity;
3. Situs will lease the properties from the new owners at P50.00 per
square meter for a period of 25 years or at P555,200.00 a month, with
a yearly escalation of 5%;
4. The annual lease income will be distributed among the new
owners according to their percentage ownership and, in the event
that the property is sold, any profit will be shared accordingly;
5. The new owners are Asiatrust with 21% ownership, Metrobank with
17% ownership, Allied with 30% ownership, and Tony Chua with 32%
ownership;
6. The two properties in Cavite which were mortgaged to ASIATRUST
will be returned to its registered owner since the properties where the
Complex sits is enough to cover the loan obligations;
andcralawlibrary
7. All unpaid interests, penalties and other charges are waived.
chanrobles virtual law library
Comments on and oppositions to the Second Amended
Rehabilitation Plan were filed by ALLIED, ASIATRUST and METROBANK.
On August 15, 2003, ALLIED filed a motion praying for the dismissal of
the petition as no Rehabilitation Plan was approved upon the lapse
of 180 days from the date of the initial hearing on August 2, 2002, as
mandated in Section 11 of the Interim Rules of Procedure on
Corporate Rehabilitation.
On August 14, 2003, the court a quo rendered an ADJUDICATION
approving the Second Amended Rehabilitation Program as SITUS
deserves a sporting chance at rehabilitation, subject to the following
conditions:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
1. The first phase of implementation shall cover immediately the
payment of the appurtenant shares to the creditors/new owners out
of the monthly rental income of P555,200.00 as outlined in paragraph
D.1 of the plan;
2. An automatic review of the progress of implementation shall be
undertaken six (6) months from and after the initial payment
described in condition no. 1 above;
3. The rehabilitation receiver, petitioner and creditors/new owners to
file written reports on the sixth month of implementation and to
seasonably prompt the court to set up the matter for a monitoring
hearing thereon;
4. At the end of one year from and after the initial implementation of
the plan, the court shall undertake a review of the entire
rehabilitation program for the purpose of determining the desirability
of terminating or continuing with the rehabilitation;
5. The rehabilitation receiver, petitioner and creditors/new owners to
file written reports conformably with condition no. 4 above and to
seasonably prompt the court accordingly.
chanrobles virtual law library
In approving the Second Amended Rehabilitation Program, the court
a quo held:ςrαlαω
From the original rehabilitation proposal which simply involved a
condoning and restructuring of the loan obligations, the petitioners
came out with an amended rehabilitation plan that calls for, among
others, a concentration into the business of commercial leasing
coupled with the consolidation of the debts of Daily and Color with
that of Situs; a conversion of debt to equity in proportionate terms; a
reduction of the principal stockholder s control of Situs Development;
a proportionate share in the monthly rental income of Situs by
creditors/new owners.
The creditor banks have consistently opposed the rehabilitation plans
submitted by the petitioners. To the creditor banks, they would be
[better-off] if the businesses of the petitioners would be simply
liquidated. A most simple view indeed, except that such a view
totally ignores the susceptibility of petitioner Situs to rehabilitation. The
creditor banks are fully aware that the real property on which the
building structure of Situs Development sits is more than sufficient to
answer for all the outstanding obligations of petitioners. This fact
alone should be enough to afford the petitioners a sporting chance
at business resuscitation. That the realties are titled in the name of Mr.
Tony Chua is of no moment insofar as the rehabilitation is concerned,
after all, the creditor banks were fully aware of the real facts when
they willingly extended loans to the petitioners.
To the court the 2nd Amended Rehabilitation Program of Situs
Development Corporation Inc., a copy of which is enclosed and
made an integral part of this adjudication, deserves due
consideration. Although said plan is opposed by the creditor banks,
the court notes that it bears the approval of the rehabilitation
receiver who had the opportunity to peruse it. Moreover, under the
plan, the shareholders of Situs Development will lose controlling
interest in the corporation. There is also no clear showing that the
properties of the debtor will be readily sold by a liquidator within a
three-month period from termination of the herein proceedings and
that the creditors would get more from said sale than what they
would get under the plan. The court thus considers the creditors
opposition to be unreasonable.
In an Order dated August 25, 2003, the court a quo declared that
the motion to dismiss filed by ALLIED was mooted with the issuance of
the Adjudication.
Aggrieved, ALLIED, ASIATRUST and METROBANK filed their separate
notices of appeal.
On November 10, 2003, petitioners filed with the court a quo a
motion for declaration of nullity of the certificate of sale in favor of
ALLIED alleging that the issuance thereof was in violation of the Stay
Order, as well as a motion to direct the Register of Deeds to
annotate the Adjudication on TCT Nos. RT-13620, RT-13621, TCT Nos.
79915 and 79916. Said motions were opposed by ALLIED on the
grounds that the properties foreclosed by it belonged to spouses
Chua and not to petitioners; that the auction sale was conducted on
February 6, 2001, or more than a year prior to the filing of the petition
for rehabilitation; and that the issuance of the Certificate of Sale and
its annotation on the certificates of title are merely incidental to the
foreclosure proceedings; and that the Stay Order does not cover the
issuance of the Certificate of Sale and the registration thereof on the
certificates of title as they do not in any way refer to its enforcement
of a monetary claim against petitioners.
In Separate Orders dated January 9, 2004, the court a quo granted
both motions of petitioners. The court a quo held that while the
foreclosure was conducted prior to the issuance of the Stay Order,
however, the foreclosure does not fully and effectively terminate until
after the issuance of the title in the name of the creditor, such that
until a new title is issued, any action in the interregnum, judicial or not,
is deemed an enforcement of the claim arising from such
foreclosure, which in this case will be in patent violation of the Stay
Order.4ςrνll
On 25 April 2007, the appellate court rendered the assailed Decision,
the dispositive portion of which reads:ςrαlαω
WHEREFORE, the appeals are GRANTED. The ADJUDICATION dated
August 14, 2003 is REVERSED and SET ASIDE, the petition for the
declaration of state of suspension of payments with approval of
proposed rehabilitation plan is DISMISSED and the Stay Order dated
June 17, 2002 is LIFTED.
The twin Orders dated January 9, 2004 declaring the Certificate of
Sale issued in favor of Allied Banking Corporation null and void, with
respect to the properties covered by TCT No. RT-13620 and RT-13621,
and directing the Register of Deeds of Quezon City to cancel the
annotation of the Certificate of Sale on said titles, as well as to
annotate said ADJUDICATION thereon, are likewise REVERSED and
SET ASIDE.
SO ORDERED.5ςrνll
In so concluding, the CA reasoned that the Stay Order did not affect
the claims of Allied Bank and Metrobank, because these claims were
not directed against the properties of petitioners, but against those of
spouses Chua.
The CA also reasoned that when the Stay Order was issued, Allied
Bank and Metrobank were already the owners of the foreclosed
properties, subject only to the right of redemption of Spouses Tony
and Siok Lu Chua (spouses Chua), because the extrajudicial
foreclosure proceedings had taken place prior to the filing of the
Petition for Rehabilitation and the issuance of the Stay Order.
Furthermore, the CA agreed with the contention of respondents that
the Petition was insufficient in form and in substance. Among the
reasons cited by the appellate court was the fact that the inventory
of assets of petitioner corporations included properties that were not
owned by them, but registered in the names of spouses Chua and
already acquired by Allied Bank and Metrobank; and that the
financial statements submitted by petitioner corporations showed
that their total liabilities exceeded their total assets.
Finally, the CA ruled that the Petition for Rehabilitation should be
dismissed, because the rehabilitation plan was approved by the
court more than 180 days from the date of the initial hearing,
contrary to the directive of Section 11, Rule 4 of the Interim Rules on
Corporate Rehabilitation.6ςrνll
Aggrieved by the ruling of the appellate court, petitioners then filed
the instant Rule 45 Petition before this court and prayed for the
issuance of a status quo order.
On 10 December 2007, we resolved to direct the parties to maintain
the status quo as of the date of the issuance of the Stay Order of the
trial court.
On 17 March 2008, petitioners filed a "Manifestation and Motion to
Substitute Metro Bank with Cameron Granville II Asset Management,
Inc.,"7 alleging that since Metrobank had sold, transferred and
conveyed all its rights, title and interest over the loans of petitioners to
Cameron, Metrobank was no longer a real party-in-interest in this
case. Furthermore, petitioners prayed that Metrobank and Cameron
be directed to disclose the transfer price or discounted value of the
sale allegedly because, under Art. 1634 of the Civil Code, they had
the right of redemption of the sold credits by paying only the transfer
price to the transferee.
THE ISSUES
The resolution of this case hinges on the following
issues:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
1. Whether the dismissal of the Petition for Rehabilitation is in order;
2. Whether the Stay Order affects foreclosure proceedings involving
properties mortgaged by stockholders to secure corporate debts;
andcralawlibrary
3. Whether petitioners can redeem the credit transferred by
Metrobank to Cameron by paying only the price paid by the
transferee.
chanrobles virtual law library
THE COURT S RULING
We lift the status quo order and affirm the Decision of the appellate
court.
I liabilities of P6,588,534.99.17 Clearly, the aggregate total liabilities of
The dismissal of the Petition for Rehabilitation is in order
We find no reversible error on the part of the appellate court when it
dismissed the Petition for Rehabilitation.
The Rules provide that "the petition shall be dismissed if no
rehabilitation plan is approved by the court upon the lapse of one
hundred eighty (180) days from the date of the initial hearing."8 While
the Rules expressly provide that the 180-day period may be
extended, such extension may be granted only "if it appears by
convincing and compelling evidence that the debtor may
successfully be rehabilitated."9ςrνll
In this case, the Second Amended Rehabilitation Program was
approved by the trial court beyond the 180-day period counted from
the date of the initial hearing. However, the evidence on record
does not support the lower court s finding that the debtor
corporations may still be successfully rehabilitated.
The trial court s only justification for approving the Second Amended
Rehabilitation Program is that "the creditor banks are fully aware that
the real property on which the building structure of Situs
Development sits is more than sufficient to answer for all the
outstanding obligations of the petitioners."10 It then went on to
conclude that "[t]his fact alone should be enough to afford the
petitioners a sporting chance at business resuscitation."11ςrνll
We do not agree.
It is a fundamental principle in corporate law that a corporation is a
juridical entity with a legal personality separate and distinct from the
people comprising it.12 Hence, the rule is that assets of stockholders
may not be considered as assets of the corporation, and vice-versa.
The mere fact that one is a majority stockholder of a corporation
does not make one s property that of the corporation, since the
stockholder and the corporation are separate entities.13ςrνll
In this case, the parcels of land mortgaged to respondent banks are
owned not by petitioners, but by spouses Chua.14 Applying the
doctrine of separate juridical personality, these properties cannot be
considered as part of the corporate assets. Even if spouses Chua are
the majority stockholders in petitioner corporations, they own these
properties in their individual capacities. Thus, the parcels of land in
question cannot be included in the inventory of assets of petitioner
corporations.
The fact that these properties were mortgaged to secure corporate
debts is of no moment. A mortgage is an accessory undertaking to
secure the fulfillment of a principal obligation.15 In a third-party
mortgage, the mortgaged property stands as security for the loan
obtained by the principal debtor; but until the mortgaged property is
foreclosed, ownership thereof remains with the third-party
mortgagor.
Here, the properties owned by spouses Chua were mortgaged as
security for the debts contracted by petitioner corporations.
However, ownership of these properties remained with the spouses
notwithstanding the fact that these were mortgaged to secure
corporate debts. We have ruled that "when a debtor mortgages his
property, he merely subjects it to a lien but ownership thereof is not
parted with."16 This leads to no other conclusion than that,
notwithstanding the mortgage, the real properties in question belong
to spouses Chua; hence, these properties should not be considered
as assets of petitioner corporations.
Since the real properties in question cannot be considered as
corporate assets, the trial court s pronouncement that petitioners
were susceptible of rehabilitation was bereft of any basis. Based on
the rehabilitation court s narration of facts, Situs Development
Corporation has total assets of P54,176,149.22 with total liabilities of
P74,304,188.01; Daily Supermarket, Inc. has total assets of
P43,986,412.33 with total liabilities of P114,219,462.00; and Color
Lithographic Press, Inc. has total assets of P7,618,006.69 and total
petitioner corporations far exceed their aggregate total assets.
We take this opportunity to point out that rehabilitation contemplates
a continuance of corporate life and activities in an effort to restore
and reinstate the corporation to its former position of successful
operation and solvency.18 However, if the continued existence of the
corporation is no longer viable, rehabilitation can no longer be an
option. The purpose of rehabilitation proceedings is to enable the
company to gain a new lease on life,19 and not to prolong its
inevitable demise.
II
The Stay Order does not suspend the foreclosure of a mortgage
constituted over the property of a third-party mortgagor
Petitioners insist that the Stay Order covers the mortgaged properties,
citing the Interim Rules on Corporate Rehabilitation (the Rules). Under
the Rules, one of the effects of a Stay Order is the stay of the
"enforcement of all claims, whether for money or otherwise and
whether such enforcement is by court action or otherwise, against
the debtor, its guarantors and sureties not solidarily liable with the
debtor."20ςrνll
Based on a reading of the Rules, we rule that the Stay Order cannot
suspend foreclosure proceedings already commenced over
properties belonging to spouses Chua. The Stay Order can only cover
those claims directed against petitioner corporations or their
properties, against
petitioners guarantors, or against petitioners sureties who are not
solidarily liable with them.
Spouses Chua may not be considered as "debtors." The Interim Rules
on Corporate Rehabilitation (the Rules) define the term "debtor" as
follows:ςrαlαω
"Debtor" shall mean any corporation, partnership, or association,
whether supervised or regulated by the Securities and Exchange
Commission or other government agencies, on whose behalf a
petition for rehabilitation has been filed under these Rules.
Likewise, the enforcement of the mortgage lien cannot be
considered as a claim against a guarantor or a surety not solidarily
liable with the debtor corporations. While spouses Chua executed
Continuing Guaranty and Comprehensive Surety undertakings in
favor of Allied Bank, the bank did not proceed against them as
individual guarantors or sureties. Rather, by initiating extrajudicial
foreclosure proceedings, the bank was directly proceeding against
the property mortgaged to them by the spouses as security. The Civil
Code provides that the property upon which a mortgage is imposed
directly and immediately subjected to the fulfillment of the obligation
for whose security the mortgage was constituted.21 As such, a real
estate mortgage is a lien on the property itself, inseparable from the
property upon which it was constituted.
In this case, we find that the undertaking of spouses Chua with
respect to the loans of petitioner corporations is the sale at public
auction of certain real properties belonging to them to satisfy the
indebtedness of petitioner corporations in case of a default by the
latter. This undertaking is properly that of a third-party mortgagor or
an accommodation mortgagor, whereby one mortgages one s
property to stand as security for the indebtedness of another.22ςrνll
In Pacific Wide Realty and Development Corporation v. Puerto Azul
Land, Inc.,23 we ruled that the issuance of a Stay Order cannot
suspend the foreclosure of accommodation mortgages, because
the Stay Order may only cover the suspension of the enforcement of
all claims against the debtor, its guarantors, and sureties not solidarily
liable with the debtor.24 Thus, the suspension of enforcement of
claims does not extend to the foreclosure of accommodation
mortgages.
Moreover, the intent of the Rules is to exclude from the scope of the
Stay Order the foreclosure of properties owned by accommodation
mortgagors. The newly adopted Rules of Procedure on Corporate
Rehabilitation provides for one of the effects of a Stay Order:ςrαlαω
SEC. 7. Stay Order.
(b) staying enforcement of all claims, whether for money or otherwise
and whether such enforcement is by court action or otherwise,
against the debtor, its guarantors and persons not solidarily liable with
the debtor; provided, that the stay order shall not cover claims
against letters of credit and similar security arrangements issued by a
third party to secure the payment of the debtor's obligations;
provided, further, that the stay order shall not cover foreclosure by a
creditor of property not belonging to a debtor under corporate
rehabilitation; provided, however, that where the owner of such
property sought to be foreclosed is also a guarantor or one who is
not solidarily liable, said owner shall be entitled to the benefit of
excussion as such guarantor.25 (Emphasis supplied)cralawlibrary
From the foregoing, we therefore hold that foreclosure proceedings
over the properties in question are not suspended by the trial court s
issuance of the Stay Order.
Furthermore, even assuming that the properties in question fall under
the ambit of the Stay Order, the issuance thereof should not affect
the execution of the Certificate of Sale.
In Rizal Commercial Banking Corporation v. Intermediate Appellate
Court and BF Homes, Inc.,26 the debtor corporation filed a Petition for
Rehabilitation and Declaration of Suspension of Payments before the
Securities and Exchange Commission (SEC). Prior to the SEC s
appointment of a management committee and during the
pendency of the case, the mortgagee-bank foreclosed on the real
estate mortgage over some of the corporation s mortgaged
properties. An auction sale was conducted, and the mortgagee-
bank emerged as the highest bidder. However, because of the
pendency of the rehabilitation case before the SEC, the Sheriff
withheld the delivery of the Certificate of Sale. Ruling on the validity
of the foreclosure proceedings, we held that the conduct of the
foreclosure sale was valid, because it was carried out prior to the
issuance of the SEC s order appointing a management committee.
We held that the appointment of a management committee,
rehabilitation receiver, board or body pursuant to Presidential
Decree No. 902-A is the operative act that suspends all actions or
claims against a distressed corporation.
In the case at bar, the auction sale for the parcels of land covered
by TCT Nos. RT-13620 and RT-13621 and mortgaged to respondent
Allied Bank was conducted on 6 February 2001, while the foreclosure
sale for the parcel of land covered by TCT No. 79916 and mortgaged
to Metrobank was conducted on 18 September 2001. Clearly, the
foreclosure proceedings commenced and the auction sale was
conducted before the issuance of the Stay Order and the
appointment of the Rehabilitation Receiver on 17 June 2002. In fact,
the public auctions took place almost a year before petitioner
corporations filed the Petition for Rehabilitation with the court a quo
on 11 June 2002. Therefore, the execution of the Certificate of Sale
may no longer be suspended by the trial court s issuance of the Stay
Order, even if the questioned properties are assumed to fall under
the ambit of the Stay Order, since the foreclosure proceedings and
the auction sale were conducted prior to the appointment of the
Rehabilitation Receiver.
III
Petitioners cannot redeem the credit transferred by Metrobank to
Cameron by reimbursing the transferee
Petitioners claim that, based on Republic Act (R.A.) No. 9182 or the
Special Purpose Vehicle (SPV) Act of 2002, they have the right of
legal redemption by paying Cameron the transfer price plus the cost
of money up to the time of redemption and the judicial costs in case
of sale or transfer of Non-Performing Loans (NPLs) under
litigation.27ςrνll
Petitioners claim is anchored on Section 13 of the SPV Act, which
provides:ςrαlαω
Sec. 13. Nature of Transfer. All sales or transfers of Non-Performing
Assets to an SPV shall be in the nature of a true sale after proper
notice in accordance with the procedures as provided for in section
12: Provided, That GFIs and GOCCs shall be subject to existing law on
the disposition of assets: Provided, further, That in the transfer of the
NPLs, the provisions on subrogation and assignment of credits under
the New Civil Code shall apply.
In turn, Art. 1634 of the Civil Code on Assignment of Credits and
Other Incorporeal Rights provides:ςrαlαω
Art. 1634. When a credit or other incorporeal right in litigation is sold,
the debtor shall have a right to extinguish it by reimbursing the
assignee for the price the latter paid therefor, the judicial costs
incurred by him, and the interest on the price from the day on which What is involved in this case is more properly a real property acquired
the same was paid. by a financial institution in settlement of a loan (ROPOA). Under the
law, ROPOAs are defined in this manner: "ROPOAs" refers to real and
A credit or other incorporeal right shall be considered in litigation other properties owned or acquired by an financial institution in
from the time the complaint concerning the same is answered. settlement of loans and receivables, including real properties, shares
of stocks, and chattels formerly constituting collaterals for secured
The debtor may exercise his right within thirty days from the date the
loans which have been acquired by way of dation in payment
assignee demands payment from him.
(dacion en pago) or judicial or extra-judicial foreclosure or execution
At the outset, we find that the issue is only belatedly raised in the of judgment.34ςrνll
instant Petition28 and was never threshed out in the proceedings
May the subject property be considered as one acquired by
below. Fundamental considerations of fair play, justice and due
Metrobank pursuant to an extrajudicial foreclosure
process dictate that this Court should not pass upon this
sale?chanroblesvirtualawlibrary
question.29 "Questions raised on appeal must be within the issues
framed by the parties; consequently, issues not raised before the trial The Implementing Rules and Regulations of the SPV Act of 2002
court cannot be raised for the first time on appeal."30ςrνll provide that, in case of extrajudicial foreclosure, a property is
deemed acquired by a financial institution on the date of
As early as 21 December 2005, Metrobank notified petitioners that
notarization of the Sheriff s Certificate.35ςrνll
the credit had been transferred to Cameron. However, petitioners
only raised the issue of their alleged equitable right of redemption in In this case, a Certificate of Sale has not been executed in favor of
their "Manifestation and Motion to Substitute Metro Bank with Metrobank in deference to the Stay Order issued by the rehabilitation
Cameron Granville II Asset Management, Inc." dated 17 March court. However, we reiterate that the rehabilitation court has no
2008.31 They have not even raised this issue in the instant Petition for jurisdiction to suspend foreclosure proceedings over a third-party
Review filed on 26 November 2007. This being so, the argument mortgage. Much less can it restrain the issuance of a Certificate of
should not be considered, having been belatedly raised on appeal. Sale after the subject properties have been sold at public auction
more than a year before the Petition for Rehabilitation was filed. The
Moreover, even if we were to consider the foregoing issue, petitioners
property foreclosed by Metrobank was clearly beyond the ambit of
cannot take refuge in the provisions of the SPV Act of 2004 in
the Stay Order. Consequently, there was no valid ground for the
conjunction with Art. 1634 of the Civil Code.
Sheriff to withhold the issuance and execution of the Certificate of
For the debtor to be entitled to extinguish his credit by reimbursing Sale.
the assignee under Art. 1634, the following requisites must
The parcel of land mortgaged to Metrobank and subsequently
concur:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
transferred to Cameron should be treated as a ROPOA as provided
(a) there must be a credit or other incorporeal right; for by law. Hence, the application of Art. 1634 finds no basis in law.
(b) the credit or other incorporeal right must be in litigation; WHEREFORE, in view of the foregoing, the instant Rule 45 Petition for
Review is DENIED. The assailed Decision and Resolution of the Court
(c) the credit or other incorporeal right must be sold to an assignee of Appeals in CA-G.R. CV No. 80223 are AFFIRMED. The Status Quo
pending litigation; Order issued by this Court on 10 December 2007 is LIFTED.
(d) the assignee must have demanded payment from the debtor; SO ORDERED.
(e) the debtor must reimburse the assignee for the price paid by the
latter, the judicial costs incurred by the latter and the interest on the
price from the day on which the same was paid; andcralawlibrary
(f) the reimbursement must be done within 30 days from the date of
the assignee s demand.
chanrobles virtual law library
In this case, the credit owed by petitioner corporations to Metrobank
had already been extinguished when the bank foreclosed upon the
parcel of land mortgaged to it by the spouses Chua as security for
petitioners debts, in full satisfaction of the loan the bank had
extended. Therefore, during the pendency of these proceedings,
what was transferred by Metrobank to Cameron was ownership over
the foreclosed property, subject only to the right of redemption by
the proper party within one year reckoned from the date of
registration of the Certificate of Sale.
Moreover, the provisions of the Civil Code on subrogation and
assignment of credits are only applicable to NPLs,32 defined in the
SPV Act of 2002 as follows:ςrαlαω
"Non-Performing Loans or NPLs" refers to loans and receivables such
as mortgage loans, unsecured loans, consumption loans, trade
receivables, lease receivables, credit card receivables and all
registered and unregistered security and collateral instruments,
including but not limited to, real estate mortgages, chattel
mortgages, pledges, and antichresis, whose principal and/or interest
have remained unpaid for at least one hundred eighty (180) days
after they have become past due or any of the events of default
under the loan agreement has occurred.33ςrνll
SECOND DIVISION
G.R. No. 194578 February 13, 2013
PHILIP SIGFRID A. FORTUN, Petitioner,
vs.
PRIMA JESUSA B. QUINSAYAS, MA. GEMMA OQUENDO, DENNIS AYON,
NENITA OQUENDO, ESMAEL MANGUDADATU, JOSE PAVIA, MELINDA
QUINTOS DE JESUS, REYNALDO HULOG, REDMOND BATARIO, MALOU
MANGAHAS, DANILO GOZO, GMA NETWORK INC., through its new
editors Raffy Jimenez and Victor Sollorano, SOPHIA DEDACE, ABS-CBN
CORPORATION, through the Head of its News Group, Maria Ressa,
CECILIA VICTORIA OREÑA-DRILON, PHILIPPINE DAILY INQUIRER, INC.
represented by its Editor-in-Chief Letty Jimenez Magsanoc, TETCH
TORRES, PHILIPPINE STAR represented by its Editor-in-Chief Isaac
Belmonte, and EDU PUNAY, Respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for Contempt filed by Atty. Philip Sigfrid A.
Fortun (petitioner) against Atty. Prima Jesusa B. Quinsayas (Atty.
Quinsayas), Ma. Gemma Oquendo (Gemma), Dennis Ayon (Ayon), Nenita
Oquendo (Nenita), Esmael Mangudadatu (Mangudadatu), Jose Pavia
(Pavia), Melinda Quintos De Jesus (De Jesus), Reynaldo Hulog (Hulog),
Redmond Batario (Batario), Malou Mangahas (Mangahas), and Danilo
Gozo (Gozo). Atty. Quinsayas and the other respondents, who are not from
the media, are referred to in this case as Atty. Quinsayas, et al. Petitioner
also named as respondents GMA Network, Inc. (GMA Network) through its
news editors Raffy Jimenez and Victor Sollorano, Sophia Dedace
(Dedace), ABS-CBN Corporation (ABS-CBN) through the Head of its News
Group Maria Ressa (Ressa), Cecilia Victoria Oreña-Drilon (Drilon), Philippine
Daily Inquirer, Inc. (PDI) represented by its Editor-in-Chief Letty Jimenez
Magsanoc, Tetch Torres (Torres), Philippine Star (PhilStar) represented by its
Editor-in-Chief Isaac Belmonte, and Edu Punay (Punay). Respondents Atty.
Quinsayas, et al. and respondent media groups and personalities are
collectively referred to in this case as respondents.
The Antecedent Facts
On 23 November 2009, a convoy of seven vehicles carrying the relatives of
then Maguindanao vice-mayor Esmael "Toto" Mangudadatu, as well as
lawyers and journalists, was on their way to the Commission on Elections
office in Shariff Aguak to file Mangudadatu’s Certificate of
Candidacy1 when they were accosted by a group of about 100 armed
men at a checkpoint in Sitio Malating, Ampatuan town, some four to ten
kilometers from their destination.2The group was taken hostage and
brought to a hilly and sparsely-populated part of Sitio Magating, Barangay
Salman, Ampatuan, Maguindanao.3 The gruesome aftermath of the
hostage-taking was later discovered and shocked the world. The hostages
were systematically killed by shooting them at close range with automatic
weapons, and their bodies and vehicles were dumped in mass graves and
covered with the use of a backhoe.4 These gruesome killings became
known as the Maguindanao Massacre. A total of 57 victims were killed, 30
of them journalists. Subsequently, criminal cases for Murder were filed and
raffled to the Regional Trial Court of Quezon City, Branch 221, and
docketed as Criminal Cases No. Q-09-162148-172, Q-09-162216-31, Q-10-
162652, and Q-10- 163766. Petitioner is the counsel for Datu Andal
Ampatuan, Jr. (Ampatuan, Jr.), the principal accused in the murder cases.
In November 2010, Atty. Quinsayas, et al. filed a disbarment complaint
against petitioner before this Court, docketed as Bar Matter No. A.C. 8827.
The disbarment case is still pending.
Petitioner alleged that on 22 November 2010, GMA News TV internet
website posted an article, written by Dedace, entitled "Mangudadatu,
others seek disbarment of Ampatuan lawyer," a portion of which reads:
On Monday, Maguindanao Governor Esmael "Toto" Mangudadatu and
four others filed a 33 page complaint against lawyer Sigrid Fortun whom
they accused of "engaging in every conceivable chichancery or artifice to
unduly delay the proceedings by using and abusing legal remedies
available."5
On even date, Inquirer.net, the website of PDI, also published an article,
written by Torres, which according to petitioner also stated details of the
disbarment case, as follows:
"Respondent Atty. Fortun had astutely embarked in an untiring quest to
obstruct, impede and degrade the administration of justice by filing
countless causes of action, all in the hope of burying the principal issue of
his client’s participation or guilt in the murder of 57 people that ill-fated day
of November 23, 2009," the petitioners said.6
Petitioner further alleged that on 23 November 2010, PhilStar published an
article, written by Punay, which gave details of the disbarment allegations,
thus:
"Attorney Fortun used and abused legal remedies available and allowed
under under the rules, muddled the issues and diverted the attention away
from the main subject matter of the cases, read the complaint.
***** ***** *****
"Respondent Attorney Fortun’s act of misleading the prosecution and trial
court is a dishonest/deceitful conduct violative of Code of Professional
Responsibility," read the complaint.
"In so doing, he diminished the public confidence in the law and the legal
profession, rendering him unfit to be called a member of the Bar."7
Further, petitioner alleged that on 23 November 2010, Channel 23 aired on
national television a program entitled "ANC Presents: Crying for Justice: the
Maguindanao Massacre." Drilon, the program’s host, asked questions and
allowed Atty. Quinsayas to discuss the disbarment case against petitioner,
including its principal points. Petitioner was allegedly singled out and
identified in the program as the lead counsel of the Ampatuan family.
Petitioner alleged that Atty. Quinsayas, et al. actively disseminated the
details of the disbarment complaint against him in violation of Rule 139-B of
the Rules of Court on the confidential nature of disbarment proceedings.
Petitioner further alleged that respondent media groups and personalities
conspired with Atty. Quinsayas, et al. by publishing the confidential
materials on their respective media platforms. Petitioner pointed out that
Drilon discussed the disbarment complaint with Atty. Quinsayas in a
television program viewed nationwide
Petitioner alleged that the public circulation of the disbarment complaint
against him exposed this Court and its investigators to outside influence
and public interference. Petitioner alleged that opinion writers wrote about
and commented on the disbarment complaint which opened his
professional and personal reputation to attack. He alleged that the
purpose of respondents in publishing the disbarment complaint was to
malign his personal and professional reputation, considering the following:
(1) the bases of the charges were not new but were based on incidents
that supposedly took place in January 2010; (2) it was timed to coincide
with the anniversary of the Maguindanao Massacre to fuel hatred,
contempt and scorn for Ampatuan, Jr. and his counsel and violated the
accused’s right to presumption of innocence and due process; (3) it was
published following articles written about petitioner’s advocacy for the
rights of an accused and negated the impact of these articles on the
public; and (4) respondents knew that the charges were baseless as
petitioner always opted for speedy trial and protection of the accused’s
rights at trial. Petitioner further alleged that in announcing their "causes of
action" in the disbarment case, respondents were only seeking the
approval and sympathy of the public against him and Ampatuan, Jr.
In its Comment, GMA Network alleged that it has no newspaper or any
publication where it could have printed the article. It alleged that it did not
broadcast the disbarment complaint on its television station. GMA Network
alleged that the publication had already been done and completed
when Atty. Quinsayas distributed copies of the disbarment complaint and
thus, the members of the media who reported the news and the media
groups that published it on their website, including GMA Network, did not
violate the confidentiality rule. GMA Network further alleged that Dedace,
a field reporter for the judiciary, acted in good faith and without malice
when she forwarded the news to the news desk. GMA News also acted in
good faith in posting the news on its website. GMA Network denied that it
conspired with the other respondents in publishing the news. GMA Network
alleged that it posted the disbarment complaint, without any unfair,
critical, and untruthful comment, and only after it was "published" by Atty.
Quinsayas, et al. who furnished copies of the disbarment complaint to the
media reporters. GMA Network alleged that it had no intention to malign
petitioner’s personal and professional reputation in posting the news about
the disbarment complaint on its website.
In her Comment, Dedace clarified that she is a field news reporter of GMA
Network and not a writer of the GMA News TV website. Her beat includes
the Supreme Court, the Court of Appeals, and the Department of Justice.
Dedace alleged that on 22 November 2010, she received an advice from
fellow field reporter Mark Merueñas that the lawyer of Mangudadatu
would be filing a disbarment case against petitioner. She waited at the
Supreme Court. At around 5:00 p.m., Atty. Quinsayas arrived. Atty.
Quinsayas gave copies of the petition to news reporters and Dedace
received one. Dedace prepared and sent her news story to GMA Network
where it went to the editor. Dedace alleged that she did not breach the
rule on confidentiality of disbarment proceedings against lawyers when
she reported the filing of the disbarment complaint against petitioner. She
alleged that she acted in good faith and without malice in forwarding her
news story to the news desk and that she had no intention to, and could
not, influence or interfere in the proceedings of the disbarment case. She
further alleged that she honestly believed that the filing of the disbarment
complaint against petitioner was newsworthy and should be reported as
news.
PDI alleged in its Comment that it shares content with the Inquirer.net
website through a syndication but the latter has its own editors and publish
materials that are not found on the broadsheet. It alleged that Philippine
Daily Inquirer, Inc. and Inquirer Interactive, Inc. are two different
corporations, with separate legal personalities, and one may not be held
responsible for the acts of the other.
Torres8 alleged in her Comment that on 17 November 2010, a private
prosecutor told her and several other reporters that a disbarment case
would be filed against petitioner. The disbarment case was actually filed
on 22 November 2010 when Torres received a copy of the complaint. Since
the lead of the story came from a lawyer, Torres did not consider that
writing a story about the filing of the disbarment complaint might amount
to contempt of court. Torres alleged that the writing of the story was an
independent act and she did not conspire with any of the other
respondents. Torres maintained that she acted in good faith in writing the
news report because the Maguindanao Massacre was a matter of public
concern and the allegations in the disbarment complaint were in
connection with petitioner’s handling of the case. Torres further asserted
that petitioner is a public figure and the public has a legitimate interest in
his doings, affairs and character.
In her Comment, Ressa alleged that she was the former head of ABS-CBN’s
News and Current Affairs Group and the former Managing Director of
ANC. However, she was on terminal leave beginning 30 October 2010 in
advance to the expiration of her contract on 3 January 2011. Ressa
alleged that she had no participation in the production and showing of the
broadcast on 23 November 2010. Ressa adopts the answer of her co-
respondents ABS-CBN and Drilon insofar as it was applicable to her case.
ABS-CBN and Drilon filed a joint Comment. ABS-CBN alleged that ABS-CBN
News Channel, commonly known as ANC, is maintained and operated by
Sarimanok Network News (SNN) and not by ABS-CBN. SNN, which
produced the program "ANC Presents: Crying for Justice: the
Maguindanao Massacre," is a subsidiary of ABS-CBN but it has its own
juridical personality although SNN and ABS-CBN have interlocking directors.
ABS-CBN and Drilon alleged that the presentation and hosting of the
program were not malicious as there was no criminal intent to violate the
confidentiality rule in disbarment proceedings. They alleged that the
program was a commemoration of the Maguindanao Massacre and was
not a report solely on the disbarment complaint against petitioner which
took only a few minutes of the one-hour program. They alleged that the
program was not a publication intended to embarrass petitioner who was
not even identified as the respondent in the disbarment complaint. Drilon
even cautioned against the revelation of petitioner’s name in the
program. ABS-CBN and Drilon further alleged that prior to the broadcast of
the program on 23 November 2010, the filing of the disbarment complaint
against petitioner was already the subject of widespread news and
already of public knowledge. They denied petitioner’s allegation that they
conspired with the other respondents in violating the confidentiality rule in
disbarment proceedings. Finally, they alleged that the contempt charge
violates their right to equal protection because there were other reports
and publications of the disbarment complaint but the publishers were not
included in the charge. They also assailed the penalty of imprisonment
prayed for by petitioner as too harsh.
In their joint Comment, respondents Mangudadatu, Ayon, Nenita, and
Gemma alleged that petitioner failed to prove that they actively
participated in disseminating details of the disbarment complaint against
him. They alleged that while they were the ones who filed the disbarment
complaint against petitioner, it does not follow that they were also the
ones who caused the publication of the complaint. They alleged that
petitioner did not provide the name of any particular person, dates, days
or places to show the alleged confederation in the dissemination of the
disbarment complaint.
Respondents De Jesus, Hulog, Batario, and Mangahas, in their capacity as
members of the Board of Trustees of the Freedom Fund for Filipino
Journalists, Inc. (FFFJ) and Atty. Quinsayas, former counsel for FFFJ, also filed
a joint Comment claiming that the alleged posting and publication of the
articles were not established as a fact. Respondents alleged that petitioner
did not submit certified true copies of the articles and he only offered to
submit a digital video disk (DVD) copy of the televised program where
Atty. Quinsayas was allegedly interviewed by Drilon. Respondents alleged
that, assuming the articles were published, petitioner failed to support his
allegations that they actively disseminated the details of the disbarment
complaint.
In their joint Comment, PhilStar and Punay alleged that on 22 November
2010, Atty. Quinsayas, et al. went to this Court to file the disbarment
complaint but they were not able to file it on that day.9 Atty. Quinsayas, et
al. were able to file the disbarment complaint the following day, or on 23
November 2010. PhilStar and Punay alleged that their news article, which
was about the plan to file a disbarment complaint against petitioner, was
published on 23 November 2010. It came out before the disbarment
complaint was actually filed. They alleged that the news article on the
disbarment complaint is a qualified privileged communication. They
alleged that the article was a true, fair, and accurate report on the
disbarment complaint. The article was straightforward, truthful, and
accurate, without any comments from the author. They alleged that Punay
reported the plan of Mangudadatu, et al. to file the disbarment complaint
against petitioner as it involved public interest and he perceived it to be a
newsworthy subject. They further alleged that assuming the news article is
not a privileged communication, it is covered by the protection of the
freedom of expression, speech, and of the press under the Constitution.
They also alleged that the case is a criminal contempt proceeding and
intent to commit contempt of court must be shown by proof beyond
reasonable doubt. They further alleged that they did not commit any
contemptible act. They maintained that the news article did not impede,
interfere with, or embarrass the administration of justice. They further
claimed that it is improbable, if not impossible, for the article to influence
the outcome of the case or sway this Court in making its decision. The
article also did not violate petitioner’s right to privacy because petitioner is
a public figure and the public has a legitimate interest in his doings, affairs,
and character.
Pavia died during the pendency of this case10 and was no longer included
in the Comment filed for the FFFJ Trustees. Gozo resigned as member of the
FFFJ Trustees and was no longer represented by the FFFJ counsel in filing its
comment.11 Gozo did not file a separate comment.
The Issue
The only issue in this case is whether respondents violated the
confidentiality rule in disbarment proceedings, warranting a finding of guilt
for indirect contempt of court.
The Ruling of this Court
First, the contempt charge filed by petitioner is in the nature of a criminal
contempt. In People v. Godoy,12 this Court made a distinction between
criminal and civil contempt. The Court declared:
A criminal contempt is conduct that is directed against the dignity and
authority of the court or a judge acting judicially; it is an act obstructing the
administration of justice which tends to bring the court into disrepute or
disrespect. On the other hand, civil contempt consists in failing to do
something ordered to be done by a court in a civil action for the benefit of
the opposing party therein and is, therefore, an offense against the party in
whose behalf the violated order is made.
A criminal contempt, being directed against the dignity and authority of
the court, is an offense against organized society and, in addition, is also
held to be an offense against public justice which raises an issue between
the public and the accused, and the proceedings to punish it are punitive.
On the other hand, the proceedings to punish a civil contempt are
remedial and for the purpose of the preservation of the right of private
persons. It has been held that civil contempt is neither a felony nor a
misdemeanor, but a power of the court.
It has further been stated that intent is a necessary element in criminal
contempt, and that no one can be punished for a criminal contempt
unless the evidence makes it clear that he intended to commit it. On the
contrary, there is authority indicating that since the purpose of civil
contempt proceedings is remedial, the defendant’s intent in committing
the contempt is immaterial. Hence, good faith or the absence of intent to
violate the court’s order is not a defense in civil contempt.13
The records of this case showed that the filing of the disbarment complaint
against petitioner had been published and was the subject of a televised
broadcast by respondent media groups and personalities.
We shall discuss the defenses and arguments raised by respondents.
GMA Network, Inc.
GMA Network’s defense is that it has no newspaper or any publication
where the article could be printed; it did not broadcast the disbarment
complaint in its television station; and that the publication was already
completed when Atty. Quinsayas distributed copies of the disbarment
complaint to the media.
GMA Network did not deny that it posted the details of the disbarment
complaint on its website. It merely said that it has no publication where the
article could be printed and that the news was not televised. Online
posting, however, is already publication considering that it was done on
GMA Network’s online news website.
Philippine Daily Inquirer, Inc.
PDI averred that it only shares its contents with Inquirer.net through a
syndication. PDI attached a photocopy of the syndication page stating
that "[d]ue to syndication agreements between PDI and Inquirer.net, some
articles published in PDI may not appear in Inquirer.net." 14
A visit to the website describes Inquirer.net as "the official news website of
the Philippine Daily Inquirer, the Philippines’ most widely circulated
broadsheet, and a member of the Inquirer Group of Companies."15 PDI was
not able to fully establish that it has a separate personality from
Inquirer.net.
ABS-CBN Corporation
ABS-CBN alleged that SNN is its subsidiary and although they have
interlocking directors, SNN has its own juridical personality separate from its
parent company. ABS-CBN alleged that SNN controls the line-up of shows
of ANC.
We agree with ABS-CBN on this issue. We have ruled that a subsidiary has
an independent and separate juridical personality distinct from that of its
parent company and that any suit against the the latter does not bind the
former and vice-versa.16 A corporation is an artificial being invested by law
with a personality separate and distinct from that of other corporations to
which it may be connected.17 Hence, SNN, not ABS-CBN, should have
been made respondent in this case.
Maria Ressa
Respondent Ressa alleged that she was on terminal leave when the
program about the Maguindanao Massacre was aired on ANC and that
she had no hand in its production. Ressa’s defense was supported by a
certification from the Human Resource Account Head of ABS-CBN, stating
that Ressa went on terminal leave beginning 30 October 2010.18 This was
not disputed by petitioner.
Sophia Dedace, Tetch Torres, Cecilia Victoria Oreña-Drilon,
and Edu Punay
Basically, the defense of respondents Dedace, Torres, Drilon, and Punay
was that the disbarment complaint was published without any comment,
in good faith and without malice; that petitioner is a public figure; that the
Maguindanao Massacre is a matter of public interest; and that there was
no conspiracy on their part in publishing the disbarment complaint. They
also argued that the news reports were part of privileged communication.
In Drilon’s case, she further alleged that the television program was a
commemoration of the Maguindanao Massacre and not solely about the
filing of the disbarment case against petitioner. Even as the disbarment
complaint was briefly discussed in her program, petitioner’s name was not
mentioned at all in the program.
Violation of Confidentiality Rule by Respondent Media Groups and
Personalities
Section 18, Rule 139-B of the Rules of Court provides:
Section 18. Confidentiality. - Proceedings against attorneys shall be private
and confidential. However, the final order of the Supreme Court shall be
published like its decisions in other cases.
The Court explained the purpose of the rule, as follows:
x x x. The purpose of the rule is not only to enable this Court to make its
investigations free from any extraneous influence or interference, but also
to protect the personal and professional reputation of attorneys and
judges from the baseless charges of disgruntled, vindictive, and
irresponsible clients and litigants; it is also to deter the press from publishing
administrative cases or portions thereto without authority. We have ruled
that malicious and unauthorized publication or verbatim reproduction of
administrative complaints against lawyers in newspapers by editors and/or
reporters may be actionable. Such premature publication constitutes a
contempt of court, punishable by either a fine or imprisonment or both at
the discretion of the Court. x x x19
In People v. Castelo,20 the Court ruled that contempt is akin to libel and
that the principle of privileged communication may be invoked in a
contempt proceeding. The Court ruled:
While the present case involves an incident of contempt the same is akin
to a case of libel for both constitute limitations upon freedom of the press
or freedom of expression guaranteed by our Constitution. So what is
considered a privilege in one may likewise be considered in the other. The
same safeguard should be extended to one whether anchored in freedom
of the press or freedom of expression. Therefore, this principle regarding
privileged communications can also be invoked in favor of appellant.21
The Court recognizes that "publications which are privileged for reasons of
public policy are protected by the constitutional guaranty of freedom of
speech."22 As a general rule, disbarment proceedings are confidential in
nature until their final resolution and the final decision of this Court. In this
case, however, the filing of a disbarment complaint against petitioner is
itself a matter of public concern considering that it arose from the
Maguindanao Massacre case. The interest of the public is not on petitioner
himself but primarily on his involvement and participation as defense
counsel in the Maguindanao Massacre case. Indeed, the allegations in the
disbarment complaint relate to petitioners supposed actions involving the
Maguindanao Massacre case.
The Maguindanao Massacre is a very high-profile case. Of the 57 victims of
the massacre, 30 were journalists. It is understandable that any matter
related to the Maguindanao Massacre is considered a matter of public
interest and that the personalities involved, including petitioner, are
considered as public figure. The Court explained it, thus:
But even assuming a person would not qualify as a public figure, it would
not necessarily follow that he could not validly be the subject of a public
comment. For he could; for instance, if and when he would be involved in
a public issue. If a matter is a subject of public or general interest, it cannot
suddenly become less so merely because a private individual is involved or
because in some sense the individual did not voluntarily choose to
become involved. The public’s primary interest is in the event; the public
focus is on the conduct of the participant and the content, effect and
significance of the conduct, not the participant’s prior anonymity or
notoriety.23(Boldface in the original)
Since the disbarment complaint is a matter of public interest, legitimate
media had a right to publish such fact under freedom of the press. The
Court also recognizes that respondent media groups and personalities
merely acted on a news lead they received when they reported the filing
of the disbarment complaint.
The distribution by Atty. Quinsayas to the media of the disbarment
complaint, by itself, is not sufficient to absolve the media from responsibility
for violating the confidentiality rule. However, since petitioner is a public
figure or has become a public figure because he is representing a matter
of public concern, and because the event itself that led to the filing of the
disbarment case against petitioner is a matter of public concern, the
media has the right to report the filing of the disbarment case as legitimate
news. It would have been different if the disbarment case against
petitioner was about a private matter as the media would then be bound
to respect the confidentiality provision of disbarment proceedings under
Section 18, Rule 139-B of the Rules of Court.
Section 18, Rule 139-B of the Rules of Court is not a restriction on the Indirect contempt against a Regional Trial Court or a court of equivalent or
freedom of the press.1âwphi1 If there is a legitimate public interest, media higher rank is punishable by a fine not exceeding P30,000 or imprisonment
is not prohibited from making a fair, true, and accurate news report of a not exceeding six months or both.30 Atty. Quinsayas acted wrongly in
disbarment complaint. In the absence of a legitimate public interest in a setting aside the confidentiality rule which every lawyer and member of
disbarment complaint, members of the media must preserve the the legal profession should know. Hence, we deem it proper to impose on
confidentiality of disbarment proceedings during its pendency. Disciplinary her a fine of Twenty Thousand Pesos (P20,000).
proceedings against lawyers must still remain private and confidential until
their final determination.24 Only the final order of this Court shall be WHEREFORE, we find Atty. Prima Jesusa B. Quinsayas GUILTY of indirect
contempt for distributing copies of the disbarment complaint against Atty.
published like its decisions in other cases.25
Philip Sigfrid A. Fortun to members of the media and we order her to pay a
Petitioner also failed to substantiate his claim that respondent media FINE of Twenty Thousand Pesos (P20,000).
groups and personalities acted in bad faith and that they conspired with
one another in their postings and publications of the filing of a disbarment SO ORDERED.
complaint against him. Respondent media groups and personalities
reported the filing of the disbarment complaint without any comments or
remarks but merely as it was – a news item. Petitioner failed to prove that
respondent media groups and personalities acted with malicious intent.
Respondent media groups and personalities made a fair and true news
report and appeared to have acted in good faith in publishing and
posting the details of the disbarment complaint. In the televised broadcast
of the commemoration of the Maguindanao Massacre over ANC, the
disbarment case was briefly discussed but petitioner was not named. There
was also no proof that respondent media groups and personalities posted
and published the news to influence this Court on its action on the
disbarment case or to deliberately destroy petitioner’s reputation. It should
also be remembered that the filing of the disbarment case against
petitioner entered the public domain without any act on the part of the
media. As we will discuss later, the members of the media were given
copies of the disbarment complaint by one of the complainants.
Esmael Mangudadatu, Dennis Ayon, Nenita and Ma. Gemma Oquendo
Respondents, while admitting that they were some of the complainants in
the disbarment complaint against petitioner, alleged that there was no
proof that they were the ones who disseminated the disbarment
complaint. Indeed, petitioner failed to substantiate his allegation that
Mangudadatu, Ayon, Nenita, and Gemma were the ones who caused the
publication of the disbarment complaint against him. There was nothing in
the records that would show that Mangudadatu, Ayon, Nenita, and
Gemma distributed or had a hand in the distribution of the disbarment
complaint against petitioner.
Melinda Quintos De Jesus, Reynaldo Hulog, Redmond Batario, Malou
Mangahas, and Atty. Prima Jesusa B. Quinsayas
Respondents De Jesus, Hulog, Batario, Mangahas, and Atty. Quinsayas
alleged that petitioner was not able to establish the posting and
publication of the articles about the disbarment complaint, and that
assuming the posting and publication had been established, petitioner
failed to support his allegation that they actively disseminated the details
of the disbarment complaint. They further alleged that they did not cause
the publication of the news articles and thus, they did not violate the rule
on privacy and confidentiality of disbarment proceedings.
Indeed, petitioner failed to prove that, except for Atty. Quinsayas, the
other respondents, namely De Jesus, Hulog, Batario, Mangahas, and even
Gozo, who did not file his separate comment, had a hand in the
dissemination and publication of the disbarment complaint against him. It
would appear that only Atty. Quinsayas was responsible for the distribution
of copies of the disbarment complaint. In its Comment, GMA Network
stated that the publication "had already been done and completed when
copies of the complaint for disbarment were distributed by one of the
disbarment complainants, Atty. Prima Quinsayas x x x."26 Dedace also
stated in her Comment that "Atty. Quinsayas gave copies of the
disbarment complaint against Atty. Fortun and she received one."27
Atty. Quinsayas is bound by Section 18, Rule 139-B of the Rules of Court
both as a complainant in the disbarment case against petitioner and as a
lawyer. As a lawyer and an officer of the Court, Atty. Quinsayas is familiar
with the confidential nature of disbarment proceedings. However, instead
of preserving its confidentiality, Atty. Quinsayas disseminated copies of the
disbarment complaint against petitioner to members of the media which
act constitutes contempt of court. In Relativo v. De Leon, 28 the Court ruled
that the premature disclosure by publication of the filing and pendency of
disbarment proceedings is a violation of the confidentiality rule.29 In that
case, Atty. Relativo, the complainant in a disbarment case, caused the
publication in newspapers of statements regarding the filing and
pendency of the disbarment proceedings. The Court found him guilty of
contempt.
THIRD DIVISION
[G.R. No. 166282, February 13, 2013]
HEIRS OF FE TAN UY (REPRESENTED BY HER HEIR, MANLING UY
LIM), Petitioners, v.INTERNATIONAL EXCHANGE BANK, RESPONDENT.
[G.R. NO. 166283]
GOLDKEY DEVELOPMENT CORPORATION, PETITIONER. VS.
INTERNATIONAL EXCHANGE BANK,Respondents.
DECISION
MENDOZA, J.:
Before the Court are two consolidated petitions for review on
certiorari under Rule 45 of the l997 Revised Rules of Civil Procedure,
assailing the August 16, 2004 Decision 1 and the December 2, 2004
Resolution2of the Court of Appeals (CA) in CA-G.R. CV No. 69817
entitled “International Exchange Bank v. Hammer Garments Corp., et
al.”
The Facts
On several occasions, from June 23, 1997 to September 3, 1997,
respondent International Exchange Bank (iBank), granted loans to
Hammer Garments Corporation (Hammer), covered by promissory
notes and deeds of assignment, in the following amounts:3
Date of Promissory Note Amount
June 23, 1997 P 5,599,471.33
July 24, 1997 2,700,000.00
July 25, 1997 2,300,000.00
August 1, 1997 2,938,505.04
August 1, 1997 3,361,494.96
August 14, 1997 980,000.00
August 21, 1997 2,527,200.00
August 21, 1997 3,146,715.00
September 3, 1997 1,385,511.75
Total P24,938,898.08
These were made pursuant to the Letter-Agreement,4 dated March
23,
1996, between iBank and Hammer, represented by its President and
General Manager, Manuel Chua (Chua) a.k.a. Manuel Chua Uy Po
Tiong, granting Hammer a P 25 Million-Peso Omnibus Line.5 The loans
were secured by a P 9 Million-Peso Real Estate Mortgage6 executed
on July 1, 1997 by Goldkey Development Corporation (Goldkey) over
several of its properties and a P 25 Million-Peso Surety
Agreement7 signed by Chua and his wife, Fe Tan Uy (Uy), on April 15,
1996.
As of October 28, 1997, Hammer had an outstanding obligation of
P25,420,177.62 to iBank.8 Hammer defaulted in the payment of its
loans, prompting iBank to foreclose on Goldkey’s third-party Real
Estate Mortgage. The mortgaged properties were sold for P 12 million
during the foreclosure sale, leaving an unpaid balance of P
13,420,177.62.9 For failure of Hammer to pay the deficiency, iBank
filed a Complaint10 for sum of money on December 16, 1997 against
Hammer, Chua, Uy, and Goldkey before the Regional Trial Court,
Makati City (RTC).11
Despite service of summons, Chua and Hammer did not file their
respective answers and were declared in default. In her separate
answer, Uy claimed that she was not liable to iBank because she
never executed a surety agreement in favor of iBank. Goldkey, on
the other hand, also denies liability, averring that it acted only as a
third-party mortgagor and that it was a corporation separate and
distinct from Hammer.12
Meanwhile, iBank applied for the issuance of a writ of preliminary
attachment which was granted by the RTC in its December 17, 1997
Order.13
The Notice of Levy on Attachment of Real Properties, dated July 15,
1998, covering the properties under the name of Goldkey, was sent
by the sheriff to the Registry of Deeds of Quezon City.14
The RTC, in its Decision,15 dated December 27, 2000, ruled in favor of
iBank. While it made the pronouncement that the signature of Uy on
the Surety Agreement was a forgery, it nevertheless held her liable for
the outstanding obligation of Hammer because she was an officer
and stockholder of the said corporation. The RTC agreed with
Goldkey that as a third-party mortgagor, its liability was limited to the
properties mortgaged. It came to the conclusion, however, that
Goldkey and Hammer were one and the same entity for the
following reasons: (1) both were family corporations of Chua and Uy,
with Chua as the President and Chief Operating Officer; (2) both
corporations shared the same office and transacted business from
the same place, (3) the assets of Hammer and Goldkey were co-
mingled; and (4) when Chua absconded, both Hammer and
Goldkey ceased to operate. As such, the piercing of the veil of
corporate fiction was warranted. Uy, as an officer and stockholder of
Hammer and Goldkey, was found liable to iBank together with Chua,
Hammer and Goldkey for the deficiency of P13,420,177.62.
Aggrieved, the heirs of Uy and Goldkey (petitioners) elevated the
case to the CA. On August 16, 2004, it promulgated its decision
affirming the findings of the RTC. The CA found that iBank was not
negligent in evaluating the financial stability of Hammer. According
to the appellate court, iBank was induced to grant the loan because
petitioners, with intent to defraud the bank, submitted a falsified
Financial Report for 1996 which incorrectly declared the assets and
cashflow of Hammer.16 Because petitioners acted maliciously and in
bad faith and used the corporate fiction to defraud iBank, they
should be treated as one and the same as Hammer.17
Hence, these petitions filed separately by the heirs of Uy and
Goldkey. On February 9, 2005, this Court ordered the consolidation of
the two cases.18
The Issues
Petitioners raise the following issues:
Whether or not a trial court, under the facts of this case, can go out of
the issues raised by the pleadings;19
Whether or not there is guilt by association in those cases where the
veil of corporate fiction may be pierced;20 and
Whether or not the “alter ego” theory in disregarding the corporate
personality of a corporation is applicable to Goldkey.21
Simplifying the issues in this case, the Court must resolve the following:
(1) whether Uy can be held liable to iBank for the loan obligation of
Hammer as an officer and stockholder of the said corporation; and
(2) whether Goldkey can be held liable for the obligation of Hammer
for being a mere alter ego of the latter.
The Court’s Ruling
The petitions are partly meritorious.
Uy is not liable; The piercing of the
veil of corporate fiction is not justified
The heirs of Uy argue that the latter could not be held liable for being
merely an officer of Hammer and Goldkey because it was not shown
that she had committed any actionable wrong22 or that she had
participated in the transaction between Hammer and iBank. They
further claim that she had cut all ties with Hammer and her husband
long before the execution of the loan.23
The Court finds in favor of Uy.
Basic is the rule in corporation law that a corporation is a juridical
entity which is vested with a legal personality separate and distinct
from those acting for and in its behalf and, in general, from the
people comprising it. Following this principle, obligations incurred by
the corporation, acting through its directors, officers and employees,
are its sole liabilities. A director, officer or employee of a corporation
is generally not held personally liable for obligations incurred by the
corporation.24 Nevertheless, this legal fiction may be disregarded if it
is used as a means to perpetrate fraud or an illegal act, or as a
vehicle for the evasion of an existing obligation, the circumvention of
statutes, or to confuse legitimate issues.25
This is consistent with the provisions of the Corporation Code of the
Philippines, which states:
Sec. 31. Liability of directors, trustees or officers. – Directors or trustees
who wilfully and knowingly vote for or assent to patently unlawful
acts of the corporation or who are guilty of gross negligence or bad
faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such
directors or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.
Solidary liability will then attach to the directors, officers or employees
of the corporation in certain circumstances, such as:
1. When directors and trustees or, in appropriate cases, the officers of
a corporation: (a) vote for or assent to patently unlawful acts of the
corporation; (b) act in bad faith or with gross negligence in directing
the corporate affairs; and (c) are guilty of conflict of interest to the
prejudice of the corporation, its stockholders or members, and other
persons;
2. When a director or officer has consented to the issuance of
watered stocks or who, having knowledge thereof, did not forthwith
file with the corporate secretary his written objection thereto;
3. When a director, trustee or officer has contractually agreed or
stipulated to hold himself personally and solidarily liable with the
corporation; or
4. When a director, trustee or officer is made, by specific provision of
law, personally liable for his corporate action.26
Before a director or officer of a corporation can be held personally
liable for corporate obligations, however, the following requisites
must concur: (1) the complainant must allege in the complaint that
the director or officer assented to patently unlawful acts of the
corporation, or that the officer was guilty of gross negligence or bad
faith; and (2) the complainant must clearly and convincingly prove
such unlawful acts, negligence or bad faith.27
While it is true that the determination of the existence of any of the
circumstances that would warrant the piercing of the veil of
corporate fiction is a question of fact which cannot be the subject of
a petition for review on certiorari under Rule 45, this Court can take
cognizance of factual issues if the findings of the lower court are not
supported by the evidence on record or are based on a
misapprehension of facts.28
In this case, petitioners are correct to argue that it was not alleged,
much less proven, that Uy committed an act as an officer of Hammer
that would permit the piercing of the corporate veil. A reading of the
complaint reveals that with regard to Uy, iBank did not demand that
she be held liable for the obligations of Hammer because she was a
corporate officer who committed bad faith or gross negligence in
the performance of her duties such that the lifting of the corporate
mask would be merited. What the complaint simply stated is that she,
together with her errant husband Chua, acted as surety of Hammer,
as evidenced by her signature on the Surety Agreement which was
later found by the RTC to have been forged.29
Considering that the only basis for holding Uy liable for the payment
of the loan was proven to be a falsified document, there was no
sufficient justification for the RTC to have ruled that Uy should be held
jointly and severally liable to iBank for the unpaid loan of Hammer.
Neither did the CA explain its affirmation of the RTC’s ruling against
Uy. The Court cannot give credence to the simplistic declaration of
the RTC that liability would attach directly to Uy for the sole reason
that she was an officer and stockholder of Hammer.
At most, Uy could have been charged with negligence in the
performance of her duties as treasurer of Hammer by allowing the
company to contract a loan despite its precarious financial position.
Furthermore, if it was true, as petitioners claim, that she no longer
performed the functions of a treasurer, then she should have formally
resigned as treasurer to isolate herself from any liability that could
result from her being an officer of the corporation. Nonetheless, these
shortcomings of Uy are not sufficient to justify the piercing of the
corporate veil which requires that the negligence of the officer must
be so gross that it could amount to bad faith and must be
established by clear and convincing evidence. Gross negligence is
one that is characterized by the lack of the slightest care, acting or
failing to act in a situation where there is a duty to act, wilfully and
intentionally with a conscious indifference to the consequences
insofar as other persons may be affected.30
It behooves this Court to emphasize that the piercing of the veil of
corporate fiction is frowned upon and can only be done if it has
been clearly established that the separate and distinct personality of
the corporation is used to justify a wrong, protect fraud, or perpetrate
a deception.31 As aptly explained in Philippine National Bank v.
Andrada Electric & Engineering Company:32
Hence, any application of the doctrine of piercing the corporate veil
should be done with caution. A court should be mindful of the milieu
where it is to be applied. It must be certain that the corporate fiction
was misused to such an extent that injustice, fraud, or crime was
committed against another, in disregard of its rights. The wrongdoing
must be clearly and convincingly established; it cannot be
presumed. Otherwise, an injustice that was never unintended may
result from an erroneous application.33
Indeed, there is no showing that Uy committed gross negligence.
And in the absence of any of the aforementioned requisites for
making a corporate officer, director or stockholder personally liable
for the obligations of a corporation, Uy, as a treasurer and
stockholder of Hammer, cannot be made to answer for the unpaid
debts of the corporation.
Goldkey is a mere alter ego of Hammer
Goldkey contends that it cannot be held responsible for the
obligations of its stockholder, Chua.34Moreover, it theorizes that iBank
is estopped from expanding Goldkey’s liability beyond the real
estate mortgage.35 It adds that it did not authorize the execution of
the said mortgage.36 Finally, it passes the blame on to iBank for failing
to exercise the requisite due diligence in properly evaluating
Hammer’s creditworthiness before it was extended an omnibus line.37
The Court disagrees with Goldkey.
There is no reason to discount the findings of the CA that iBank duly
inspected the viability of Hammer and satisfied itself that the latter
was a good credit risk based on the Financial Statement submitted.
In addition, iBank required that the loan be secured by Goldkey’s
Real Estate Mortgage and the Surety Agreement with Chua and Uy.
The records support the factual conclusions made by the RTC and
the CA.
To the Court’s mind, Goldkey’s argument, that iBank is barred from
pursuing Goldkey for the satisfaction of the unpaid obligation of
Hammer because it had already limited its liability to the real estate
mortgage, is completely absurd. Goldkey needs to be reminded that
it is being sued not as a consequence of the real estate mortgage,
but rather, because it acted as an alter ego of Hammer.
Accordingly, they must be treated as one and the same entity,
making Goldkey accountable for the debts of Hammer.
In fact, it is Goldkey who is now precluded from denying the validity
of the Real Estate Mortgage. In its Answer with Affirmative Defenses
and Compulsory Counterclaim, dated January 5, 1998, it already
admitted that it acted as a third-party mortgagor to secure the
obligation of Hammer to iBank.38 Thus, it cannot, at this late stage,
question the due execution of the third-party mortgage.
Similarly, Goldkey is undoubtedly mistaken in claiming that iBank is
seeking to enforce an obligation of Chua. The records clearly show
that it was Hammer, of which Chua was the president and a
stockholder, which contracted a loan from iBank. What iBank sought
was redress from Goldkey by demanding that the veil of corporate
fiction be lifted so that it could not raise the defense of having a
separate juridical personality to evade liability for the obligations of
Hammer.
to Goldkey. The defendants' claim that Goldkey is a creditor of
Hammer to justify its receipt of the Manager's cheek is not
substantiated by evidence. Despite subpoenas issued by this Court,
Goldkey thru its treasurer, defendant Fe Tan Uy and or its corporate
secretary Manling Uy failed to produce the Financial Statement of
Goldke.
5. When defendant Manuel Chua "disappeared", the defendant
Goldkey ceased to operate despite the claim that the other "officers"
and stockholders like Benito Chua, Nenita Chua Tan, Fe Tan Uy,
Manling Uy and Milagros T. Revilla are still around and may be able
to continue the business of Goldkey, if it were different or distinct from
Hammer which suffered financial set back.42

Under a variation of the doctrine of piercing the veil of corporate
fiction, when two business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when
necessary to protect the rights of third parties, disregard the legal
fiction that two corporations are distinct entities and treat them as
identical or one and the same.39
While the conditions for the disregard of the juridical entity may vary,
the following are some probative factors of identity that will justify the
application of the doctrine of piercing the corporate veil, as laid
down in Concept Builders, Inc. v NLRC:40
(1) Stock ownership by one or common ownership of both
corporations;
(2) Identity of directors and officers;
(3) The manner of keeping corporate books and records, and
(4) Methods of conducting the business.41
Based on the foregoing findings of the RTC, it was apparent that
Goldkey was merely an adjunct of Hammer and, as such, the legal
fiction that it has a separate personality from that of Hammer should
be brushed aside as they are, undeniably, one and the same.
WHEREFORE, the petitions are PARTLY GRANTED. The August 16, 2004
Decision and the December 2, 2004 Resolution of the Court of
Appeals, in CA-G.R. CV No. 69817, are hereby MODIFIED. Fe Tan Uy is
released from any liability arising from the debts incurred by Hammer
from iBank. Hammer Garments Corporation, Manuel Chua Uy Po
Tiong and Goldkey Development Corporation are jointly and
severally liable to pay International Exchange Bank the sum of
P13,420,177.62 representing the unpaid loan obligation of Hammer as
of December 12, 1997 plus interest. No costs.
SO ORDERED.

These factors are unquestionably present in the case of Goldkey and

Hammer, as observed by the RTC, as follows:

1. Both corporations are family corporations of defendants Manuel
Chua and his wife Fe Tan Uy. The other incorporators and
shareholders of the two corporations are the brother and sister of
Manuel Chua (Benito Ng Po Hing and Nenita Chua Tan) and the
sister of Fe Tan Uy, Milagros Revilla. The other incorporator/share
holder is Manling Uy, the daughter of Manuel Chua Uy Po Tiong and
Fe Tan Uy.

The stockholders of Hammer Garments as of March 23, 1987, aside

from spouses Manuel and Fe Tan Uy are: Benito Chua, brother
Manuel Chua, Nenita Chua Tan, sister of Manuel Chua and Tessie
See Chua Tan. On March 8, 1988, the shares of Tessie See Chua Uy
were assigned to Milagros T. Revilla, thereby consolidating the shares
in the family of Manuel Chua and Fe Tan Uy.

2. Hammer Garments and Goldkey share the same office and

practically transact their business from the same place.

3. Defendant Manuel Chua is the President and Chief Operating

Officer of both corporations. All business transactions of Goldkey and
Hammer are done at the instance of defendant Manuel Chua who is
authorized to do so by the corporations.

The promissory notes subject of this complaint are signed by him as

Hammer’s President and General Manager. The third-party real
estate mortgage of defendant Goldkey is signed by him for Goldkey
to secure the loan obligation of Hammer Garments withplaintiff
"iBank''. The other third-party real estate mortgages which Goldkey
executed in favor of the other creditor banks of Hammer are also
signed by Manuel Chua.

4. The assets of Goldkey and Hammer are co-mingled. The real

properties of Goldkey are mortgaged to secure Hammer's obligation
with creditor hanks.

The proceeds of at least two loans which Hammer obtained from

plaintiff "iBank", purportedly to finance its export to WalMart are
instead used to finance the purchase of a manager's check payable
THIRD DIVISION she was not a party to the illegal dismissal case filed by Delima
against Golden.[4]
VIRGILIO S. DELIMA, G.R. No. 178352 In an Order[5] dated December 29, 2005, the Labor Arbiter denied
Petitioner, respondents third-party claim on grounds that respondent was
Present: named in the complaint as one of the respondents; that summons
Ynares-Santiago, J. (Chairperson), were served upon her and Prospero Gois; that both verified Goldens
- versus - Austria-Martinez, Position Paper and alleged therein that they are the respondents;
Chico-Nazario, and that respondent is one of the incorporators/officers of the
Reyes, and corporation.
Brion,* JJ. Gois filed an appeal before the NLRC. At the same time, she filed a
SUSAN MERCAIDA GOIS, motion before the Labor Arbiter to release the motor vehicle after
Respondent. Promulgated: substituting the same with a cash bond in the amount of P115,561.05.
June 17, 2008 On January 16, 2006, an Order was issued by the Labor Arbiter which
x ---------------------------------------------------------------------------------------- x states:
DECISION Filed by Third Party Claimant SUSAN M. GOIS is a Motion to Release
Motor Vehicle after substituting same with a cash bond of
YNARES-SANTIAGO, J.: P115,561.05 under O.R. No. 8307036 which amount is equivalent to
the judgment award in the instant case, in the meantime that she
has appealed the Order denying her Third Party Claim.
This petition for review under Rule 45 of the Rules of Court assails the
December 21, 2006 Decision [1] of the Court of Appeals which Finding said Motion in order and with merit, Sheriff Felicisimo T. Basilio
annulled and set aside the May 31, 2006 and August 22, is directed to release from his custody the Isuzu jeep with Plate No.
2006 Resolutions of the National Labor Relations Commission (NLRC) PGE-532 and return same to SUSAN M. GOIS.
in NLRC Case No. V-000188-2006 and ordered herein petitioner to SO ORDERED.[6]
return the cash bond released to him. Also assailed is the February 5,
2007Resolution[2] denying the Motion for Reconsideration. Meanwhile, on May 31, 2006, the NLRC issued a Resolution[7] which
dismissed respondents appeal for lack of merit. A Motion for
The antecedent facts are as follows: Reconsideration[8] was filed but it was denied on August 22,
2006.[9] On September 12, 2006, the NLRC Resolution became final
A case for illegal dismissal was filed by petitioner Virgilio S. Delima and executory; subsequently, an Entry of Judgment[10] was issued
against Golden Union Aquamarine Corporation (Golden), Prospero on September 29, 2006.
Gois and herein respondent Susan Mercaida Gois before the
Regional Arbitration Branch No. VIII of the National Labor Relations On October 13, 2006, Gois filed a petition for certiorari [11] before the
Commission on October 29, 2004, docketed as NLRC RAB VIII Case Court of Appeals as well as a Supplement to Petition[12] on October
No. 10-0231-04. 27, 2006. Gois alleged that the NLRC committed grave abuse of
discretion when it dismissed her appeal. She claimed that by denying
On April 29, 2005, Labor Arbiter Philip B. Montaces rendered a her third-party claim, she was in effect condemned to pay a
decision, the dispositive portion of which reads: judgment debt issued against a corporation of which she is neither a
president nor a majority owner but merely a stockholder. She further
WHEREFORE, premises considered, judgment is hereby rendered argued that her personality is separate and distinct from that of
Golden; thus, the judgment ordering the corporation to pay the
1. Finding illegality in the dismissal of complainant Virgilio Delima from petitioner could not be satisfied out of her personal assets.
his employment;
On December 21, 2006, the appellate court rendered a Decision in
2. Ordering respondent Golden Union Aquamarine Corporation to favor of respondent, which reads in part:
pay complainant the following:
In the decision dated April 29, 2005 rendered by Labor Arbiter
a. Backwages (July 30, 2004 to April 29, 2005 = Montaces, the dispositive portion confined itself in directing Golden
9 mos.; P5,350.50 x 9 months) .... P 48,154.50 Union Aquamarine Corporation only, no more and no less, to pay
b. Separation Pay (P5,350.50 x 4 years) 21,402.00 private respondent the award stated therein, but did not mention
c. Salary Differentials 32,679.00 that the liability is joint and solidary with petitioner Susan Gois
d. Service Incentive Leave Pay 2,820.00 although the complaint filed by the private respondent included
Sub-Total P105,055.50 petitioner as among the respondents therein.
e. Attorneys fee (10%) 10,505.55
T O T A L P115,561.05 It bears stress also that corporate officers cannot be held liable for
========= damages on account of the employees dismissal because the
3. Dismissing all other claims for lack of merit. employer corporation has a personality separate and distinct from its
officers who merely acted as its agents. They are only solidarily liable
SO ORDERED.[3] with the corporation for the termination of employment of
employees if the same was done with malice or in bad faith. In the
case at bench, it was not clearly shown and established that the
Golden failed to appeal the aforesaid decision; hence, it became termination of private respondent from employment was tainted with
final and executory. A writ of execution was issued and an Isuzu Jeep evident malice and bad faith. As elucidated in the case of Reahs
with plate number PGE-531 was attached. Corporation vs. NLRC, the main doctrine of separate personality of a
corporation should remain as the guiding rule in determining
Thereafter, respondent Gois filed an Affidavit of Third Party Claim corporate liability to its employees, and that, at the very least, to
claiming that the attachment of the vehicle was irregular because justify solidary liability, there must be an allegation or showing that the
said vehicle was registered in her name and not Goldens; and that officers of the corporation deliberately or maliciously designed to
evade the financial obligation of the corporation to its employees.
Further, as wisely put by the petitioner, while it may be true that the
subject vehicle was used by the corporation in transporting the
products bought by the corporation from Eastern Samar to Manila, it
does not necessarily follow that it is owned by the corporation as in
fact petitioner was able to duly establish that the said vehicle is hers
and is registered under her name. Nor does it imply that the
corporation is free to dispose of the same and neither does it imply
that the said vehicle may and can be levied by respondent NLRC to
satisfy a judgment against the corporation.
WHEREFORE, in view of the foregoing premises, judgment is hereby
rendered by us GRANTING the petition filed in this case, ANNULLING
and SETTING ASIDE the Resolutions dated May 31, 2006 and August
22, 2006, respectively, issued by the respondent National Labor
Relations Commission (NLRC), 4 th Division in NLRC Case No. V-000188-
2006 and ORDERING private respondent to return to petitioner the
cash bond earlier released to him.
SO ORDERED.[13]
Petitioner filed a Motion for Reconsideration[14] which was denied.
Hence, the present petition raising the following issues:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS, NINETEENTH
(19th) DIVISION, ERRED:
1. WHEN IT OMMITED PRIVATE RESPONDENT AS ONE OF THE PRINCIPAL
RESPONDENTS IN THE ORIGINAL COMPLAINT AS ILLUSTRATED IN ITS
BRIEF STATEMENT OF FACTS;
2. WHEN IT CONSIDERED THAT THE VEHICLE PRINCIPALLY USED IN THE
BUSINESS OPERATIONS OF THE CORPORATION, WHICH WAS
REGISTERED UNDER THE NAME OF PRIVATE RESPONDENT WHO WAS
ALSO THE CORPORATION PRESIDENT, CANNOT BE SUBJECT OF
GARNISHMENT;
3. WHEN IT ANNULLED AND SET ASIDE A FINAL AND EXECUTED
ORDER/RESOLUTION OF THE NATIONAL LABOR RELATIONS
COMMISSION.[15]
A corporation has a personality distinct and separate from its
individual stockholders or members and from that of its officers who
manage and run its affairs. The rule is that obligations incurred by the
corporation, acting through its directors, officers and employees, are
its sole liabilities. Thus, property belonging to a corporation cannot be
attached to satisfy the debt of a stockholder and vice versa, the
latter having only an indirect interest in the assets and business of the
former.[16]
Since the Decision of the Labor Arbiter dated April 29, 2005 directed
only Golden to pay the petitioner the sum of P115,561.05 and the
same was not joint and solidary obligation with Gois, then the latter
could not be held personally liable since Golden has a separate and
distinct personality of its own. It remains undisputed that the subject
vehicle was owned by Gois, hence it should not be attached to
answer for the liabilities of the corporation. Unless they have
exceeded their authority, corporate officers are, as a general rule,
not personally liable for their official acts, because a corporation, by
legal fiction, has a personality separate and distinct from its officers,
stockholders and members. No evidence was presented to show
that the termination of the petitioner was done with malice or in bad
faith for it to hold the corporate officers, such as Gois, solidarily liable
with the corporation.
We note that the Resolution of the NLRC dismissing respondents
appeal was entered in the Book of Entries of Judgment
on September 29, 2006 after it allegedly became final and executory
on September 12, 2006.
It will be recalled, however, that the NLRC issued the Resolution
dismissing the appeal of the respondent on May 31, 2006. A motion
for reconsideration was filed on July 24, 2006 but it was denied by the
NLRC on August 22, 2006. Copy of the denial was received by the
respondent on September 1, 2006.[17] Thus, respondent has sixty (60)
days from receipt of the denial of the motion for reconsideration or
until October 31, 2006, within which to file the petition for certiorari
under Section 4 of Rule 65 of the Rules of Court. Thus, the petition for
certiorari filed by respondent before the Court of Appeals
on October 13, 2006 was timely.[18] Consequently, the NLRC erred in
declaring itsMay 31, 2006 Resolution final and executory.
A decision issued by a court is final and executory when such
decision disposes of the subject matter in its entirety or terminates a
particular proceeding or action, leaving nothing else to be done but
to enforce by execution what has been determined by the court,
such as when after the lapse of the reglementary period to appeal,
no appeal has been perfected.[19]
In the instant case, it is undisputed that when the entry of judgment
was issued by the NLRC on September 12, 2006 and entered in the
Book of Entries of Judgment on September 29, 2006, the
reglementary period to file a petition for certiorari has not yet
lapsed. In fact, when the petition for certiorari was filed on October
13, 2006, the same was still within the reglementary period. It bears
stressing that a petition for certiorari under Rule 65 must be filed not
later than 60 days from notice of the judgment, order or resolution
sought to be annulled.[20]
The period or manner of appeal from the NLRC to the Court of
Appeals is governed by Rule 65 pursuant to the ruling of this Court in
the case of St. Martin Funeral Home v. National Labor Relations
Commission.[21] Section 4 of Rule 65, as amended, states that the
petition may be filed not later than sixty (60) days from notice of the
judgment, or resolution sought to be assailed.[22]
Corollarily, Section 4, Rule III of the New Rules of Procedure of the
NLRC expressly mandates that (f)or the purpose(s) of computing the
period of appeal, the same shall be counted from receipt of such
decisions, awards or orders by the counsel of record. Although this
rule explicitly contemplates an appeal before the Labor Arbiter and
the NLRC, we do not see any cogent reason why the same rule
should not apply to petitions for certiorari filed with the Court of
Appeals from decisions of the NLRC.[23]
We note that in the dispositive portion of its Decision, the appellate
court ordered petitioner to return to respondent the cash bond
earlier released to him. However, petitioner admitted that the monies
were spent to defray the medical expenses of his ailing
mother.Considering that petitioner is legally entitled to receive said
amount, Golden must reimburse respondent Gois the amount of
P115,561.05. To rule otherwise would result in unjust enrichment of
Golden. The corporation has benefited from the payment made by
Gois because it was relieved from its obligation to pay to petitioner
the judgment debt.
WHEREFORE, the petition is PARTLY GRANTED. The assailed Decision of
the Court of Appeals dated December 21, 2006 annulling and setting
aside the May 31, 2006 and August 22, 2006 Resolutions of the
National Labor Relations Commission; and its Resolution dated
February 5, 2007 are AFFIRMED with the MODIFICATION that Golden
Union Aquamarine Corporation is ordered to REIMBURSE respondent
Susan M. Gois the amount of P115,561.05.
SO ORDERED.
SECOND DIVISION
[G.R. No. 123893. November 22, 2001]
LUISITO PADILLA and PHOENIX-OMEGA DEVELOPMENT AND
MANAGEMENT CORPORATION, petitioners, vs. THE HONORABLE COURT
OF APPEALS and SUSANA REALTY, INC., respondents.
DECISION
QUISUMBING, J.:
This petition for review seeks the reversal of the Court of Appeals
decision[1] in CA-G.R. SP No. 36685, refusing to set aside (1) the order
dated November 29, 1994 of the Regional Trial Court of Pasay City,
Branch 113, which authorized the issuance of an alias writ of
execution in connection with Civil Case No. 7302 filed before said
court; and (2) the order dated February 10, 1995, which denied
petitioners motion for reconsideration of the order of November 29,
1994, regarding the annulment of the alias writ of execution and
cancellation of the notice of levy and sale dated December 16,
1994, issued pursuant to the implementation of said alias writ.
The antecedent facts, as summarized by the Court of Appeals, are as
follows:
On June 27, 1983, Susana Realty, Inc. (SRI), by a deed of absolute
sale, sold to the Light Rail Transit Authority (LRTA) several parcels of
land located in Taft Avenue Extension, San Rafael District, Pasay
City. Under paragraph 7 of the deed of sale, SRI reserved to itself the
right of first refusal to develop and/or improve the property sold
should the LRTA decide to lease and/or assign to any person the right
to develop and/or improve the property.
On November 28, 1986, the LRTA and Phoenix Omega Development
and Management Corporation (Phoenix Omega) entered into a
Commercial Stall Concession Contract authorizing the latter to
construct and develop commercial stalls on a 90 sq. m. portion of the
property bought from SRI. SRI opposed the agreement as having
violated the deed of sale it entered with LRTA. A tripartite agreement
was later concluded by the parties, however, whereby SRI agreed to
honor the terms of the concession contract and to lease to Phoenix
Omega its (SRIs) property (remaining property) adjacent to the 90 sq.
m. portion subject of the concession contract.
A contract was thus entered into on July 28, 1988 between Phoenix
Omega and SRI with LRTA whereby Phoenix Omega undertook to
construct commercial stalls on the 90-sq. m. property in accordance
with plans and specifications prepared by the latter, the construction
to begin, however, only upon SRIs approval of such plans and
specifications. Also on July 28, 1988, Phoenix Omega, by a deed of
assignment, assigned its right and interests over the remaining
property unto its sister company, PKA Development and
Management Corporation (PKA). Signatories to the deed of
assignment were Eduardo Gatchalian in his capacity as President of
Phoenix Omega, and Luisito B. Padilla (Padilla), one of the petitioners
herein, in his capacity as President and General Manager of PKA. The
development of the remaining property having been assigned to
PKA, it entered into a contract of lease with SRI likewise on July 28,
1988.
In the meantime, SRI sold part of its remaining property to a third
party. An amended contract of lease was thus forged in January
1989 among SRI, PKA and Phoenix Omega, whereby the parties
agreed to substitute the already sold portion of SRIs remaining
property with 2 parcels of land also belonging to SRI. In this amended
contract of lease, PKA was again represented by Padilla in his
capacity as its President and General Manager. And Phoenix
Omega, which was not a party to the July 28, 1988 lease contract
sought to be amended but which was a party, to the amended
contract, was also represented by Padilla as Chairman of the Board
of Directors of Phoenix Omega.
PKAs building permit was later revoked due to certain violations of
the National Building Code (BP 344).
On August 24, 1989, PKA was allowed by the (Department) of Public
Works and Highway(s) to resume construction on the leased premises
subject to PKAs correction of the defects in the construction to
conform to BP 344.
As SRIs approval of PKAs amended plans in the construction was
required, PKA transmitted the same to SRI which withheld approval
thereof pending PKAs correction of the defects in the construction.
Repeated requests for approval of its amended plans not having
been heeded by SRI, PKA filed at the court a quo the action at bar
for rescission of contract of lease against SRI, alleging that SRIs refusal
to approve the plans without any justifiable reason deprived it of the
use of the commercial stalls, thereby incurring losses.
SRI, upon the other hand, claimed that it was PKA which violated the
terms of their contract, alleging that PKA failed to complete within six
months the construction of the commercial stalls during which period
it was not paying any rentals and that PKA undertook the
construction without first having its plans approved.[2](Underscoring in
the original.)
On January 7, 1991, the RTC rendered its decision, as follows:
WHEREFORE, judgment is hereby rendered:
1. Declaring the rescission and termination of the Contract of Lease,
as amended, and the passing in ownership of all the improvements
now existing on the premises, and ordering plaintiff to surrender
possession of the leased premises to the defendant.
2. Ordering plaintiff to pay to the defendant the following sums of
money:
(a) P1,750,000.00 as of April 30, 1990, plus monthly rental of P200,000
per month starting in May, 1990, until plaintiff shall turn over
possession of the premises to the defendant, with interest at 1% per
month until fully paid;
(b) Moral damages in the amount of P100,000.00;
(c) Exemplary damages in the amount of P100,000.00; and
(d) Attorneys fees in the amount of P150,000.00; and
(e) The cost of suit.[3]
PKA appealed the RTC decision to the Court of Appeals. On October
2, 1992, the CA affirmed the RTC decision, decreeing as follows:
WHEREFORE, with MODIFICATIONS that the award of P100,000.00 for
moral damages and P100,000.00 for exemplary damages is DELETED
from the judgment appealed from, the rest thereof not inconsistent
herewith is AFFIRMED. No costs.[4]
PKAs motion for reconsideration was denied by the CA in a resolution
dated March 15, 1993. PKA then filed before this Court a petition for
review on certiorari, which we denied in a resolution dated
September 27, 1993. We likewise denied PKAs motion for
reconsideration in a resolution dated January 17, 1994.
A writ of execution was issued in due course by the RTC, which reads
as follows:
NOW THEREFORE, you are hereby commanded to cause the
execution of the aforesaid decision, ordering the plaintiff and all
persons claiming under it to surrender possession of the premises to
the defendant, and that of the goods and chattels of the plaintiff
you cause to be made the sum of P1,750,000.00 plus monthly rental
of P200,000.00 starting in May, 1990 until plaintiff shall turn over
possession of the premises to defendant with interest of 1% per month
until fully paid, and the further sum of P150,000.00 as attorneys fees,
and the cost of suit, together with your lawful fees for service of this
execution all in Philippine currency, and that you tender the same to
defendant Susana Realty, Inc. aside from your own fees on this
execution and to likewise return this writ to this Court within sixty (60)
days from receipt hereof with your proceedings endorsed thereon.
But if sufficient personal property of the plaintiff cannot be found
whereof to satisfy the amount of said judgment, you are hereby
directed to levy the real property of the said plaintiff and to sell the
same or so much thereof in the manner provided for by law for the
satisfaction of the said judgment.[5]
Possession of the subject properties was subsequently restored to SRI,
but the monetary award was left unsatisfied. Thus, on November 14,
1994, SRI filed a motion for issuance of an alias writ against herein
petitioners, based on the trial courts observation that PKA and
Phoenix-Omega are one and the same entity. This was granted by
the RTC in an order[6] dated November 29, 1994, which reads:
WHEREFORE, as prayed for by the defendant-judgment creditor
Susana Realty, Inc., let an alias writ of execution issue against the
properties, both real and personal, of PKA Development and
Management Corporation, of Phoenix-Omega Development
Corporation, and of Luisito B. Padilla, for the enforcement of the
decision dated January 7, 1991, promulgated by this Court, the same
be implemented by deputy sheriff Edilberto A. Santiago.
(Underscoring by petitioners.)
The RTC issued an alias writ on the same day pursuant to the above
order:
NOW THEREFORE, you are hereby commanded to cause the
execution of the aforesaid decision and that of the goods and
chattels of the plaintiff, PKA Development and Management
Corporation, Phoenix-Omega, caused to be made the sum of
P1,750,000.00 plus monthly rentals of P200,000.00 starting in May, 1990
with interest of 1% per month, until fully paid, and the further sum of
P150,000.00 as attorneys fees; P100,000.00 moral damages and the
cost of suit, together with your lawful fees for service of this execution
all in Philippine currency, and that you tender the same to the
defendant SUSANA REALTY, INC., aside from your own fees on this
execution and to likewise return this writ to this Court within 60 days
from receipt hereof with your proceeding indorsed thereon.
But if sufficient personal properties of the plaintiff cannot be found
whereof to satisfy the amount of said judgment, you are directed to
levy the real property of the plaintiff, PKA Development and
Management Corporation, Phoenix-Omega Development and
Management Corporation and Luisito B. Padilla and to sell the same
or so much thereof in the manner provided for by law for the
satisfaction of the said judgment.[7]
Alleging that the writ of execution cannot be enforced against them,
herein petitioners filed with the RTC on December 15, 1994, an
omnibus motion for the reconsideration of the order of November 29,
1994, and for annulment of the alias writ of the same date and
cancellation of the notice of levy and sale dated December 16,
1994. Petitioners assailed these orders as confiscatory, since they
were never parties to the case filed by PKA against SRI, and they
were unable to present evidence on their behalf. The motion was
denied on February 10, 1995.
Subsequently, on March 8, 1995, petitioners filed with the Court of
Appeals a petition for certiorari and prohibition under Rule 65 of the
Rules of Court. This petition was also denied; so was petitioners
motion for reconsideration of said denial.
The Court of Appeals agreed with the RTCs finding that there is
evidence on record to support the RTCs conclusion that PKA and
Phoenix-Omega are one and the same, or that the former is a mere
conduit of the latter. It pointed out that petitioner Padilla is both
president and general manager of PKA and at the same time
chairman of the board of directors and controlling stockholder of
Phoenix-Omega. PKA and Phoenix-Omega also shared officers,
laborers, and offices.
While aware that the dispositive portion of the RTC decision holds
only PKA liable to SRI, the Court of Appeals pointed out that the
intent of the RTC was clearly to hold PKA, Phoenix-Omega, and
Padilla liable, as shown in the body of the RTC decision. The rule that
the dispositive portion of a decision is the subject of execution only
applies where the disposition is clear and unequivocal, according to
the CA, unlike in this case where there is uncertainty and
ambiguity. The body of the decision may be consulted to construe
the judgment in this case.
On the claim that Phoenix-Omega and Padilla were not parties to
the case, the CA ruled that
a person not so impleaded to an action is deemed to be a party to a
suit when he has the right to control the proceedings, to make
defense, to adduce and cross examine witnesses, and to appeal
from a decision (67 C.J.S. 887 cited in Albert v. University Publishing
Co., 13 SCRA 84). That petitioner Padilla is in reality the one who had
and duly exercised these rights is glaringly borne by the records.[8]
Hence, this petition for review, in which petitioners allege that the CA
erred:
I. IN RENDERING THE DECISION AND RESOLUTION IN QUESTION IN
DEFIANCE OF LAW AND JURISPRUDENCE BY SUSTAINING THE TRIAL
COURTS ORDER AND WRIT BOTH DATED NOVEMBER 29, 1994 FINDING
PETITIONERS JOINTLY AND SEVERALLY LIABLE WITH PKA, THEREBY
AUTHORIZING THE EXECUTION OF THE DECISION AGAINST THEIR
PROPERTIES, DESPITE THE ADMITTED FACT THAT --
A. PETITIONERS WERE NEVER IMPLEADED AS PARTIES IN THE CASE
BEFORE THE TRIAL COURT (CIVIL CASE NO. 7302), THEREBY
CONFIRMING THE OPPRESSIVE AND CONFISCATORY NATURE OF THE
ORDER AND WRIT (ANNEXES N AND O);
B. PETITIONERS COULD NOT AND DID NOT HAVE ANY OPPORTUNITY TO
ADDUCE EVIDENCE TO REFUTE THE CAUSES OF ACTIONS ALLEGED IN
RESPONDENT SRIS COMPLAINT BEFORE THE TRIAL COURT (CIVIL CASE
NO. 7302) THUS VIOLATING THEIR RIGHT TO DUE PROCESS OF LAW.
II. IN CONCLUSIONS REACHED IN THE DECISION AND RESOLUTION IN
QUESTION BY AFFIRMING THE ORDER AND WRIT AS ISSUED BY THE TRIAL
COURT IN CIVIL CASE NO. 7302 WHICH EXPANDED THE SCOPE OF THE
WRIT HOLDING PETITIONERS SOLIDARILY LIABLE WITH PKA
NOTWITHSTANDING THAT THIS FINDING WAS NOT CONTAINED IN THE
DISPOSITIVE PORTION OF THE DECISION, IN DEFIANCE OF LAW AND
JURISPRUDENCE ON THE MATTER.
III. IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE
FICTION TO THE CASE AT BAR DESPITE THE FACT THAT THE GROUNDS
FOR ITS APPLICATION UNDER CASE LAW HAVE NOT BEEN SHOWN,
THEREBY ABROGATING PRONOUNCEMENTS OF THIS HONORABLE
COURT IN NUMEROUS DECISIONS ON THE SUBJECT.
IV. IN AFFIRMING THE ORDER AND WRIT OF THE TRIAL COURT
NOTWITHSTANDING THE ABSENCE OF ANY MISTAKE, OMISSION OR
AMBIGUITY IN THE JANUARY 9, 1991 DECISION IN THE MAIN CASE AS
WOULD HAVE JUSTIFIED ITS MODIFICATION PURSUANT TO EXTANT
JURISPRUDENCE ON THE MATTER.[9]
Petitioners stress that the RTC, the CA, and this Court, in the main
case (Civil Case No. 7302), did not find them solidarily liable with PKA,
and rightly so since PKA and Phoenix-Omega are two different
entities. Phoenix-Omegas only participation in the properties subject
of the main case was as the construction company that would
develop the properties on behalf of PKA. Phoenix-Omega was
involved in the amended lease agreement between SRI and PKA
only to the extent that it had to apply the terms of the tripartite
agreement (among LRTA, SRI, and Phoenix-Omega) to the
development of the LRTA-owned property situated in front of the lots
leased to PKA by SRI.[10] Petitioners argue that the amended lease
contract was, in reality, only between SRI and PKA.
Petitioners protest the piercing of the veil of corporate fiction
between themselves and PKA. They contend, citing Filmerco
Commercial Co., Inc. v. IAC, No. L-70661, 149 SCRA 193 (1987), that
the court must first acquire jurisdiction over the corporation
attempting to misuse the corporate vehicle to shield the commission
of a fraud.
Petitioners contend that the finding by the trial court as regards the
single personality of PKA and Phoenix-Omega was made only to
refute PKAs claim that it was not liable for constructions made by
Phoenix-Omega outside the leased areas.
On the other hand, private respondent argues that there is no error in
the issuance of the alias writ of execution against the properties of
petitioners since the trial court, the CA, and this Court had all ruled
that petitioners and PKA are in reality one and the same entity. This is
the reason why, when the first writ of execution was returned
unsatisfied, SRI moved for the issuance of an alias writ of execution
not only against the properties of PKA but those of petitioners as
well. There is no violation of petitioners right to due process since
petitioner Padilla actively participated in the proceedings before the
RTC as the responsible officer of both PKA and Phoenix-Omega.
Private respondent also contends that the CA ruled on the necessity
of construing the dispositive portion of the judgment along with its
text, which petitioners allegedly accepted by not discussing the issue
in their pleadings.
To our mind, the main issue for our consideration is whether or not the
trial court had jurisdiction over petitioners, to justify the issuance of an
alias writ of execution against their properties.
A court acquires jurisdiction over a person through either a valid
service of summons or the persons voluntary appearance in
court.[11] A court must necessarily have jurisdiction over a party for the
latter to be bound by a court decision.
justify wrong, protect fraud, or defend crime.[18] PKA and Phoenix-
Omega are admittedly sister companies, and may be sharing
personnel and resources, but we find in the present case no
allegation, much less positive proof, that their separate corporate
personalities are being used to defeat public convenience, justify
wrong, protect fraud, or defend crime. For the separate juridical
personality of a corporation to be disregarded, the wrongdoing must
be clearly and convincingly established. It cannot be
presumed.[19] We find no reason to justify piercing the corporate veil
in this instance.
We understand private respondents frustration at not being able to
have the monetary award in their favor satisfied. But given the
circumstances of this case, public respondent cannot order the
seizure of petitioners properties without violating their constitutionally
enshrined right to due process, merely to compensate private
respondent.
WHEREFORE, the instant petition is GRANTED. The assailed decision
and resolution of the Court of Appeals in CA-G.R. SP No. 36685 are
SET ASIDE, and the order of the trial court dated November 29, 1994
and the alias writ of execution issued on the same date in
connection with Civil Case No. 7302, are declared NULL and VOID.
Costs against private respondent.
SO ORDERED.

Generally accepted is the principle that no man shall be affected by

any proceeding to which he is a stranger, and strangers to a case
are not bound by judgment rendered by the court. xxx[12]

In the present case, we note that the trial court never acquired
jurisdiction over petitioners through any of the modes mentioned
above. Neither of the petitioners was even impleaded as a party to
the case.[13]

Without the trial court having acquired jurisdiction over petitioners,

the latter could not be bound by the decision of the court. Execution
can only be issued against a party and not against one who was not
accorded his day in court.[14] To levy upon their properties to satisfy a
judgment in a case in which they were not even parties is not only
inappropriate; it most certainly is deprivation of property without due
process of law.[15] This we cannot allow.

The courts a quo ruled that petitioner Padilla, in particular, had his
day in court. As general manager of PKA, he actively participated in
the case in the trial court. He ha(d) the right to control the
proceedings, to make defense, to adduce and cross examine
witnesses, and to appeal from a decision.[16] Therefore, Padilla and
Phoenix-Omega, of which Padilla is chairman of the board, could not
now argue that they did not have the opportunity to present their
case in court, according to private respondent.

To begin with, it is clear that Padilla participated in the proceedings

below as general manager of PKA and not in any other
capacity. The fact that at the same time he was the chairman of the
board of Phoenix-Omega cannot, by any stretch of reasoning,
equate to participation by Phoenix-Omega in the same
proceedings.We again stress that Phoenix-Omega was not a party to
the case and so could not have taken part therein.

Private respondent, however, insists that the trial court had pierced
the veil of corporate fiction protecting petitioners, and this justifies
execution against their properties.

The general rule is that a corporation is clothed with a personality

separate and distinct from the persons composing it. It may not be
held liable for the obligations of the persons composing it, and
neither can its stockholders be held liable for its obligations.[17]

This veil of corporate fiction may only be disregarded in cases where

the corporate vehicle is being used to defeat public convenience,